United States General Accounting Office

GAO Report to the Chairman, Committee on

the Budget, House of Representatives

September 1997 U.S. AGRICULTURAL

EXPORTS

Strong Growth Likely

But U.S. Export

Assistance Programs’

Contribution Uncertain

GAO/NSIAD-97-260

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-277683 

September 30, 1997

The Honorable John K. Kasich

Chairman, Committee on the Budget

House of Representatives

Dear Mr. Chairman:

Domestic agricultural policy in the United States was significantly changed

by the 1996 Federal Agriculture Improvement and Reform (FAIR) Act 

(P.L. 104-127, Apr. 4, 1996). Although it continues to provide income

support to farmers for the next 5 years, FAIR reduces the government’s role

in regulating the production of bulk commodities such as wheat and corn

and provides the agricultural sector and farmers enhanced flexibility to

respond to domestic and international market conditions.

In response to your request, we assessed (1) the way in which FAIR will

likely affect U.S. agricultural exports and (2) the continued relevance of

U.S. agricultural export assistance programs. To address FAIR’s potential

impact on U.S. exports, we interviewed a wide range of U.S. and

competitor nation agricultural experts, analyzed available studies and

reports authored by some of these experts, and reviewed and discussed

the agricultural trade components of various economic models. To

evaluate the programs’ relevance, we reviewed both qualitative and

quantitative evidence regarding the extent to which the programs benefit

the overall U.S. economy, benefit the U.S. agricultural sector and specific

U.S. commodities, counter competitor nations’ agricultural export

programs, and promote U.S. trade negotiating objectives.

Background Agriculture is an important component of U.S. trade. Agricultural exports

accounted for $60 billion, or 7 percent, of all U.S. exports (merchandise

and service) in fiscal year 1996, while agricultural imports accounted for

$32.4 billion, or 3.4 percent, of all U.S. imports. The agricultural sector

consistently generates an annual trade surplus, which in fiscal year 1996

was $27.4 billion, according to the U.S. Department of Agriculture (USDA).

In addition, the financial well-being of the U.S. agricultural sector has

become increasingly linked to its export opportunities. Exports represent

about 20 percent, by value, of U.S. agricultural production and the

equivalent of one-third of total harvested U.S. acreage. For example, in

1996, 57 percent of the U.S. wheat crop was shipped overseas, as well as

47 percent of the rice and 43 percent of the cotton crop. U.S. agricultural

Page 1 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

exports also contribute to U.S. employment. According to the Economic

Research Service (ERS) of USDA, $55.8 billion in agricultural exports in 1995

supported about 950,000 jobs in the United States, with 365,300 of those

jobs occurring in the farm sector and 584,700 occurring in the nonfarm

sector. The total jobs supported represent less than 1 percent of U.S.

civilian employment, but the farm sector jobs supported by exports

represent about 15.5 percent of the sector’s total employment.

The U.S. government has actively sought to expand U.S. agricultural

exports through negotiations to reduce foreign trade barriers and through

subsidies, market promotion, food aid, and loan guarantees. From 1985 to

1996, the U.S. government has spent $9 billion on export subsidies, $2.3

billion on market promotion, and $7.8 billion on food aid and has

guaranteed $53.1 billion in export loans (all in constant fiscal year 1996

dollars).1

 Between fiscal years 1980 and 1997, the U.S. government paid

out approximately $2.1 billion in export credit guarantee claims against

these loans because of loan repayments that were in default and have not

been rescheduled.2

 Between 1989 and 1993, about 20 percent by value of

U.S. agricultural exports received some government assistance.

USDA has four types of agricultural export assistance programs. All share

the objective of increasing U.S. agricultural exports. And two—export

subsidies and market promotion programs—are intended to directly

counter competitor agricultural export assistance. Prior to FAIR, most of

these programs also helped the U.S. government in a budgetary sense by

(1) reducing government-held stocks of surplus grain generated by U.S.

domestic agricultural programs3

 and (2) helping to offset the cost of U.S.

domestic agricultural price supports.4

 Successive farm bills and market

1

These figures exclude the operational cost of the USDA’s Foreign Agricultural Service (FAS). In fiscal

year 1995, FAS had an operating budget of about $118 million to manage its various agricultural export

assistance programs and carry out its overseas functions (such as the gathering of information on

competitor nations’ agricultural exporting efforts).

2

See Addressing the Deficit: Budgetary Implications of Selected GAO Work for Fiscal Year 1998

(GAO/OCG-97-2, Mar. 14, 1997).

3

Prior to FAIR, as one way to maintain domestic prices (and thus farmers’ income) for

government-supported crops, the U.S. government acquired large amounts of these crops. Export

programs, such as export subsidies, helped reduce the need for the government to acquire supported

crops by increasing global demand for these products (which in turn raised their domestic price).

Because FAIR decouples the link between domestic prices and farmers’ income, the U.S. government

no longer acquires surplus agricultural commodities.

4

Prior to FAIR, price support payments (also known as “deficiency payments”) were made when the

market price for a government-supported crop fell below the USDA target price. Export programs,

such as credit guarantees, helped reduce price support payments by increasing global demand for

some U.S. products. This, in turn, helped raise the domestic prices of these products. With FAIR, this

budgetary offset no longer exists.

Page 2 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

conditions have reduced expenditures for U.S. agricultural export

assistance programs. For example, total funding for these programs has

decreased from $2.1 billion in fiscal year 1992 to $792 million in fiscal year

1996. The four types of programs include the following:5

(1)Export subsidy programs that lower the price of U.S. commodities on

the world market: the Export Enhancement Program (EEP) and the Dairy

Export Incentive Program (DEIP).6 EEP expenditures for fiscal year 1996

were $5 million. Due to high market prices in 1996, EEP’s authorized

program level of $350 million was not fully utilized. DEIP expenditures for

fiscal year 1996 were $20 million.

(2)Export credit programs that offer short- and intermediate-term loan

guarantees to lower the cost of borrowing for importing countries to

purchase U.S. agricultural exports: the Export Credit Guarantee program

(the General Sales Manager (GSM)-102) and the Intermediate Export Credit

Guarantee program (GSM-103). These were jointly authorized to expend not

less than a total of $5.5 billion in guarantees and, in fiscal year 1996,

actually guaranteed exports valued at $3.1 billion and $151 million,

respectively.7

(3)Export promotion programs that attempt to develop, maintain, and

expand foreign markets for U.S. agricultural products through funding for

advertising and other market promotion: the Foreign Market Development

Program (FMDP—also known as the Cooperator Program) and the Market

Access Program (MAP). A program level of up to $34 million and

$90 million, respectively, was approved for these programs for fiscal year

1996.8

(4)Food aid programs that provide U.S. agricultural commodities to

developing countries through either concessional loans that offer

long-term credit with below-market interest rates, such as the Public 

5

See appendix I for further information on the programs’ funding levels.

6

Two other export subsidy programs, the Sunflowerseed Oil Assistance Program (SOAP) and the

Cottonseed Oil Assistance Program (COAP), were not reauthorized by FAIR.

7

GSM-102 guarantees repayment of short-term financing (up to 3 years), while GSM-103 guarantees

repayment of intermediate-term financing (3 to 10 years) to eligible countries that purchase U.S. farm

products.

8

MAP was preceded by two similar market promotion programs named the Market Promotion Program

and the Targeted Export Assistance program.

Page 3 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Law 4809 title I concessional sales program, or grants for market

development purposes, such as the Food for Progress grant program.

These programs had expenditures of $219 million and $107.7 million,

respectively, for fiscal year 1996.

Farm legislation of 1985 and 1990 brought about market-oriented reforms

in domestic agricultural policy. These reforms helped reduce the

market-distorting impact of government-established price supports and

diminished government holding of surplus stocks. The 1996 FAIR Act

expands on market-oriented provisions of previous legislation and for

many commodities ends the tying of direct farm income support to

production decisions. FAIR is also consistent with U.S. commitments to the

Uruguay Round Agreement on Agriculture,10 which reduces domestic and

export agricultural assistance worldwide. While the act provides

government income support payments to farmers through 2002, these

payments are now largely independent from farmers’ planting decisions.11

With the new flexibility, producers’ planting decisions are to be

increasingly driven by market conditions (domestic and international)

rather than by government programs.

Concurrent with these changes, the 1996 FAIR act reauthorized all four

types of export assistance programs, with some operational modifications

aimed at making the programs more focused on market development. Two

changes that FAIR made to the export programs, which USDA officials state

will increase program flexibility, were to authorize (1) the GSM program to

provide credit to private importers in qualified nations and (2) title I

concessional loans to private entities in addition to foreign governments.

They believe these provisions are responsive to changes in the global

trading environment. For example, a trend in some nations in Latin

America, Asia, and Europe is toward less government control of markets

and a greater reliance on the private sector.

Finally, the Uruguay Round Agreement on Agriculture permits the

continued use of export subsidies (though reduced from historical levels)

9

The Agricultural Trade Development and Assistance Act of 1954 (P.L. 83-480, July 10, 1954),

commonly known as P.L. 480.

10With the completion of the Uruguay Round of multilateral trade negotiations in 1994, member

countries of the General Agreement on Tariffs and Trade (GATT) agreed to a variety of measures to

liberalize global agricultural trade.

11One exception is that program beneficiaries are prohibited from increasing fruit and vegetable

planting on program acreage. According to an agricultural expert, this exception is designed to protect

traditional U.S. fruit and vegetable growers, whose products’ prices could fall due to an increase in

cultivation of only a few hundred thousand acres.

Page 4 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

and other forms of agricultural export assistance, such as market

development and promotion efforts, export credit guarantees, and

concessional loans to developing countries. And, our competitors continue

to use Uruguay Round allowable agricultural export assistance. For

instance, in fiscal year 1996, USDA estimated that the European Union (EU)12

spent over $9 billion on agricultural export subsidies,13 as compared to the

$792 million the United States spent on all export assistance in that same

year.14 Thus, world agricultural trade remains greatly influenced by

government policies and programs.

Results in Brief Agricultural experts generally expect that FAIR’s domestic policy reforms

will modestly contribute to increased U.S. agricultural exports. The extent

to which FAIR’s domestic reforms increase exports is dependent on the

degree to which farmers add additional land to production and use FAIR’s

planting flexibility to respond to international and domestic market

conditions. Independent of FAIR, U.S. government and private forecasters

are predicting strong growth of U.S. exports driven largely by favorable

international market conditions and the general competitiveness of many

U.S. agricultural products. Much of the forecasted growth in U.S.

agricultural exports is expected to come from (1) the anticipated rise in

income levels in East and Southeast Asian nations and other regions and

(2) the liberalization of agricultural markets brought about by the 1994

Uruguay Round trade agreements, which brought agriculture under

multilateral disciplines (practices) for the first time, and by unilateral

policy changes of other nations.

FAIR’s domestic policy reforms remove a primary benefit associated with

most U.S. export assistance programs—the exporting of surplus stocks

generated by domestic price supports. Nevertheless, program proponents,

including USDA and some industry groups, maintain that U.S. agricultural

export assistance programs have continued relevance because they benefit

the overall U.S. economy, benefit the U.S. agricultural sector, counter

competitor nations’ agricultural export programs, and promote U.S. trade

negotiating objectives.

12The EU, since January 1, 1995, includes Austria, Belgium, Denmark, Finland, France, Germany,

Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United

Kingdom.

13According to USDA, broad EU support of its domestic producers results in high internal prices, thus

requiring high levels of export subsidies to make EU agricultural products competitive in world

markets.

14Total U.S. expenditures in fiscal year 1996 include the monies spent on EEP, DEIP, MAP, FMDP, and

the subsidized component of the GSM programs as computed to comply with the Federal Credit

Reform Act of 1990 (P.L. 93-344, July 12, 1974, as amended by title XIII, sec. 13201(a) of P.L. 101-508,

Nov. 5, 1990).

