The Bill Emerson Humanitarian Trust: Background and Current Issues
Released: 2003-04-17T00:00:00

RS21234 -- The Bill Emerson Humanitarian Trust: Background and Current Issues

Updated April 17, 2003

The Emerson Trust

The Africa Seeds of Hope Act of 1998 amended Title III of the Agricultural Act of 1980 by replacing the Food Security Commodity Reserve (FSCR) and itspredecessor, the Food Security Wheat Reserve (FSWR), with the Bill Emerson Trust. (1)

The purpose of the Trust is "solely to meet emergency humanitarianfood needs in developing countries..."(Section 302, 7 U.S.C. 1736f-1). The legislation authorizes the Trust to holdup to 4 million metric tons of wheat, corn,sorghum and rice. Taking into account previously unreplenished releases from the Trust and 4 recent releases ofcommodities for use in Africa and Iraq,approximately 1.1 million metric tons of wheat remain in the Trust. The Africa Seeds of Hope Act allows the Trustto hold funds as well as commodities, butno funds have ever been held.

Uses. The statute authorizes two uses for the Trust. First, the Secretary of Agriculture has authority torelease up to 500,000 metric tons of eligible commodities for urgent humanitarian relief in the case of unanticipatedfood needs in developing countries and torelease an additional 500,000 metric tons of eligible commodities that could have been, but were not, released inprevious years. Second, the Secretary hasauthority to release commodities from the reserve when she determines that U.S. domestic supplies are so limitedthat commodities cannot be made availablefor regular programming in P.L. 480 foreign food aid programs. (2)

Exchange of Commodities. A commodity in the Trust may be exchanged for another U.S. commodity ofequal value. In FY2002, wheat released from the Trust was sold and the proceeds used to purchase corn, vegetableoil, and dry beans for distribution insouthern Africa.

Reimbursement. Commodities in the Emerson Trust are held as assets of the Commodity Credit Corporation(CCC). (3) When commodities are released from theTrust, the CCC incurs a loss (the value of the assets it no longer holds.) The Trust is subsequentlyreimbursed for the commodities released with a transfer of funds from P.L. 480. The 1998 Act provides that theCCC be reimbursed by P.L. 480 for thecommodity costs of a release for unanticipated needs based on the lesser of 1) the actual costs incurred or 2) theexport market price as determined by theSecretary at the time of the release. Reimbursement to the CCC for the cost of ocean freight and other non-commodity costs occurs through the regular USDAappropriations process in which USDA requests budget authority to cover these costs in annual budget submissions. Reimbursement for a release ofcommodities for unanticipated needs can be made from past, current, or subsequent unobligated P.L. 480 funds. Commodities released for use in P.L. 480programs when supplies are short are paid for from current fiscal year P.L. 480 funds.

Replenishment. Current law does not require replenishment of commodities released from the Trust, butdoes provide for ways to do it. The Secretary of Agriculture may acquire commodities through purchases fromproducers or in the market, if the Secretarydetermines that such purchases will not unduly disrupt the market. Funds for such purchases must be authorizedin an appropriation act. The Secretary mayalso replenish the Trust by designation to the Trust of commodities already owned by the CCC.

History 1980-2003

Origins of the Trust. During the 1970's, Congress debated the creation of either a permanentgovernment-held stock of grain or a fund to promote global food security. Advocates of a grain reserve argued thatit would provide a buffer to the vagaries ofagricultural production, ensuring grain availability, regardless of domestic supply conditions, in case of urgent need. They argued, in addition, that a reservewould serve as a surplus disposal mechanism in times of excess production, thereby strengthening farm prices. Supporters of a fund, on the other hand,contended that dollar resources would provide more flexibility in meeting urgent needs, and that factors other thanfood shortages, such as transportation or highcommodity costs, were more likely to impede the delivery of food to needy people in emergency situations. Areserve of funds also would not have thepotential price-depressing effect that a release of commodities could have.

