Lessons To Be Learned From Offsetting the Impact of the Soviet Grain Sales Suspension

CED-81-110: Published: Jul 27, 1981. Publicly Released: Jul 28, 1981.

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On January 4, 1980, the President announced that, for foreign policy and national security reasons, the federal government was suspending the shipment of about 18 million metric tons of agricultural commodities to the Soviet Union. The President directed the Department of Agriculture (USDA) to take actions to offset the suspension's impact on farmers. These offsetting actions, most of which were concerned with stabilizing market prices, included removing the suspended grain from the market by increasing the wheat and corn price-support loan rates, adjusting the farmer-owned reserve program, purchasing grain directly from farmers and country grain elevators, and purchasing exporters' undeliverable grain contracts with the Soviet Union.

Because of the short time between the decision to suspend shipments and the suspension's announcement, USDA was not able to analyze thoroughly the suspension's potential impact and to develop a comprehensive plan of offsetting actions. The lack of adequate planning caused USDA to: (1) erroneously anticipate that the farmer-owned reserve would efficiently remove the undeliverable grain; (2) purchase the exporters' Soviet contracts valued at about $2.4 billion with little documentation that such purchase was necessary; and (3) implement inefficiently the offsetting actions. Since any future suspension of the export of agricultural commodities may have a severe effect on the grain production and marketing industries, it is important that the potential effects of the various actions that could be taken to offset the potential impact of any further suspensions be identified and analyzed. USDA purchase and resale of the exporters' Soviet contracts and its purchase of corn and wheat from farmers were implemented in a manner which led to federal losses or increased federal costs. A government monitoring program set up to identify illegal shipments to the Soviet Union was reasonably successful in identifying and discouraging direct shipments from U.S. ports to the Soviet Union. However, it was not feasible to closely monitor for possible unauthorized transshipments. The Soviet Union was able to substantially offset the suspension's impact by increasing imports from other countries and drawing down its reserves.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: GAO believes that the recommendation is valid. Although USDA has been required by law, since 1981, to act, it has not done so, and GAO has no reason to believe that it will act in the near future. Additionally, the committees have not pressed the issue.

    Recommendation: The Secretary of Agriculture should develop and keep current a contingency plan that would include: (1) an assessment of whether existing farm programs are flexible enough to efficiently and effectively offset the impact of a grain sales suspension on farmers; (2) an evaluation of the types and availability of data needed to determine on short notice the extent and severity of a suspension's impact on farmers, grain elevators, grain transporters, and exporters; and (3) an analysis of the extent, if any, to which the impact on each of the agricultural sectors should be offset.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Not Implemented

    Comments: GAO believes that the recommendation is valid. Although USDA has been required by law, since 1981, to act, it has not done so, and GAO has no reason to believe it will act in the near future. Additionally, the committees have not pressed the issue.

    Recommendation: The Secretary of Agriculture should, after assessing existing farm programs, develop and submit to Congress any legislative recommendations for modifying existing programs or instituting new programs that the Secretary finds are necessary in developing a contingency plan.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Not Implemented

    Comments: GAO believes that the recommendation is valid. Although USDA has been required by law, since 1981, to act, it has not done so, and GAO has not reason to believe that it will act in the near future. Additionally, the committees have not pressed the issue.

    Recommendation: If the Commodity Credit Corporation again considers purchasing exporters' contracts to offset the impact of any future suspensions, the Secretary of Agriculture should direct it to: (1) prepare an economic justification for each commodity involved in the suspension to determine if such purchase is necessary; and (2) estimate any suspension-related benefits and detrimental effects to the exporters and use both estimates in determining the extent of federal assistance needed.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Not Implemented

    Comments: GAO believes that the recommendation is valid. Although USDA has been required by law, since 1981, to act, it has not done so, and GAO has no reason to believe that it will act in the near future. Additionally, the committees have not pressed the issue.

    Recommendation: If the Commodity Credit Corporation again considers open-market purchases as an offsetting action, the Secretary of Agriculture should direct it to purchase only the types and grades of commodities suspended from shipment and to make such purchases at prices within a reasonable amount of the existing market price.

    Agency Affected: Department of Agriculture

 

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