Page 5 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

While the evidence is mixed regarding the continued relevance of U.S.

export assistance programs, such assessments are difficult. In particular,

assessing the benefits of these programs is necessarily limited largely to

research and program participants’ past experience. Program performance

under past conditions may not always be helpful in predicting future

program relevance because of changing conditions in the global trading

environment, such as Uruguay Round trade liberalization, or the potential

for commodity supply and price volatility. Nevertheless, using applicable

economic research and expert opinion, our review provides an indication

of these programs’ future contribution in four key areas.

• With regard to the U.S. economy, no conclusive evidence exists that these

programs have measurably expanded aggregate employment and output or

reduced the trade and budget deficits. Export programs could potentially

expand the economy in cases where markets do not operate efficiently.

However, economic evidence suggests that the federal government’s

ability to influence the overall U.S. economy in the short run comes

primarily through making changes in either fiscal policy, such as the

overall levels of government expenditures and taxation, or Federal

Reserve monetary policy. Moreover, government export programs largely

reallocate production, employment, and income between sectors.

• Concerning the U.S. agricultural sector, while U.S. agricultural export

assistance programs may provide some income and employment benefits

to the sector, there is limited evidence of these benefits. Further, while

there is some evidence that these programs have increased exports to

targeted markets, such as China, the research also shows that the

additional exports that these programs have provided worldwide have

been relatively small.

• Regarding competitor nations’ programs, the lack of transparency

(openness) in these nations’ agricultural export assistance efforts makes it

difficult to conclusively determine how effectively U.S. export programs

counter these foreign practices. However, two U.S. export programs—EEP

and MAP—are no longer authorized only to counter specific competitor

actions but rather have been broadened to assist U.S. agricultural exports

in general. In addition, several economic studies (see footnote 79) indicate

that foreign competitors find U.S. export subsidies relatively inexpensive

to offset.

• Concerning U.S. trade negotiating objectives, there are widely divergent

views about the amount of leverage these programs provided in the past.

Looking to the future, some private and public officials say the programs

could provide negotiating leverage for the 1999 World Trade Organization

Page 6 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

(WTO)15 agricultural talks, but others disagree and question their continued

relevance for future negotiations.

Given the mixed evidence concerning the continued relevance of U.S.

agricultural export assistance programs, their decreased funding levels,

and the trend toward increased liberalization of global agricultural trade,

the Congress may wish to reassess the continued viability and/or focus of

the programs the next time these programs are reviewed.

While FAIR May

Modestly Increase

U.S. Exports,

International Factors

Are More Important

Agricultural experts predict that FAIR’s domestic policy reforms will likely

help expand U.S. agricultural exports, though minimally. Other factors,

such as expanding worldwide markets and the appeal of many U.S.

agricultural products, are expected to increase U.S. exports independent

of FAIR.

FAIR May Modestly

Increase U.S. Agricultural

Exports

The extent to which FAIR’s domestic policy reforms16 may modestly

increase exports is dependent on the degree to which farmers—who were

previously constrained by pre-FAIR policies that restricted acreage and

planting decisions—add additional land to production and use FAIR’s

planting flexibility to respond to international and domestic market

conditions. For example, according to USDA, FAIR’s elimination of the

Acreage Reduction Program (ARP)—that set aside or allowed land to lie

fallow—will permit more land to be available for cultivation and thus more

crops for export. In addition, FAIR’s suspension of the Farmer Owned

Reserve Program (FOR) benefits the price competitiveness of U.S.

agricultural exports by no longer limiting sales in times of large supply.17

FAIR’s reforms are a continuation of the market-oriented reforms of

domestic agricultural policy that have been underway since the 1985 and

15The Uruguay Round created the WTO on January 1, 1995, as a formal structure to replace the

provisional GATT organizational structure. As of May 7, 1997, WTO had 131 member countries.

16FAIR in general decouples the link between planting decisions and income support. For example,

FAIR production flexibility contract payments replace “deficiency payments,” which were available

under previous farm bills. Unlike the deficiency payments, which were made when the market price

for a given government-supported crop fell below the USDA target price, production flexibility

payments provide income support separate from a crop’s market price or generally from farmers’

planting decisions.

17See C. Edwin Young and Paul C. Westcott, The 1996 U.S. Farm Act Increases Market Orientation

(Washington, D.C.: ERS, USDA, Aug. 1996).

Page 7 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

1990 farm legislation.18 These changes had already reduced the

market-distorting impact of a complex system of government-established

price supports. In addition, they diminished the government’s holding of

stocks, which had limited the private sector’s ability to respond to

changing market demand. For example, prior to the 1985 and 1990 farm

legislation, the U.S. government held sizable stocks of grains, which made

it a major player in the supply management of these commodities.

According to USDA, FAIR’s changes19 to domestic agricultural policy—such

as the use of production flexibility payments, the elimination of ARP, and

the suspension of FOR—increase the ability of farmers to choose which

crops to plant and the amount of land to be cultivated while still allowing

them to receive income support. Therefore, FAIR encourages farmers to

react more quickly to market signals with regard to planting decisions and

the amount of land to cultivate. Thus, FAIR should allow farmers to respond

more rapidly to price changes in the international and domestic markets.

Agricultural experts state that with this increased flexibility, farmers

should be able to export more of their production, capitalizing on the

considerable comparative advantages U.S. agriculture derives from

substantial land resources, advanced transportation and information

systems, and ongoing agricultural research.20 For example, currently there

is strong domestic and international demand for soybeans. Due to the

flexibility FAIR provides, farmers have been able to respond to this

increased demand by switching from planting other crops to cultivating

soybeans. As a result, USDA states that 1997 soybean plantings are the

highest since 1982.

In the past, farmers would have had more difficulty in quickly responding

to this increase in demand. This is because prior to FAIR, in order to receive

government deficiency payments, farmers had to contract with the U.S.

government concerning the crops they would plant; this, in turn, locked

them into certain crop cultivation patterns. However, also under FAIR, with

increased production flexibility by farmers and reduced supply

18See the Food Security Act of 1985 (P.L. 99-198, Dec. 23, 1985) and the Food, Agriculture,

Conservation, and Trade Act of 1990 (P.L. 101-624, Nov. 28, 1990).

19These changes to domestic agricultural policy affected bulk products more than high-value products

(HVP), which have not been the primary recipient of most domestic support programs. HVPs represent

a complex and diverse range of agricultural products. Some of these products are unprocessed and

include fruits, nuts, and vegetables; semiprocessed and include flour, oilseed meals, and vegetable oils;

or highly processed and include distilled beverages, meats, and other processed foods.

20Exports of U.S. wheat, corn, soybeans, and cotton are expected to modestly increase under FAIR.

However, one exception to FAIR’s anticipated modest increase in exports, according to ERS, is rice.

Because of FAIR’s elimination of planting requirements and other changes, U.S. rice production is

down, domestic rice prices are up, and U.S. rice exports are down.

Page 8 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

management by government, commodity price volatility is expected to

increase. As a result, according to USDA, farmers face greater risk of

income volatility, due to these fluctuations in commodity prices.

Favorable International

Market Conditions:

Primary Reason U.S.

Exports Are Expected to

Increase

Notwithstanding unforeseen negative weather conditions or political

instability, future increases in U.S. agricultural exports are expected to be

largely driven by changes in worldwide supply and demand as well as by

the ongoing liberalization of global agricultural trade. According to USDA’s

baseline projections, between 1997 and 2005 U.S. agricultural exports will

increase by 44 percent, from $55.5 billion to $79.7 billion.21 This growth is

expected to be largely due to (1) increased demand in East and Southeast

Asian nations and in other regions and (2) market opening brought about

by Uruguay Round agreements and associated reforms of other nations’

agricultural programs. These changes in agricultural markets represent

opportunities to U.S. agricultural competitors as well as to the United

States. USDA baseline projections and other forecasts take into account

how competitor nations respond to these opportunities.

Rising income levels in East and Southeast Asian nations, and in Latin

America, the Middle East, and North Africa, are anticipated to result in

improved diets and a greater demand for imports of grains, fruits,

vegetables, and meat. China could play a key role in this increased demand

for both bulk and high-value agricultural commodities, particularly as its

urban middle class expands and incomes grow. Recent increases in U.S.

agricultural exports have been largely driven by Asian demand, and

agricultural forecasters say that this trend will likely continue. For

example, agricultural researchers expect the following to occur:

• Between 1997 and 2005, East and Southeast Asian nations’ gross domestic

product (GDP) is expected to expand at a robust 7 percent per year, with

China leading at about 8.5 percent, according to the USDA’s ERS.

22 See

figure 1 for a comparison of forecasted average East and Southeast Asian

real GDP growth rates with other regions and country categories,

1990-2005.

21See Agricultural Baseline Projections to 2005, Reflecting the 1996 Farm Act, USDA/Interagency

Agricultural Projections Committee (Washington, D.C.: ERS, USDA, Feb. 1997).

22Agricultural Baseline Projections to 2005.

Page 9 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Figure 1: Forecasted Average Annual Real GDP Growth Rates for Selected Regions, 1990-2005

1990-1995 1996-2000 2001-2005

0

2

4

6

8

10

Years

Average annual percent change in GDP

World East and Southeast Asian Latin America Middle East North Africa

Source: Agricultural Baseline Projections to 2005.

• Between 1997 and 2005, strong growth in demand for feed grains and food

products in the East and Southeast Asian nations—particularly in

China—is predicted to fuel much of the growth expected in U.S.

agricultural exports, according to the Food and Agricultural Policy

Research Institute (FAPRI).23

• Demand for U.S. HVPs such as meat, fruits, vegetables, and prepared foods

will rise, according to ERS. While most U.S. HVPs are exported to developed

countries such as Canada, the EU, and Japan, these goods are increasingly

flowing into the rapidly growing economies of East and Southeast Asia.

23FAPRI is an agricultural economic research organization that performs analysis for the Congress and

other clients, on the potential impact of legislative changes on international trade in agriculture. See

FAPRI: 1996 U.S. Agricultural Outlook (Ames, Iowa: Iowa State University, Aug. 1996).

Page 10 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Further influences expected to increase U.S. exports and global

agricultural trade are (1) the market openings created by the Uruguay

Round’s agricultural provisions and (2) other related reforms in foreign

countries’ agricultural policies. The Uruguay Round agreements contain

commitments by WTO members countries to open up—at least to some

degree—their agricultural markets, many for the first time. Countries are

doing so by reducing several important agricultural trade barriers,

including import restrictions and tariffs, export subsidies, and domestic

support programs. The Uruguay Round agreements also set forth rules on

the use of sanitary and phytosanitary (SPS) measures that directly or

indirectly affect international trade.24 For example, SPS measures that

restrict imports must generally be based on scientific principles. Several

WTO members, including the United States, have invoked dispute

settlement procedures regarding four SPS measures that appear to lack a

scientific basis. These SPS rules are intended to make it more difficult for

countries to rely on unjustified SPS measures as a way to protect their

markets from imports. Other Uruguay Round provisions mandate

conversion of most nontariff barriers (NTB), such as import licensing

requirements, to tariffs. These measures were aimed at making trade

barriers more transparent and thus facilitating world agricultural trade by

encouraging a freer trade environment.25

In addition to Uruguay Round and bilateral trade liberalization (such as

the U.S.-Japan beef and citrus agreement), unilateral policy changes have

also significantly liberalized the world trading environment. Specifically,

newly privatized markets are emerging from the collapse of the socialist

economies in the former Soviet Union and Eastern Europe. Moreover,

long-held policies of self-sufficiency, protectionism, and government

control of markets are being challenged, reformed, or dismantled in Latin

America, Asia, and Europe. For example, Argentina has gone a long way

toward reforming its agricultural sector since the 1990s. These reforms

include the privatizing of export facilities (thus reducing port handling

costs) and the scrapping of major state-owned marketing boards for

grains, meats, and sugar. While difficult to quantify, these unilateral policy

changes in other nations are also expected to increase world agricultural

trade, according to USDA.

