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Full text of "Agriculture export promotion programs : how are the small farmer and rancher helped? : hearing before the Subcommittee on Procurement, Exports, and Business Opportunities of the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, May 17, 1995"

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AGRICULTURE  EXPORT  PROMOTION  PROGRAMS: 
HOW  ARE  THE  SMALL  FARMER  AND  RANCHER 
HELPED?  

^  4.  SH  1 ;  104-28  =^^^=^^ 

Ajriculture  Export  Pronotion  Progra. . .  JN^Q- 

BEFORE  THE 

SUBCOMMITTEE  ON  PROCUREMENT,  EXPORTS,  AND 
BUSINESS  OPPORTUNITIES 

OF  THE 

COMMITTBB  ON  SMALL  BUSINESS 
HOUSE  OF  REPRESENTATIVES 

ONE  HUNDRED  FOURTH  CONGRESS 
FIRST  SESSION 


WASHINGTON,  DC,  MAY  17,  1995 


Printed  for  the  use  of  the  Committee  on  Small  Business 

Serial  No.  104-28 


JAN  0  i  7935 


.^ooSSaa 


U.S.  GOVERNMENT  PRINTING  i  II  I  II  I  N  JW  I  i    Ml  Iji 

90-898  CC  WASraNGTON   :  1995  ^^" 

For  sale  by  the  U.S.  Government  Printing  Office 

Superintendent  of  Documents,  Congressional  Sales  Office.  Washington,  DC  20402 

ISBN  0-16-052052-5 


^ 


AGRICULTURE  EXPORT  PROMOTION  PROGRAMS: 
HOW  ARE  THE  SMALL  FARMER  AND  RANCHER 
HELPED? 


Y4.SI1  1:104-28 

Africulture  Export  Pronotion  Progra. . .  T^f^ 

BEFORE  THE 

SUBCOMMITTEE  ON  PROCUREMENT,  EXPORTS,  AND 
BUSINESS  OPPORTUNITIES 

OF  THE 

COMMITTEE  ON  SMALL  BUSINESS 
HOUSE  OF  REPRESENTATIVES 

ONE  HUNDRED  FOURTH  CONGRESS 

FIRST  SESSION 


WASHINGTON,  DC,  MAY  17,  1995 


Printed  for  the  use  of  the  Committee  on  Small  Business 


Serial  No.  104-28 


U.S.  GOVERNMENT  PRINTING  OFFIC 
WASHINGTON  :  1995 


I  JAM  0  4  ,335 


For  sale  by  the  U.S.  Government  Printing  Office 

Superintendent  of  Documents.  Congressional  Sales  Office,  Wa.shington,  DC  20402 

ISBN  0-16-052052-5 


COMMITTEE  ON  SMALL  BUSINESS 


JAN  MEYERS,  Kansas,  Chair 


JOEL  HEFLEY,  Colorado 

WILLIAM  H.  ZELIFF,  Jr.,  New  Hampshire 

JAMES  M.  TALENT,  Missouri 

DONALD  A.  MANZULLO,  Illinois 

PETER  G.  TORKILDSEN,  Massachusetts 

ROSCOE  G.  BARTLETT,  Maryland 

LINDA  SMITH,  Washington 

FRANK  A.  LoBIONDO,  New  Jersey 

ZACH  WAMP,  Tennessee 

SUE  W.  KELLY,  New  York 

DICK  CHRYSLER,  Michigan 

JAMES  B.  LONGLEY,  JR.,  Maine 

WALTER  B.  JONES,  Jr.,  North  Carolina 

MATT  SALMON,  Arizona 

VAN  HILLEARY,  Tennessee 

MARK  E.  SOUDER,  Indiana 

SAM  BROWNBACK,  Kansas 

STEVEN  J.  CHABOT,  Ohio 

SUE  MYRICK,  North  Carolina 

DAVID  FUNDERBURK,  North  Carolina 

JACK  METCALF,  Washington 

Jenifer  Loon,  Sta/f  Director 
Jeanne  M.  Roslanowick,  Minority  Staff  Director 


JOHN  J.  UFALCE,  New  York 
RON  WYDEN,  Oregon 
NORMAN  SISISKY,  Virginia 
KWEISI  MFUME,  Maryland 
FLOYD  H.  FLAKE,  New  York 
GLENN  POSHARD,  Illinois 
EVA  M.  CLAYTON,  North  Carolina 
MARTIN  T.  MEEHAN,  Massachusetts 
NYDIA  M.  VELAZQUEZ,  New  York 
CLEO  FIELDS,  Louisiana 
WALTER  R.  TUCKER  III,  California 
EARL  F.  HILLIARD,  Alabama 
DOUGLAS  "PETE"  PETERSON,  Florida 
BENNIE  G.  THOMPSON,  Mississippi 
CHAKA  FATTAH,  Pennsylvania 
KEN  BENTSEN,  Texas 
KAREN  MCCARTHY,  Missouri 
WILLIAM  P.  LUTHER,  Minnesota 
PATRICK  J.  KENNEDY,  Rhode  Island 


Subcommittee  on  Procurement,  Exports,  and  Business  Opportunities 

DONALD  A.  MANZULLO,  Illinois,  Chairman 


DICK  CHRYSLER,  Michigan 

MATT  SALMON,  Arizona 

SAM  BROWNBACK,  Kansas 

STEVEN  J.  CHABOT,  Ohio 

DAVID  FUNDERBURK,  North  Carolina 

ROSCOE  G.  BARTLETT,  Maryland 

LINDA  SMITH,  Washington 

PHIUP  D.  EskELAND,  Subcommittee  Staff  Director 


EVA  M.  CLAYTON,  North  Carolina 
NORMAN  SISISKY,  Virginia 
FLOYD  H.  FLAKE,  New  York 
EARL  F.  HILLIARD,  Alabama 
CHAKA  FATTAH,  Pennsylvania 
WILLIAM  P.  LUTHER,  Minnesota 


(II) 


CONTENTS 


Page 

Hearing  held  on  May  17,  1995  1 

WITNESSES 
Wednesday,  May  17,  1995 

Frydenlund,  John,  director.  Agriculture  Policy  Project,  Heritage  Foundation  ...        13 
McGuire,  Richard  T.,  commissioner,  New  York  Department  of  Agriculture 
and  Markets,  representing  the  National  Association  of  State  Departments 

of  Agriculture 10 

Reinhardt,  Linda,  president,  Women's  Association,  American  Farm  Bureau  ....  7 

Schumacher,  August,  Jr.,  Administrator,  Foreign  Agricultural  Service,  U.S. 
Department  of  Agriculture;  accompanied  by  Christopher  E.  Goldthwait, 
general  sales  manager  2 

APPENDIX 

Opening  statements: 

Clayton,  Hon.  Eva  26 

Manzullo,  Hon.  Donald  A 28 

Prepared  statements: 

Frydenlund,  John  31 

McGuire,  Richard  T 53 

Reinhardt,  Linda  59 

Schumacher,  August,  Jr 64 

Additional  material: 

CRS  Report  for  Congress  .   81 

European   Union  Agricultural   Spending  by   Commodity   and  Economic 

Tpye , 96 

Long-Term  Agriculture  Trade  Strategy  104 


(HI) 


AGRICULTURE  EXPORT  PROMOTION  PRO- 
GRAMS: HOW  ARE  THE  SMALL  FARMER  AND 
RANCHER  HELPED? 


WEDNESDAY,  MAY  17,  1995 

House  of  Representatives, 
Subcommittee  on  Procurement,  Exports, 

AND  Business  Opportunities, 
Committee  on  Small  Business, 

Washington,  DC. 

The  subcommittee  met,  pursuant  to  notice,  at  10:35  a.m.,  in  room 
2359-A,  Raybum  House  Office  Building,  Hon.  Donald  A.  Manzullo 
(chairman  of  the  subcommittee)  presiding. 

Chairman  Manzullo.  Good  morning.  We  are  right  in  the  middle 
of  budget  wars  and  that  accounts  for  the  fact  that  we  don't  have 
full  attendance,  but  those  of  you  who  have  testified  before  Congress 
in  the  past  recognize  that  Members  come  and  go  over  a  period  of 
time. 

Our  goal  here  is  to  finish  this  in  an  hour  and  15  minutes.  That 
means  that  we  are  going  to  allot  5  minutes.  In  fact,  I  am  going  to 
increase  that  to  7  minutes  per  person  inasmuch  as  there  is  nobody 
here  at  this  point  in  time  to  ask  questions.  This  is  what  I  will  do. 
I  will  give  you  a  little  tap.  That  means  you  are  at  6  minutes.  One 
minute  to  go.  I  will  gavel  you  down.  It  won't  be  like  the  Gong 
Show.  It  will  just  be  a  very  gentle  tap  in  order  to  give  a  time  for 
interplay. 

One  of  the  things  that  I  do  want  to  encourage  debate.  Once  you 
have  made  your  presentation,  if  any  of  the  members  of  the  panel 
have  forgotten  to  put  something  in  or  want  to  ask  a  question  of  an- 
other panel  member,  I  will  see  if  there  is  time  to  do  that.  I  want 
to  make  sure  that  everybody  here  has  the  opportunity  to  express 
their  news. 

Because  the  Department  of  Agriculture  receives  the  majority  of 
funding  for  the  Federal  export  promotion  programs  and  agriculture 
makes  up  approximately  10  percent  of  our  total  exports,  it  is  appro- 
priate to  devote  an  entire  hearing  to  this  section  of  the  budget.  Is 
there  any  rationale  for  devoting  the  lion's  share  of  export  pro- 
motion program  money  to  agriculture  export  which  makes  up  ap- 
proximately 10  percent  of  U.S.  exports?  Is  there  a  Government- 
wide  strategy  that  can  justify  the  continuance  of  these  programs? 

I  represent  the  16th  Congressional  District  of  Illinois  which  rep- 
resents a  microcosm  of  the  United  States.  The  district  has  a  heav- 
ily industrialized  center  in  Rockford,  Illinois.  I  represent  also  the 

(1) 


first  and  second  fastest  growing  counties  in  Illinois  along  with  all 
their  growing  pains. 

Our  congressional  district  is  also  heavily  agrarian  and  one  of  our 
counties  is  number  one  in  hay  production  and  the  other  county  is 
number  one  in  dairy  production.  That  is  because  all  the  cows  in  the 
second  county  eat  the  hay  that  comes  from  the  first  county.  So,  I 
know  firsthand  the  tension  facing  Congress  on  determining  budg- 
etary priorities  in  this  area. 

In  fact,  in  the  16th  district,  Jo  Daviess  County,  which  is  on  the 
far  western  end  of  the  district,  has  the  original  Kraft  Cheese  fac- 
tory, employing  between  300  and  400  people.  It  buvs  about  6  mil- 
lion gallons  of  milk  each  year,  and  is  the  largest  bulk  Swiss  cheese 
manufacturer  in  the  United  States. 

At  the  far  east  end  of  the  county,  Kraft  also  owns  Claussen  Pick- 
les which  annually  produces  100  million  tons  of  refrigerated  pickles 
and  has  a  75  percent  share  of  refrigerated  pickles  in  this  country. 
So,  from  pickles  to  cheese  with  industry  in  between  is  the  nature 
of  the  congressional  district  that  I  represent. 

That  is  one  of  the  reasons  I  support  a  one-stop  shop  for  the  en- 
tire Federal  Government  on  trade  matters.  We  must  streamline 
where  there  is  similar  or  duplicative  functions.  We  must  rationally 
devise  an  overall  trade  strategy  that  uses  precious  taxpayer  dollars 
in  the  most  effective  and  efficient  ways  possible.  We  must  focus  on 
the  programs  that  create  and  sustain  the  most  jobs,  not  simply 
agreeing  on  the  status  quo. 

I  look  forward  to  the  testimony  of  the  witnesses  before  us  this 
morning.  It  is  not  often  that  we  see  you  outside  of  the  Agricultural 
Committee.  So,  I  believe  this  hearing  will  serve  a  good  purpose  in 
helping  educate  members  of  the  subcommittee  who  could  not  serve 
on  the  Agricultural  Committee  but  will  vote  on  farm-related  legis- 
lation on  the  floor  later  this  year. 

Mrs.  Clayton  isn't  here.  So,  therefore,  Mr.  Sisisky,  since  you  just 
came  in,  I  would  give  you  the  opportunity  to  make  an  opening 
statement  if  you  so  desire. 

[Chairman  Manzullo's  statement  may  be  found  in  the  appendix.] 

Mr.  Sisisky.  I  have  no  opening  statement.  I  am  ready  to  listen 
to  the  witnesses. 

Chairman  Manzullo.  Thank  you  very  much. 

Our  first  witness  is  August  Schumacher  who  is  the  administrator 
of  the  foreign  agricultural  service  with  the  U.S.  Department  of  Ag- 
riculture. Mr.  Schumacher  go  ahead  and  take  your  6  or  7  minutes. 

TESTIMONY  OF  AUGUST  SCHUMACHER,  JR.,  ADMINISTRATOR, 
FOREIGN  AGRICULTURAL  SERVICE,  U.S.  DEPARTMENT  OF 
AGRICULTURE;  ACCOMPAP^IED  BY  CHRISTOPHER  E. 
GOLDTHWAIT,  GENERAL  SALES  MANAGER 

Mr.  Schumacher.  I  will  be  very  brief,  Mr.  Chairman.  I  am  de- 
lighted to  be  here  with  members  of  your  subcommittee.  I  am  joined 
by  Chris  Goldthwait  who  is  my  general  sales  manager  and  who  is 
very  knowledgeable  about 

Chairman  Manzullo.  Could  you  move  that  mike? 

Mr.  Schumacher.  Yes. 

Chairman  Manzullo.  Bring  it  up. 


Mr.  Schumacher.  I  am  also  delighted  to  be  here  with  Linda 
Reinhardt  and  Dick  McGuire,  who  is  an  old  colleague  of  mine  from 
my  commissioner  days  in  Massachusetts.  I  notice  we  are  inside  the 
John  W.  McCormick  room,  so  I  feel  rather  at  home  here  in  this 
committee  room,  working  with  John  on  our  left,  to  talk  about  small 
business  and  export  promotion  in  agriculture. 

Most  of  America's  family  farmers,  Mr.  Chairman,  are  small  busi- 
nesses, certainly  well  within  the  definition  for  the  overwhelming 
part  of  the  small  business  definition  that  we  have  put  out. 

Over  the  past  decade,  we  have  worked  very  hard  to  lay  a  golden 
era  of  export  opportunity,  particularly,  I  will  come  to  that  in  a 
minute,  for  small-  and  medium-sized  businesses  and  farmers.  Our 
investments  are  paying  off.  This  year  we  estimate  $48.5  billion  of 
American  agricultural  exports  and  if  you  add  forestry  and  fish  to 
that,  we  are  around  $55  to  $57  billion.  This  is  an  all-time  high. 

Dollar  for  dollar,  we  export  more  corn  than  coal.  More  meat  than 
cosmetics.  More  fruits  and  vegetables  than  steel,  iron,  and  alu- 
minum combined.  My  family  farmed  in  New  York  years  ago.  We 
were  in  the  vegetable  business.  My  father  would  never  have  be- 
lieved, certainly  if  he  were  still  alive,  that  the  United  States  would 
export  nearly  $10  billion  worth  of  fresh  fruits  and  vegetables 
around  the  world.  Really  an  extraordinary  record.  We  believe  this 
growth  trend  is  very  sustainable. 

One  of  the  fascinating  things,  in  light  of  all  the  talk  about  the 
trade  deficit  these  days  and  these  issues  is  that  American  agri- 
culture has  a  $20  billion  trade  surplus.  $20  billion  trade  surplus. 
That  helps  us  to  pay  for  an  awful  lot  of  imports  in  different  areas. 
A  very  important  issue.  We  are  growing,  our  trade  surplus  in  agri- 
culture is  growing,  and  this  growth  is  very  sustainable.  Very  dif- 
ferent than  1975,  1980,  when  we  basically  had  governments  selling 
and  buying  from  governments  with  credit  programs. 

We  are  no  longer  dependent  on  a  few  large  buyers  such  as  the 
Soviet  Union  and  the  former  European  Union.  Virtually  every 
State  is  exporting  fish,  forestry,  and  agriculture  products — and 
many  exports  are  from  smaller  companies.  Our  markets  are  dif- 
ferent than  1975. 

This  is  an  era  of  global  change  post-GATT,  post-NAFTA.  We  are 
seeing  markets  we  never  saw  before.  Demand  for  the  European 
Union  now  is  very  flat.  We  are  maintaining  market  share  but  that 
market  is  not  growing.  Our  Pacific  Rim  markets  are  our  new 
gn'owth  markets.  Dick  McGuire  with  support  from  our  small  funds 
in  the  market  promotion  program,  Dick  McGuire's  State — New 
York — exported  a  substantial  amount  of  apples  to  Israel.  Just  very 
quickly,  very  speedily  he  benefited  his  State.  Apple  exports  to  Is- 
rael are  not  Kansas  wheat,  but  certainly  Mr.  McGuire  can  com- 
ment on  how  that  impacted  his  State  of  New  York. 

Let  me  turn  to  our  Agricultural  Export  Programs,  the  subject  of 
this  hearing,  because  I  believe  we  have  the  opportunity  to  grow  ag- 
ricultural exports  and  to  increase  our  trade  surplus.  Exports  of  $80 
billion  by  the  year  2000 — that  is  my  personal  target.  I  think  we  can 

frow  our  agricultural  surplus  of  exports  over  imports  from  $25  to 
30  billion  by  the  year  2000.  I  would  like  to  share  with  you  very 
briefly  on  how  we  plan  to  do  this. 


First,  I  would  like  to  clarify,  you  mentioned  that  the  lion's  share 
of  export  payments  go  to  agriculture.  Mr.  Chairman,  I  think  I 
should  take  30  seconds  to  clarify  some  of  those  apparent  confusions 
in  our  letter  of  invitation  regarding  this  point.  Thanks  to  vou  in- 
forming us  earlier,  we  examined  this  issue  closely  and,  frankly,  we 
believe  our  promotional  efforts  to  reach  the  $80  billion  account  for 
about  one-quarter  of  the  total  promotional  effort  by  the  U.S.  Gov- 
ernment. 

