Farmer-Owned Grain Reserve Program Needs Modification To Improve Effectiveness

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

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The farmer-owned grain 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 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 - Not Implemented

    Comments: The law was changed in 1981; Agriculture is no longer required to set storage payments based on the average cost to store the commodities.

    Recommendation: The Secretary of Agriculture should determine the average cost of FOR grain storage and limit producer storage payments to this amount. In determining the average cost of FOR grain storage, both on farm and warehouse storage costs should be considered.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Agriculture should amend program regulations to make them consistent with Agricultural Stabilization and Conservation Service procedures which provide that storage earnings stop in all cases when a grain reaches call status.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Agriculture should require the to improve its guidelines and the Agricultural Stabilization and Conservation Service procedures for identifying grain with quality problems serving as loan collateral and correcting or eliminating quality problems identified.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Not Implemented

    Comments: The agency does not intend to act on this recommendation.

    Recommendation: The Secretary of Agriculture should require the Agricultural Stabilization and Conservation Service to obtain official grade determinations, on a sample basis, as grain enters the farmer-owned reserve and on the same grain each subsequent year (where possible), to develop a profile of FOR grain and determine what characteristics are predictors of storability.

    Agency Affected: Department of Agriculture

  5. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Secretary of Agriculture should study the feasibility of other farmer-owned reserve program modifications and, if they provide remedies to the problems that were found, incorporate them into the program.

    Agency Affected: Department of Agriculture

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

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

    Agency Affected: Department of Agriculture

  7. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    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 flexibility.

    Agency Affected: Department of Agriculture

 

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