24Sanitary measures pertain to human and animal health and safety. Phytosanitary measures pertain to

protecting plants from pests and diseases.

25Uruguay Round-related increases in U.S. agricultural exports have been forecasted by USDA to be

between $4.7 billion and $8.7 billion annually by the year 2005.

Page 11 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Evidence Is Mixed

Regarding the

Continued Relevance

of U.S. Export

Assistance Programs

Overall, we found that the evidence is mixed regarding the continued

relevance of U.S. agricultural export assistance programs. While FAIR’s

domestic policy reforms remove a primary benefit associated with most

U.S. export assistance programs—the exporting of surplus stocks

generated by domestic price supports—USDA and some industry officials

state that these programs continue to have relevance. However, others

disagree. To address this issue, we reviewed the evidence regarding the

extent to which the programs

• benefit the overall U.S. economy,

• benefit the U.S. agricultural sector and specific U.S. commodities,

• counter competitor nations’ agricultural export programs, and

• promote U.S. trade negotiating objectives.

One challenge in assessing these programs’ continued relevance is that the

evidence, for example, on whether they benefit the U.S. agricultural sector

is limited largely to research on how these programs have functioned in

the past and to the past experiences of program participants. Program

performance under past conditions may not always be helpful in

predicting future program contributions.26 For example, EEP was created in

the mid-1980s during a period of large grain stocks and low prices.

According to ERS, the program is less effective under changed market

conditions of higher world prices and tighter stocks. Another challenge is

the difficulty in generalizing across these export programs regarding their

continued relevance, as they each have multiple objectives and support

various commodities and export markets. Nevertheless, we identified

applicable economic research and principles as well as expert opinion that

provide an indication of the future contributions of these programs in the

four key areas previously outlined.

No Conclusive Evidence

That USDA Export

Programs Measurably

Benefit the Overall U.S.

Economy

Program proponents, including many industry groups and USDA, say that

the United States receives macroeconomic27 benefits from export

assistance programs. Program proponents state that agricultural export

assistance programs expand total U.S. output and employment through

additional exports, reduce the size of the U.S. trade and federal budget

deficits, and contribute to overall economic efficiency. Some USDA officials

26In addition, there is uncertainty regarding future agricultural legislation, as FAIR is authorized

through 2002. Subsequent farm legislation could alter the potential future contributions of U.S.

agricultural export assistance programs.

27Macroeconomics refers to the performance of the economy as a whole, including the general levels

of output and income, rather than the performance of individual sectors.

Page 12 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

state that these programs were not necessarily intended to provide

macroeconomic benefits, but rather they are to redistribute resources to

the rural economy. However, a 1995 USDA study concluded that MAP has

macroeconomic benefits because it increases the level of overall economic

activity and employment through expanded U.S. exports. The study states

that this expansion of new economic activity and employment is sufficient

for MAP to more than fully pay for itself through increased tax revenue,

thus contributing to reducing the budget deficit. 28

Our analysis and review of economic studies, however, found no

conclusive evidence that these programs have provided net benefits to the

aggregate economy.29 Government export programs largely reallocate

production, employment, and income among sectors. The potential for

export programs to affect overall U.S. output, employment, and the trade

and budget balances is limited to particular circumstances, such as in

cases where markets do not operate efficiently. Moreover, economic

research suggests that the federal government’s ability to influence

short-run U.S. output and employment levels comes primarily through

making changes in either fiscal policy, such as overall levels of

government expenditures and taxation, or Federal Reserve monetary

policy.30

Effect on Output, Employment,

and Budget Deficits

Government export subsidy, promotion, and loan guarantee programs

largely reallocate production, employment, and income between sectors, a

reallocation that occurs when an economy is near or at full employment,

but some of these reallocations may also occur when resources are

unemployed.31 In general, subsidizing one sector is the equivalent of taxing

28For USDA views on MAP’s impact, see Evaluating the Effectiveness of the Market Promotion

Program on U.S. High-Value Agricultural Exports, Foreign Agricultural Service Staff Paper 1-95

(Washington, D.C.: USDA, Feb. 1995).

29This conclusion is based on conventional mainstream economic perspectives. Some economists and

research organizations disagree with these mainstream views.

30For a discussion, see Herbert Stein, Presidential Economics: The Making of Economic Policy from

Roosevelt to Reagan and Beyond, 2nd rev. ed. (Washington, D.C.: American Enterprise Institute for

Public Policy Research, 1988) and Charles L. Schultze, Memos to the President: A Guide Through

Macroeconomics for the Busy Policymaker (Washington, D.C.: The Brookings Institution, 1992).

Changes in the composition of government spending may have output effects. For example, within a

given fiscal policy, shifting from spending for current purposes to spending for well-chosen public

investments can play an important role in increasing private sector output and economic growth. See

Federal Budget: Choosing Public Investment Programs (GAO/AIMD-93-25, July 23, 1993).

31Macroeconomic Consequences of Farm Support Policies, Andrew B. Stoeckel, David Vincent, and

Sandy Cuthbertson, eds. (Durham, NC: Duke University Press, 1989).

Page 13 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

other sectors.32 Export subsidies can raise prices for domestic

consumption, change the cost of domestic resources and the composition

of resource usage, alter the composition of trade, and may sometimes

change the level of total trade. Government support for a specific sector

generally implies reduced government spending in other areas.

Agricultural export assistance may also change the location of economic

activity, sustaining rural economic activity that would not occur in its

absence. Because these programs potentially reallocate resources,

changes in these programs, including reductions in funding or elimination,

may result in employment and business dislocation if the subsidized sector

contracts.

With respect to the argument that export programs can stimulate the

economy and raise output and employment, changes in government fiscal

policy may accomplish this in the short term, if the economy is operating

at less than full employment.33 These policy changes have historically

included tax cuts or increased deficit-financed government spending such

as on employment or infrastructure programs.34 Even when agricultural

resources are underemployed, if the government chooses to promote

exports to foreign consumers rather than to increase domestic spending,

U.S. producers may divert some of their output from the domestic to the

foreign market.35 This could, however, raise domestic prices, thus making

domestic consumers worse off. Even if the government could stimulate

overall demand by supporting export assistance programs, an increase in

output and employment would still not be assured, as the Federal Reserve

32See discussion by Gene M. Grossman, “Strategic Export Promotion: A Critique,” in Strategic Trade

Policy and the New International Economics, Paul R. Krugman, ed. (Cambridge, MA: The MIT Press,

1986).

33Recently, the macroeconomic principle that larger budget deficits can increase output in the short

run has been challenged, though not yet supplanted. Some recent economic policy experience suggests

that contractionary fiscal policies may be expansionary, even in the short run, because they can lower

the long-term real interest rate. See Alan S. Blinder, “Is There a Core of Practical Macroeconomics

That We Should All Believe?” and Oliver Blanchard, “Is There a Core of Usable Macroeconomics?” in

American Economic Review (May 1997).

34While the funding of export programs does not increase during periods of unemployment, USDA

officials note that they do account for economic conditions in their administration of the programs.

For example, according to USDA, during periods of high commodity prices and full deployment of

agricultural resources, EEP is not utilized. See discussion of the limitations of fiscal policy in Schultze,

Memos to the President.

35The ability of U.S. export promotion programs to create additional exports of a subsidized

commodity is controversial. Only if new export demand is met with new production would there be no

diversion from the domestic market.

Page 14 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

could choose to offset any expansion that it views as inflationary by

raising interest rates.36

Because export programs are unlikely to expand the overall economy

when it is at or near full employment, they cannot generally increase tax

revenues or lower budget deficits. We, and others, have concluded that a

major reduction in the budget deficit would yield long-term

macroeconomic benefits for the U.S. economy.37 Any program analysis

that assumes that the resources involved in a U.S. government export

program would otherwise be unemployed may show employment

expansion and hence tax revenue gains. For example, USDA’s 1995 MAP

study38 claims such impacts, by assuming the resources would otherwise

be unemployed. This assumption leads to a conclusion that the program

has resulted in increased tax revenues. This methodology does not comply

with Office of Management and Budget cost-benefit guidance, which

instructs agencies to treat resources as if they were likely to be fully

employed.39

If export promotion programs impact economic efficiency, they can

potentially affect output, employment, and tax receipts over the longer

run. In principle, the right kind of government intervention may improve

economic efficiency if “market failures” exist. Examples of market failures

include cases where costs and benefits are not “internalized” by firms and

consumers, market participants have asymmetric information, or a market

36Currently, members of the Federal Reserve Board are closely monitoring U.S. labor market

conditions to evaluate whether the United States is approaching the maximum rate of noninflationary

employment growth. Additionally, even if aggregate demand expansion does lead to short-run gains in

output and employment, long-term budget deficits can lower national saving and investment, thereby

reducing long-term output and employment prospects. See Schultze, Memos to the President.

37These benefits include higher national saving, higher investment, more rapid economic growth, and a

lower foreign debt. The idea that contractionary fiscal policies of deficit reduction may in fact be

expansionary is becoming part of the conventional policy wisdom, although with limited empirical

evidence (see Blinder, “Is There a Core of Practical Macroeconomics”). For our analysis, see The

Deficit and the Economy: An Update of Long-Term Simulations (GAO/AIMD/OCE-95-119, Apr. 26,

1995) and Budget Policy: Prompt Action Necessary to Avert Long-Term Damage to the Economy

(GAO/OCG-92-2, June 5, 1992). The long-term benefits of fiscal policy changes are difficult to

appreciate, particularly compared with the steep short-term costs necessary to achieve significant

deficit reduction. To clarify the consequences of significant change in fiscal policy, we adapted the

long-term economic growth model developed by economists at the Federal Reserve Bank of New York.

The assumptions incorporated in this model are relatively conservative with regard to the relationship

between capital investment and growth in national output.

38Evaluating the Effectiveness of the Market Promotion Program.

39See “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs, OMB Circular No.

A-94, sec. 6b(3) (Oct. 29, 1992).” OMB’s approach has also been adopted by the interagency Trade

Promotion Coordinating Committee for constructing performance measures that parallels work that

trade agencies are undertaking under the Government Performance and Results Act of 1993 (P.L.

103-62, Aug. 3, 1993).

Page 15 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

participant has market or monopoly power. For instance, some

economists have argued that a targeted government industrial policy of

trade promotion (or protection) could increase national income. The cases

are quite specific, however, and apply to industries with “external”

economies that involve the spillover of knowledge between firms or

economies of scale. While these intervention benefits have been

recognized in principle, economists are generally cautious about their

policy usefulness and application. Typically, these rationales have been

associated with high-tech industries such as aircraft and semiconductors,

not with food processing or agriculture.40

Increasingly, USDA argues that the export assistance programs can address

market failures in agricultural or credit markets but acknowledges it is

difficult to quantify this in most cases. ERS reports that, while claims of

market failure must be carefully scrutinized, agricultural commodity

market failures could include poorly developed credit markets in

developing countries or the lack of broadly available information on a new

or emerging market. There is no assurance, however, that export subsidy,

promotion, or guarantee programs correct these failures. On the other

hand, if government intervention creates distortions that reduce efficiency,

then output, employment, and tax revenue may fall. In summary, we found

no evidence that the export assistance programs enhanced economic

efficiency.