This  share  depends  on  how  you  define,  "promotions  of  exports." 
It  can  get  technical  and  I  would  be  delighted  if  you  would  request 
us  to  provide  further  information  for  the  record  on  that  issue  be- 
cause we  do  not  consider  export  subsidies  in  food  and  food  aid  as 
part  of  our  promotional  activities.  Nor  are  our  export  subsidies, 
which  are  a  direct  effort  by  the  U.S.  Gk)vemment  to  counter  unfair 
trade  practices  of  our  competitors. 

Food  aid  expenditures  have  humanitarian  food  assistance  as 
their  primary  focus.  Once  you  account  for  and  delete  these  expendi- 
tures, which  serve  various  objectives  other  than  market  develop- 
ment and  promotion,  expenditures  for  agricultural  trade  promotion 
only  account  for  one-quarter. 

Now,  why  do  I  believe  strongly  that  we  should  maintain  that 
one-quarter  of  the  overall  effort?  Because  post-GATT,  post-NAFTA 
is  going  to  be  a  very  hard  place  to  be  competitive.  As  my  colleague, 
John,  on  the  left,  said  in  his  concluding  paragraph,  the  U.S.  Gov- 
ernment should  not  look  to  the  GATT  reforms  as  an  end  but  as  a 
beginning.  Future  negotiations  should  pursue  increased  market  ac- 
cess for  U.S.  agricultural  products  and  complete  removal  of  both 
tariff  and  nontariff  import  barriers  in  addition  to  the  total  elimi- 
nation of  all  export  subsidies  and  trade  distorting  policies. 

Mr.  Chairman,  we  would  like  to  get  to  that  sooner  rather  than 
later.  However,  the  question  is  the  timing  of  the  transition  and 
what  our  competitors  are  doing  to  us  in  the  transition  period. 

Our  competitors  have  put  in  place  multibillion  dollar  programs 
to  support  the  production  export  of  their  agricultural  goods.  The 
European  Union  has  just  increased  their  budget  by  $10  billion. 
That  is  the  total  amount  of  money  that  is  being  considered  for  our 
whole  program  side  of  the  U.S.  Department  of  Agriculture.  They 
have  increased  spending  to  a  total  amount  of  $50  billion. 

The  European  Union  is  the  chief  subsidizer  of  agricultural  ex- 
ports and  they  spend  of  that  $50  billion,  $10  billion  on  export  sub- 
sidies. I  will  leave  this  for  the  record,  as  well,  I  know  my  commis- 
sioner friend  from  New  York  is  also  very  keen  on  wine.  I  do  enjoy 
a  good  glass  of  wine  from  time  to  time,  but  the  European  Union 
subsidizes  their  wine  industry  by  the  entire  amount  of  our  total 
market  promotional  program.  They  spend  about  $100  million  in 
wine  subsidies  alone  for  export  promotion.  Our  entire  market  pro- 
motional program  is  only  $85  million. 

I  would  like  to  submit  that  for  the  record. 

Chairman  Manzullo.  I  became  distracted.  Could  you  repeat  that 
last  statement  again  about  the  wine? 

Mr.  Schumacher.  Yes.  My  wife  and  I  do  enjoy  a  glass  of  wine 
in  the  evening. 

Chairman  Manzullo.  Well,  not  that  statement. 


Mr.  Schumacher.  New  York  State  wine,  Massachusetts  and 
New  York  have  pretty  nice  wines  these  days.  I  think  Dick  will  at- 
test to  that.  But  the  European  Union,  and  I  mentioned  they  are 
spending  about  $50  billion  in  total  exports  and  total  payments  to 
their  farmers  up  $10  billion  just  this  year. 

Their  market  promotion  program  just  for  wine  on  the  export  side, 
just  for  wine,  is  higher  than  our  entire  market  promotional  pro- 
gram for  the  entire  country  of  the  United  States.  For  everybody.  I 
would  very  much  like  to  submit  this  for  the  record  without  your  ob- 
jection. 

Chairman  Manzullo.  Absolutely. 

[The  information  mav  be  found  in  the  appendix.! 

Mr.  Schumacher.  That  makes  me  very  nervous  when  we  look  at 
our  competitors  as  we  try  to  reach  the  objectives  of  John  and  others 
in  getting  rid  of  all  these  subsidies  over  the  next  5  to  7  years.  That 
is  a  transitional  issue  to  get  to  the  all-agreed  objectives. 

To  unilaterally  cut  these  programs  while  our  overseas  competi- 
tors are  spending  five  times  as  much  in  the  United  States  is  in  mv 
opinion,  snortsignted.  Mr.  Chairman — we  need  a  transition  period. 
We  just  need  to  work  together  during  this  transition  to  meet  our 
competition. 

For  example,  on  wheat,  wheat  the  subject  of  a  lot  of  discussion, 
but  the  Canadian  Wheat  Board  shows  no  indication  of  becoming 
more  transparent.  Certainly  no  indication  of  becoming  privatized. 
The  Australian  Wheat  Board  shows  no  indication  of  moving  into 
the  private  sector  and  the  Europeans  continue  to  be  very  aggres- 
sive in  their  export  subsidies  on  their  wheat,  including  subsidies 
into  some  of  our  emerging  markets  in  the  Far  East. 

Now,  if  I  can  just  conclude  a  little  bit  on  the  efforts  on  small 
business  which  I  personally  feel  very  strongly  about.  I  have  been 
here  about  11  months  now  in  my  department  and  I  am  working 
very  hard  in  our  department  to  target  more  of  our  promotional  pro- 
grams to  assist  medium-  and  small-businesses  and  cooperatives, 
since  the  1993  law  is  very  clear.  It  says,  the  Department  of  Agri- 
culture shall  give  preference  to  medium-  and  small-enterprises  in 
carrying  out  the  market  promotional  programs. 

We  have  also  introduced  some  new  regulations  to  simplify  the  op- 
eration and  to  further  target  this  to  small  businesses  and  to  grad- 
uate the  larger  companies  from  these  programs. 

I  will  leave  for  questioning  the  issue  of  the  Export  Enhancement 
Program,  but  I  think  for  the  big  commodity,  wheat,  which  faces 
very  competitive  practices,  and  nontransparent  State  trading,  if  we 
take  that  tool  away,  we  have  not  allowed  ourselves  to  do  what  John 
wants  to  do  which  is  to  eliminate  these  subsidies  world-wide.  We 
cannot  eliminate  U.S.  subsidies  until  we  get  rid  of  the  Canadian 
Wheat  Board's  lack  of  transparency  and  move  into  a  level  playing 
field  across  the  board. 

Let  me  just  conclude  with  how  we  are  trying  to  do  more  outreach 
for  our  developing  market  promotion.  Very  important.  First  of  all 
is  to  get  my  people  out  into  the  countryside  talking  to  medium  and 
small  firms — I  have  been,  myself,  to  10  or  12  States,  lots  of  semi- 
nars. Small  wood  companies.  We  are  being  very  aggressive  down 
in  Congressman  Clayton's  district — talking  to  firms,  visiting  with 
them,  and  talking  about  what  we  are  doing. 


6 

Second,  we  are  going  to  do  a  lot  more  work  in  getting  small  and 
medium  sized  businesses  into  overseas  food  shows  and  gaining 
more  trade  access.  There  is  no  point  in  promoting  beef  in  Korea 
when  the  Koreans  say  that  our  beef  is  not  allowed  to  come  into 
Korea  because  14  days  has  expired.  They  will  only  allow  a  shelf  life 
requirement. 

These  nontarifF  trade  barriers  are  going  to  be  increasingly  dif- 
ficult to  overcome  in  the  years  to  come  because  they  are  looking  to 
those  to  kind  of  keep  out  our  fastest  growing  exports,  including 
meats,  vegetables,  and  fruits,  and  even  our  grains.  It  is  amazing 
what  some  of  our  competitors  are  putting  up  in  terms  of  barriers 
and  perhaps  Commissioner  McGuire  can  talk  about  that. 

Small-  and  medium-sized  companies  benefit  from  pour  programs. 
In  Dundee,  Huntley,  and  Hampshire  there  is  a  company  called 
Milk  Specialities  Co.  It  employs  180  people.  It  is  a  small  company. 
They  received  market  promotion  funds  from  us  through  the 
MIATCO.  One  of  its  promotions  overseas  is  about  50  percent  MPP 
funded.  I  should  also  mention  the  Rubschlager  Baking  Corp.  in 
Chicago.  I  was  just  in  Chicago  last  week  and  met  representatives 
of  Vienna  Sausage,  a  little  company  in  the  poor  area  of  Chicago 
that  is  being  aggressive  in  sausages  to  Hong  Kong  and  doing  very 
well.  There  are  other  examples  I  could  give,  but!  won't  take  the 
time  here. 

For  example,  TreeTop  in  Washington  State  is  doing  a  wonderful 
job.  It  is  a  farmer  cooperative.  They  have  really  gotten  into  the  ex- 
port market.  TreeTop  representatives  just  came  back  from  Hong 
Kong  and  these  big  warehouses.  Price  Club,  huge,  large  numbers 
of  containers  of  TreeTop  juices  going  through  Hong  Kong  into 
Guangzhou  and  elsewhere. 

I  think  that  to  summarize,  Mr.  Chairman,  the  market  opportuni- 
ties are  there.  I  think  it  is  a  wonderful  opportunity  to  grow  Amer- 
ican agriculture,  to  export  markets  especially  as  the  Congress  gets 
a  little  rigorous  in  its  examination  of  our  domestic  programs  that 
we  need  to  grow  agriculture,  the  export  markets  are  there.  We 
want  to  work  with  small-  and  medium-enterprises.  We  have  the 
tools  to  do  it  now  and  with  the  new  farm  bill,  hopefiilly  those  tools 
will  be  strengthened,  but  this  is  not  the  time  because  of  the  com- 
petitors practices  to  unilaterally  eliminate  these  programs  during 
this  transition  period. 

Thank  you. 

[Mr.  Schumacher's  statement  may  be  found  in  the  appendix.] 

Chairman  Manzullo.  I  appreciate  your  testimony.  One  of  the 
things  that  we  are  going  to  try  to  do  is  try  to  keep  within  our  time- 
frame so  we  have  plenty  of  time  for  questions. 

We  are  joined,  in  addition  to  others,  by  the  Chairman  of  our 
main  committee,  Jan  Meyers.  Jan,  if  you  would  want  to  introduce 
a  fellow  Kansan. 

Chairwoman  Meyers.  I  thank  you  very  much.  Chairman 
Manzullo. 

I  am  very  pleased  that  you  are  having  this  hearing  on  export 
promotion  and  assistance  because  I  do  think  it  is  tremendouslv  im- 
portant. Certainly  it  is  tremendously  important  in  Kansas  with  the 
products  that  we  produce,  not  only  agricultural,  but  automobiles 
and  airplanes  and  oil  and  gas.  We  are  very  much  tied  to  the  export 


world  and  it  is  tremendously  important  to  us,  and  of  course  I  have 
encouraged  export  promotion  for  small  business,  and  agriculture  in 
many  ways  is  small  business  and  so  I  am  very  pleased  to  be  here 
today. 

It  is  a  pleasure,  also,  to  introduce  Linda  Reinhardt  who  is  a  good 
friend,  and  she  is  chair  of  the  American  Farm  Bureau's  Women's 
Committee  and  she  has  really  come  up  through  the  ranks  because 
she  has  been  very  active  in  the  Kansas  Farm  Bureau.  She  has  been 
on  the  Kansas  Farm  Bureau  board  of  directors  and  has  served  as 
State  Farm  Bureau  Women's  Chairman. 

Now,  the  way  that  I  know  Linda  is  when  the  Kansas  Farm  Bu- 
reau comes  in  for  meetings,  why  she  and  I  usually  get  together  and 
talk.  But  in  addition  to  tnat,  she  has  brought  groups  in  from  time 
to  time  just  in  an  educational  way.  Then  she  makes  all  of  the  Kan- 
sas delegation  get  up  and  go  to  an  early  breakfast. 

She  is  not  just  interested  in  agricultural  issues.  She  will  have  us 
talk  on  a  whole  wide  range  of  issues  and  so  she  is  an  extremely 
well-informed  woman.  She  has  three  children,  has  been  tremen- 
dously active  and  recognized  in  the  State  of  Kansas.  She  and  her 
husband  have  been  recognized  as  master  farmer,  master  home- 
maker.  She  is  the  AGRA  woman  of  the  year  and  has  numerous  rec- 
ognitions, and  it  is  a  pleasure  to  have  you  here  today. 

TESTIMONY  OF  LINDA  REINHARDT,  PRESIDENT,  WOMENS 
ASSOCIATION,  AMERICAN  FARM  BUREAU 

Mrs.  Reinhardt.  Well,  thank  you,  Mrs.  Meyers.  I  certainly  ap- 
preciate that  kind  introduction.  We  do  go  back  a  long  time  as  far 
as  knowing  one  another  and  we  both  come  from  the  eastern  part 
of  the  State  of  Kansas.  I  come  from  more  down  in  Southeast  Kan- 
sas, where  Mrs.  Meyers  is  in  the  Kansas  City  area. 

Well,  I  do  appreciate  the  opportunity  to  testify  this  morning.  Mr. 
Chairman,  and  distinguished  subcommittee  members,  as  you  have 
heard,  my  name  is  Linda  Reinhardt.  I  do  serve  as  chair  of  the 
American  Farm  Bureau  Women's  Committee.  My  husband  and  I 
are  farmer  stockmen  in  Southeast  Kansas.  I  grew  up  on  a  farm  and 
have  used  the  programs  of  the  USDA  ever  since  my  youth  when 
I  was  active  in  the  4-H  Program  and  I  was  very  pleased  this  morn- 
ing to  see  the  gentleman  on  my  right  proudly  display  his  4-H  em- 
blem. 

We  raise  soybeans,  milo,  alfalfa,  and  wheat  on  our  farm,  as  well 
as  we  have  a  cow  operation  and  background  some  cattle. 

My  husband  did  serve  on  our  Kansas  State  Board  of  Agriculture 
for  9  years.  We  now  call  that  the  Department  of  Agriculture  in 
Kansas. 

The  American  Bureau  Federation,  which  I  am  representing  and 
very  proud  of,  has  a  membership  of  over  4.4  million  family  mem- 
bers. It  is  the  Nation's  largest  organization  for  farmers  and  ranch- 
ers. Farm  Bureau  is  not  a  cooperator  organization  under  the  For- 
eign Market  Development  Program  of  the  Foreign  Agricultural 
Service  and  has  received  no  funding  under  the  Market  Promotion 
Program.  However,  the  Farm  Bureau  strongly  supports  FAS  export 
programs  as  being  a  vital — as  being  vital  to  the  future  economic 
health  of  our  producer  members  and  the  country's  economy. 


8 

Like  the  MPP  Program,  the  Foreign  Market  Development  Pro- 
gram is  especially  important  as  farmers  become  more  reliant  on  the 
international  market  for  income.  The  international  marketplace  for 
our  U.S.  farmers  will  continue  to  confront  substantial  subsidies 
from  the  European  Union  and  other  developed  market  countries 
who  are  expected  to  utilize  all  GATT  Legal  Programs  to  the  fullest. 
The  Federal  Market  Development  and  Promotion  Programs  are  at 
least  a  partial  offset  to  these  continued  European  Union  export 
subsidies. 

Good  morning,  Mr.  Brownback,  a  fellow  Kansan. 

Mr.  Brownback.  Good  morning,  Mrs.  Reinhardt. 

Mrs.  Reinhardt.  The  farm  community  is  very  proud  of  its  eco- 
nomic contribution  to  our  Nation's  economy  ana  especially  the  op- 
portunity we  provide  for  small  businesses. 

In  today's  world,  the  health  and  the  vitality  of  small  business  is 
more  important  than  ever.  Small  business  is  the  job-creating  en- 
gine for  our  economv  and  it  currently  helps  create  almost  75  per- 
cent, 75  percent  of  all  new  jobs  for  Americans. 

As  farmers,  we  are  part  of  the  small  business  community  and  we 
look  forward  to  working  with  small  businesses  to  help  create  new 
jobs. 

Now,  given  the  importance  of  small  business,  the  majority  of 
these  jobs  would  be  created  for  the  types  of  firms  deemed  impor- 
tant to  this  committee.  This  figure,  job  figure  may  not  sound  like 
a  large  number,  but  just  like  any  other  small  business  in  America, 
when  added  to  other  strong  programs,  the  final  tally  becomes  quite 
significant.  In  short,  we  need  to  continue  strong  export  programs 
that  have  proven  to  be  successful.  These  programs  keep  rural 
America  and  small  business  growing  strong. 

Now,  I  am  going  to  talk  about  my  home  State  as  well  as  Mrs. 
Meyers'  and  Representative  Brownback's  home  State.  Agriculture 
is  the  number  one  industry  of  Kansas  and  it  contributes  approxi- 
mately $7  billion  in  commodity  markets  annually.  Our  industry 
benefits  many  of  the  family  farms  in  Kansas  and  impacts  each  of 
our  towns  and  our  small  businesses. 

The  USDA  statistics  indicate  that  Kansas  ranks  sixth  nationally 
for  agriculture  exports  at  approximately  $2  billion  per  year  for  the 
past  2  years.  Food  and  kindred  products  which  are  value-added 
products  is  the  second  largest  employment  industry  group  in  the 
State  of  Kansas. 

Our  State  Market  Promotion  Program  relies  on  help  from  the 
Federal  Government  to  survive.  A  full  60  percent  of  the  companies 
responding  to  a  recent  market  promotion  survey  are  considered 
small  companies  reporting  sales  of  500,000  or  less.  The  FAS  and 
MPP  Program  has  allowed  the  private  sector  to  partner  with  the 
U.S.  Government  to  pursue  and  to  develop  new  business  opportuni- 
ties in  the  foreign  markets. 