Events overtook this debate in 1979 when the Soviet Union invaded Afghanistan, prompting the CarterAdministration to embargo all U.S. grain shipments tothe USSR. To prevent loss of revenue to exporters and adverse impacts on domestic commodity prices which mighthave resulted from the embargo, the CCCoffered to purchase from U.S. suppliers grain previously committed to the Soviet Union. Through this process theCCC acquired 4 million metric tons ofwheat, with which to establish a grain reserve. The Food Security Wheat Reserve Act of 1980 (Title III of P.L.96-494 ) codified this move as a means of guaranteeing a supply of wheat in times of tight supplies or unanticipated need. The Act allowed wheat from thereserve to be used in the P.L. 480 program ifwheat were unavailable through normal channels. The 1980 Act also authorized the release of up to 300,000 metrictons to meet urgent humanitarian need inforeign countries without consideration of domestic supply conditions or additional congressional appropriations.

The 1996 farm bill ( P.L. 104-127 ) transformed the wheat reserve into the FSCR which was still a reserve of upto 4 million metric tons, but included corn,sorghum, and rice in the reserve along with wheat. The criteria which would trigger release of stocks from theFSCR were the same as for the predecessorwheat reserve -- unanticipated urgent humanitarian need or short domestic supplies. The 1996 legislation increasedfrom 300,000 tons to 500,000 tons theamount of commodities that could be released through the P.L. 480 Title II donations program each fiscal year tomeet unanticipated needs without regard to thedomestic supply situation. Further, the 1996 Act allowed the release of up to an additional 500,000 tons of eligiblecommodities that could have been released,but were not, in previous years for use under Title II of P.L. 480 to provide urgent humanitarian relief.Reimbursement requirements remained the same as in theearlier statute. While the 1980 Act required that the reserve be replenished 18 months after stocks had beenreleased, the 1996 Act omitted a deadline by whichthe reserve must be replenished.

The 2002 farm bill ( P.L. 107-171 ) contains the current legislative authority for the Emerson Trust as established in the 1998 Africa Seeds of Hope Act. P.L.107-171 extends the Trust through FY2007.

Use of the Reserve: 1980-1996. Wheat from the reserve was used on six occasions from its establishment in1980 through fiscal year 1996 -- three times to meet P.L. 480 commitments when supplies were short and threetimes to meet unanticipated emergency needs.(See Table 1.) Although corn, sorghum, and rice are eligible commodities for the reserve (since 1996), only wheathas been held.

In 1984, President Reagan ordered the release of 300,000 tons of wheat to meet emergency food needs in Ethiopia and other Sub-Saharan African countriesduring the famine of the mid-1980's. In October 1988, 1.5 million tons were authorized to meet P.L. 480programming requirements because the U.S. droughtof 1988 had reduced commercial wheat supplies. Supply conditions continued to worsen through that fiscal yearand, in September 1989, President Bushauthorized the release of an additional 2 million metric tons of wheat to satisfy P.L. 480 program commitments. In May 1991, 300,000 tons of wheat from thereserve were made available to meet disaster relief needs expected to be large as a result of the Iraqi Kurdish refugeecrisis and ongoing food emergencies inSub-Saharan Africa. However, a total of 59,000 metric tons was programmed for use. On July 19, 1994, PresidentClinton authorized the release of up to300,000 tons of wheat for emergency assistance to the Caucasus region of the former Soviet Union. On January22, 1996, the President delegated to theSecretary of Agriculture authority to release up to 1.5 million tons of wheat from the reserve for use in the P.L. 480program because of the limited availabilityof wheat in commercial markets. Of the amount authorized, a total of 1,280,779 tons was programmed for use inP.L.480.

Table 1. Using the FSWR: A Brief History

The "Short Supply" Determination. Section 401 of P.L. 480 provides that the Secretary of Agriculture makea determination of the agricultural commodities and quantities available for use in food aid programs. The sectionfurther provides that no commodity shall bemade available to P.L. 480 programs if so doing would reduce the domestic supply of the commodity below whatis needed to meet domestic requirements andto provide adequate carryover.