USDA is conducting an assessment of export program impacts at the

direction of the Trade Promotion Coordinating Committee (TPCC). 41 USDA

reports that the results will show that U.S. agricultural export assistance

programs benefit national welfare by addressing market failures, but USDA

and OMB declined to share their current draft report with us. Earlier we

had received an ERS briefing on the preliminary estimates of these

40See the discussion of market failures in our May 1996 testimony, Export Promotion: Rationales for

and Against Government Programs and Expenditures (GAO/T-GGD-95-169, May 23, 1995). Also, see

discussion in J. Bhagwati, The World Trading System at Risk (Princeton, NJ: Princeton University

Press, 1991); articles in Strategic Trade Policy and the New International Economics, Paul R. Krugman,

ed. (Cambridge, MA: The MIT Press, 1986 ); Paul R. Krugman, Pop Internationalism (Cambridge, MA:

The MIT Press, 1996); and Laura D’Andrea Tyson, Who’s Bashing Whom?: Trade Conflict in

High-Technology Industries (Washington, D.C.: Institute for International Economics, Nov. 1992).

41In an effort to coordinate and develop a U.S. trade strategy, TPCC has directed USDA to assess the

impact of U.S. agricultural export assistance programs. An issuance date for the final TPCC report has

not been set.

Page 16 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

programs’ impacts.42 USDA officials state that the final TPCC report will

show different conclusions concerning program impact than the

preliminary estimates.

Effect on Trade Deficit Most research by economists has concluded that the overall U.S. trade

balance is determined largely by U.S. macroeconomic conditions such as

the amount of domestic savings and investment, exchange rates, and the

size of the government budget deficit, not by trade policy.43 No conclusive

evidence exists to support the assertion that U.S. agricultural export

assistance programs influence the size of the U.S. trade deficit. When the

United States is spending more on goods and services than its total

income, the nation is borrowing from the rest of the world. This net

borrowing, or current account deficit, is equal to the government budget

deficit plus the difference between private sector investment and savings.44

According to the President’s Council of Economic Advisers, the

government can contribute to reducing the current account and trade

deficits through macroeconomic policy measures such as eliminating the

federal budget deficit. These policy measures can narrow the gap between

U.S. savings and U.S. investment. However, U.S. trade policies may not

change the overall trade balance, but they can alter the composition and

the overall levels of U.S. trade. For example, increases in agricultural

exports could lead to a reduction in some other export or to increased

imports. Thus, successful export promotion can benefit the targeted

product but at the expense of nontargeted exports or import-competing

domestic producers.

42Economic Impact of U.S. Agricultural Trade Programs and Polices (Commercial Agricultural

Division, ERS, undated briefing slides). ERS is undertaking the USDA program assessment using three

different modeling efforts. These include a multicountry partial equilibrium model of world grain,

oilseed, and livestock markets; a computable general equilibrium (CGE) model of the U.S. economy;

and an input-output multiplier model to estimate program employment and income impacts. We

recognize that isolating the impact of program spending is very difficult empirically. In North American

Free Trade Agreement: Assessment of Major Issues, Volume 2 (GAO/GGD-93-137, Sept. 9, 1993), we

reported on the strengths and limitations of the CGE methodology. In Agricultural Trade: Significance

of High-Value Products as Agricultural Exports (GAO/GGD-93-120, Aug. 10, 1993), we reported that

input-output multiplier models should not be used to predict the impact of government export

assistance programs.

43See discussion of research in International Trade: The U.S. Trade Deficit; Causes and Policy Options

for Solutions (GAO/NSIAD-87-135, Apr. 28, 1987) and International Trade: Symposium on the Causes of

the U.S. Trade Deficit (GAO/NSIAD-87-135S, May 15, 1987). Similar views are held by the President’s

Council of Economic Advisers. See the Economic Report of the President (Washington, D.C.:

Government Printing Office [GPO], Feb. 1996) for a detailed discussion of the causes of the trade

deficit and its relation to trade policy.

44See Rudiger Dornbusch, Open Economy Macroeconomics (New York, NY: Basic Books, 1980). Also

see discussion in Competitiveness Issues: The Business Environment in the United States, Japan, and

Germany (GAO/GGD-93-124, Aug. 9, 1993).

Page 17 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

U.S. Export Programs

Have Provided Small

Global Increases in U.S.

Agricultural Exports

USDA officials and others state that U.S. agricultural export assistance

programs increase the exports of specific U.S. commodities and overall

farm sector income and employment. However, we found few studies that

support the position that these programs increase farm income and

employment for the sector as a whole.45 Regarding U.S. exports, we found

that there have been some instances of increased exports to specific

markets from commodities supported by these programs, but the

additional exports that these programs have provided worldwide have

been relatively small. An adverse effect of these programs has been that at

times they have also caused a small decrease in exports of other

competing, unassisted, U.S. commodities.

It must be noted that it is difficult to assess these programs’ impact on the

U.S. agricultural sector. This is because (1) past evaluations of these

programs have narrowly focused on an individual U.S. export program,

commodity, or foreign market and not on the overall impact of these

programs on the agricultural sector as a whole; and (2) these programs’

impact on U.S. agricultural exports worldwide cannot be easily isolated

from other policies and economic conditions that help increase U.S.

agricultural exports. The latter includes lower U.S. interest rates, other

U.S. government assistance, depreciation of the U.S. dollar against

competitors’ currencies, agricultural commodity production shortfalls in

major markets overseas, the liberalization in agricultural markets brought

about by the Uruguay Round, and the growing trend in agricultural market

reforms around the world.

Export Assistance Programs

Have Increased U.S.

Agricultural Exports to

Targeted Markets but Have Had

Limited Impact Globally

USDA officials and others state that U.S. agricultural export assistance

programs have resulted in exports above and beyond what would have

occurred without the programs. However, demonstrating that additional

exports result from these programs is difficult to prove because of the

myriad factors that affect import decisions. We found evidence that U.S.

export programs have resulted in some increased U.S. agricultural exports

to targeted, specific markets, but the additional exports that these

programs have provided worldwide have been relatively small. Another

effect of these programs, according to some private officials, has been

that, at times, they have also caused a small decrease in exports of

competing, unassisted, U.S. commodities.

45As mentioned previously, in March 1996 we received an ERS briefing with preliminary estimates

regarding U.S. agricultural export assistance programs’ impact on farm income and employment. ERS

officials requested that we not use these estimates in our report because they were preliminary and

had not been cleared by USDA.

Page 18 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

EEP: Regarding EEP, prior studies46 have concluded that only a portion of

EEP-supported wheat exports were exports above and beyond the level

that would have occurred without the subsidy. The estimates of the value

of U.S. wheat exports resulting from every dollar of EEP assistance

(1986-88) ranged from 2 to 30 cents of additional wheat exports,

depending on the assumptions made about global export market

conditions and other variables. More recently, FAPRI estimates that if EEP is

utilized, the value of additional U.S. wheat exports resulting from every

dollar of EEP assistance (1997-2004) would range from 10 to 15 cents. ERS

reports that its estimates of EEP’s trade impact depend on market

conditions and the program’s scope (that is, how many foreign markets it

is operating in) but states that the program becomes less effective under

conditions when food stocks are tight and world prices are high. Such

conditions existed during 1996, and the program was not used. And ERS

forecasts that tight market conditions are likely to continue through 2005.

Research has shown that EEP can increase wheat exports to specific

targeted markets.47 Increased EEP wheat exports to the Soviet Union and

China are often cited by USDA as examples of the program’s effectiveness

in bolstering U.S. exports. For instance, in January 1987, China was

offered wheat for the first time under EEP. Sales increased from less than

1 million metric tons in 1985 to about 7.2 million metric tons in 1988. As of

May 1990, China had bought over 15 million metric tons of wheat, making

it the second largest wheat importer under the program, after the Soviet

Union. However, while EEP has increased U.S. exports to individual

markets, it has not historically increased U.S. world market share,

particularly for bulk commodities where the United States is a leading

world exporter. For example, with wheat—where the United States is the

largest exporter—EEP has not significantly increased U.S. export market

share but rather has only lowered the price available to foreign

consumers.

The primary reason cited by agricultural trade researchers for the

relatively small additional U.S. exports that these programs—particularly

EEP and GSM-102—provide worldwide is that U.S. export programs’

increased exports to specific markets are often offset by lost U.S. sales in

46See, for example, A.H. Seitzinger and Philip Paarlberg, The Export Enhancement Program: How Has

it Affected Wheat Exports? ERS, USDA (Washington, D.C.: GPO, 1989). Also, K.W. Bailey, Why Did

U.S. Wheat Exports Expand? ABI No. 564, ERS, USDA (Washington, D.C.: May 1989); and International

Trade: Export Enhancement Program’s Recent Changes and Future Role (GAO/NSIAD-90-204, June 14,

1990).

47See Stephen L. Haley, “The U.S. Export Enhancement Program: Prospects under the Food,

Agriculture, Conservation, and Trade Act of 1990,” Food Policy (Apr. 1992).

Page 19 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

other nonassisted markets. Specifically, competing suppliers may respond

to U.S. competition in countries that benefit from GSM-102 or EEP by

concentrating their efforts in other countries and displacing potential U.S.

sales in these other countries. Thus, while U.S. exports may increase in

particular markets targeted by U.S. export programs, the overall effect on

U.S. exports worldwide is small. If displacement occurs, the programs may

merely reroute trade flows and do not necessarily increase U.S.

agricultural exports.

Some studies have found,48 and industry officials have argued, that EEP at

times has done more to displace unassisted U.S. agricultural exports than

it has to promote U.S. agricultural exports in general. Specifically, industry

officials state that the concentration of EEP on wheat exports has at times

had the effect of reducing the market opportunities of other commodities

such as corn and soybeans that are broad substitutes for wheat in use and

production.49 But since the impact of EEP globally is not dramatic, the

displacement effect is also limited.

Another concern expressed by some industry officials about EEP is that in

countries where soil and growing conditions allow flexible production of

commodities, reduced prices due to EEP wheat exports can induce

increased production of alternate crops to wheat (such as corn, canola,

and soybeans). This can, in turn, reduce the competitive position of U.S.

producers of these alternate crops.50

48See Stephen L. Haley, “The U.S. Export Enhancement Program Over 1991-95 Crop Years” Report No.

690 (Baton Rouge, LA: Louisiana State University, Dec. 1991). Robert L. Paarlberg, “The Mysterious

Popularity of EEP,” Choices (second quarter 1990); and Haley, “The U.S. Export Enhancement

Program: Prospects.”

49One displacement example, provided by a major U.S. exporter, involves the impact of EEP-subsidized

wheat to China (it should be noted that while this is an accurate description of displacement, it was a

onetime occurrence in China). In 1994, EEP-subsidized wheat was sold to China. This high-quality

wheat was used in Chinese mills for flour production, freeing up lower quality Chinese wheat as feed

grain for China’s poultry industry. Since the poultry industry had an adequate supply of feed grain,

Chinese corn normally used as feed grain by the industry was instead exported to South Korea, which

is traditionally an export market for U.S. corn. In addition, some Chinese poultry was then exported to

Hong Kong, where it was in direct competition with U.S. poultry sold there. Thus, EEP-subsidized

wheat exports to China helped displace U.S. sales of corn to both China and South Korea and provided

increased competition for U.S. poultry sales to Hong Kong.

50One U.S. oilseed exporter reported that it has lost export sales to subsidized EEP wheat sales. It

stated that in the late 1980s, because of the EU/U.S. subsidy war over exported wheat, South American

countries (particularly Argentina) shifted their concentration from wheat production to oilseed

production. Therefore, as a result of the subsidy war in wheat, the United States bought itself

increased competition for oilseeds from South America.