MPP  embodies  the  type  of  cooperative,  cost-shared  programs  the 
country  needs  to,  first,  we  need  to  create  jobs  here  at  home;  and 
second,  we  need  to  strengthen  the  economy  and  help  American  ag- 
riculture and  small  value-added  companies  establish  the  long-term 
trading  relations  in  the  world  markets. 

Now,  during  the  past  3  fiscal  years,  the  Kansas  Department  of 
Agriculture  has  conducted  47  individual  major  foreign  marketing 


activities.  We  have  produced  more  than  $7  milHon  in  first-time  new 
sales  of  Kansas  food  products.  This  does  not  include  ongoing  sales 
of  basic  commodities.  The  success  of  this  program  would  not  have 
been  possible  without  the  help  of  the  USDA  export  programs. 

The  use  of  Federal  matching  funds  has  made  it  possible  for  Kan- 
sas to  generate  this  additional  business  and  has  also  aided  in  keep- 
ing the  price  of  food  products  steady.  It  is  estimated  that  for  every 
dollar  invested  in  the  export  programs  for  agriculture,  exports  rose 
by  $16:  $16  to  every  $1  spent  is  a  solid  return  on  your  investment. 

Overall,  the  farm  community  believes  that  the  higher  living 
standards  throughout  the  world  depend  on  mutually  beneficial 
trade  among  nations.  We  urge  that  trade  and  economic  policies  be 
developed  that  promote  rather  than  retard  growth  in  world  trade. 

We  support  adequate  funding  for  EEP,  for  MPP,  for  the  Dairy 
Export  Incentive  Program,  to  retain  and  expand  our  foreign  export 
markets.  All  GATT  legal  export  promotion  and  development  pro- 
grams must  be  fully  funded  to  enable  us  to  maintain  a  place  in 
international  markets  for  our  products  to  continue  to  create  jobs 
here  at  home. 

Strong  export  programs  will  keep  our  economy  healthy  and  pro- 
vide new  jobs  for  Americans. 

As  this  testimony  indicates,  the  MPP  and  other  Government  ex- 
port programs  in  the  FAS  budget  are  key  to  the  future  of  agri- 
culture exports  and  to  the  growth  of  small  businesses.  Thank  you 
for  keeping  these  programs  strong.  The  major  benefactors  will  be 
small  business  and  the  small  farmers. 

Thank  you. 

[Mrs.  Reinhardt's  statement  may  be  found  in  the  appendix.] 

Chairman  Manzullo.  I  appreciate  that. 

One  of  the  things  that  I  would  like  to  share  with  the  panel,  and 
then  I  want  to  give  Mrs.  Clayton,  who  is  our  Ranking  Member,  an 
opportunity  to  make  a  delayed  opening  statement. 

Please  witness,  this  is  not  the  Appropriations  Committee  where 
people  come  in  and  try  to  defend  their  programs.  What  I  want  is 
some  life  examples.  Everybody  can  read  figures.  We  all  know  what 
investments  are.  The  budget  knife  is  coming  and  this  is  not  the 
place  for  vou  to  plead  for  the  knife  not  to  come  across  the  throat 
because  that  is  being  done  by  Representatives  before  the  Appro- 
priations Committee,  and  we  are  not  involved  in  that. 

Our  goal  here  is  that  because  the  knife  is  coming,  we  are  at- 
tempting to  be  part  of  a  leading  edge  along  with  Mrs.  Clayton, 
hopefully,  somewhere  down  the  line  to  take  all  the  trade  promotion 
programs  and  put  them  under  one  category  or  department  or  one 
head  so  that  what  is  left  will  be  more  than  sufficient  to  represent 
all  the  interests,  including  agriculture. 

So  if  you  would  keep  that  in  mind  as  we  continue,  it  would  bring 
a  little  bit  more  focus  to  the  hearing  in  addition  to  the  excellent 
testimony  that  you  have  already  given. 

Mrs.  Clayton. 

Mrs.  Clayton.  Thank  you. 

I  will  not  give  my  full  opening  statement.  I  want  to  commend  the 
Chairman.  He  is  correct.  Both  of  us  do  share  a  deep  interest  in 
trade  and  want  to  see  that  the  full  knowledge  and  the  value  of  the 
trade  programs  make  a  point.  I  would  not  go  so  far  that  we  both 


10 

agree  that  we  are  going  to  put  them  all  under  one  umbrella.  That 
was  news  to  me. 

Chairman  Manzullo.  It  depends  on  the  size  of  the  umbrella. 

Mrs.  Clayton.  But  I  am  also  a  member  of  Agriculture  so  I  wear 
two  hats  here.  I  do  think,  though,  that  the  evidence  that  you  have 
given  will  help  us  sustain  our  presence  in  appropriations  so  I  ap- 
preciate your  comments  and  will  have  the  opportunity  to  probe  you 
further  for  some  life  events. 

I  think  it  is  appropriate,  Mr.  Chairman,  for  you  to  have  this 
meeting  in  light  of  the  fact  that  we  are  going  through  a  budgetary 
process  because  how  best  could  the  value  of  these  programs  be  ar- 
ticulated. As  in  other  quarters,  they  are  discussing  the  value  of 
these  programs  if  we  don't  know  them,  and  to  have  people  come 
from  Kansas,  now,  I  want  to  tell  you,  Kansas,  Kansas,  Kansas,  I 
will  tell  you  what,  what  is  happening? 

Mr.  Brownback.  It  is  center  of  the  universe. 

Mrs.  Clayton.  It  must  be.  Something  is  happening  around  here. 
I  have  a  Kansan  who  is  Chairman  of  my  Small  Business.  I  have 
a  Chairman  of  Agriculture. 

Mr.  Brownback.  You  have  got  a  President-to-be  who  is  going  to 
be  from  Kansas. 

Mrs.  Clayton.  You  all  want  to  take  over  the  world,  don't  you? 

I  do  appreciate  that  they  sent  a  woman  who  is  active  in  export- 
ing. I  think  that  is  wonderful. 

Rather  than  take  up  additional  time,  let  me  enter  my  statement, 
Mr.  Chairman,  for  the  record  and  have  the  opportunity  to  ask  each 
person  as  they  complete  their  testimony  and  thank  them  for  com- 
ing. 

[Mrs.  Clayton's  statement  may  be  found  in  the  appendix,] 

Chairman  Manzullo.  Thank  you,  Mrs.  Clayton.  Along  these 
lines,  we  are  having  a  field  hearing  in  your  congressional  district 
on  June  23rd. 

Mrs.  Clayton.  In  Wilmington. 

Chairman  Manzullo.  We  are  going  to  be  taking  a  considerable 
period  of  time  down  there,  and  because  Mrs.  Clayton  has  a  heavy 
agricultural  area,  we  are  going  to  have  the  opportunity  to  get  into 
this  more  in  depth. 

The  next  witness  is  Richard  McGuire  who  is  the  commissioner  of 
Department  of  Agriculture  and  Markets  from  the  State  of  New 
York.  He  has  traveled  all  the  way  from  Albany  to  come  down  here. 

Mr.  McGuire,  thank  you  very  much  for  coming  here.  The  floor  is 
yours. 

TESTIMONY  OF  RICHARD  T.  McGUIRE,  COMMISSIONER,  NEW 
YORK  DEPARTMENT  OF  AGRICULTURE  AND  MARKETS,  REP- 
RESENTING  THE  NATIONAL  ASSOCIATION  OF  STATE  DE- 
PARTMENTS OF  AGRICULTURE 

Mr.  McGuire.  Thank  you  very  much,  Mr.  Chairman.  I  am  inter- 
ested in  Mrs.  Clayton's  comments  because  Big  Jim  told  me  that 
North  Carolina  was  the  center  of  the  universe. 

Mrs.  Clayton.  He  hasn't  heard  about  Kansas  yet. 

Mr.  McGuire.  I  am  Dick  McGuire,  commissioner  of  the  New 
York   Department  of  Agriculture   and  Markets,   chairman   of  the 


11 

Trade  Committee  at  the  National  Association  of  State  Departments 
of  Agriculture. 

Chairman  Manzullo.  Could  you  pull  the  mike  closer  to  you,  Mr. 
McGuire? 

Mr.  McGuiRE.  Mr.  Chairman,  we  appreciate  the  opportunity  to 
testify  before  your  subcommittee  today  and  the  rest  of  the  members 
of  the  subcommittee. 

The  Department  of  Agriculture  and  Markets  of  all  the  States,  in- 
cluding all  50  States  as  well  as  American  Samoa,  Guam,  Puerto 
Rico,  and  the  Virgin  Islands  have  worked  for  many  years  on  ex- 
ports. I  might  just  start  off  by  saying  that  in  the  MPP  Program, 
we  are  probably  the  departments  that  do  the  best  of  the  small  busi- 
ness exports  of  any  of  the  funds  that  come  through  the  MPP  Pro- 
gram because  we  deal  with  all  the  small  businesses  in  each  of  our 
States. 

Currently,  the  U.S.  domestic  market  is  not  increasing  fast 
enough  to  utilize  the  growing  productivity  made  possible  by  contin- 
ued advances  in  production  and  technology.  I  think  we  are  veir  for- 
tunate as  a  Nation  and  as  a  world  that  that  is  true  because  or  dou- 
bling of  the  world  population,  and  most  of  it  in  the  nondomestic 
areas  of  the  world,  away  from  the  United  States,  is  going  to  in- 
creasingly depend  on  the  capability  of  American  farmers  to  produce 
food. 

The  future  of  American  agriculture  depends  on  wise  and  sustain- 
able use  of  available  resources  backed  by  a  solid  commitment  from 
the  U.S.  Government  to  protect,  maintain,  and  increase  the  U.S. 
share  of  the  world  market  for  food  and  fiber. 

With  about  1  in  every  3  acres  of  U.S.  cropland  produced  for  ex- 
port, production,  and  marketing  decisions.  Government  policy  must 
be  based  on  global  as  well  as  local  and  national  agricultural  condi- 
tions. 

We  are  well  aware  of  the  discussion  that  is  going  on  to  phase 
down  the  various  direct  payment  to  farmers  programs.  We  under- 
stand why  this  is  being  done.  It  is  being  driven  by,  primarily,  two 
things.  First,  which  is  major,  is  the  budget  concerns  of  this  Nation, 
but  also  by  the  agreements  on  tariff  and  trade  that  we  have  agreed 
to  as  a  Nation  with  other  nations  of  the  world  to  phase  down  those 
various  support  programs  to  each  country's  agriculture. 

I  won't  comment  on  the  size  of  our  exports  because  Mr. 
Schumacher  has  already  done  very  well  on  those  figures.  USDA 
and  Congress  have  created  export  assistance  programs  designed  to 
accomplish  multiple  objectives  in  domestic  trade,  humanitarian  and 
foreign  policies,  and  USDA  uses  four  basic  methods  to  increase  ag- 
ricultural exports,  price  reductions  through  bonus  payments.  Ex- 
port credit,  food  aid,  and  promotional  assistance. 

Export  assistance  programs  include  Public  Law  480  enterprises 
for  the  America's  Food  for  Progress  Export  Credit  Programs,  the 
Export  Enhancement  Program,  and  the  Market  Promotion  Pro- 
gram. 

Let  me,  Mr.  Chairman,  expand  now  to  project  NASDA  which  our 
national  association  coordinates  with  the  assistance  of  the  Foreign 
Agricultural  Service  under  the  Market  Promotion  Program.  For  3 
successive  years  beginning  in  1993,  NASDA  and  FAS  have  cospon- 


12 

sored  a  very  effective  domestic-based  international  trade  event  in 
Chicago  called  the  U.S.  Food  Export  Showcase. 

It  is  held  annually  in  conjunction  with  the  Food  Marketing  Insti- 
tute's International  Supermarket  Industry  Convention  and  Expo- 
sition. FMI's  Convention  and  Exposition  is  the  world's  premier 
event  for  the  supermarket  industry.  NASDA's  showcase  is  specifi- 
cally designed  to  provide  small-  and  medium-sized  companies  with 
a  reasonably  priced  domestic  forum  to  show  their  high  value  food 
products  to  some  of  the  world's  most  important  buyers  and  import- 
ers. 

This  event  has  attracted  a  steadily  increasing  number  of  inter- 
national food  product  buyers.  Our  independent  surveys  show  that 
the  1993-1994  export  showcase  helped  out  more  than  300  exhibi- 
tors export  more  than  $400  million  worth  of  American  products. 
This  is  good  evidence  that  the  partnership  of  NASDA,  FAS,  and 
FMI  has  provided  an  audience  with  outstanding  purchasing  power 
around  the  world. 

Let  me  give  you  an  example  because  there  are  many  spinoffs  of 
this  that  are  not  even  shown  in  the  figures.  New  York  State  re- 
cently was  invited  to  attend  a  food  show  in  Israel.  The  primary  rea- 
son is  we  have  one  of  the  largest  kosher  departments  in  the  world. 
We  have  more  of  the  Jewish  community  in  New  York  City,  we  have 
extensive  businessmen  in  the  kosher  business.  We  took  14  commer- 
cial kosher  producers,  small  business,  to  Israel  to  this  show.  They 
all  did  business,  are  continuing  to  do  business,  and  are  very 
pleased  with  it. 

One  of  the  things  that  happened  that  has  been  unusual  in  visit- 
ing these  major  shopping  conglomerates  in  Israel,  we  left  a  card  of 
our  man  from  our  department  that  accompanied  these  businessmen 
and,  within  a  month,  we  had  a  telephone  call  that  they  were  run- 
ning out  of  apples  because  of  a  very  poor  apple  crop  in  the  Medi- 
terranean area  and  asked  if  we  could  supply  them  apples. 

In  January  and  February,  we  put  together  and  shipped  to  them 
900,000  boxes  of  apples.  It  took  many  small  business  producers  of 
apples  in  New  York  State  to  fill  that  order.  We  thought  it  was 
going  to  be  strictly  a  short-term  order  because  of  a  short  supply 
that  they  experienced.  They  were  so  pleased  with  the  new  varieties 
that  we  shipped  to  them  that  they  had  never  had  on  their  store 
shelves  before,  that  they  have  indicated  to  us  that  they  are  going 
to  continue  on  a  year-round  purchase  of  apples.  This  is  the  kind  of 
thing  that  is  increasingly  happening  as  a  result  of  our  efforts  in  the 
MPP  Program,  shows,  and  contacts  we  are  making  on  a  worldwide 
basis. 

To  ensure  that  the  United  States  maintains  and  expands  its 
share  of  the  world  market  for  food  and  fiber  in  the  1995  farm  bill. 
Congress  should  authorize  agricultural  export  promotion  and  devel- 
opment programs  that  fund  them  to  the  extent  allowed  under 
international  treaties  for  the  next  5  years. 

As  I  have  testified  before  agricultural  committees,  let  me  just 
point  out  that  as  I  referred  to  the  probability  of  phasing  down  Gov- 
ernment direct  payments  to  farmers  for  production,  I  recommend 
that  for  every  dollar  saved  budget-wise  in  that  phase-down,  what- 
ever it  is  and  however  rapidly  it  occurs  over  the  next  5  years,  that 


13 

25  cents  of  that  dollar  at  least  ought  to  be  allocated  to  helping 
farmers  sell  their  products. 

If  we  are  not  going  to  help  them  produce  them,  and  if  those  pro- 
grams are  phased  down,  I  am  sure  we  are  going  to  have  increased 
production  in  many  areas  because  of  no  acreage  restrictions  and 
the  effort  by  farmers  to  maintain  their  cash -flow  by  increasing 
their  production  capabilities.  We  have  got  a  hungry  world,  we  have 
got  many  commodity  growers  and  many  farmers  who  have  no  way 
individually  to  access  those  markets.  They  need  help  and  they  need 
expertise  and  they  need  some  promotion  funds  and  they  neea  some 
ways  of  participating  through  the  business  community  to  sell  those 
products.  I  think  the  MPP  Program  is  the  most  appropriate  and 
has  the  most  demonstration  of  success. 

I  think  it  is  also  important  to  make  a  point  here  that  there  be 
recognition  of  the  reality  that  programs  do  assist  in  expanding  ex- 
ports of  high-value  food  products  and  must  somehow  allow  for  the 
participation  of  large  food  processing  companies  like  Kraft  Foods. 

Now,  the  dairy  farmers  and  apple  and  vegetable  growers  in  New 
York  State,  as  I  have  already  mentioned,  have  no  way  of  exporting 
their  product  until  they  are  put  into  a  value-added  condition  and 
situation.  The  only  people  who  could  do  that  are  the  major  compa- 
nies with  the  technology  and  expertise  to  do  it  and  also  put  into 
large  enough  groups  to  fill  orders  and  do  it  on  a  continuous  basis. 

So  the  program  to  help  the  small  farmers,  the  small  business 
men  in  our  State,  10,000  dairy  farmers,  4,000  vegetable  and  fruit 
farmers,  is  to  also  accommodate  the  various  size  of  organizations 
that  can  move  the  product  the  best. 

With  regard  to  promotion  programs  in  the  farm  bill,  NASDA  has 
suggested  to  Congress  that  the  1995  farm  bill  should  create  a  new 
USDA  export  development  program  called  AG-EXPORT,  which  will 
strategically  coordinate  Federal,  State,  and  private  sector  efforts  to 
make  U.S.  farmers  and  agribusinesses  more  competitive  in  inter- 
national markets. 

Through  this  program  which  would  be  GATT  legal,  the  United 
States  would  maintain  and  expand  its  share  of  world  markets  for 
food  and  fiber  products.  We  strongly  support  this  concept.  We  have 
made  that  recommendation  to  all  the  agricultural  committees. 

I  thank  you  very  much  for  the  opportunity  to  testify. 

Chairman  Manzullo.  Thank  you  very  much. 

