July 1, 2002
USDA USE OF SURPLUS FOOD FOR FOREIGN AID
By: Paul Frisman, Associate Analyst
You asked if the U.S. Department of Agriculture (USDA) distributes surplus food to foreign nations, and if so, how it is done. You wanted to know if any food is destroyed because it costs too much to ship it overseas.
The federal government distributes food overseas through several programs, some administered by USDA and some by the U.S. Agency for International Development (AID). These programs fall under the Agricultural Trade Development and Assistance Act of 1954 (also known as Public Law 480 or the Food for Peace program), the Food for Progress Act of 1985, and Section 416(b) of the Agricultural Act of 1949. We have included a brief summary of these programs, but will focus in this report on the 416(b) program, which specifically involves the overseas shipment of surplus commodities.
USDA does not destroy food because of shipping costs. It contracts for shipping and distribution at the same time it contracts for the purchase of surplus food.
THE 416(B) PROGRAM
This program provides for the donation of surplus commodities by the Commodity Credit Corporation (CCC) to developing and friendly countries. CCC is a government-owned organization created to stabilize farm income and prices, help maintain adequate supplies of agricultural commodities, and help distribute them. It is under the supervision and direction of USDA.
CCC can ship surplus commodities overseas if it cannot sell them or otherwise dispose of them at competitive world prices or without disrupting federal price support programs. Eligible commodities are those that CCC has acquired through price support operations, surplus crop removal purchases, or in other ways, and that are not needed for domestic nutrition programs. The commodities are made available for donation through agreements with foreign governments, private voluntary organizations and cooperatives, and the World Food Program, a United Nations food aid organization.
Eligible commodities include dairy products, rice, feed grains and products, oilseeds and other commodities the CCC acquires through price support operations.
USDA, as administrator of 416(b), can also use the donations to carry out the purposes of Public Law 480 (P.L. 480) Titles II and III (described below) administered by AID. In such cases USDA, rather than AID, would implement those programs.
According to USDA Foreign Agricultural Service (FAS) administrator Ellen Terpstra, who testified before Congress this June, the value of commodities donated under 416(b), including contributions to the World Food Program and the Global Food for Education (GFE) initiative, totaled $630 million in FY 2001. She estimated the value of commodities in FY 2002 would be about $429 million. (GFE is a pilot program in which USDA donates food for use in school feeding and pre-school nutrition projects in developing countries.) The total 416(b) and GFE budget, including distribution and transportation costs, was $996.6 million in FY 2001, and is estimated to be $675 million in FY 2002.
At the June 4, 2002 hearing before the U.S. Senate's Committee on Governmental Affairs' Subcommittee on Oversight of Government Management, Restructuring and the District of Columbia, Terpstra testified that the Bush administration plans to stop buying food for the 416(b) program and to offset this reduction by increasing funding for Title II of the P.L. 480 program. Terpstra said the administration wants to end duplication and to place food assistance on "a more solid foundation" by reducing reliance on the year-to-year availability of commodity surpluses. Terpstra said the administration plans to increasingly rely on the Bill Emerson Humanitarian Trust (described below) when there is an increased need for emergency food aid.
Although 416(b) would be substantially curtailed, it would not be eliminated. While it would no longer purchase surplus commodities for shipment overseas, commodities that CCC acquires in the normal course of domestic support operation will still be available for foreign distribution. These are commodities (currently nonfat dry milk) that farmers forfeit to CCC in lieu of repaying commodity loans. The estimated budget for 416(b) for 2003 (not including GFE) is $57 million.
SUMMARIES OF OTHER FOREIGN FOOD AID PROGRAMS
P.L. 480 programs are funded by annual and supplemental appropriations, unlike 416(b), which is funded by U.S. surplus commodities. Countries that engage in human rights violations are ineligible for P.L. 480 programs.
P.L. 480, Title I
This program provides for government-to-government sales of agricultural commodities to developing nations under long-term credit arrangements. Repayment for commodities sold under this title may be made either in U.S. dollars or in local currencies on credit terms of up to 30 years, with a grace period of up to seven years. This program focuses on establishing a U.S. presence in emerging markets and meeting humanitarian needs. It is administered by USDA. Terpstra reports that in FY 2001, 753,000 tons of commodities valued at $105 million were sold to seven countries. She also said that in 2002 10 countries are eligible to receive about 628,000 tons of commodities valued at $114 million.
P.L. 480, Title II
This AID-administered program provides for the donation of U.S. agricultural commodities to meet humanitarian needs in foreign countries. Emergency food aid is targeted to such vulnerable groups as refugees, internally-displaced families, or those who lose their lands or livelihoods because of natural or complex humanitarian emergencies. Commodities may be distributed through government-to-government agreements, non-government public and private agencies, and inter-governmental programs such as the U.N.'s World Food Program. CCC provides the commodities, pays the costs of shipping to the recipient nation, and may pay some additional transportation costs. Commodities can be sold for cash to generate local currency for development activities or used to directly feed people unable to take advantage of development activities, such as the elderly, orphans, hospital and hospice patients and HIV/AIDS victims and their families. The Bush administration has proposed increasing FY 2003 funding for Title II by $350 million (to $1.18 billion) to offset the reduction in the 416(b) program.
P.L. 480, Title III
This AID-administered program provides for government-to-government grants to support long term economic development in the least developed countries. The U.S. donates agricultural commodities to the recipient country and pays processing and shipping costs. Commodities are sold on the domestic market and revenue generated is used to support economic development programs.
Food for Progress
This program authorizes CCC to finance the sale and export of agricultural commodities on credit terms or on a grant basis, to support developing countries and emerging democracies that have made commitments to introduce or expand free enterprise into their agricultural economies. Terpstra testified that FAS provided commodities with a value of $107 million in FY 2001 and will provide commodities valued at $113 million in FY 2002.
Bill Emerson Humanitarian Trust
This CCC program, formerly known as the Food Security Wheat Reserve and the Food Security Commodity Reserve, is tapped when domestic supplies cannot meet the availability criteria for P.L. 480 programs or when there is an unexpected humanitarian need. It is authorized to hold up to 4 million tons of such commodities as wheat, corn, grain sorghum and rice. It now holds 2.5 million tons of wheat.