Page 20 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

MAP: Regarding MAP, USDA officials report that program spending has

resulted in additional agricultural exports.51 They identified numerous

studies that conclude that in most cases, MAP subsidies increase U.S. sales

of a commodity in a targeted market. For example, one study found that

each dollar of MAP funds to promote apples in Singapore and the United

Kingdom resulted in over $20 of additional apple exports.52 Another study

explored the long-term impact of in-shell walnut promotion in Japan and

found that a dollar of MAP promotion would, over 40 years, increase U.S.

walnut exports by $5.30.53 Worldwide walnut promotion was evaluated in

another study, which found that while each dollar spent on MAP promotion

increased walnut exports by $1.42 over the long-run, it actually reduced

the exports of eight other horticultural exports by $3.57 (thus reducing

U.S. agricultural exports worldwide by $2.15).54

In some instances, studies of MAP’s impact on specific commodities reach

different conclusions. For example, a study of exports of U.S. meat

products to Japan concluded that USDA market promotion from 1973-91

only resulted in a statistically significant increase in U.S. market share for

beef offals55 but not for beef or pork meat.56 A second study of Japan’s

meat markets, using a different methodology and time period (1973-94),

concluded that USDA-funded beef advertising and promotion expenditures

had a significant positive influence on Japanese demand for U.S. beef but

could not demonstrate that U.S. pork or poultry advertising and promotion

expenditures had any effect on the demand for U.S. pork or poultry

51See Evaluating the Effectiveness of the Market Promotion Program on U.S. High-Value Agricultural

Exports, USDA, FAS Staff Paper 1-95 (Feb. 1995).

52Timothy J. Richards, et al., “A Two-Stage Analysis of the Effectiveness of Promotion Programs for

U.S. Apples,” Agricultural Commodity Promotion Policies and Programs in the Global Agri-Food

System (Proceedings from the Research Committee on Commodity Promotion [NEC-63] Conference,

Cancun, Mexico, May 26-27, 1996).

53Kenneth R. Weiss, et al. “Walnuts in Japan: A Case Study of Generic Promotion under the USDA’s

Market Promotion Program,” Agricultural Commodity Promotion Policies and Programs in the Global

Agri-Food System (Proceedings from the Research Committee on Commodity Promotion [NEC-63]

Conference, Cancun, Mexico, May 26-27, 1996).

54“Market Access Program Evaluation: Fruits and Vegetables,” National Food and Agricultural Policy

Project Policy Paper Series, NFAPP #97-2 (Tempe, Arizona: Arizona State University, Apr. 1997).

55Beef offals are the byproducts of butchered beef such as the heart, liver, and intestines. The Japanese

category for beef offal imports also includes diaphragm or “skirt” beef.

56See Shida Rastegari Henneberry and Marco De Brito, “An Analysis of the Effectiveness of U.S.

Non-Price Promotion Programs: The Case of Red Meats in Japan,” in Promotion in the Marketing Mix:

What Works, Where and Why, study presented at a USDA cosponsored conference, Regional Research

Committee on Commodity Promotion (Toronto, Canada: Apr. 28-29, 1994). The study applied annual

data for the 1973 through 1991 period for beef, and 1973 through 1988 for beef offals and red meats.

Between 1984 and 1991, USDA meat promotion in Japan amounted to $54 million (in 1996 dollars).

According to FAS, MAP data for the period 1973-84 are no longer available.

Page 21 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

products.57 These inconsistent results for beef demonstrate the problem of

verifying whether U.S. export promotion programs expand exports.

Similarly, another study found that while almond exports increased in

Japan, Taiwan, and Hong Kong due to MAP spending, MAP subsidies for

almonds had no significant effect on exports in South Korea and

Singapore.58

The studies evaluating various MAP projects provide limited information for

assessing the program. While the studies do present many cases where

government-funded advertising may have increased U.S. exports to

targeted markets, they fail to show that MAP expenditures were above and

beyond private sector promotion that might have occurred in the absence

of MAP. Most of the studies describe the exports resulting from promotion

as the “returns” for the subsidy, but these studies fail to deduct any of the

costs involved in the production or distribution of the additional

commodity being exported.59 One study noted that this approach assumes

the cost of producing and exporting an additional unit of output is zero

and that thus, the calculated returns are “gross” returns and not “net”

returns to investment.60 Additional cost information is required to

determine whether a specific MAP promotion effort results in a net return

to investment for the private or public sectors. Further, the MAP studies

generally exclude factors that could permit program administrators to

assure a positive net impact from MAP expenditures. These factors include

the levels of private expenditures for promotion, government promotion

by competitor nations, changes in domestic and foreign supply conditions,

and trade liberalization brought about by reductions in tariffs and other

trade barriers. Evaluations of MAP projects that ignore increased trade

liberalization may overestimate MAP’s contribution to increased U.S.

exports. Moreover, little of the research considers whether an increase in

producers’ profits due to MAP-supported exports is sustainable, since

producers may increase supply and thus reduce long-term profits. Nor

does the research make an assessment of MAP’s benefits and costs to U.S.

taxpayers, including the impact of increased exports on U.S. domestic

57Allison Comeau, Ron C. Mittelhammer, and Thomas I. Wahl, “Assessing the Effectiveness of MPP

Meat Advertising and Promotion in the Japanese Market,” National Institute for Commodity Promotion

Research & Evaluation, NICPRE 96-10 R.B. 96-20 (Ithaca, NY: Cornell University, Dec. 1996).

58Karen Halliburton and Shida Rastegari Henneberry, “The Effectiveness of U.S. Nonprice Promotion

of Almonds in the Pacific Rim,” Journal of Agricultural and Resource Economics (July 1995).

59Including these costs would reduce the “returns” reported to MAP.

60See footnote 58.

Page 22 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

prices.61 Lastly, the available studies do not assess whether MAP

expenditures are justified due to a market failure or what the appropriate

government responsibility is regarding export promotion.

Title I: Concerning title I food aid,62 the assistance it provides can in

theory contribute to market development if the program creates

preferences for U.S. products that remain after the concessional sales have

been discontinued and, thus, can result in a greater U.S. share of a given

country’s commercial market (that is, increased U.S. exports). However, it

is difficult to develop product loyalty and secure commercial market share

when title I commodities, which are typically bulk and semiprocessed

agricultural goods, can easily be replaced by or substituted with products

from other nations. In the short term, title I allows the United States to

move commodities and possibly keep a market presence that it otherwise

might not have been able to maintain. However, historically, the

concessional sales made possible by title I do not necessarily translate in

the long term into increased commercial market share or additional

exports.

Limited Evidence Exists That

U.S. Export Programs Impact

Agricultural Sector Overall

Income or Employment

We found few studies that support the position that U.S. agricultural

export assistance programs increase income or employment for the farm

sector as a whole. The ability of export programs to affect U.S. agricultural

sector income and employment is constrained by the limited and selective

nature of these programs. That is, export programs only affect a small

portion of U.S. agricultural exports. For example, the U.S. government

spent approximately $792 million on these programs in fiscal year 1996,63

while U.S. agricultural exports for the same period were $60 billion. In

addition, 80 percent of U.S. agricultural exports, between fiscal year 1989

and 1993, received no government assistance.

61Some of these points are made by Karen Z. Ackerman and Shida Rastegari Henneberry in “Economic

Impacts of Export Market Promotion,” Commodity Promotion Policy in a Global Economy (Arlington,

VA: Proceedings of a Symposium, Oct. 22-3, 1992).

62See Food Aid: Competing Goals and Requirements Hinder Title I Program Results (GAO/GGD-95-68,

June 26, 1995). Our report states that title I has five objectives: (1) to combat world hunger and

malnutrition and their causes; (2) to promote sustainable economic development, including

agricultural development; (3) to expand international trade; (4) to develop and expand export markets

for U.S. agricultural commodities; and (5) to encourage the growth of private enterprise and

democratic participation in developing countries. Regarding market development, our report found

that title I’s importance in helping develop long-term U.S. agricultural markets has not been

demonstrated.

63The importance of title I as an export assistance program, for example, has declined significantly

since the program’s inception in 1954. Today, title I represents less than 1 percent of the total value of

U.S. agricultural exports, whereas the program represented about 19 percent in the late 1950s and

mid-1960s.

Page 23 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

These export programs focus primarily on bulk commodities, rather than

HVPs, which represent the largest segment of forecasted increases in world

agricultural trade. Thus, some components of the sector, such as bulk

commodity producers, may receive some income and employment

benefits. USDA believes that if these programs were reduced or eliminated,

some bulk commodity producers—particularly wheat farmers—would

most likely experience some diminished income and employment as a

result. For example, an ERS study estimated that if EEP expenditures of

$938 million were eliminated in 1993, the U.S. grain sector would lose

$538 million in income and 3,100 jobs. The analysis found that eliminating

EEP would also have increased overall domestic welfare (including benefits

to both producers and consumers) by $325 million and did so under all

market conditions analyzed. Moreover, the study stated that export

subsidies amount to an income transfer from U.S. households to

producers and lead to a decline in domestic welfare.64

One reason U.S. agricultural export assistance programs’ impact on

farmers’ income is limited is because some farmers derive a majority of

their income from employment off the farm. And this off-farm employment

is increasingly determined by national economic growth rates and

nonfarm employment opportunities. According to USDA data, over 

85 percent of farm household income comes from off-farm employment

and income.65 While there are currently about 2.1 million farms in the

United States, USDA classifies only about 550,000 as commercial farms.66

And it is these farms that are most affected by U.S. agricultural export

assistance programs. Some studies have concluded that using U.S.

agricultural export programs to transfer income to the agricultural sector

is not the most cost-effective method for doing so.67 In 1994, we reported

that the income of wheat farmers would have increased about 21 percent

more if additional federal dollars had been spent on higher commodity

target prices rather than on EEP.

68

64See Kenneth Hanson, Stephen Vogel, and Sherman Robinson, Sectoral and Economywide Impacts of

Eliminating the Export Enhancement Program, ERS (Washington, D.C.: Nov. 1995).

65See Structural and Financial Characteristics of U.S. Farms, 1993, ERS (Washington D.C.: Oct. 1996).

66USDA defines “commercial farms” as those farms whose level of gross sales is at least $50,000.

Commercial farms range in size from small (gross sales at or above $50,000), to super large (gross

sales at or above $1 million). About 90 percent of commercial farm operators report that farming is

their major occupation.

67See T.W. Hertel, R.L. Thompson, and M.E. Tsigas, “Economy-wide Effects of Unilateral Trade and

Policy Liberalization in U.S Agriculture,” in Macroeconomic Consequences of Farm Support Polices;

and K. Hanson, et al., Sectoral and Economywide Impacts.

68See Wheat Support: The Impact of Target Prices Versus Export Subsidies (GAO/RCED-94-79, June 7,

1994).

Page 24 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Uncertainty Exists

Whether U.S. Export

Programs Counter

Competitor Nations’

Programs

Some U.S. government officials and private sector representatives state

that U.S. agricultural export assistance programs are valuable because

they counter competitor nations’ export programs and thus “level the

playing field” between our exporters and competitor exporters who

benefit from their own nation’s programs. USDA officials argue that U.S.

programs (1) protect the income of the agricultural sector from the impact

of foreign export subsidies, (2) level the playing field by helping U.S.

companies compete against specific foreign competitors’ subsidized sales

and other export assistance, and (3) increase the cost of foreign

competitors’ agricultural subsidies to their governments. We found that

because of the lack of transparency in other competitor nations’ export

assistance efforts, it is difficult to verify how effectively U.S. export

programs counter these foreign practices. We also observed that some

U.S. export programs are no longer used only to counter specific

competitor actions but rather have been broadened to assist U.S.

agricultural exports in general. In addition, several economic studies

indicate that our competitors find U.S. export subsidies relatively

inexpensive to offset.

USDA states that EEP has provided some income protection to the U.S.

agricultural sector from foreign export subsidies. Specifically, because

foreign nations subsidize their sales, subsidies such as EEP provide an

income transfer to U.S. farmers that protects them from absorbing the

lower world sales price. Under previous farm legislation, deficiency

payments to farmers insulated farmers’ income from decreases in U.S.

domestic market prices. So EEP had a limited impact on the income of

farmers participating in U.S. domestic commodity support programs. For

farmers not participating in these commodity support programs, however,

a slightly higher domestic price due to modest increases in export demand

for some EEP-supported U.S. commodities may have countered the income

reduction due to foreign export subsidies.