[Mr.  McGuire's  statement  may  be  found  in  the  appendix. 1 

Chairman  Manzullo.  The  next  witness  is  John  Frydenlund  who 
was  bom  and  raised  on  the  family  dairy  farm  in  Minnesota.  He 
presently  works  in  Washington  with  tne  Heritage  Foundation. 
John,  we  appreciate  the  fact  that  you  are  with  a  noted  and  re- 
spected organization  such  as  Heritage,  plus  you  bring  that  aspect 
of  being  raised  on  a  family  dairy  farm.  I  thank  you  for  giving  us 
the  opportunity  to  listen  to  your  testimony  this  morning.  Please. 

TESTIMONY  OF  JOHN  FRYDENLUND,  DIRECTOR, 
AGRICULTURE  POLICY  PROJECT,  HERITAGE  FOUNDATION 

Mr.  Frydenlund.  Thank  you,  Mr.  Chairman,  and  distinguished 
members  of  the  subcommittee. 

I  appreciate  this  opportunity  to  discuss  the  effectiveness  of  ex- 
port promotion  programs  managed  by  the  U.S.  Department  of  Agri- 


14 

culture.  Our  project  at  the  Heritage  Foundation  has  been  examin- 
ing all  aspects  of  the  Federal  Government's  agricultural  commod- 
ities policy,  particularly  the  income  subsidy  and  support,  supply 
control  and  conservation,  and  export  subsidy  programs. 

We  are  proposing  reforms  which  will  enable  U.S.  farmers  to 
achieve  greater  incomes  from  the  marketplace  and  will  also  pro- 
mote the  revitalization  of  these  rural  economy  by  taking  greater 
advantage  of  this  Nation's  productive  and  export  potential. 

It  is  impossible  to  fairly  examine  the  effectiveness  of  U.S.  agri- 
cultural export  programs  without  recognizing  how  all  of  these  poli- 
cies are  intertwined  with  the  Federal  Government's  overall  agricul- 
tural policies  of  central  planning  and  supply  management.  The  con- 
tradictory Federal  policies  of  providing  price  supports  for  U.S. 
farmers  while  simultaneously  imposing  supply  controls  on  produc- 
tion have  undercut  the  ability  of  U.S.  farmers  to  compete  in  the 
international  market. 

In  an  effort  to  counter  this  effect  of  its  general  farm  programs, 
the  Federal  Government  has  used  two  different  strategies  to  ad- 
dress international  trade.  In  line  with  Washington's  planning  men- 
tality, the  first  is  to  protect  U.S.  agricultural  markets  from  inter- 
national competition  by  restricting  the  importation  of  many  other 
commodities.  This  unfortunately  is  a  strategy  employed  by  many 
other  countries  as  well.  The  second,  also  a  product  of  the  planning 
approach,  has  been  to  help  U.S.  producers  compete  in  the  inter- 
national market  by  subsidizing  the  export  of  certain  commodities. 

Although  the  Federal  Government  has  been  devoting  over  $1  bil- 
lion dollars  annually  to  direct  export  subsidy  programs,  and  mil- 
lions more  in  loan  guarantees  and  marketing  assistance,  these  ex- 
penditures have  done  nothing  to  correct  the  underlying  lack  of 
international  competitiveness  that  results  directly  from  Govern- 
ment's central  planning  and  curbs  on  production.  Neither  these 
programs  nor  interference  with  trade  has  done  anything  to  reverse 
the  decline  in  U.S.  market  share.  Instead,  they  have  hindered  the 
ability  of  farmers  and  processors  of  agricultural  commodities  to 
compete  successfully  in  the  international  market. 

Although  there  have  been  dramatic  increases  in  world  consump- 
tion of  food  products,  thanks  to  Government  acreage  reduction  pro- 
grams, U.S.  production  of  the  most  managed  commodities  of  wheat, 
feed  grains,  cotton,  and  rice  has  remained  essentially  flat  over  the 
last  10  vears  and  the  United  States  share  of  that  world  market  has 
dropped. 

Export  subsidies  depress  world  prices  relative  to  the  U.S.  price, 
creating  a  price  differential  that  makes  the  United  States  an  at- 
tractive market  for  foreign  products  while  further  discouraging  the 
export  of  U.S.  products. 

EEP  was  originally  initiated  to  counteract  the  export  subsidies  of 
the  European  community  and  to  force  them  to  the  bargaining  table 
to  negotiate  restraints  on  subsidized  competition  and  reduction  or 
elimination  of  import  restrictions.  Now  that  the  GATT  agreement 
is  about  to  be  implemented,  it  is  an  appropriate  time  to  examine 
the  effectiveness  of  export  subsidies,  regardless  of  what  the  GATT 
agreement  allows  or  disallows. 

A  decision  on  whether  or  not  to  continue  using  export  subsidies 
should  be  based  on  what  is  truly  best  for  American  agriculture  and 


15 

rural  America.  The  1995  farm  bill  needs  to  establish  policies  that 
provide  U.S.  agriculture  with  the  ability  to  reestablish  their  pre- 
eminence in  the  international  market  by  being  the  low-cost,  reli- 
able supplier  for  that  market. 

Originally,  the  EEP  subsidy  was  provided  in  the  form  of  bonus 
commodities  which  were  taken  out  of  Gk)vernment-stored  surpluses. 
Then,  at  least  the  program  added  to  exportable  supplies.  However, 
even  that  marginal  benefit  has  disappeared.  So,  there  has  been  nei- 
ther any  positive  effect  from  bringing  additional  supplies  of  com- 
modities into  the  marketplace,  nor  have  there  been  any  increases 
in  bulk  commodity  sales.  In  fact,  in  recent  years,  the  United  States 
would  have  likely  sold  as  much  wheat  without  EEP  as  it  eventually 
did  with  EEP.  However,  without  the  program,  the  United  States 
would  have  been  selling  its  wheat  at  a  higher  price. 

We  have  recently  proposed  agricultural  reform  policies  that  will 
enhance  the  competitiveness  of  U.S.  agricultural  products  in  the 
international  marketplace.  In  addition  to  elimination  of  EEP  and 
other  export  subsidy  programs,  the  following  proposals  are  key  to 
restoring  that  competitiveness:  Eliminate  all  authority  for  acreage 
reduction  and  set-aside  programs;  phaseout  the  subsidy  and  sup- 
port programs;  phaseout  the  conservation  reserve  program;  and 
phaseout  the  farmer-owned  reserve. 

Such  changes  would  signal  to  the  rest  of  the  world  that  the  Unit- 
ed States  intends  to  pursue  an  aggressively  pro-growth  agricultural 
policy.  Additional  net  farm  income  from  the  marketplace  would  ex- 
ceed $2  billion  in  1996  and,  by  the  year  2001,  it  would  be  near  $4 
billion.  Even  with  a  phase-out  of  target  prices  between  1996  and 
2005,  farmers  would  enjoy  a  net  increase  in  income  of  $10  billion 
in  excess  of  the  reduction  in  deficiency  payments. 

Freeing  farmers  to  produce  would  ignite  even  more  dynamic 
growth  in  the  rural  economy.  Between  1996  and  2001,  at  least  $21 
billion  would  be  injected  into  the  rural  economy  in  new  spending 
on  farm  inputs  such  as  fertilizer  and  seed.  There  would  be  an  even 
greater  impact  from  increased  revenues  resulting  from  increased 
processing,  packaging,  transportation,  and  distribution. 

This  subcommittee's  examination  of  the  effectiveness  of  agricul- 
tural export  promotion  programs  obviously  will  scrutinize  addi- 
tional programs  such  as  the  Export  Credit  Guarantee  Programs, 
which  have  not  been  effective  in  meeting  their  stated  goal  of  in- 
creasing agricultural  exports,  and  the  Market  Promotion  Programs 
should  be  considered  to  be  abolished.  There  is  really  no  reason  for 
the  U.S.  taxpayer  to  subsidize  the  foreign  advertising  and  pro- 
motion activities  of  multinational  corporations. 

Also,  because  exports  under  Titles  I  and  III  of  Public  Law  480 
are  a  small  portion  of  total  U.S.  agricultural  exports  and  most  of 
the  countries  currently  receiving  Public  Law  480  commodities  are 
unlikely  to  become  commercial  customers,  the  market  development 
aspect  of  the  program  is  insignificant  and  those  two  titles  should 
be  eliminated. 

Title  II,  which  provides  donations  for  emergency  food  relief  does 
warrant  continuation.  However,  regardless  of  what  is  done  with  the 
different  titles  of  Public  Law  480,  all  cargo  preference  requirements 
should  be  removed  from  the  Public  Law  480  Program.  These  re- 


16 

quirements  only  serve  to  undermine  the  competitiveness  of  U.S.  ag- 
ricultural exports. 

I  would  like  to  conclude  by  stressing  that  in  addition  to  imple- 
menting policies  that  promote  growth  and  competitiveness  of  U.S. 
agricultural  products,  the  other  key  to  future  export  growth  is  to 
achieve  further  reforms  in  international  trading  rules. 

As  I  was  quoted  earlier  by  Auggie,  "the  Government  should  not 
look  at  the  GATT  reforms  as  an  end  but  as  a  beginning.  Future  ne- 
gotiations should  pursue  increased  market  access  for  U.S.  agri- 
culture products  and  complete  removal  of  both  tariff  and  nontariff 
import  barriers,  in  addition  to  the  total  elimination  of  all  export 
subsidies  and  other  trade  distorting  policies." 

As  Auggie  said,  we  should  not  unilaterally  disarm.  But  I  think 
that  at  this  point  in  time  it  is  justifiable  to  ask  whether  the  EEP 
Program  is  indeed  arming  us  at  all.  In  order  for  it  to  actually  ade- 
quately counter  European  Union  subsidies,  we  would  probably 
have  to  massively  increase  the  funding  for  that  program.  So,  the 
question  is:  Are  there  other  strategies  that  should  be  used  rather 
than  the  EEP? 

I  want  to  thank  you  again,  Mr.  Chairman,  for  the  opportunity  to 
present  these  views  and  I  will  be  glad  to  answer  any  questions  and 
hope  that  my  entire  statement  can  be  put  in  the  record. 

Chairman  Manzullo.  Thank  you  very  much. 

[Mr.  Frydenlund's  statement  may  be  found  in  the  appendix.] 

Chairman  Manzullo.  Mr.  Sisisky. 

Mr.  Sisisky.  Thank  you,  Mr.  Chairman.  I  thank  all  of  you  for 
being  here  today.  Interesting  discussion.  Market  promotion,  did  you 
say,  was  a  billion?  What  is  the  figure? 

Mr.  Schumacher.  What  I  mentioned  in  my  testimony  was  that 
the  European  Union  is  putting  more  into  their  export  subsidies  for 
wine — which  is  about  $100  million,  than  we  do  in  our  entire  mar- 
ket promotion  for  the  United  States  to  promote  the  kind  of  exports 
that  Commissioner  McGuire  mentioned,  moving  apples  into  Israel, 
for  which  we  are  only  spending  about  $85.5  million. 

Market  promotion  is  an  innovative  effort  to  do  exactly  as  Com- 
missioner McGuire  mentioned  and 

Mr.  Sisisky.  What  is  the  budget  for  marketing  promotion? 

Mr.  Schumacher.  $85.5  million  only  for  the  Market  Promotion 
Program. 

Mr.  Sisisky.  Is  that  the  one  you  were  talking  about  with  the 
large  companies. 

Mr.  Schumacher.  That  is  a  different  program. 

Mr.  Frydenlund.  The  Market  Promotion  Program,  of  course, 
does  go  to  large  multinational  companies. 

Mr.  McGuire.  No. 

Mr.  Schumacher.  I  could  reply  if  you  wish. 

Mr.  Sisisky.  Well,  we  have  some  disagreement  there.  So,  I  am 
just  as  confused  as  you  are. 

Mr.  McGuire.  Could  I  comment  to  that? 

Mr.  Sisisky.  Sure. 

Mr.  McGuire.  It  is  obvious  it  isn't  news  to  anybody  in  this  room 
that  there  is  a  lot  of  criticism  from  Congress  on  money  paid  in  pro- 
motion programs  to  McDonald's  and  other  large  corporations.  That 
has  been  very  much  changed  in  the  last  3  or  4  years,  particularly 


17 

the  last  two,  but  I  would  point  out  that  it  is  not  a  change  in  policy 
from  the  administration  of  the  thing  as  it  is  a  change  in  policy  of 
Congress. 

The  point  being  that  the  program  was  to  move  agricultural  prod- 
ucts and  to  move  volumes  of  agricultural  products.  McDonald's 
could  move  more  cheese  than  500  small  companies  could  move 
cheese  because  they  have  access  to  world  markets  and  they  use  a 
lot  of  cheese.  They  use  a  lot  of  the  potatoes.  They  move  more  pota- 
toes than  a  whole  lot  of  other  small  businesses  could  move  pota- 
toes. 

The  original  input,  and  the  reason  Congress  passed  thise  thing, 
was  to  move  agricultural  products  not  as  a  program  for  business 
so  that  was  the  direction  of  it  originally.  It  has  been  shifted  in  the 
last  2  years,  and  particularly  through  the  MPP  Program  funds  that 
Mr.  Schumacher  spoke  about,  of  accommodating  and  working 
through  more  small  businesses  and  introducing  them  into  export 
markets  that  hadn't  been  there  before. 

Mr.  SisiSKY.  Well,  I  would,  for  McDonald's  and  other  companies, 
Kraft,  in  my  former  life  I  was  with  an  international  company  called 
PepsiCo.  I  don't  think  they  got  too  much  promotion  for  going 
around  the  world.  I  mean,  they  have  got  their  own  State  Depart- 
ment. These  multinational  companies  know  how  to  do  it.  They 
transfer  people,  just  like  our  State  Department,  every  3  or  4  years 
and  they  have  global  advertising.  They  cultivate  it. 

I  am  not  urmappy  with  the  statement  that  you  made.  I  don't 
think  we  really  should  be  supporting  that  because  they  can  do  that 
on  their  own,  but  the  Export  Enhancement  Program  is  the  one  I 
was  really  getting  at. 

You  are  not  opposed  to  that,  are  you? 

Mr.  Frydenlund.  Yes. 

Mr.  SisiSKY.  Tell  me  why,  for  small  business.  Tell  me  why. 

Mr.  Frydenlund.  First,  the  Export  Enhancement  Program  is  not 
accomplishing  anything.  It  has  not  increased  our  market  share.  It 
is  supposed  to  be  helping  agricultural  exports.  In  the  time  that  it 
has  been  in  place,  we  have  continued  to  lose  market  share. 

It  is  counterproductive  in  that  what  we  accomplish  by  trying  to 
drive  down  world  prices  instead  makes  the  United  States  a  more 
attractive  export  market  for  foreign  products  and  we  end  up  using 
a  billion  dollars  for  that  program,  while  you  obviously  cannot  be  af- 
fecting every  single  sale  that  is  made.  So,  what  you  do  is  tell  for- 
eign buyers  that  they  should  hold  out  for  the  subsidized  sale.  It 
really  makes  our  unsubsidized  sales  less  attractive. 

Mr.  SisiSKY.  But  as  long  as  we  do  have  subsidized  sales  and 
there  is  a  reason  for  being  there,  what  does — one  of  the  things  I 
never  understood  about  this  Nation,  if  you  take  any  company  that 
sells  product,  their  first  thing  is,  how  to  market  it. 

Marketing  is  the  key  to  all  the  growth  in  any  company  or  any 
commodity,  as  far  as  that  goes.  The  person  who  is  trying  overseas 
goes  into  a  foreign  country,  he  needs  some  help  in  that  embassy, 
whether  an  agricultural  person  or  somebody  to  enhance  that. 

They  don't  know  how  to  do  business  over  there.  I  am  not  talking 
about  the  large  companies.  I  am  not  talking  about  the  Krafts  or 
people  like  that.  I  am  talking  about  a  cooperative  in  my  area  that 


18 

has  a  cotton  gin  or  have  their  own  peanuts  and  they  want  to  get 
into  a  market. 

How  do  they  get  into  that  market  without  help  from  the  Federal 
Government? 

Mr.  McGuiRE.  Congressman,  I  agree  with  you  completely.  That 
is  what  the  MPP  Program  is  doing.  It  is  not  a  subsidy  to  business 
or  to  farmers  either.  Let  me  tell  from  firsthand  information  in  New 
York  State  how  it  works.  They  have  companies  apply,  and  we  say, 
if  you  will  sell  New  York  State  apples  and  promote  New  York  State 
apples  in  the  foreign  market,  we  will  pay  half  of  that  promotion 
and  you  pay  half  of  that  promotion,  rather  than  them  having  to 
market  in  France  and  selling  French  apples  and  European  apples 
in  their  markets  in  France.  So,  we  have  increased  the  sale  of  New 
York  markets  by  helping  promote  New  York  on  a  50/50  basis  and 
they  have  to  qualify  for  that. 

Many  of  the  times  they  would  just  not  bother  spending  the 
money  at  all.  We  get  them  to  spend  half  of  the  money  and  we  put 
up  the  other  half  of  it.  That  is  how  we  help  all  of  these  businesses 
on  a  50/50  basis,  and  they  have  to  demonstrate  that  they  have  the 
capability  of  moving  agricultural  products  through  their  business 
opportunities  and  we  need  the  Government  to  help  us  in  making 
those  kinds  of  things. 

Mr.  SisiSKY.  What  is  the  Federal  Government  doing  now  in  en- 
hancing that? 

Mr.  McGuiRE.  That  is  Federal  Government  money. 

Mr.  SisiSKY.  That  is  Federal  Government  money. 

Mr.  Schumacher.  A  portion.  One  of  the  fascinating  things  about 
the  Foreign  Agricultural  Service,  and  I  have  only  been  there  a  little 
less  than  a  year,  is  it  is  a  public-private  agreement.  We  share  50 
percent  and,  hopefully,  50  percent  is  supplied  by  the  company. 

That  Israeli  apple  operation  that  Commissioner  McGuire  spoke 
so  glowingly  of,  we  put  in  a  very  little  amount  of  money,  $2,000  or 
$3,000  for  the  promotion.  It  is  very  important  that  we  cost  share 
for  medium-  and  small-enterprises.  I  think  it  was  also  fasciniating. 
Congressman,  you  mentioned  your  relationship  formerly  with  Pepsi 
Cola.  Pepsi  owns  Pizza  Hut,  and  I  am  working  very  closely  as  this 
week 

Mr.  SislSKY.  Don't  tell  me  you  supply  them  with  cheese  pro- 
motion, now. 

