Agriculture's Implementation of GAO's Wheat Export Subsidy Recommendations and Related Matters

ID-76-39: Published: Mar 3, 1976. Publicly Released: Mar 3, 1976.

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GAO reviewed actions taken by the Department of Agriculture (USDA) to implement the GAO 1973 recommendations concerning the former Wheat Export Subsidy Program and related matters. The program was suspended in 1972 because of changed market conditions and national agricultural policies, although USDA retains the authority to reinstitute the program. The GAO 1973 report recommended a systematic evaluation of the former program, a review of the legality of paying subsidies involving grain sales to the foreign affiliates of exporters, and reinstatement of subsidies with periodic evaluation if a program review determines their necessity. The Permanent Subcommittee on Investigations of the Senate Committee on Government Operations subsequently examined the Russian wheat sales and recommended that the entire mechanism should be reviewed before reinstating subsidies, to make U.S. farm products competitive in the world market and to prevent the use of subsidies for profit or speculative purposes.

Uncertainty has existed since the 1972 Russian wheat purchases concerning the United States and the world wheat supply and demand. Both the world and the nation have faced lowered supplies, but the situation has improved recently, with forecasts of a substantial increase in U.S. wheat stocks in 1976, although a projected drought may cause some depletion. USDA initiated a variety of limited studies on wheat export subsidies, narrower than contemplated by GAO. USDA officials say there is no need to evaluate the prior wheat subsidy program or develop a standby program because tight supplies, coupled with a high demand, make subsidies unnecessary. Current USDA policy opposition to export subsidies intensifies its reluctance to develop a comprehensive standby program, reducing policy alternatives in case the world wheat demand situation alters. USDA Office of Audit made three limited audits covering the former program, showing that illegal subsidy offers had been made to exporters and that the program had been abused to their advantage. Some aspects of the program were found to be confusing. Although some affiliate transactions may have been questionable, USDA feels that an exhaustive audit would accomplish little. Because of recent fraudulent practices discovered in federal grain inspection, several U.S. agencies are discussing recouping possible erroneous subsidy payments. GAO feels that a thorough wheat subsidy program evaluation is needed because of the vicissitudes of supply and demand.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Agriculture should evaluate the former subsidy program's effectiveness and efficiency, determine conditions favorable to subsidies, and prepare a standby program. The review of the legality of export subsidy payments involving sales to foreign affiliates before 1971 should be expanded to establish the extent of abuses. USDA should adopt provisions to ensure proper distance between U.S. exporters and their foreign affiliates, should the subsidy program be reinstated.

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