Farmer-Owned Grain Reserve Program Needs Modification To Improve Effectiveness, Vol. 1

CED-81-70(I): Published: Jun 26, 1981. Publicly Released: Jun 26, 1981.

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The Farmer-Owned Reserve, authorized by the Food and Agriculture Act of 1977 is to encourage producers to store wheat and feed grains when they are in abundant supply and extend the time for their orderly marketing.

GAO and its consultants found that, during its first 2 to 3 years, the farmer-owned reserve (FOR) only partially met its objectives of increasing grain inventories in times of abundant supply, removing the government from the role of grain storer, and reducing price variability. Some reserve grain is of questionable quality and storage payments have exceeded storage costs. As of March 18, 1981, the reserve contained about 1.22 billion bushels of wheat, corn, and other grains. The value of outstanding loans on these reserve grains was about $2.9 billion. The reserve grain cannot be sold without penalty until predetermined market price levels are reached. At release, producers may, but do not have to, remove the grain from the reserve. At call, producers must repay their loans or forfeit the grain. Most reserve grain would have been held in private stocks without the reserve. Although the reserve initially succeeded in ensuring producer ownership of reserve stocks, the government now holds the grain purchased in reaction to the Russian grain embargo. Program modifications are needed to improve the program's effectiveness. Producers had been allowed to retain unearned storage payments for an unreasonable period of time when the redemption period was extended. Program regulations have been amended to provide that interest be charged immediately following the maturity date or the originally required settlement date.

Recommendations for Executive Action

  1. Status: Closed

    Comments: GAO has no information on the actions taken by the agency.

    Recommendation: The Secretary of Agriculture should evaluate the effectiveness of FOR to serve as a basis for Congress to use in making future grain policy decisions.

    Agency Affected: Department of Agriculture

  2. Status: Closed

    Comments: GAO has no information on the actions taken by the agency.

    Recommendation: The Secretary of Agriculture should study the feasibility of other FOR program modifications and, if they provide remedies to the problems GAO found, incorporate them into the program.

    Agency Affected: Department of Agriculture

  3. Status: Closed

    Comments: GAO has no information on the actions taken by the agency.

    Recommendation: The Secretary of Agriculture should provide for methodical program adjustments in response to a broad range of potential market and political developments to allow decisionmakers in grain and related industries to anticipate such changes and adjustments, while still allowing for some necessary flexibility.

    Agency Affected: Department of Agriculture

 

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