Mr.  Schumacher.  No.  The  important  issue,  we  don't  promote 
and  work  with  Pepsi,  but  we  try  and  break  down  trade  barriers, 
as  John  has  said,  in  our  day-to-day  negotiations  with  foreign  coun- 
tries that  prevent  Kraft  Cheese  from  coming  into  Poland. 

Mozzarella  freeze-dried  pizza  toppings  to  put  on  the  pizza  the 
Polish  people  want  very  badly.  The  Polish  pizza  cheese  is  not  quite 
up  to  our  standards  and  they  have  prevented  American  cheese,  by 
a  straight-out  ban,  from  coming  into  Poland.  It  is  our  job  in  the 
Foreign  Agricultural  Service  to  break  down  those  trade  barriers  in 
the  hard  negotiations  to  allow  American  mozzarella  topping  on  Pol- 
ish pizzas. 

Mr.  SisiSKY.  The  vellow  light  is  on.  I  want  to  follow  through  on 
that.  You  mentioned  South  Korea  which  really  drives  me  up.  I  am 
on  the  House  National  Security  Committee  and  I  have  been  on 
there  for  13  years.  Now,  is  there  any  credibility  for  them  to  say 


19 

that  the  shelf  Hfe  of  meat  is  14  days  and  that  is  why  they  can 
import? 

Mr.  Schumacher.  Absolutely  not. 

Mr.  SisiSKY.  Well,  I  got  news  for  you.  Do  you  work  with  othe 
Agencies  of  the  Government?  When  they  want  the  Patriot  missile; 
sitting  over  there  to  protect  them  from  North  Korea,  maybe  w« 
need  to  tell  them  we  have  got  a  14-day  shelf  life  for  Patriot  mis 
siles.  I  am  serious  as  I  can  be  that  we  have  to  pull  them  out  aftei 
14  days.  I  just  get  so  sick  and  tired  of  this  with  our  friends.  But 
use  the  other  agencies. 

I  happen  to  agree  with  the  President  on  trade  sanctions  against 
Japan.  I  tell  you.  I  think  it  is  the  hardball  that  he  is  doing  now 
that,  somewhere  along  the  line,  we  have  to  do  it.  I  know  it  is  going 
to  hurt  a  lot  of  people  and  I  have  heard  from  my  car  dealers  but, 
sooner  or  later,  this  is  the  type  of  thing  that  we  have  got  to  do. 

Mrs.  Clayton.  You  won't  be  able  to  buy  a  Lexus. 

Mr.  SisiSKY.  That  is  tough.  I  appreciate  you  being  here. 

I  happen  to  believe  that  when  they  were  doing  European  Union 
and  getting  all  this  together,  I  was  over  in  Brussels.  Japan  had 
more  marketing  people  in  Europe  in  that  one  city  than  we  had  in 
all  of  Europe  and  probably  Asia,  too.  We  wonder  why  we  don't  get 
the  business. 

We  have  to  remember  that  in  lieu  of  anything  else  that  we  have, 
only  the  Government  can  step  in  to  do  certain  things,  and  market- 
ing is  the  absolute  important  thing.  Without  marketing,  you  are 
not  going  to  sell  product. 

Chairman  Manzullo.  We  appreciate  that  very  much. 

I  have  one  follow-up  question,  then  I  want  to  go  on  to  another 
colleague.  My  understanding  is  the  USTR  has  the  job  to  do  such 
things  as  being  able  to  get  our  quality  cheese  into  Poland.  Are  you 
saying  that  you  are  doing  the  same  thing,  too? 

Mr.  Schumacher.  We  work  very,  very  close  with  them,  very, 
very  closely  indeed.  I  think  the  U.S.  Department  of  Agriculture  is 
really  unique  in  the  extraordinary  close  relationship  we  have  on 
trade  policy  with  Mr.  Kantor  and  his  colleagues. 

Chairman  Manzullo.  Mr.  Sisisky  asked  some  questions  about 
some  numbers  here.  We  are  talking  about  three  different  programs. 

Mr.  Schumacher.  Yes.  There  is  the  Export  Enhancement  Pro- 
gram which  is  an  export  subsidy  to  counter  the  unfair  dumping  on 
export  of  the  European  Union,  the  lack  of  transparency  of  the  Ca- 
nadian Wheat  Board,  and  some  of  our  problems  with  our  treaties. 

Chairman  MANZULLO.  What  is  the  President's  request  on  that 
this  year? 

Mr.  Schumacher.  Up  to  the  GATT  legal,  the  GATT  agreed,  I 
think  it  was  about — Chris? 

Mr.  GoLDTHWAiT.  That  is  the  European  figure.  The  U.S.  figure. 

Mr.  Schumacher.  I  think  for  1994,  it  was  $850  million  was  the 
authorized  amount  by  Congress.  The  President's  request,  I  think, 
was  for  $914  million,  I  will  provide  the  correct  amount,  but  in  that 
order. 

[Mr.  The  information  may  be  found  in  the  appendix.] 

Chairman  Manzullo.  Eighty  percent  of  that,  I  understand,  is 
going  for  wheat;  is  that  correct? 

Mr.  Schumacher.  Yes.  That  is  where  the 


20 

Chairman  Manzullo.  Most  of  that  is  going  to  three  companies. 

Mr.  Schumacher.  The  EEP,  Mr.  Chairman,  is  basically  to  help 
the  wheat  growers  of  America.  The  way  it  works  administratively 
is  through  our  major  wheat  exporters  wnich  are  large  corporations. 
But  the  price  benefits  the  American  wheat  grower 

Chairman  Manzullo,  I  understand  that.  What  I  would  like  to  do 
is  try  to  simply  extract  the  amount  of  money  we  are  spending  on 
these  programs  and  then  we  can  move  on  from  there. 

Mr.  Schumacher.  Mr.  Goldthwait  runs  the  EEP  Program. 

Chairman  Manzullo.  Please  identify  yourself  for  the  record. 

Mr.  Goldthwait.  My  name  is  Chris  Goldthwait.  I  am  the  gen- 
eral sales  manager  working  with  Mr.  Schumacher  in  the  Foreign 
Agricultural  Service. 

The  President's  request  for  the  EEP  Program  for  fiscal  year  1996 
is  about  $960  million  and  that  would  be  augmented  by  some  small- 
er amounts  for  dairy  and  vegetable  oil  export  assistance  programs. 
The  total  would  be  a  little  over  $1  billion  for  fiscal  year  1996. 

Now,  this  would  give  us  the  authority  to  achieve  the  full  allowed 
limit  of  subsidization  according  to  our  GATT  commitments.  These 
levels  will  phase  down  according  to  that  GATT  schedule  over  a 
number  of  years,  6  years,  and  the  funding  level  over  that  6-year 
period  will  drop  36  percent. 

Chairman  Manzullo.  What  is  the  final  number  for  6  years? 

Mr.  Goldthwait.  The  final  number  at  the  end  of  6  years  will  be 
$594  million  for  all  of  the  subsidy  programs. 

Chairman  Manzullo.  You  mean  the  EEP? 

Mr.  Goldthwait.  The  EEP  the  Dairy  Export  Incentive  Program 
and  the  Vegetable  Oil  Export  Assistance  Programs. 

Chairman  Manzullo.  OK. 

Mrs.  Clayton. 

Mrs.  Clayton.  I  apologize  for  having  to  step  out  on  an  emer- 
gency, but  I  wanted  to  get  back  to  the  appropriation  again,  al- 
though this  is  not — it  does  indicate  whether  we  have  resources  to 
do  these  great  things.  I  gather  we  are  moving  up  to  the  maximum 
level  in  all  three  of  the  programs  up  to  the  GATT  level.  Is  that  it? 

Mr.  Schumacher.  The  President's  request  to  Congress  is  to  fund 
the  export  programs  at  the  GATT  permissible  levels.  The  President 
has  requested  the  full  authorization  for  the  market  promotional 
program  of  $110  million. 

Mrs.  Clayton.  So  over  a  period  of  5  years,  going  to  GATT,  you 
go  down;  is  that  right? 

Mr.  Schumacher.  Yes.  Under  the  Uruguay  Round,  we  will  cut — 
the  GATT  agreement  is  to  cut  by  more  than  half  the  subsidies  ex- 
ports but  not  the  promotional  programs.  The  promotional  programs 
Linda  and  Dick  have  mentioned  are  very,  very  important  to  meet 
our  marketing  needs  overseas  for  medium-  and  small-enterprises. 

Mrs.  Clayton.  So  the  promotional  programs  are  not  controlled 
by  the  GATT  limits? 

Mr.  Schumacher.  Right.  These  programs  are  legal  under  GATT. 

Mrs.  Clayton.  The  other  one,  the  Chairman  began  to  infer  or  to 
suggest  that  maybe  the  lion's  share  of  the  EEP  Program  was  being 
decreed  through,  if  not  to,  a  limited  number  of  exporters  and  I  get 
the  wheat.  Help  me  understand  the  distribution  of  the  utilization 
of  the  programs  so  that  I  get  a  feel. 


21 

Are  the  exporters  the  controller  of  those  who  get  the  resources? 
Is  that  a  point  of  convenience  on  how  we  export?  Help  me  under- 
stand the  limitations  that  that  may  impose  on  small  business  as 
they  want  to  utilize  these  resources  for  their  opportunities. 

Mr.  GOLDTHWAIT.  The  Congressman  is  correct  that,  historically, 
several  large  firms  have  done  most  of  the  marketing  of  the  com- 
modities that  we  assist  through  the  export  subsidy  programs,  par- 
ticularly the  grains.  This  basically  mirrors  the  trade  pattern  for 
wheat  and  other  bulk  grains  where,  in  effect,  the  bulk  of  world 
trade  is  conducted  regardless  of  the  origin  of  the  commodities  by 
a  handful  of  large  companies  and 

Mrs.  Clayton.  I  am  from  North  Carolina  and  do  soybeans,  so  the 
opportunities  for  our  farmers  in  North  Carolina  to  oe  able  to  sell 
their  soybeans,  are  they  constrained  because  of  this? 

Mr.  GoLDTHWAiT.  No,  they  are  not.  In  fact,  we  have  not  had  to 
use  export  subsidy  programs  to  support  soybean  exports. 

Mrs.  Clayton.  I  was  trying  to  give  one  example  and  I  pulled  the 
wrong  example,  right?  We  don't  grow  wheat,  unfortunately.  That 
would  have  been  wrong  because  that  is  not  indigenous  to  our  area. 
Is  there  anything  in  North  Carolina  that  would  be — how  about 
com? 

Mr.  GOLDTHWAIT.  We  don't  use  this  program  for  corn.  We  have 
used  it  for 

Mrs.  Clayton.  So  there  is  no  reason  North  Carolina  should  be 
supporting  this.  I  shouldn't  be  supporting  your  program.  There  is 
nothing  my  farmers  can  do  because  you  are  eliminating  all  my 
crops  now. 

Mr.  GoLDTHWAiT.  We  have  used  it  very  successfully  for  exports 
of  pork,  including  some  very  large  tonnages,  like  20,000  tons  from 
North  Carolina. 

Mrs.  Clayton.  You  got  my  attention  there. 

Mr.  Goldthwait.  In  fact  this  is,  I  think,  an  example  of  how  the 
program  was  actually  used  as  a  market  development  tool.  Because 
after  making  some  subsidized  sales  of  the  pork  to  Russia  and  in  ef- 
fect, introducing  our  product  to  Russia,  what  we  found  was  that  the 
exporters,  including  several  firms  out  of  North  Carolina,  some 
firms  out  of  Iowa,  other  States,  went  and  now  that  they  have  the 
contact  with  Russians,  they  began  to  sell  the  commodity  at  U.S. 
market  price  levels  without  the  need  for  the  subsidy  program  and 
now  we  have  ongoing  cash,  nonsubsidized  business  to  Russia  as  a 
result  of  having  used  this  program  to  get  a  beachhead. 

If  I  could  add  one  other  example.  I  think  looking  at  dairy,  the 
subsidy  programs  have  been  also  very  effective  in  introducing  U.S. 
dairy  exporters,  including  a  large  number  of  small  firms,  into  the 
export  market  and  we  now  have  about  40  or  50  companies  that  are 
marketing  U.S.  dairy  products,  using  DEIP. 

The  number  before  we  had  implemented  this  program  was  per- 
haps a  dozen  and,  again,  the  dozen  tended  to  be  larger  companies. 
So,  I  think  dairy  is  one  area  that  the  export  subsidy  programs  real- 
ly have  gotten  more  smaller  firmr.  involved. 

Mrs.  Clayton.  Could  you  just  go  through  in  a  descriptive  of 
what  the  nature  of  this  assistance  is,  this  promotion?  How  is  it 
that  you  promote  it?  Do  you  provide  technical  assistance?  Do  you 
provide  information?  Is  it  hands-on? 


22 

Would  you  just,  for  the  record,  share  a  description  of  what  a 
businessperson  or  firm  would  likely  get  fi-om  you  in  terms  of  re- 
sources and  assistance. 

Mr.  Schumacher.  With  pleasure,  Congresswoman. 

Let  me  maybe  use  an  example  of  poultry  which  I  have  been  quite 
involved  in  recently  and  throughout  the  country.  I  will  give  you  an 
example  of  a  very  small  poultry  company  in,  Moorefield,  West  Vir- 
ginia called  Pierce  Foods  which  has  received  a  $50,000  grant  from 
the  market  promotional  pro-am. 

What  we  nave  done,  I  visited  the  plant  myself  and  I  was  curious 
to  see  this  is  a  very  small  town  of  3,000  people.  There  are  over 
3,000  people  actually  working  in  poultry  in  that  town.  So,  it  is  a 
very  important  industry  and  a  very  small  rural  village. 

Mr.  Hester  runs  the  company,  asked  for  a  small  amount  of 
money  to  market  his  new  types  of  poultry  on  the  Japanese  market. 
They  redesigned  their  own  product  and  they  use  our  promotional 
moneys  to  go  to  the  shows.  It  is  very,  very  expensive  now  to  stay 
in  a  hotel  room  in  Japan.  I  think  it  is  $400  a  night.  It  costs  you 
$40  at  breakfast. 

So  for  small  firms,  it  is  prohibitively  expensive  to  go  there,  to  go 
to  the  shows  and  put  their  products  on  display.  They  got  their 
product  in,  they  are  using  the  Market  Promotion  Program  to  pro- 
mote that  small  firm's  product  on  the  Japanese  market  with  a  spe- 
cialty product  just  for  the  Japanese  market.  It  is  called  Pizzola  705, 
not  something  that  would  grab  my  attention,  but  in  Tokyo  they  ap- 
parently love  it.  He  is  now  so  busy  that  they  have  to  stagger  the 
shifts  coming  into  his  plant  because  they  only  have  one  stop  light. 

Mrs.  Clayton.  Very  good.  Thank  you. 

I  will  stop  now,  Mr.  Chairman. 

Chairman  Manzullo.  Mr.  Schumacher,  has  there  been  any 
thought  that  that  company  would  pay  back  the  $50,000? 

Mr.  Schumacher.  They  are  paying  it  back,  sir,  in  the  numbers 
of  people  they  have  taken  off  on  the  unemployment  rolls  in  West 
Virginia. 

Chairman  Manzullo.  I  understand  the  investment  theory  of  eco- 
nomics. But  the  overwhelming  thought  that  I  see  as  we  get  in- 
volved in  this  subcommittee  and  others  is  the  same  with  student 
loans  where  we  are  simply  asking  that  the  students  pay  back  inter- 
est starting  at  the  time  that  the  interest — that  the  money  is  actu- 
ally loaned  to  them.  I  would  I  think  somewhere  along  the  line  we 
are  missing  something.  Companies  benefit  from  this  program,  espe- 
cially a  company  of  3,000.  That  is  a  huge  company. 

Mr.  Schumacher.  A  thousand  employees.  There  is  another  com- 
pany in  the  town. 

Chairman  Manzullo.  A  thousand.  Somewhere  along  the  line,  I 
think  that  agencies,  perhaps  in  order  to  salvage  some  of  these  pro- 
grams, ought  to  start  looking  for  creative  solutions.  If  this  program 
works,  and  if  you  actually  gain  market  share,  perhaps  there  should 
be  some  at  least  moral  responsibility  to  reimburse  the  American 
taxpayers  for  helping  that  company  do  business  overseas.  It  is  just 
a  thought. 

Mr.  Chrysler. 

Mr,  Chrysler.  Yes.  As  we  move  toward  a  balanced  budget,  a 
vote  on  that  tomorrow,  certainly,  and  the  new  farm  bill  coming  out. 


23 

Ag  budget  being  looked  at  very  closely  they  are  talking  about  cut- 
ting $8  Dillion  in  the  Senate,  maybe  $9  billion  in  the  House,  I  don't 
know,  I  look  at  it  and  say  that  if  we  can  get  to  a  balanced  budget, 
Alan  Greenspan  says  that  we  can  cut  our  interest  rates  by  1.5  per- 
cent, and  if  you  look  at  agricultural  real  estate  alone,  that  would 
mean  a  $10.65  billion  savings  on  that  alone.  I  think  we  ought  to 
be  looking  into  those  areas. 

I  think  with  the  interest  toward  balancing  the  budget  and  the 
importance  of  balancing  a  budget  for  our  children,  do  you  have  any 
suggestions  for  Congress  on  how  we  can  get  a  better  bang  for  our 
buck  by  cutting  out  any  program  or  any  regulation  or  any  Govern- 
ment roadblock? 

Mr.  Schumacher.  Well,  I  testified  earlier  todav,  Congressman, 
one  of  our  problems  is  our  competitors.  We  need  to  get  to  what 
John  is  asking  to  eliminate  all  of  the  programs  over  time.  I  would 
like  to  get  there  sooner.  But  if  we  don't  meet  our  competitors,  on 
the  interest  rate  question,  for  example,  some  of  the  Midwestern 
banks  are  getting  very  nervous  about  the  big  cuts  that  are  taking 
place  because  of  the  impact  they  feel  it  is  going  to  have  on  land 
values.  It  has  been  written  up  in  some  of  the  press. 

