Department of Agriculture's Acquisition and Distribution of Commodities for Its 1983 Payment-in-Kind Program

RCED-84-137: Published: Sep 25, 1984. Publicly Released: Nov 27, 1984.

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Pursuant to a congressional request, GAO reviewed the Department of Agriculture's (USDA) Payment-in-Kind (PIK) program, which compensates farmers who withhold production of any of five types of commodities with certain amounts of the crops they would otherwise have harvested.

GAO found that, in 1983, producers idled about 48 million of the 212 million acres USDA had expected to be planted in the five PIK commodities. USDA did not have enough of four of the commodities and purchased additional quantities from producers with outstanding Commodity Credit Corporation (CCC) loans. Such producers forfeited a portion of the crops they had used for loan collateral in return for forgiveness of their loans and the right to retain a percentage of the collateral. USDA used competitive bidding to select bids from the producers who retained the lowest percentage of their collateral. GAO also found that, in most cases, USDA met its PIK obligations by providing acceptable commodities in a timely manner. However, USDA could have spent less money to acquire PIK commodities from CCC debtors by using a unit cost approach to bidding. GAO estimated that USDA could have saved between $58 million and $256 million using a unit cost approach because USDA did not consider the varying rates at which CCC loaned money to producers. In addition, GAO found that USDA positioned about 1 percent of the total commodities exchanged in localities where they were not needed for the program.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: USDA agreed to use the unit cost approach when purchasing commodities held as loan collateral. However, no purchases have occurred to date.

    Recommendation: Because comparing bids on a unit cost basis will allow USDA to acquire commodities at the lowest cost, the Secretary of Agriculture should use the unit cost approach in future acquisitions of commodities held as loan collateral.

    Agency Affected: Department of Agriculture


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