We could not identify convincing evidence on the degree to which U.S.

export programs have effectively matched U.S. competitors’ agricultural

export programs and, thus, have leveled the playing field. By program

design, GSM and title I are not specifically used to counter competitor

nations’ efforts to assist exports. With respect to EEP and MAP, the evidence

is inconclusive. This is due in part to changes in U.S. laws governing these

programs and to limited data on foreign governments’ and private entities’

export assistance activities. For example, EEP previously was intended to

discourage unfair trade practices69 such as competitor nations’ use of

69See Food, Agriculture, Conservation and Trade Act of 1990 (P.L. 101-624, sec. 1531, Nov. 28, 1990).

Page 25 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

agricultural export subsidies. However, U.S. implementing legislation for

the Uruguay Round agreements70 states that the program’s use is not

limited solely to countering unfair trade practices. MAP was previously

required to counter unfair trade practices, such as the use of subsidies,71

but U.S. implementing legislation for the Uruguay Round agreements

removed this requirement.72 According to USDA officials, though changed in

law, operationally EEP is still used largely to counter unfair trade practices.

USDA reports that U.S. competitors are willing to incur large expenses to

support their agricultural exports and, thus, reasons that to remain

competitive and to protect the incomes of U.S. producers, the United

States must do likewise. According to USDA, the EU in fiscal year 1996 spent

about $9 billion on export subsidies.73 Agricultural exporting nations, such

as Australia, Canada, and New Zealand, provide less government support

for export assistance.74 However, they sell some of their agricultural

exports, including wheat and dairy products,75 through state trading

enterprises (STE).76 Some USDA and private sector officials believe that STEs

give these countries advantages over U.S. exporters because of their

ability to charge nontransparent and different prices in different markets.77

Thus, they state that U.S. programs are needed to offset foreign

government subsidies, these marketing organizations, and other

competitor nations’ actions.78 With the lack of transparency in STEs and

70See Uruguay Round Agreements Act (P.L. 103-465, sec. 411, Dec. 8, 1994).

71See 7 U.S.C. 5623 (1988, Supp. II 1990).

72See footnote 71.

73The Competition in 1996: Expenditures for Export Subsidies and Export Market Promotion Activities

of Major U.S. Competitors in Global Market for Agricultural and Food Products, FAS, USDA

(Washington, D.C.: Nov. 1996).

74We did not review studies of the effectiveness of EU or other competitor nations’ agricultural export

assistance programs.

75See Canada, Australia, and New Zealand: Potential Ability of Agricultural State Trading Enterprises to

Distort Trade (GAO/NSIAD-96-94, June 24, 1996).

76STEs are generally considered to be governmental or nongovernmental enterprises that are

authorized to engage in trade and are owned, sanctioned, or otherwise supported by the government.

77See International Trade: Canada and Australia Rely Heavily on Wheat Boards to Market Grain

(GAO/NSIAD-92-129, June 10, 1990).

78According to USDA, the following example of the Australian Wheat Board’s paying for an Indonesian

wheat importer’s son’s university education illustrates why the United States must—in order to

compete—have its own export assistance programs. To gain favor and access to the Indonesia’s wheat

market, the Australian Wheat Board paid for a prominent Indonesian wheat miller’s son’s university

education in Australia. According to FAS, this wheat miller controls two-thirds of Indonesia’s wheat

milling industry. USDA officials state this example represents the type of competitive challenge that

U.S. exporters face. Further, U.S. exporters are subject to the Foreign Corrupt Practices Act of 1977

(P.L. 95-213, Dec. 19, 1977). Therefore, USDA officials believe that U.S. exporters must rely on

programs like MAP or FMDP to combat competitor nations’ export practices.

Page 26 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

other export assistance efforts by competitor nations, it is difficult to

verify that USDA activities directly target foreign practices. Specifically,

without better data on how competitor nations’ agricultural export

assistance programs are funded, to what markets and commodities they

are targeted, and how effective they are in increasing agricultural exports,

it is uncertain how well U.S. export programs match and counter these

efforts.

Some studies have stated that competitors find U.S. export subsidies

relatively inexpensive to offset.79 For example, one researcher concluded

that it is unlikely that EEP can cause the level of EU export subsidies to rise

by more than 4 percent. The researcher also estimated that for every

additional dollar the U.S. government spent exporting wheat under EEP,

the EU had to spend only about 23 cents more on its own wheat and coarse

grain export subsidies to offset EEP’s impact.80 Further, the Australian

Bureau of Agricultural and Resources Economics similarly calculated that

the cost to the EU of offsetting EEP was equal to only about 1.5 percent of

the total EU agriculture budget for 1987 or 1988.81 Another study noted that

the increased cost of EU export subsidies from U.S. export subsidies

appeared to be small.82 Industry officials were divided in their assessment

of how significantly U.S. export assistance programs have increased the

cost of EU agricultural export assistance programs.

U.S. export assistance programs may in the short term increase market

share and, thus, may help U.S. companies compete when these programs

encourage importers to choose U.S. goods over those of competitors. For

example, the availability of credit under the GSM-102 program or the

market development effects of MAP and title I may influence importers to

choose U.S. commodities. However, these programs are unlikely to have a

sustained long-term impact, because competitors’ own agricultural export

assistance programs may counteract them (that is, offer better price or

79See G. Anania, M. Bohman, and C. Carter, “United States Export Subsidies in Wheat: Strategic Trade

Policy or Expensive Beggar-Thy-Neighbor Tactic?” American Agricultural Economics (1992); Haley,

“Evaluating The Export Enhancement Program Over 1991-95 Crop Years”; Haley,”The U.S. Export

Enhancement Program: Prospects”; and, I. Roberts, et al., U.S. Grain Policies and the World Market

(Canberra, Australia: Australian Bureau of Agricultural and Resources Economics, 1989).

80See Haley, “Evaluating the Export Enhancement Program,” and Haley, “The U.S. Export

Enhancement Program: Prospects.”

81In 1987 and 1988, total EU export subsidies for grains were $3.6 billion and $3.5 billion, respectively,

according to USDA. For those same years, EU export subsidies for wheat were estimated to have

increased due to EEP by $400 million and $290 million, respectively. In contrast, total EU agricultural

support outlays were approximately $26 billion for 1987 and $32 billion for 1988. See Roberts, et al.,

U.S. Grain Policies.

82Anania, Bohman, and Carter, “United States Export Subsidies in Wheat.”

Page 27 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

credit), and because there is no assurance that markets developed with

U.S. export programs can be sustained without the continued use of these

programs.

Finally, some studies83 of U.S. agricultural export assistance programs

have noted that countering foreign competitors’ market-distorting

practices with subsidies leads to lower prices and reduced market returns

for producers in all countries. Several industry officials concurred with

this observation. Also, export assistance programs such as EEP and credit

guarantees may transfer many of the programs’ benefits to foreign

consumers instead of to U.S. producers by lowering the cost of importing

U.S. agricultural commodities. For example, a study on EEP84 has estimated

that roughly 40 percent of the subsidy value has gone directly to foreign

consumers or governments.85

Divergent Views Exist on

Whether U.S. Export

Programs Promote U.S.

Trade Negotiating

Objectives

U.S. government officials and some private sector representatives argue

that U.S. agricultural export assistance programs may provide negotiating

leverage for the 1999 WTO agricultural trade talks. U.S. objectives for these

negotiations will be to further liberalize global agricultural trade (that is,

to further reduce tariffs and NTBs). The United States seeks further

liberalization because global agricultural trade remains one of the most

protected areas of world trade in terms of high tariffs and other trade

barriers, such as tariff-rate quotas (TRQ).86 Many of these trade barriers

remain permissible under the WTO.

87 These officials state that the United

States should not unilaterally eliminate these programs before 1999

because doing so would force the United States to come to the negotiating

table with a much-reduced set of items for negotiation. Some public and

private sector officials, however, challenge the idea that these programs

provide leverage. They question the leverage that these programs provided

during the Uruguay Round agricultural negotiations and believe that other

83See I. Roberts, et al., U.S. Grain Policies, and Anania, Bohman, and Carter, “United States Export

Subsidies in Wheat.”

84Robert L. Paarlberg, “Does the GATT Agreement Promote Export Subsidies: A Case of Unintended

Consequences,” International Agribusiness Management Association Meeting (May 1995).

85Some critics of U.S. agricultural export assistance programs believe that a more potent approach for

increasing U.S. agricultural exports (than the use of these programs) would be to pursue broader trade

negotiations that can help lower trade barriers and promote fairer trade.

86A tariff-rate quota system applies one tariff to imports up to a particular amount and a different,

higher tariff rate to imports in excess of that amount.

87For a listing of agricultural trade barriers worldwide by countries, see 1997 National Trade Estimate

Report on Foreign Trade Barriers, Office of the United States Trade Representative (Washington D.C.:

U.S. GPO, 1997).

Page 28 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

factors, such as internal pressure on the EU to further reform its

agricultural policies, rather than U.S. agricultural export assistance

programs, will have a greater impact on the success of the 1999 talks.

Program supporters state that the use or threatened use of these export

programs was helpful in achieving the Uruguay Round’s goal of

agricultural liberalization. A former U.S. agricultural trade negotiator

states that EEP helped pressure subsidizing competitors, particularly the

EU, to come to the negotiating table and agree to reduce the use of

subsidies. Program supporters reason that these programs could provide

negotiating leverage for the 1999 WTO agricultural negotiations and thus

give the United States leverage in negotiating reductions in tariffs,

agricultural subsidies, and the types of trade barriers that have grown in

importance since the Uruguay Round, such as STEs, SPS barriers, and TRQs.

USDA states that these assistance programs have also been valuable in

negotiations to open up specific foreign markets. For example, USDA

reports that in Japan, MAP efforts helped persuade consumers to question

quotas on imported U.S. beef. This contributed to the 1984 market-opening

talks for foreign meat products that were being negotiated between Japan

and the United States.

USDA officials state that in order for U.S. agricultural export assistance

programs to provide leverage, they must be consistently funded. For

example, some U.S. food exporters cited EEP’s peaks and valleys of

funding over the last 5 years, and the fact that it was basically not used in

fiscal year 1996, as weakening its potential leverage in future trade

negotiations. USDA officials and these exporters believe that even though

trade negotiations are very complex, with many dynamic interacting

factors and that it is hard to quantify each program’s potential negotiating

contribution, the United States should not unilaterally eliminate any of

these programs before the 1999 talks. They state that if we eliminate these

programs, we then come to the negotiating table with a much-reduced set

of items for negotiation. USDA reports its goal for the 1999 WTO negotiations

is to further liberalize global agricultural trade.

One difficulty in assessing arguments for retaining U.S. agricultural export

assistance programs based on the past negotiating leverage they have

provided is that while these arguments are difficult to refute, they cannot

be demonstrated empirically, much less evaluated by comparing costs to

benefits.88 Instead, these arguments rely heavily on anecdotal examples

88See Bruce Gardner, “The Political Economy of U.S. Export Subsidies for Wheat,” Working Paper No.

4747, National Bureau of Economic Research (Cambridge, MA: May 1994), for a discussion of the

interaction of EU policy changes and EEP.

Page 29 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

and personal experience. Some public and private sector officials

challenge the assertion that these programs provide leverage and their

achievements in multilateral and bilateral negotiations. Specifically, they

question the notion that EEP subsidies were instrumental in bringing the EU

to the table in the Uruguay Round negotiations. For example, some of

these officials report that EEP caused problems for the United States in

gaining consensus with nonsubsidizing agricultural exporting nations

during the Uruguay Round negotiations. They state that this may have

limited the U.S. ability to negotiate further EU concessions in agriculture.89

Further, some public and private sector officials believe that other U.S.

efforts, such as the use or threatened use of 301 trade sanctions,90 rather

than EEP, were key in bringing competitor nations to the negotiations.