So  I  think  we  need  a  transition  period  to  move  forward  over  the 
next  5  or  6  years  and  we  need,  in  my  agency,  to  be  even  more  ag- 
gressive about  dealing  with  the  trade  policy  issues  that  are  imped- 
ing the  barriers  that  we  have  discussed  with  our  colleague  from 
Virginia  on  how  do  we  get  our  beef  into  South  Korea. 

I  would  love  to  move  a  lot  more  of  Congressman  Brownback's 
beef  into  South  Korea.  I  can't.  His  companies  and  his  neighbors  are 
not  allowed  to  sell  beef  in  South  Korea  that  has  longer  tnan  a  14- 
day  shelf  life. 

Mr.  Chrysler.  We  have  19  different  departments  in  the  Federal 
Government  right  now  that  deal  with  trade.  Do  you  think  there 
would  be  any  sense  in  consolidating  that  into,  maybe,  one  Trade 
Department  that  could  handle  so  the  right  hand  knows  what  the 
left  hand  is  doing  so  we  can  get  a  more  productive  effort  out  of  it. 

Mr.  Schumacher.  Well,  I  come  from  a  small  State  in  Massachu- 
setts and  I  know  Dick  is  a  little  larger  State.  I  get  real  nervous 
when  we  start  centralizing.  I  really  like  to  see  things  kind  of  co- 
ordinated and  targeted.  The  President's  farm  bill  guidance  which 
just  came  out  I  think  is  very  innovative  in  the  way  it  coordinates 
and  is  targeted.  I  work  very  closely  with  Mr.  Kantor  and  Mr.  Gard- 
ner in  the  State  Department  and  others  to  carefully  coordinate,  but 
to  create  another  big  bureaucracy,  sir,  I  would  be  very  nervous. 

Mr.  Chrysler.  I  think  we  have  the  big  bureaucracy  now.  It  is 
certain  it  is  in  19  different  places.  Certainly  Mr.  Kantor's  remarks 
and  me  being  from  the  automobile  industry,  American  automobile 
industry.  I  am  not  promoting  Japan  or  anything  but  with  a  dema- 
goguery  that  goes  on  from  Mr.  Kantor  about  the  trade — how  we 
can't  sell  cars  in  Japan,  the  reason  we  can't  sell  cars  in  Japan  is 
we  don't  build  right-hand  drive  vehicles  in  this  country.  That  is 
why  we  don't  sell  cars  in  Japan,  pure  and  simple.  Japan  is  a  right- 
hand  drive  country. 

Mr.  Schumacher.  Well,  I  have  seen  a  lot  of  nice  Cherokees  2 
weeks  ago  in  Japan.  There  seems  to  be  a  nice  demand  for  the 
Grand  Laredo  Cherokee  with  a  right-hand  drive. 


24 

Mr.  Chrysler.  They  are  made  in  China,  the  Grand  Cherokee,  for 
export  to  Japan.  I  guess  the  auto  parts  thing  is  a  whole  other  issue. 
I  think  if  we  build  ri^ht-hand  drive  cars  here,  we  can  sell  those  in 
Japan  and  then  I  think  we  will  sell  a  lot  more  parts,  but  I  don't 
think  we  ought  to  demagogue  the  issue  by  saying  we  can't  sell  cars 
in  Japan  and  make  the  American  people  believe  that  the  reason 
that  we  can't  sell  American  cars  in  Japan  is  they  won't  buy  them. 
We  don't  put  the  steering  wheel  on  the  right  side  to  them. 

Mr.  McGuiRE.  Mr.  Chairman. 

Chairman  Manzullo.  We  have  a  vote  here  in  a  few  minutes. 

Mr.  Brownback,  did  you  have  some  questions. 

I  would  like  to  conclude  this  and  then  go  on  to  vote  if  that  is  OK 
with  everybody.  I  am  going  to  hand  it  over  to  Mr.  Brownback. 
When  we  get  the  second  call,  that  is  10  minutes  and  then  we  have 
got  to  leave. 

Mr.  Brownback.  Sounds  good.  I  will  be  brief,  other  than  to 
quickly  say  you  have  got  a  great  line  up  here.  I  have  served  with 
two  of  these  people  as  State  Agriculture  Secretary.  Gus  is  one  of 
the  most  innovative  people  I  know  and  Dick,  as  well,  in  New  York 
and  Linda  Reinhardt  who  is  also  a  constituent  also  from  the  center 
of  the  universe,  Kansas,  does  a  wonderful  job,  has  a  great  farming 
operation,  has  been  a  great  contributor  for  a  long  period  of  time. 
Good  points. 

Real  quickly,  what  do  you  think  about,  I  am  kind  of  encouraged 
about  what  Kantor  is  engaging  with  the  Japanese.  I  have  worked 
in  the  trade  field.  What  do  you  think  is  the  chance  that  we  could 
get  the  beef  tariff  down  further  from  the — is  it  50  percent  now.  It 
is  going  to  35  percent  in  the  GATT. 

What  about  us  going  over  to  Mickey  and  saying,  why  don't  you 
say  zero  on  beef  as  we  are  fighting  with  them  through  this  round 
on  that?  Is  that  being  kicked  around? 

Mr.  Schumacher.  The  whole  point  that  we  are  going  to  try  to 
accelerate  to  as  much  as  possible  in  the  next  few  years,  further  re- 
ductions in  tariffs,  but  there  is  reluctance.  The  agreement  is  in  the 
GATT. 

Mr.  Brownback.  Now  is  the  time  when  the  big  fight  is  going, 
really.  Are  you  guys  encouraging  us  to  get  it? 

Mr.  Schumacher.  I  tend  to  stick  to  agriculture  and  my  friends 
st.ok  to  cars.  I  obviously  should  stick  to  agriculture. 

Mr.  Brownback.  This  is  the  big  chance.  Now,  we  have  got  a  $60 
billion  trade  imbalance  with  the  Japanese  and  they  are  going  to 
have  to  open.  They  should  be  forced  to  open  that  market  up  here. 

Mr.  Schumacher.  We  are  doing  actually  pretty  well  in  Japan 
right  now  with  beef  and  we  are  starting  with  beef,  pork,  and  now 
with  chicken.  I  will  take  your  point  under  advisement. 

Mr.  Brownback.  We  are  doing  great  compared  to  where  we  have 
been.  It  is  a  50  percent  tax.  Where  would  we  be  if  it  was  a  zero 
tax  on  North  Carolina  pork  or  Kansas  beef? 

Mrs.  Reinhardt.  Representative  Brownback,  one  of  the  issues  of 
value-added,  the  publication  from  Kansas  that  I  just  read  did  State 
that  we  are  doing  better  with  beef  in  Japan  and  particularly  with 
the  prepared  process  beef  I  guess  they  are  no  different  than  we 
Americans  are,  we  like  to  have  it  all  ready  to  come  to  the  table. 
There  was  an  increase  in  them  buying  from  us  in  prepared  beef. 


25 

Mr.  Brownback.  They  are  buying  more.  If  they  didn't  have  a  50 
percent  tax,  I  would  bet  they  would  buy  even  a  little  bit  more. 
Sorry.  This  is  a  good  panel  and  I  don't  want  to  stretch  this  past. 
I  really  appreciate  your  comments  and  us  looking  at  trade  pro- 
motion policv  and  how  we  can  do  it  effectively  and  how  we  can 
open  other  places  up. 

Chairman  Manzullx).  Real  quick,  Mr.  McGuire. 

Mr.  McGumE.  Yes.  I  would  like  to  make  a  generic  comment  in 
our  concerns  about  budgets.  If  the  rest  of  the  Government  had 
taken  the  cuts  that  the  Department  of  Agriculture  and  agricultural 
programs  have  taken  in  the  last  4  years,  we  wouldn't  have  this  dis- 
cussion. We  wonder  why  the  public  has  cut  us  so  severely  in  the 
last  two  farm  bills  and  particularly  in  the  last  one  and  particularly 
being  talked  about  in  this  one  when  we  are  not  part  of  the  problem. 

Chairman  Manzullo.  We  can't  answer  that  because  none  of  us 
was  here  when  the  last  farm  bill  was  passed. 

Mr.  McGuiRE.  I  happened  to  be,  so  I  know. 

Chairman  Manzullo.  I  mean,  none  of  us  Members  up  here. 

We  want  to  thank  you  for  coming  here.  This  is  a  tremendous 
amount  of  talent.  Each  of  you  has  done  an  excellent  job  in  rep- 
resenting your  position.  You  have  traveled  here  at  your  own  ex- 
pense and  we  really  appreciate  the  great  concern  that  you  have. 

Your  written  statements  will  be  made  part  of  our  permanent 
record. 

[The  information  may  be  found  in  the  appendix.] 

Chairman  Manzullo.  Believe  me,  we  will  be  looking  at  this  not 
within  the  next  week  or  so  because  we  have  budget  votes,  but  it 
is  a  great  desire  on  my  part  and  Mrs.  Clayton's,  perhaps,  to  make 
all  trade  promotion  programs  cost  efficient,  more  economical,  and 
to  have  some  part  in  the  U.S.  Government. 

Thanks  again  for  coming.  The  subcommittee  is  adjourned. 

[Whereupon,  at  12:02  p.m.,  the  subcommittee  was  adjourned, 
subject  to  the  call  of  the  chair.] 


26 
APPENDIX 


statement  of  Representative  Eva  Clayton 

House  Small  Business  Committee 

Subcommittee  on  Procurement,  Elxports  and  Business  Opportunities 

Public  Hearing 

May  17,  1995 


Mr.  Chairman,  I  want  to  commend  you  for  this  second  in  a  series  of  hearings  on  trade 
and  the  role  of  federal  agencies  in  the  promotion  of  export  opportunities.   Today,  we 
focus  on  Federal  Agricultural  Export  Programs. 

This  hearing  is  timely  for  many  reasons.   This  week,  we  begin  consideration  of  the 
Budget  Resolution  for  Fiscal  Year  1996.   It  is  important  to  note  that  both  the  House  and 
Senate  Budget  resolutions,  as  passed  by  the  Budget  Committees  in  each  Chamber, 
propose  radical  changes  in  the  way  we  conduct  our  export  programs. 

The  irony  of  these  proposals  is  that  this  radical  change  comes  at  a  time  when  our  export 
promotion  programs  are  producing  unprecedented  gains.   In  the  area  of  agricultural, 
for  example,  we  now  export  about  one-third  of  the  products  we  produce.   Last  year, 
farm  and  far-related  exports  generated  more  than  $100  billion  in  economic  activity  for 
America,  producing  nearly  a  million  jobs  here.  And,  with  respect  to  merchandise  trade, 
farm  production  actually  generates  a  trade  surplus  which,  this  year,  is  expected  to  be 
some  $20  billion. 

My  Congressional  District  is  one  of  the  most  sprawling  in  the  state  of  North  Carolina, 
and  includes  an  extremely  diverse  agricultural  base.   Most  of  the  production  comes  from 
bulk  commodities,  with  little  further  processing.   Some  of  the  products  that  have 
benefitted  from  the  Market  Promotion  Program  and  from  the  Foreign  Agricultural 
Service  of  the  USDA  are  poultry,  peanuts,  pork,  soybeans,  sweet  potatoes,  seafood  and 
pet  food.   Poultry  constitutes  the  largest  volume  of  exports,  and  those  companies  within 
my  Congressional  District  have  expressed  great  satisfaction  with  the  Market  Promotion 
Program.    Peanut  farmers  have  reported  increased  sales.    And,  sweet  potato  promotion 
has  resulted  in  an  increase  in  exports  of  some  twenty-five  percent,  particularly  to 
markets  in  Canada.   In  North  Carolina,  farm  and  farm-related  jobs  constitute  at  least 
one-fifth  of  the  employment  and,  on  average,  twenty-five  to  thirty  percent  of  the 


It,  therefore,  greatly  concerns  me  when  I  see  proposals  to  impose  deep  cuts  in 
agriculture  promotion  programs.  Indeed,  a  reduction  of  $17  billion,  over  seven  years, 
in  my  view  is  not  a  cut.  It  is  a  severance.  We  should  not  blindly  cut  programs  in  our 
march  towards  a  balanced  budget  by  the  year  2002.  We  should  pass  a  budget  bill  that 
aims  at  a  balanced  budget.  I  support  that  goal.  But,  we  should  also  pass  a  Farm  Bill 
and  pass  an  export  promotion  program  that  recognizes  the  vital  role  of  agriculture  in 
this  Nation's  economy  and  life.  Agricultural  promotion  and  budget  cutting  should  not 
be  combined. 


27 


Yet,  that  is  precisely  what  the  House  and  Senate  Budget  Committees  have  proposed, 
eliminating  important  agencies  and  functions  and  reducing  export  flnancing  and  trade 
promotion  programs.    And,  in  the  Senate,  there  is  a  proposal  to  return  us  back  in  time, 
by  combining  again  the  functions  of  the  Foreign  Commercial  Service   with  those  of  the 
State  Department.   Each  of  these  proposals  would  further  weaken  the  United  States  as 
we  seek  to  compete  in  an  increasingly  competitive  global  marketplace. 

This  is  not  1946,  Mr.  Chairman.  America  no  longer  maintains  the  dominant  position 
we  once  held  in  the  world  marketplace.  We  are  being  dramatically  outspent  by  other 
nations  whose  goal  is  to  promote  their  products  and  replace  us  whenever  they  can. 

Three  percent  of  the  people  of  America  feed  the  remaining  ninety-seven  percent.   Yet, 
many  of  those  who  have  chosen  farming  as  a  profession  are  facing  difficult  times. 
Further  erosion  of  the  very  programs  designed  to  assist  the  farming  community  in 
maintaining  a  competitive  edge  may  well  force  those  on  the  edge  over  the  brink.   Do  we 
really  want  one  percent  or  fewer  of  our  population  to  be  responsible  for  feeding  all  of 
us?   We  should  be  looking  at  ways  to  expand  and  encourage  participation  in  farming, 
not  ways  to  discourage  it.   Do  we  really  want  to  reduce  farm  income  by  an  average  of 
$5  billion  a  year  over  the  next  ten  years?   We  should  be  looking  at  ways  to  expand  farm 
income.    The  key  to  expansion  lies  in  exports.   And,  the  key  to  exports  lies  in  an 
effective  Market  Promotion  Program. 


I  hope  out  of  these  hearings,  Mr.  Chairman,  we  will  come  to  recognize  the  continued 
importance  of  export  promotion.   It  is  an  investment  in  our  future. 


28 

STATEMENT  OF  CHAIRMAN  DON  MANZULLO 

SUBCOMMITTEE  ON  PROCUREMENT,  EXPORTS,  AND 

BUSINESS  OPPORTUNITIES 

SMALL  BUSINESS  COMMITTEE 

MAY  17,  1995 

10:3  0AM  ROOM  2  3  59  RHOB 

THE  SUBCOMMITTEE  WILL  COME  TO  ORDER. 
TODAY  THE  SUBCOMMITTEE  WILL  CONTINUE  ITS 
EXAMINATION  OF  FEDERAL  EXPORT  PROMOTION 
PROGRAMS . 

BECAUSE  THE  DEPARTMENT  OF  AGRICULTURE 
RECEIVES  THE  MAJORITY  OF  FUNDING  FOR  THESE 
PROGRAMS  AND  AGRICULTURE  MAKES  UP 
APPROXIMATELY  TEN  PERCENT  OF  OUR  TOTAL 
EXPORTS,  IT  IS  APPROPRIATE  TO  DEVOTE  AN 
ENTIRE  HEARING  TO  THIS  SECTION  OF  THE  BUDGET, 
IS  THERE  ANY  RATIONALE  FOR  DEVOTING  THIS 
LARGE  SLICE  OF  THE  BUDGETARY  PIE  TO 
AGRICULTURE  EXPORTS?   IS  THERE  A  GOVERNMENT- 
WIDE  TRADE  STRATEGY  THAT  CAN  JUSTIFY  THE 
CONTINUANCE  OF  THESE  PROGRAMS? 


29 

I  REPRESENT  THE  16TH  CONGRESSIONAL 
DISTRICT  OF  ILLINOIS,  WHICH  REPRESENTS  A 
MICROCOSM  OF  THE  UNITED  STATES.   THE  DISTRICT 
HAS  A  HEAVILY  INDUSTRIALIZED  CENTER  IN 
ROCKFORD,  ILLINOIS.   I  REPRESENT  ALSO  THE 
FIRST  AND  SECOND  FASTEST  GROWING  COUNTIES  IN 
ILLINOIS,  ALONG  WITH  ALL  ITS  GROWING  PAINS. 
AND,  I  ALSO  REPRESENT  HEAVILY  AGRARIAN,  RURAL 
COUNTIES  NEAR  THE  MISSISSIPPI  RIVER.   SO,  I 
KNOW  FIRST  HAND  THE  TENSION  FACING  CONGRESS 
ON  DETERMINING  BUDGETARY  PRIORITIES  IN  THIS 
AREA. 

THAT'S  WHY  I  SUPPORT  ONE-STOP  SHOP  FOR 
THE  ENTIRE  FEDERAL  GOVERNMENT  ON  TRADE 
MATTERS.   WE  MUST  STREAMLINE  WHERE  THERE  IS 
SIMILAR  OR  DUPLICATIVE  FUNCTIONS.   WE  MUST 
RATIONALLY  DEVISE  AN  OVERALL  TRADE  STRATEGY 
THAT  USES  PRECIOUS  TAXPAYER  DOLLARS  IN  THE 
MOST  EFFECTIVE  AND  EFFICIENT  WAYS  POSSIBLE. 
WE  MUST  FOCUS  ON  PROGRAMS  THAT  CREATES  AND 
SUSTAINS  THE  MOST  JOBS  —  NOT  JUST  SIMPLY 
AGREEING  TO  THE  STATUS  QUO. 