As an example, USDA, in FY1996, estimated that 1.8 million metric tons of wheat and wheat products would be available for P.L. 480 from domestic supplies. However as the marketing year progressed, USDA revised its initial determination, based on its assessment that thesize of the wheat crop would be lower thanexpected and that commercial export demand would be strong. In January of 1996, wheat prices rose to $4.83 perbushel. Stocks for the 1996 wheat marketingyear were estimated at 452 million bushels, with a stocks-to-use ratio of just under 20% percent. The USDA'srevised supply and demand assessment concludedthat only 300,000 metric tons of wheat would be available from domestic supplies and led the Secretary to requestpresidential authority to release up to 1.5million metric tons of wheat from the FSWR during FY1996 for P.L. 480 programming.

Use of the Trust: 2002 and 2003. The Secretary of Agriculture announced releases from the Trust of 275,000tons of wheat on June 10, 2002 and 300,000 tons of wheat on August 28, 2002. The wheat from the reserve wasexchanged for an equal value of corn, beansand vegetable oil for use in humanitarian relief in southern Africa. In FY2003, the Secretary has announcedreleases of 200,000 tons for emergency food needsin the Horn of Africa and 600,000 tons for emergency needs in Iraq. Of the 600,000 tons released for Iraq, 200,000will be made immediately available and400,000 tons will be made available as needed. A portion of the wheat released was to have been exchanged forrice. However, concerns about the potentialprice-depressing effect of selling wheat and a provision of the wartime supplemental appropriations act prohibitingexchanges in FY2003 precluded such sales.With these announced releases, an estimated 1.1 million metric tons remain in the Trust.

Experience with Reimbursement and Replenishment. The first release from the Trust in FY1985 of 300,000metric tons of wheat to meet unanticipated need was reimbursed with $45 million of unobligated FY1987 P.L. 480Title I and Title II appropriations. Reimbursement was based on the export price of wheat at the time the commodities were released, that is inFY1985. In FY1991, the reserve was used again tomeet urgent humanitarian need and was reimbursed from Title I appropriations unobligated at the end of FY1991. The reserve was tapped again in FY1994 tomeet unanticipated need. The CCC was reimbursed $28 million, consisting of $15.4 million in prior yearunobligated balances in the Title I credit account, $2.3million in unobligated FY1995 funds in the Title I credit account, and $10.3 million in prior year unobligatedbalances in the Title I ocean freight differentialaccount. When commodities were released for reasons of short supply, current year P.L. 480 appropriations wereused to reimburse the CCC for the wheatreleased.

Of the two ways to replenish the Trust after commodities have been released, i.e., purchase or designation of stocks already in CCC inventories, only the latterhas been used until now. Following the first release of wheat from the reserve in FY1985, an equivalent quantityof wheat owned by the CCC was designatedby the Secretary as replenishment for the wheat sent to Sub-Saharan Africa in the preceding year. Policy at this timewas essentially to replace any drawdown ofthe reserve immediately by available CCC inventory. This was possible because CCC held large stocks of wheat,and with such a large inventory, USDAofficials felt no need to identify wheat in the reserve separately from other CCC-owned stocks.

In 1988, however, CCC changed its policy regarding a separate designation of wheat for the FSWR and entered into long-term contracts with commercialwarehousemen with the contracts specifically designating the wheat as part of the reserve. The long-term contractssaved annual storage costs because CCCwas able to negotiate lower storage terms. In 1990, USDA announced that the CCC would designate alluncommitted CCC-owned wheat to the Food SecurityWheat Reserve. At that time, 60 million bushels of wheat remained in the reserve because of releases for shortsupply in 1988 and 1989. CCC designatedenough wheat for the reserve to restore it to its full 147 million bushels or 4 million metric ton maximum by March1991. The reserve was not replenished forits drawdown in 1994. The 1996 release also was not replenished.

With respect to releases from the Trust in FY2002 and FY2003, the Emergency Wartime Supplemental Appropriations Act of 2003 ( P.L. 108-11 , H.R. 1559 ) provides $69 million to acquire a quantity of commodities for use in administering the Trust. This appropriation will enable the firstreplenishment of the Trust since 1990 and the first time that Congress has appropriated funds for that purpose. Because of large needs for humanitarian foodaid in Africa and Iraq in FY2003, reimbursement of the Trust is likely to be postponed to subsequent fiscal years.