Similarly, they question the effectiveness of a MAP-financed advertising

campaign in creating domestic political pressure to open Japan’s markets

to foreign beef products. Rather, they cite U.S. diplomatic negotiating

efforts; the threatened use of 301 trade sanctions; the fact that the United

States had requested a GATT investigation regarding Japanese beef quotas;91

and the efforts of other meat exporting nations, such as Australia, as being

keys to opening this market.

Looking forward to the 1999 WTO negotiations, some private sector

officials note that many of the trade barriers currently of interest, such as

SPS measures, high tariffs, and TRQs, are problems in importing nations.

Consequently, they question whether U.S. export assistance programs,

which were not intended to address these types of barriers, will be useful

in the WTO talks in gaining access to markets restricted by these barriers.

For example, to the extent that some of these programs’ subsidies are

transferred to consumers in importing nations, these nations may not want

to support the United States in giving up the programs through trade

negotiations.

Further, some public and private sector officials believe that the

EU—which in fiscal year 1996 spent over $9.1 billion on agricultural export

subsidies alone—will probably be the biggest factor in deciding whether

or not the 1999 talks are a success. They believe that EU budgetary

89For example, Robert Paarlberg argues that U.S. leverage over the EU in the Uruguay Round

negotiations was due to the threat that a deadlock in agriculture could block progress in more

important negotiating areas such as trade in manufacturing and services. See Paarlberg, “Does the

GATT Agreement Promote Export Subsidies.”

90Section 301 of the Trade Act of 1974, as amended (19 U.S.C. 2411), serves as the U.S. government’s

principal mechanism for addressing unfair foreign trade practices. It gives the U.S. Trade

Representative broad authority to enforce U.S. rights under bilateral and multilateral trade agreements

and seeks to eliminate certain acts, policies, or practices of foreign governments that burden or

restrict U.S. commerce.

91See International Trade Reporter, Vol. 5, #29 (July 20, 1988).

Page 30 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

pressures, not U.S. agricultural export assistance programs, will provide

the greatest incentive for the EU to continue to reform its agricultural

domestic and export policies and thus help further liberalize global

agricultural trade. Specifically, the cost of extending these EU domestic

and export policies to the upcoming new EU members such as Poland,

Hungary, and the Czech Republic (all of whom have sizable and protected

agricultural sectors) is considerable. In fiscal year 1996, the EU spent about

$52.3 billion, or 47 percent of its budget, on domestic agricultural and

export assistance programs. These officials question whether the EU will

be able to extend this same level of support to the new members.

Conclusion The evidence suggests that while FAIR’s domestic policy reforms will

modestly help boost U.S. agricultural exports, other factors such as the

ongoing liberalization of global agricultural trade and increased world

demand, are expected to increase U.S. exports independent of FAIR. In fact,

forecasts project growth in U.S. agricultural exports well beyond the

record $60 billion in 1996.

While FAIR’s domestic policy reforms removed a primary benefit associated

with most U.S. export assistance programs—the exporting of surplus

stocks generated by domestic price supports—program proponents state

that U.S. agricultural export assistance programs continue to have

relevance because they

• benefit the overall U.S. economy,

• benefit the agriculture sector and/or specific commodities,

• counter competitor nations’ agricultural export assistance programs,

and/or

• provide leverage to support U.S. trade negotiating objectives.

The evidence we found is mixed regarding the contributions of U.S.

agriculture export programs in these four areas. We found no conclusive

support that the programs benefit the U.S. economy as a whole, through

either expanded aggregate employment or output, or reduced trade or

budget deficits. Regarding benefits to the U.S. agriculture sector, there is

substantial research that concludes that these programs only modestly

increase exports above and beyond what is likely to occur in their

absence. More substantial benefits to the U.S. agricultural sector may

come from these programs’ contributions to countering foreign competitor

export assistance and providing leverage for trade negotiations.

Page 31 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

While we recognize substantial barriers continue to confront U.S.

agricultural exporters around the globe, the effectiveness of existing

programs to “level the playing field” by targeting trade barriers and

competitor programs or by providing negotiating leverage remains

uncertain. Without better data on the size, nature, and effectiveness of

competitors’ export assistance programs and unfair trade barriers, it

remains unclear how much the U.S. agricultural export programs

contribute to countering these competitors’ efforts or provide negotiating

leverage.

Matter for

Congressional

Consideration

Given the mixed evidence concerning the continued relevance of U.S.

agricultural export assistance programs, their decreased funding levels,

and the trend toward increased liberalization of global agricultural trade

from which the U.S. agricultural sector is likely to benefit with or without

further government support, the Congress may wish to reassess the

continued viability and/or focus of the programs the next time these

programs are reviewed.

To support such an assessment, the Congress may wish to direct USDA to

develop more systematic information on the potential strategic value of

U.S. export assistance programs—for example, in countering competitor

nations’ agricultural export programs or in providing negotiating leverage.

Specifically, the Congress may direct USDA to develop more systematic

information on (1) competitors’ programs and negotiating objectives and

(2) how effective each U.S. agricultural export assistance program is in

furthering U.S. interests. Once this information is in hand, the Congress

may wish to refocus the thrust of the programs.

Scope and

Methodology

To assess how FAIR may affect U.S. competitiveness in world agricultural

markets, we analyzed and synthesized the results of three tasks. First, to

gain an understanding of the act’s impact, we conducted interviews with a

wide range of U.S. and competitor nation agricultural experts.92 Second, to

corroborate these opinions and to obtain data on FAIR’s impact, we

analyzed available studies and reports authored by some of these experts.

92Specifically,we interviewed officials from USDA (including FAS and ERS), the Department of State,

the Office of the U.S. Trade Representative, the Congressional Budget Office, the Congressional

Research Service, and OMB, as well as from the embassies of Canada, Australia, New Zealand, and the

Delegation of the European Commission. We also interviewed agriculture experts from universities

such as Harvard, Texas A&M, and Iowa State, and think tanks such as the Cato Institute, the Heritage

Foundation, World Perspectives, and Sparks Inc. In addition, we interviewed representatives from

agricultural trade associations such as the North American Export Grain Association and the American

Farm Bureau Federation and agricultural businesses such as Cargill, Inc., and ConAgra, Inc.

Page 32 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Third, to obtain insights into the assumptions and variables that affect

global agricultural trade, we reviewed and discussed the economic

modeling results of USDA’s ERS and FAPRI in Ames, Iowa.

To examine the continued relevance of U.S. agricultural export assistance

programs, we performed three tasks. First, to understand the history,

mission, and effectiveness of these programs,93 we drew upon our prior

work in this area.94 Second, to develop a method for organizing the

evidence regarding these programs’ relevance, we took the benefits

proponents state these programs provide and, in consultation with

agricultural experts, constructed a framework that consists of four basic

categories of potential program impact (for example, do these programs

benefit the U.S. economy?). Third, to obtain evidence on the continued

relevance of these programs,95 we interviewed government officials,

agricultural trade experts, and officials of the organizations previously

mentioned and gathered applicable research, empirical evidence, and

other information on the impact of these programs. Finally, we

synthesized all the information to present the best evidence available on

the continued relevance of U.S. export programs in furthering the four

categories of impact. While we have worked to provide the best evidence

available, we acknowledge that determining program relevance is difficult

because many of the domestic and international conditions under which

past observations of and research on these programs have been based

have changed; thus, any assessment of the future relevance of these

programs needs to be tempered with this understanding.

Lastly, we had a draft of this report peer reviewed for accuracy and

objectivity by several public and private sector economists and

agricultural experts.

We performed our review from June 1996 to May 1997 in accordance with

generally accepted government auditing standards.

93For the purpose of this review, we focused on USDA’s four types of agricultural export assistance

programs. We did not examine other aspects of USDA efforts to increase U.S. agricultural exports,

such as FAS’ overseas offices which, according to USDA, provide a global strategic network to alert

the U.S. private sector to export opportunities and market expectations, identfy trade and marketing

barriers, and gather information on U.S. competitors. In fiscal year 1995, FAS had an operating budget

of about $118 million to carry out its overseas functions and manage its various agricultural export

assistance programs.

94See Related GAO Products.

95Regarding USDA market promotion efforts, for the purposes of this review, we focused more on MAP

than on FMDP because FMDP was not significantly affected by or addressed in the FAIR legislation.

Page 33 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

Agency Comments

and Our Evaluation

We provided a draft of this report to USDA for review and comment. We

met with officials of the Department, including FAS’ Associate

Administrator and ERS’ Deputy Director, and other senior management

officials representing FAS’ various export assistance programs. These

officials agreed in principle to the report’s conclusions and matter for

congressional consideration. They also stated that the report provided

insights into the complexity of isolating the impact of U.S. agricultural

export assistance programs on U.S. agricultural exports, separate from the

wide range of other variables that affect these exports.

They acknowledged that market forces, not these federal programs, were

the greatest factor in increasing U.S. agricultural exports. However, FAS

officials felt that the report was too negative about the programs and that

the assumptions used preordained the outcome of our analysis. In

particular, FAS officials stated that our focus on the macroeconomic

impact of U.S. agricultural export assistance programs—including the

assumption of full employment—imposed an unreasonably high standard

that these programs should have a positive impact on the overall U.S.

economy. They questioned whether this standard could be met by any

federally funded program. Several senior FAS program managers added

that U.S. agricultural export assistance programs were in fact designed to

redistribute economic resources from other sectors of the U.S. economy to

agriculture. FAS officials also felt that our presentation of studies regarding

MAP’s impact was selective and unbalanced.

In response to USDA’s comments, we have expanded our discussion of

MAP’s impact to include five additional studies of the program. Though this

expanded the number of countries and commodities targeted by MAP that

we discuss, it did not alter our conclusions. In addition, while

demonstrating a macroeconomic benefit is a high standard for any federal

program, the requester was specifically interested in whether U.S.

agriculture export assistance programs benefit the national economy, a

claim that USDA has made in the past. Moreover, beyond the review of

these programs’ potential macroeconomic effects, we also reviewed their

impact on the agricultural sector and specific commodities, on countering

competitor export assistance programs, and on providing negotiating

leverage. Regarding our use of the full employment assumption, our

analysis of USDA programs’ macroeconomic impact did consider the

programs’ effectiveness under conditions of less than full employment, as

well as full employment. However, under either condition there was no

evidence that these programs provide macroeconomic benefits. In

addition, it should be noted that (1) our analysis of macroeconomic impact

Page 34 GAO/NSIAD-97-260 U.S. Agricultural Exports
B-277683 

under conditions of full employment is consistent with OMB guidance and

(2) comments on our draft report from several public and private sector

economists and agricultural experts indicated no disagreement with our

methodology or analysis. Moreover, the consensus of these reviewers was

that the report was accurate and balanced.

USDA officials suggested a number of technical revisions to our draft. We

have incorporated them into the report where appropriate.

As arranged with your office, we will send copies of this report to the

Senate and House Agriculture Committees, other interested congressional

committees, the Secretary of Agriculture, and other interested parties. We

will also make copies available to others on request. Major contributors to

this report are listed in appendix II.

Please call me on (202) 512-8984, if you or your staff have any questions

about this report.

Sincerely yours,

JayEtta Z. Hecker, Associate Director,

International Relations and Trade Issues

Page 35 GAO/NSIAD-97-260 U.S. Agricultural Exports
Contents

Letter 1

Appendix I 

Funding for U.S.