90-898  0-95-2 


30 

I  LOOK  FORWARD  TO  THE  TESTIMONY  OF  THE 
WITNESSES  BEFORE  US  THIS  MORNING.   IT'S  NOT 
OFTEN  THAT  WE  SEE  YOU  OUTSIDE  OF  THE 
AGRICULTURE  COMMITTEE.   SO  I  BELIEVE  THIS 
HEARING  WILL  SERVE  A  GOOD  PURPOSE  IN  HELPING 
EDUCATE  MEMBERS  OF  THE  SUBCOMMITTEE  WHO  DO 
NOT  SERVE  ON  THE  AGRICULTURE  COMMITTEE  BUT 
WILL  VOTE  ON  FARM-RELATED  LEGISLATION  ON  THE 
FLOOR  LATER  THIS  YEAR. 

I  YIELD  TO  THE  RANKING  MEMBER,  MRS. 
CLAYTON,  THE  ONLY  MEMBER  OF  THIS  SUBCOMMITTEE 
WHO  SERVES  ON  THE  AGRICULTURE  COMMITTEE,  FOR 
AN  OPENING  STATEMENT. 


31 


bfitage  ^Tbundatioq^ 

Congressional  Testimony 


EXPORT  PROMOTION  PROGRAMS 

TESTIMONY 

BEFORE  THE  SUBCOMMITTEE  ON  PROCUREMENT,  EXPORTS  AND 

BUSINESS  OPPORTUNITIES 

HOUSE  COMMITTEE  ON  SMALL  BUSINESS 

May  17, 1995 

John  E.  Frydenlund 
Senior  Fellow  and  Director  of  the  Agricultural  Policy  Project 


32 


Mr.  Chairman,  distinguished  Members  of  the  Committee,  my  name  is  John 
Frydenlund,  a  Senior  Fellow  and  Director  of  the  Agricultural  Policy  Project  at  The 
Heritage  Foundation.  The  Heritage  Foundation  is  a  non-partisan  policy  research  institute 
dedicated  to  the  principles  of  free  competitive  enterprise,  limited  government,  individual 
liberty  and  a  strong  national  defense.  The  Agricultural  Policy  Project  is  aimed  at 
achieving  significant  free-market  reforms  of  agricultural  policy  in  the  1995  farm  bill.  My 
statement  does  not  necessarily  reflect  the  views  of  The  Heritage  Foundation. 

I  appreciate  this  opportunity  to  discuss  the  effectiveness  the  export  promotion 
programs  managed  by  the  United  States  Department  of  Agriculture.  Our  project  has  been 
examining  all  aspects  of  the  federal  government's  agricultural  commodity  policies, 
particularly  the  income  subsidy  and  support  programs,  supply  control  and  conservation 
programs  and  export  subsidy  programs.  We  are  proposing  reforms  which  will  enable 
U.S.  farmers  to  achieve  greater  incomes  from  the  marketplace  and  will  also  promote  the 
revitalization  of  the  rural  economy  by  taking  greater  advantage  of  this  nation's  productive 
and  export  potential. 

Our  study  has  demonstrated  that  it  is  impossible  to  fairly  examine  the 
effectiveness  of  U.S.  agricultural  export  programs  without  recognizing  how  these  policies 
are  intertwined  with  the  federal  government's  overall  agricultural  policies  of  central 
planning  and  supply  management.  The  contradictory  federal  policies  of  providing  price 
supports  for  U.S.  farmers  while  simultaneously  imposing  supply  controls  on  production 
have  undercut  the  ability  of  U.S.  farmers  to  compete  in  the  international  market. 

In  an  effort  to  counter  this  effect  of  its  general  farm  programs,  the  federal 
government  has  used  two  different  strategies  to  address  international  trade.  In  line  with 
Washington's  planning  mentality,  the  first  is  to  protect  U.S.  agricultural  markets  from 
international  competition  by  restricting  the  importation  of  many  commodities.  This, 


unfortunately,  is  a  strategy  employed  by  many  other  nations  as  well.  The  second,  also  a 
product  of  the  planning  approach,  has  been  to  help  U.S.  producers  compete  in  the 
international  market  by  subsidizing  the  export  of  certain  commodities. 

Although  the  federal  government  has  been  devoting  over  a  billion  dollars  annually 
to  direct  export  subsidy  programs,  such  as  the  Export  Enhancement  Program  (EEP)  and 
the  Dair>'  Export  Incentive  Program  (DEIP)  and  millions  more  in  loan  guarantees  and 
marketing  assistance,  these  expenditures  have  done  nothing  to  correct  the  underlying  lack 
of  international  competitiveness  that  results  directly  from  government  central  planning 
and  curbs  on  production.  Neither  these  programs  nor  interference  with  trade  has  done 
anything  to  reverse  the  decline  in  U.S.  market  share.  Instead,  they  have  hindered  the 
ability  of  farmers  and  processors  of  agricultural  commodities  to  compete  successfully  in 
the  international  market. 

We  have  continued  to  observe  dramatic  increases  in  world  consumption  of  food 
products.  However,  thanks  to  government  acreage  reduction  programs,  U.S.  production 
of  the  most  managed  commodities  of  wheat,  feed  grains,  cotton  and  rice  has  remained 
essentially  flat  over  the  last  10  years  and  the  U.S.  share  of  the  world  market  has  dropped. 
This  trend  has  been  most  dramatic  for  bulk  exports  of  these  commodities. 

The  federal  government's  efforts  to  correct  this  situation  have  not  worked.  It 
relies  on  export  subsidies  to  "enhance"  foreign  purchases  of  U.S.  agricultural  products 
and  import  restrictions  to  block  competition  from  abroad.  However,  these  policies  only 
make  the  situation  worse:  By  depressing  world  prices  relative  to  the  U.S.  price,  they 
create  a  price  differential  that  makes  the  United  States  an  attractive  market  for  foreign 
products,  while  further  discouraging  the  export  of  U.S.  products. 

Export  subsidies  serve  primarily  to  depress  world  grain  and  oilseed  prices  directly 
and  to  distort  buyer-seller  relationships  between  countries.  By  keeping  domestic  prices 
high  relative  to  depressed  world  prices,  they  create  a  price  differential  that  turns  the 


34 


United  States  unnecessarily  into  an  importer  of  some  agricultural  products.  EEP  was 
originally  initiated  to  counteract  the  export  subsidies  of  the  European  Community  and  to 
force  them  to  the  bargaining  table  to  negotiate  restraints  on  subsidized  competition  and 
reduction  or  elimination  of  import  restrictions.  Now  that  the  GATT  agreement  is  about  to 
be  implemented,  it  is  an  appropriate  time  to  examine  the  effectiveness  of  export 
subsidies,  regardless  of  what  the  GATT  agreement  allows  or  disallows. 

Although  the  GATT  agreement  was  historic  in  bringing  agriculture  under 
international  trading  rules  for  the  first  time,  it  did  not  go  as  far  in  reforming  international 
trade  for  agriculture  as  it  should  have.  While  leading  the  negotiations  for  the  United 
States,  Ambassador  Clayton  Yeutter  had  stood  firm,  insisting  on  greater  reforms. 
However,  subsequent  administration's  representatives  took  either  less  firm  negotiating 
positions  or  were  less  committed  to  total  reform.  This  resulted  in  far  less  that  total  and 
immediate  elimination  of  export  subsidies. 

Regardless,  the  decisions  that  Congress  makes  this  year  jn  regard  to  what  policy 
to  establish  on  export  subsidies  should  not  be  based  simply  on  what  the  weakened  GATT 
agreement  allows.  Instead,  a  decision  on  whether  or  not  to  continue  using  export 
subsidies  should  be  based  on  what  is  best  for  American  agriculture.  The  1995  farm  bill 
needs  to  establish  policies  that  provide  U.S.  agriculture  with  the  ability  to  reestablish  their 
preeminence  in  the  international  market  by  being  the  low-cost,  reliable  supplier  for  that 
market. 

When  you  examine  the  EEP,  it  is  difficult  to  see  how  it  benefits  U.S.  agricultural 
exports.  By  creating  a  two-price  market,  export  subsidies  permit  foreign  buyers  of  the 
subsidized  product  to  pay  less  for  the  product  than  either  domestic  consumers  or  foreign 
purchasers  of  unsubsidized  product.  Thus,  this  two  price  system  creates  a  gap  between 
higher  domestic  prices  in  export-subsidizing  countries  and  lower  world  prices. 


35 


What  the  GATT  agreement  did  accomplish  was  a  reduction  in  both  subsidy 
volumes  and  levels.  Thus,  non-subsidized  products  will  inevitably  increase  as  a  share  of 
world  trade.  However,  if  the  United  States  continues  to  subsidize  some  sales  into  the 
shrinking  subsidized  market,  it  will  be  even  less  competitive  in  the  growing  non- 
subsidized  market. 

In  examining  the  effectiveness  of  EEP,  it  is  important  to  consider  whether  the 
program  has  actually  increased  the  export  of  American  agricultural  products.  Originally, 
the  EEP  subsidy  was  provided  in  the  form  of  bonus  commodities  which  were  taken  out  of 
government-stored  surpluses.  Then,  at  least,  the  program  added  to  exportable  supplies. 
However,  since  the  EEP  became  a  cash  rebate  program,  even  that  marginal  benefit  has 
disappeared.  So,  there  has  been  neither  any  positive  effect  from  bringing  additional 
supplies  of  commodities  into  the  marketplace  nor  have  there  been  any  increases  in  bulk 
commodity  sales. 

In  fact,  in  recent  years,  the  United  States  would  have  likely  sold  as  much  wheat 
without  EEP  as  it  eventually  did  with  EEP,  due  to  the  relative  tightness  of  the  wheat 
market.  Significantly,  however,  without  the  program,  the  United  States  would  have  been 
selling  its  wheat  at  a  higher  price. 

Because  export  subsidies  tend  to  insulate  U.S.  agriculture  from  the  world  markets, 
subsidy  programs  are  not  the  answer  to  a  lack  of  competitiveness.  With  all  of  the 
productive  advantages  that  U.S.  agriculture  possesses  in  productive  resources,  advanced 
infrastructure  and  well-developed  marketing  techniques,  U.S.  agriculture  has  nothing  to 
gain  from  being  insulated  from  the  world  market. 

That  is  why  we  have  recently  proposed  agricultural  reform  policies  that  will 
enhance  the  competitiveness  of  U.S.  agricultural  products  in  the  international 
marketplace.  In  addition  to  elimination  of  the  EEP  and  other  export  subsidy  programs, 
the  following  proposals  are  key  to  restoring  that  competitiveness: 


36 


♦  First,  and  foremost,  eliminate  all  authority  for  acreage  reduction  and  set-aside 
programs,  effective  with  the  1996  crop.  More  than  any  other  policies,  these  supply- 
control  programs  have  undermined  U.S.  agricultural  productivity  and 
competitiveness.  Unilaterally  idling  massive  land  resources  in  this  country  has 
limited  the  amount  of  farm  products  available  for  export.  Also,  lower  production  has 
forced  the  established  network  of  agricultural  supply,  servicing  and  processing 
industries  to  operate  at  reduced  capacity,  thereby  raising  handling  costs  per  unit  and 
discouraging  maintenance  and  reinvestment.  In  the  long  run,  this  could  result  in 
disintegration  of  the  infrastructure  which  would  be  even  more  detrimental  to 
competitiveness; 

♦  Second,  phase  out  the  subsidy  and  support  programs.  Not  only  are  these 
programs  now  clearly  out  of  date,  but  they  provide  the  rationale  for  the  government  to 
impose  the  massive  supply  control  programs,  because  the  government  has  proven 
itself  incapable  of  managing  U.S.  agriculture  without  resorting  to  their  use; 

♦  Third,  phase  out  the  Conservation  Reserve  Program  (CRP)  by  ceasing  to  renew 
expiring  contracts.  We  would  encourage  the  return  of  the  top  land  capability  classes 
to  productive  use  by  providing  present  CRP  participants  the  option  to  withdraw  from 
the  program  prior  to  their  contract  expiration  date  and,  in  return,  receive  33  percent  of 
their  contract  payments; 

♦  Fourth,  phase  out  the  Farmer-Owned  Reserve  by  prohibiting  USDA  from  entering 
into  any  new  contracts  or  renewals.  The  existence  of  the  reserve  has  served  to 
dampen  commodity  prices  by  overhanging  the  market.  The  federal  government  has 
dumped  the  surplus  on  the  market  to  drive  down  commodity  prices  and  impose  a 
cheap  food  policy  on  U.S.  farmers.  When  the  reserve  is  eliminated,  U.S.  farmers  will 
no  longer  have  to  fear  that  their  government  will  use  this  surplus  as  a  weapon  to  drive 


37 


down  commodity  prices.  And  foreign  and  domestic  buyers  will  no  longer  have  an 
incentive  to  hold  off  entering  the  market  while  they  wait  for  the  U.S.  government  to 
take  that  price-depressing  action. 

Such  changes  would  signal  to  the  rest  of  the  world  that  the  United  States  intends 
to  pursue  an  aggressively  pro-growlh  agricultural  policy.  No  longer  would  foreign 
farmers  continue  to  expand  production  of  the  very  agricultural  commodities  which  could 
be  produced  more  economically  by  farmers  in  the  United  States.  Nor  would  potential 
foreign  buyers  have  to  fear  for  the  dependability  or  reliability  of  the  U.S.  supply. 

Reestablished  as  a  reliable  supplier,  the  United  States  would  regain  its 
preeminence  in  world  agricultural  exports.  Farmers  would  be  freed  to  do  what  they  do 
best  -  -  out  produce  the  rest  of  the  world  -  -  and  this  expansion  of  productive  output 
would  mean  growth  in  farm  income.  Additional  net  farm  income  from  the  marketplace  in 
1996  would  exceed  $2  billion  and  by  the  year  2001,  it  would  be  near  $4  billion.  Even 
with  a  phaseout  of  target  prices,  between  1996  and  2005,  farmers  would  enjoy  a  net 
increase  in  income  of  $10  billion  -  -  in  excess  of  the  reduction  in  deficiency  payments. 

Freeing  farmers  to  produce  would  ignite  even  more  dynamic  growth  in  the  rural 
economy  -  -  as  industries  retooled  and  reinvested  to  meet  the  new  demands  of  a  larger 
farm  economy.  Agribusiness  supply  and  processing  industries  would  need  more 
employees  to  keep  up  with  the  expanded  service  needs  of  the  agriculture  production 
industry.  Between  1996  and  2001,  at  least  $21  billion  would  be  injected  into  the  rural 
economy  in  new  spending  on  farm  inputs  such  as  fertilizer  and  seed.  There  would  be  an 
even  greater  impact  from  increased  revenues  resulting  from  increased  processing, 
packaging,  transportation  and  distribution. 

This  Committee's  examination  of  the  effectiveness  of  agricultural  export 
promotion  programs  should  also  scrutinize  a  couple  of  additional  programs.  For  instance, 
the  Export  Credit  Guarantee  Programs  have  not  been  effective  in  meeting  their  stated 


goal  of  increasing  agricultural  exports.  Because  the  programs  guarantee  loans  that 
commercial  banks  will  not  back,  these  tend  to  be  loans  for  indebted  or  risky  foreign 
businesses  and  the  result  is  high  default  rates.  In  fact,  the  General  Accounting  Office 
estimates  that  the  program  has  cost  the  federal  government  $4.2  billion  because  of  loan 
repayment  defauhs.  This  money  has  not  gone  to  help  American  farmers,  but  instead  ends 
up  in  the  bank  accounts  of  foreign  crooks  taking  the  U.S.  government  for  a  ride. 

The  Market  Promotion  Program  (MPP)  also  should  be  abolished.  There  is  no 
reason  for  the  U.S.  taxpayer  to  subsidize  the  foreign  advertising  and  promotion  activities 
of  multinational-national  corporations.  The  MPP  has  become  a  convenient  source  of  free 
cash  for  wealthy  businesses  to  help  pay  for  their  overseas  advertising  budgets.  To  make 
matters  worse,  in  recent  years,  some  of  the  biggest  recipients  of  funds  have  included 
foreign-owned  companies.  Whether  domestic  or  foreign,  the  huge  corporations  that  are 
the  main  recipients  of  the  MPP  funds  are  more  than  capable  of  carrying  out  their  own 
advertising  and  promotion  efforts  without  the  taxpayers  picking  up  the  tab.  Moreover, 
besides  being  little  more  than  a  corporate  welfare  program,  the  MPP  has  proved  to  be  an 
ineffective  tool  to  pressure  countries  to  reduce  barriers  to  U.S.  food  exports. 

In  addition,  the  Department  of  Agriculture  provides  international  food  assistance 
through  the  P.L.  480  program,  which  is  intended  to  promote  development  of  new 
markets,  dispose  of  surplus  commodities  and  to  further  U.S.  foreign  policy  interests. 
When  the  program  began  over  40  years  ago,  the  inconvertibility  of  foreign  currencies  and 
the  lack  of  foreign  exchange  held  by  potential  customers  limited  commercial  exports  of 
large  domestic  surpluses  of  agricultural  commodities.  Sales  for  foreign  currencies  and 
concessional  credits,  as  well  as  grants,  provided  a  useful  mechanism  to  accomplish  the 
aims  of  the  program. 

However,  because  exports  under  Titles  I  and  III  are  a  small  portion  of  total  U.S. 
agricultural  exports  and  most  of  the  countries  currently  receiving  P.L.  480  commodities 
are  unlikely  to  become  commercial  customers,  the  market  development  aspect  of  the 


39 


program  is  insignificant.  In  fact,  both  the  value  and  the  tonnage  of  shipments  under 
Titles  I  and  III  have  declined  as  commercial  exports  have  grown.  Plus,  the  program  has 
been  further  rendered  obsolete  by  the  fact  that  disposing  of  surpluses  is  no  longer  a 
primary  concern  of  the  program.  Title  II,  which  provides  donations  for  emergency  food 
relief  is  the  only  part  of  P.L.  480  that  warrants  continuation.  Irrespective  of  what  is  done 
with  the  different  titles  of  P.L.  480,  all  cargo  preference  requirements  should  be  removed 
from  the  P.L.  480  program.  These  requirements  only  serve  to  undermine  the 
competitiveness  of  U.S.  agricultural  exports.  Cargo  preference  requirements,  in  effect, 
work  as  a  surtax  on  U.S.  production,  thereby  increasing  the  sales  cost  of  the  U.S.  product, 
in  comparison  to  other  product. 