Agricultural Export

Assistance Programs

38

Export Subsidy Programs 38

Export Credit Guarantee Programs 39

Market Development and Promotion Programs 41

Public Law 480 Title I-Food Aid 42

Appendix II 

Major Contributors to

This Report

44

Related GAO Products 47

Figures Figure 1: Forecasted Average Annual Real GDP Growth Rates for

Selected Regions, 1990-2005

10

Figure I.1: Export Subsidy Programs’ Expenditures, Fiscal Year

1985-98

39

Figure I.2: Export Credit Guarantee Program Assisted Sales,

Fiscal Year 1985-98

40

Figure I.3: Market Development and Promotion Program

Expenditures, Fiscal Year 1985-98

42

Figure I.4: Public Law 480 Title I-Food Aid Expenditures, Fiscal

Year 1985-98

43

Page 36 GAO/NSIAD-97-260 U.S. Agricultural Exports
Contents

Abbreviations

ARP Acreage Reduction Program

CGE computable general equilibrium model

COAP Cottonseed Oil Assistance Program

CRS Congressional Research Service

DEIP Dairy Export Incentive Program

EEP Export Enhancement Program

ERS Economic Research Service

EU European Union

FAPRI Food and Agricultural Policy Research Institute

FAS Foreign Agricultural Service

FAIR Federal Agriculture Improvement and Reform Act

FMDP Foreign Market Development Program

FOR Farmer Owned Reserve Program

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

GSM General Sales Manager

HVP high-value product

MAP Market Access Program

NTB nontariff barrier

OMB Office of Management and Budget

SOAP Sunflowerseed Oil Assistance Program

SPS sanitary and phytosanitary

STE state trading enterprise

TPCC Trade Promotion Coordinating Committee

TRQ tariff-rate quota

USDA U.S. Department of Agriculture

WTO World Trade Organization

Page 37 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix I 

Funding for U.S. Agricultural Export

Assistance Programs

This appendix presents detailed information about the U.S. Department of

Agriculture’s (USDA) four export assistance programs. These include

export subsidy programs, export credit guarantee programs, market

development and promotion programs, and food aid programs.

Export Subsidy

Programs

These programs are intended to help U.S. commodities become more price

competitive on the world market. In the past, these programs have

included the Export Enhancement Program (EEP), the Dairy Export

Incentive Program (DEIP), the Sunflowerseed Oil Assistance Program

(SOAP), and the Cottonseed Oil Assistance Program (COAP). EEP has been

the largest of these programs in terms of government funding and,

according to USDA, has been used to pressure foreign nations to reduce

trade barriers and eliminate trade-distorting practices. During 1996, EEP

was not fully utilized due to market conditions—tight supply and high

international demand—that did not warrant its use. The Federal

Agriculture Improvement and Reform (FAIR) Act of 1996 did not

reauthorize the SOAP and COAP programs. See figure I.1 for expenditures on

all export subsidy programs in fiscal years 1985-98.

Page 38 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix I 

Funding for U.S. Agricultural Export

Assistance Programs

Figure I.1: Export Subsidy Programs’ Expenditures, Fiscal Year 1985-98

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

0

200

400

600

800

1,000

1,200

1,400

22

256

928

1,022

348 325

1,009

1,067 1,053

1,292

479

25

156

589

Fiscal year

Dollars in millions

EEP DEIP/SOAP/COAP

a a

aEstimated fiscal year 1997-98 program levels.

Source: Foreign Agricultural Service (FAS), USDA.

Export Credit

Guarantee Programs

The export credit guarantee programs are intended to develop, expand, or

maintain U.S. agricultural markets overseas by facilitating access to export

credit for countries that do not have adequate commercial credit available.

These programs encourage U.S. lenders to extend credit to foreign

importers to purchase U.S. agricultural commodities. USDA has two types

of export credit guarantee programs, also known as the General Sales

Manager (GSM) programs. The GSM-102 program offers short-term

commercial credit guarantees for periods of up to 3 years. The second

program, known as GSM-103, offers intermediate-term loan guarantees and

repayment periods of 3 to 10 years. The GSM export credit guarantee

programs are funded under the auspices of USDA’s Commodity Credit

Corporation. In fiscal year 1996, these programs provided credit

Page 39 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix I 

Funding for U.S. Agricultural Export

Assistance Programs

guarantees on agricultural exports valued at $3.2 billion.1 The FAIR Act

established that not less than $5.5 billion was to be made available

annually for credit guarantees through 2002. The act allows greater

flexibility in terms of how much is made available for each program. The

act also allows credit guarantees on high-value products (HVP) with at least

90 percent U.S. content by weight. See figure I.2 for assisted sales amounts

for fiscal year 1985-98 export credit guarantees.

Figure I.2: Export Credit Guarantee Program Assisted Sales, Fiscal Year 1985-98

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2,513 2,535

2,873

4,504

5,196

4,296

4,522

5,684

3,882

3,220

2,921

3,230

5,500

5,700

Fiscal year

Dollars in millions

GSM102 GSM103

a a

Note: The Export Credit Guarantee Program was established in 1980 and, as of January 1997, the

government has paid out approximately $2.1 billion in claims because of loan repayment defaults

and reschedulings by foreign buyers.

aEstimated fiscal year 1997-98 program levels.

Source: FAS, USDA.

1

According to the Commodity Credit Corporation, the export subsidy amount in fiscal year 1996 was

$327.4 million.

Page 40 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix I 

Funding for U.S. Agricultural Export

Assistance Programs

Market Development

and Promotion

Programs

These programs are intended to develop, maintain, and expand foreign

markets for U.S. agricultural products through subsidies for advertising

and market promotion. In the 1950s, the federal government created

several market development and export promotion programs. Today, FAS

is responsible for (1) the Foreign Market Development Program (FMDP)

and (2) the Market Access Program (MAP). These programs provide funds

to commercial firms and not-for-profit organizations to promote U.S.

agricultural commodities in foreign markets. FMDP (also known as the

Cooperator Program) is intended to help develop export markets and

promote U.S. agricultural commodities—typically for bulk, or generic,

products. MAP, on the other hand, is used primarily to assist in developing

markets for high-value or processed products. In 1996, FMDP contributions

by the U.S. government were capped at $34 million. The FAIR Act capped

funding authority for MAP at $90 million for each fiscal year from 1996 to

2002. See figure I.3 for expenditures on market development and

promotion programs in Fiscal Year 1985-98.

Page 41 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix I 

Funding for U.S. Agricultural Export

Assistance Programs

Figure I.3: Market Development and Promotion Program Expenditures, Fiscal Year 1985-98

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

0

50

100

150

200

250

300

36

147 137 144

233 234 238 238

207

135

145

124 124 124

Fiscal year

Dollars in millions

MAP FMDP

a a

aEstimated fiscal year 1997-98 program levels.

Source: FAS, USDA.

Public Law 480 Title

I-Food Aid

The Public Law 480 food aid program is intended to enhance the food

security of developing countries through the use of agricultural

commodities and local currencies to (1) combat world hunger and

malnutrition and their causes; (2) promote sustainable economic

development, including agricultural development; (3) expand international

trade; (4) develop and expand export markets for U.S. agricultural

commodities; and (5) encourage the growth of private enterprise and

democratic participation in developing countries. In fiscal year 1996, USDA

reported that this program resulted in the export of approximately

$370 million, or 1.2 million metric tons, of U.S. commodities. The FAIR Act

extends the authority of the United States to enter into new Public

Page 42 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix I 

Funding for U.S. Agricultural Export

Assistance Programs

Law 480 agreements through 2002. Further, it authorizes, for the first time,

Public Law 480 title I agreements with private entities. The act also

modifies repayment terms for title I credit, including elimination of the

10-year minimum repayment period and reduction of the maximum grace

period from 7 to 5 years.2

 See figure I.4 for Public Law 480 expenditures

for fiscal year 1985-98.

Figure I.4: Public Law 480 Title I-Food Aid Expenditures, Fiscal Year 1985-98

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

0

200

400

600

800

1,000 928.2

766.5

695.6 721.4 735 725.3

395.3 374.2

332.8

217.8

171.7

219 240

123

Fiscal Year

Dollars in millions

a a

Note: fiscal year 1988-96 based on registered sales. Transportation costs are not included.

aEstimated fiscal year 1997-98 program levels.

Source: FAS, USDA.

2

USDA also administers the donation program under section 416(b) of the Agricultural Act of 1949, as

amended by section 302 of P.L. 83-480, (July 10, 1954) (7 U.S.C. 1431(b)), which provides agricultural

commodities held in U.S. government inventories to needy countries. There were no commodities

available for programming in fiscal years 1996 and 1997 due to low inventories. In addition to USDA

food aid programs, there are two food aid programs administered by the Agency for International

Development (the title II emergency and private assistance programs and the title III food for

development program).

Page 43 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix II 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

Phillip J. Thomas

Kurt W. Kershow

Kurt A. Burgeson

Gezahegne Bekele

Emil E. Friberg Jr.

Rona H. Mendelsohn

Office of the General

Counsel, Washington,

D.C.

Richard P. Burkard

Herbert I. Dunn

Office of the Chief

Economist,

Washington, D.C.

Loren Yager

Daniel E. Coates

San Francisco Field

Office

Christine M. Broderick

Page 44 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix II 

Major Contributors to This Report

Page 45 GAO/NSIAD-97-260 U.S. Agricultural Exports
Appendix II 

Major Contributors to This Report

Page 46 GAO/NSIAD-97-260 U.S. Agricultural Exports
Related GAO Products

Addressing the Deficit: Budgetary Implications of Selected GAO Work for

Fiscal Year 1998 (GAO/OCG-97-2, Mar. 14, 1997).

Export-Import Bank: Reauthorization Issues (GAO/T-NSIAD-97-147, Apr. 29,

1997).

Canada, Australia, and New Zealand: Potential Ability of Agricultural State

Trading Enterprises to Distort Trade (GAO/NSIAD-96-94, June 24, 1996).

Farm Bill Export Options (GAO/GGD-96-39R, Dec. 15, 1995).

U.S. Department of Agriculture: Foreign Agricultural Service Could Benefit

From Better Strategic Planning (GAO/GGD-95-225, Sept. 28, 1995).

State Trading Enterprises: Compliance with the General Agreement on

Tariffs and Trade (GAO/GGD-95-208, Aug. 30, 1995).

Food Aid: Competing Goals and Requirements Hinder Title I Program

Results (GAO/GGD-95-68, June 26, 1995).

Agricultural Trade: Competitor Countries’ Foreign Market Development

Programs (GAO/T-GGD-95-184, June 14, 1995).

Export Promotion: Rationales for and Against Government Programs and

Expenditures (GAO/T-GGD-95-169, May 23, 1995).

Former Soviet Union: Creditworthiness of Successor States and U.S.

Export Credit Guarantees (GAO/GGD-95-60, Feb. 24, 1995).

Agricultural Trade: Five Countries’ Foreign Market Development for

High-Value Products (GAO/GGD-95-12, Dec. 14, 1994).

Cargo Preference Requirements: Objectives Not Significantly Advanced

When Used in U.S. Food Aid Programs (GAO/GGD-94-215, Sept. 29, 1994).

International Trade: Impact of the Uruguay Round Agreement on the

Export Enhancement Program (GAO/GGD-94-180BR, Aug. 5, 1994).

Public Law 480 Title I: Economic and Market Development Objectives Not

Met (GAO/T-GGD-94-191, Aug. 3, 1994).

Page 47 GAO/NSIAD-97-260 U.S. Agricultural Exports
Related GAO Products

General Agreement on Tariffs and Trade: Uruguay Round Final Act Should

Produce Overall U.S. Economic Gains (GAO/GGD-94-83A&B, July 29, 1994).

High-Value Product Exports: Good Potential Exists for More Trade With

Taiwan, Malaysia, and Indonesia (GAO/GGD-94-52, Nov. 19, 1993).

U.S. Department of Agriculture: Issues Related to the Export Credit

Guarantee Programs (GAO/T-GGD-93-28, May 6, 1993).

Loan Guarantees: Export Credit Guarantee Programs’ Costs Are High

(GAO/GGD-93-45, Dec. 22, 1992).

(711256) Page 48 GAO/NSIAD-97-260 U.S. Agricultural Exports
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 37050

Washington, DC 20013

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100