I  would  like  to  conclude  by  stressing  that  in  addition  to  implementing  policies  that 
promote  growth  and  competitiveness  of  U.S.  agricultural  products,  the  other  key  to  future 
export  growth  is  to  achieve  further  reforms  in  international  trading  rules.  The  U.S. 
government  should  not  look  at  the  GATT  reforms  as  an  end,  but  as  a  beginning.  Future 
negotiations  should  pursue  increased  market  access  for  U.S.  agricultural  products  and 
complete  removal  of  both  tariff  and  non-tariff  import  barriers,  in  addition  to  the  total 
elimination  of  all  export  subsidies  and  other  trade-distorting  policies. 

Mr.  Chairman,  thank  you  again  for  this  opportunity  to  present  these  views  to  your 
committee.  I  will  be  glad  to  answer  any  questions. 


40 


THE  HERITAGE  FOUNDATION 
FARM  INCOME  PROJECTION  MODEL 

HISTORICAL  ANALYSIS 

Our  first  objective  in  developing  this  econometric  model  of  the  program  crop  farm  economy 
was  to  analyze  the  last  four  years  of  farm  statistics  in  order  to  develop  a  comprehensive  picture 
of  farm  income  and  expenditures  from  1990  to  1993. 

Each  year  USDA's  Economic  Research  Service  publishes  statistics  enumerating  various  com- 
ponents of  cost  of  production.  While  much  of  the  data  is  at  the  national  level,  a  certain  amount 
is  at  the  state  and  regional  level.  We  wanted  to  conduct  an  in-depth  study  at  the  national  and 
state  level,  so  where  state  level  data  were  missing  we  estimated  costs  of  production  based  on 
national  and /or  regional  data  for  that  state  and  crop.  ERS  indices  on  prices  paid  for  production 
were  used  to  project  data  from  1990  to  1993.  For  the  purposes  of  our  study,  we  used  ERS's  defi- 
nition of  "variable"  and  "fixed"  production  costs.  Variable  costs  include:  seed;  fertilizer,  lime 
and  gypsum;  technical  and  custom  operations;  ginning;  drying;  repairs;  hired  labor;  fuel  and 
electricity;  purchased  irrigation  water.  Fixed  costs  include:  loan  interest;  real  estate  interest;  tax 
and  insurance;  farm  overhead  costs. 

After  developing  per  acre  variable  and  fixed  production  costs  we  factored  in  the  correspond- 
ing acreage  for  each  state  and  crop.  Statistics  on  acreage  in  government  programs  came  from 
the  Agriculture  Soil  and  Conservation  Service  (ASCS).  Statistics  on  acres  harvested,  planted, 
yield,  harvest  prices,  and  production  were  provided  by  ERS,  and  our  analysis  of  each  state  in- 
cluded those  program  crops  with  significant  acreage  planted.  In  order  to  maintain  internal  con- 
sistency, all  national  figures  are  based  on  the  state  level  statistics,  not  on  separate  national  fig- 
ures that  are  available  from  ERS.  As  a  result,  our  national  acreage  figures,  while  including  most 
(80  percent)  of  all  program  acres  planted,  tend  to  underestimate  the  total  amount  of  planted 
acreage.  This  assumption  is  consistent  with  our  objective  to  be  cautious  in  our  projections  of 
farm  income. 

The  central  purpose  of  this  econometric  model  was  to  analyze  the  economic  impact  of  return- 
ing government-idled  land  to  production.  Thus,  we  had  to  determine  how  much  land  would  be 
put  back  into  production  under  the  Heritage  proposal. 

Of  the  states  and  crops  included  in  our  analysis,  we  assumed  that  about  80  percent  of  the  cor- 
responding government-idled  land  would  come  back  into  production.  This  breaks  down 
roughly  to  63  percent  of  CRP  acres  and  95  percent  of  all  other  idled  acreage.  Two-thirds  of  CRP 
lands  are  in  land  classes  good  enough  in  terms  of  soil  quality  for  cultivation,  and  those  are  the 
acres  we  assume  would  to  come  back  into  production.  CRP  acres  would  partially  come  back  in 
production  as  a  result  of  their  contracts  expiring  1995-1996  (and  not  being  renewed).  In  addi- 
tion, as  our  policy  proposes,  those  holding  land  in  the  best  land  classes  and  whose  contracts  ex- 
pire after  1996  may  opt  out  of  the  CRP  to  plant  on  that  land.  Those  farmers  would  continue  to 
receive  33  percent  of  CRP  payments  until  their  contract  expiration  date  and  deficiency  pay- 
ments 2000. 


41 


DETERMINING  FUTURE  TRENDS 

After  estimating  1)  land  farmed  from  1990-1993,  2)  the  costs  involved  in  producing  on  that 
land,  and  3)  what  idle  acreage  would  come  back  into  production,  we  'Duilt  a  "template"  of  the 
farm  economy  based  on  an  average  of  1990-93  costs  of  production,  acres  planted  and  har- 
vested, additional  acres,  yields,  and  harvest  prices.  The  components  of  the  completed  template 
for  each  state  and  crop  included  in  our  analysis  were:  Acres  planted,  harvested,  government 
idled  acres  returned  to  production,  yield,  production,  variable  cash  expenses,  fixed  cash  ex- 
penses, harvest  price,  and  the  total  1993  deficiency  payment  received  for  that  parHcular  crop  in 
the  state.  This  template  is  for  the  year  1994,  and  we  projected  those  numbers  to  1995  by  apply- 
ing the  PPI  for  finished  goods  for  that  year  and  holding  acreage  values  constant.  In  effect,  then, 
our  base  or  "template"  year  is  1995  and  all  of  our  projections  start  with  1996. 

After  building  this  template  we  were  able  to  carry  out  the  second  objective  of  the  economet- 
ric analysis,  which  was  to  predict  future  farm  income  if  just  over  three-quarters  of  all  idled 
land  were  put  back  into  production. 

To  estimate  this,  the  first  question  we  had  to  answer  was  "How  will  this  additional  land  af- 
fect total  production  and  production  costs?"  Land  that  has  been  idled  for  a  certain  amount  of 
time  will  not  be  as  productive  as  land  currently  being  farmed  when  it  first  comes  back  into  pro- 
duction. In  addition,  when  a  farmer  sets  land  aside,  he  usually  sets  aside  land  that  is  more  diffi- 
cult to  farm.  Therefore,  we  assumed  that  the  new  land  farmed  would  yield  only  95  percent  as 
much  as  land  currently  being  farmed,  and  that  it  initially  (in  1996)  it  would  cost  5  percent  more 
to  farm  that  land.  For  1997  we  assumed  the  disparity  in  cost  would  be  2.5  percent,  and  then 
each  subsequent  year  we  assumed  that  the  cost  of  producing  on  the  additional  acreage  would 
be  the  same  as  the  cost  of  the  inputs  on  land  that  already  had  been  in  production. 

It  would  be  inaccurate  to  assume  that  100  percent  of  this  additional  acreage  would  be  har- 
vested. So,  in  order  to  determine  how  much  of  this  land  would  actually  be  harvested  and  by 
how  much  it  would  increase  production,  we  created  a  "harvest  ratio"  based  on  the  ratio  be- 
tween actual  planted  and  harvested  acres  for  crops  at  the  state  level. 

Productivity  gains  manifest  themselves  over  time  in  terms  of  overall  yield  per  acre.  We  as- 
sumed an  overall  increase  in  yield  of  0.5  percent  each  year  through  2005.  In  projecting  produc- 
tion and  production  costs  through  2005,  yield  and  input  costs  were  the  only  variables.  We  held 
acreage  planted  constant. 

The  second  question  to  answer  was  crucial,  namely,  "How  will  the  additional  acreage  affect 
harvest  prices?"  The  main  body  of  the  monograph  gives  the  argument  against  the  current  as- 
sumption of  inelasticity  of  demand  in  the  age  of  GATT  and  growing  world  markets.  A  large  in- 
crease in  production  actually  would  have  minimal  long-term  effects  on  prices,  although  there 
would  be  short-term  fluctuations.  But  for  the  purposes  of  our  model  we  assumed  the  following: 


Price  Effect  Index  (1995=100) 

1995 

100 

1996 

96 

1997 

100 

1998 

102 

1999 

104 

2000-05 

104 

In  1996  we  assume  prices  would  drop  4  percent,  then  go  back  to  the  base  year  price.  The  2 
percent  increase  in  1998  and  the  4  percent  increase  in  prices  from  1999-05  do  not  reflect  infla- 
tionary increases^they  are  real  price  increase's  relative  to  the  base  due  to  increased  world  de- 
mand. 


42 


In  order  to  determine  the  full  effect  of  putting  additional  acreage  into  production  while  pha 
ing  out  deficiency  payments  we  needed  to  determine 

O   what  deficiency  payments  would  be  at  the  state-crop  level  under  current  law, 

®   what  deficiency  payments  under  the  Heritage  model  at  the  state-crop  level  would  be,  and 

®    what  impact  the  reduction  in  deficiency  payments  would  have  on  farmer  net  income.  Defi- 
ciency payments  under  the  Heritage  Plan  are  based  on  target  price  reductions  of: 


1996 

1997 

3% 

1998 

3% 

1999 

5% 

2000 

5% 

Target  Price  Reduction 

3% 

Target  prices  for  199600  are  based  on  ERS  baseline  projections.  We  based  the  deficiency  pay- 
ments at  the  state-crop  level  under  the  Heritage  model  on  the  general  distribution  of  payments 
for  crops  in  each  state  made  in  1993,  the  most  recent  year  for  which  statistics  are  available.  Un- 
der the  Heritage  plan  all  deficiency  payments  are  zeroed  out  by  2001. 


ADJUSTING  FOR  INFLATION 


While  we  applied  different  formulas  to  each  variable  in  computing  our  model,  we  also  ap- 
plied the  appropriate  projected  PPI  index  for  finished  goods  to  all  of  these  numbers  in  order  to 
include  inflationary  effects  in  our  calculations.  Believing  that  most  inflation  measures  overstate 
real  inflation,  we  estimated  rates  that  are  slightly  slower  than  those  currently  projected.  The 
non-cumulative  effect  is  as  follows: 


Non-Cumulative  PPI 


1996 

3.3% 


1997 

3.4% 


1998 

3.5% 


1999 

3.5% 


2000 

3.5% 


DEMAND  FOR  PRODUCT 

Our  demand  assumptions  neither  forsee  world  famine  by  2030  nor  hold  that  countries  will 
be  self-sufficient.  We  are  taking  "middle  of  the  road"  approach  and  are  assuming  that  increases 
in  production  as  a  result  of  yield  gains  and  technology  alone  will  not  be  sufficient  to  meet  de- 
mand growth  resulting  from  the  combined  effect  of  increasing  per  capita  calorie  consumption 
and  population  growth.  In  China  and  the  sub-Saharan  countries,  for  example,  demand  will  con- 
tinue to  exceed  their  ability  to  produce,  even  as  standards  of  living  rise  modestly  and  per  cap- 
ita calorie  consumption  increases.  Imports  will  be  needed  make  up  the  shorfall,  and  trade  as  a 
percentage  of  total  supply  will  increase  as  a  result.  The  U.S.  needs  to  be  preparing  to  gain  mar- 
ket share  by  freeing  up  available  cropland  for  production,  and  GATT  will  expedite  that  process 
by  greatly  enhancing  our  ability  to  access  world  markets. 

David  H.  Winston 
Sei^ior  Fellow  in  Statistical  Policy  Analysis 

Christine  L.  Olson 
Research  Analyst 

Rea  Hederman 
Research  Analyst 


43 


The  State-by-State  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Cbvernment  Idled  Acres 
Under  the  Heritage  Plan 


AL^ 

1996 

1997 

1998 

1999 

Additional  Gross  Income 

56.601.015 

61.268.830 

65.004.911 

68°-=2,29^ 

Additional  Cost  of  Farm  Inputs 

63.790.923 

64.389.343 

65.017.531 

67:53    45 

AR 

Additional  Net  Income  from  Added  Acres 

-7.189.908 

-3.120.513 

-12.620 

1.649.152 
^19.944.193 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 
Total  Net  Farm  Inconw  from  Added  Acres  Under  the  Heritage  Plan 

6.7 16.235 
-15.906.143 

13,173.455 
-16.293.968 

16.615.350 
-16.627.970 

Additional  Gross  Income 

116.284.179 

125873.990 

133.549.597 

141.638.775 

Additonal  Cost  of  Fami  Inputs 

91.371.881 

92,232,064 

93.131.889 

96.391.505 

Additional  Net  Income  from  Added  Acres 

24,909.298 

33,641,926 

40.417.708 

45,247.269 

68.874.899 

93,888,552 

1  14.374.370 

149,745,566 

Total  Net  Farm  Income  from  Added  Acres  Under  ttie  Heritage  Plan 

■43.965.601 

-60.246.627 

-73.956.662 

-104,498,296 

1 

AZ 

Additional  Gross  Income 

48.240.637 

52.218.982 

55.403.217 

58,759.022 

Additional  Cost  of  Rami  Inputs 

43,306.281 

43.712.535 

44.138.999 

45.683.864 

Additional  Net  Income  from  Added  Acres 

4.934,356 

8.506.447 

11.264.218 

13.075.159 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

12.171.557 

18.633.330 

23.477.196 

31.045.355 

^ 

Total  Net  Farm  Income  from  Added  Acres  Under  ttie  Heritage  Plan 

■7.237.201 

■10.126.884 

-12.212.978 

■17,970.197 

Additional  Gross  Income 

:    223.665.723 

242.111.156, 

256.374.731 

272.433.785 

Additional  Cost  of  Farnn  Inputs 

171028.628 

173.642.420 

175.336.493 

181.473.270 

Additional  Net  Incorro  from  Added  Acres 

51.637.095 

68.468.736, 

81.538.238 

90.960.515 

— 

Cost  of  Reduction  m  Deficiency  Payments  Under  the  Hentage  Plan 
Total  Net  Fami  Income  from  Added  Acres  Under  the  Heritage  Plan 

56.089.214 
-4.452,119 

79.539.2 1 2 
■11.070.476 

97.352.761 
-15.814.523 

-^IIM 

1 

CO 

Additional  Gross  Income 

195.805.036 

211.952.833 

224.877.399 

238.498.355 

Additional  Cost  of  Farm  Inputs 

93.345.582 

94.221.252 

95.140.484 

98.470.401 

Additional  Net  Income  from  Added  Acres 

102.459.455 

117.731.581 

129.736.915 

140.027.954 

ct; 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

29.624.138 

42.866.763 

52.752.302 

66.740.227 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

72.835.316 

74.864.818 

76.984,613 

73.287,728 

1 

Addibonal  Gross  Income 

337.260 

365.074 

387,336 

410.797 

Additional  Cost  of  Farm  Inputs 

262.722 

265.186 

267,773 

277.146 

Additional  Net  Income  from  Added  Acres 

74.539 

99.888, 

119,562 

133.651 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Hentage  Plan 

174.344 

251.687! 

313.158 

358.701 

DE 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-99.805 

■151.800: 

-I93,596__ 

-225,050 

1 

Additional  Gross  Income 

1,442,692 

1,561.669; 

1.656,898 

1.757.257 

Additional  Cost  of  Farm  Inputs 

1           894,133 

902.521 

911,326: 

943.222 

Additional  Net  Income  from  Added  Acres 

548,559 

659.149, 

745,572 

814.035 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

'           865,572 

1.260.902 

1,527,369 

1.778.552 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■317,012 

■601.754 

-781.797 

-964.517 

___                   .. 

FL 

Additional  Gross  Income 

11,520.576 

1 2.470.663 

13.231.106 

14.032.522 

: 

Additional  Cost  of  Farni  Inputs 

15.296.209 

15.439.702 

15.590.333 

16.135.995 

Additional  Net  Income  from  Added  Acres 

■3.775.633 

-2.969.038' 

-2,359,227 

■2.103.473 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

1.662.720 

2.468.748 

3.099.813 

3.867.550 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-5.438.35] 

■5.437.787 

-5.459.041 

■5.971.023 

GA" 

Additional  Gross  Income 

109.440.571 

118.465.998 

125.689.877 

133.302.986 

Additional  Cost  of  Fami  Inputs 

100.329.665 

101.270.853 

102.258.862 

105.837.922 

Additional  Net  Incorro  from  Added  Acres 

9.110.905 

17.195.145 

23.431.015 

27.465.065 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

15.258.070 

22.607.450 

28.353.389 

36.130.478 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-6.147.164 

■5.412.306 

-4.922.374 

■8.665.4 1 3 

lA 

Additonal  Gross  Income 

473.492.905 

512.541.273 

543.795.271 

576.733.270 

Additional  Cost  of  Fami  Inputs 

318.924.236 

321.916.049' 

325.056.693 

336.433.677 

Additional  Net  Income  from  Added  Acres 

154.568.669 

190.625.224 

218.738.578 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 
Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

154.582.569 
-13.899 

223.182.404 
■32.557.179 

277.379.718 
■58.641.140 

317.715.813 
■77.416.220 

ID 

Additional  Gross  Income 

137.492.261 

148.831.076 

157.906.572 

167.471.066 

Addtonal  Cost  of  Fami  Inputs 

92.408.232 

93.275.109 

94.185.110 

97.481.589 

44 


The  State-by-State  Analysis:  What  Farmers  Stand  to  Cain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


2000 

2001 

2002 

2003 

2004 

2005 

Tot,l 

AL 

71,712,054 

74.593.086 

77.589.863 

80,707.036 

83.949.441 

87,322,110 

69,648,405 

72,086.099 

74,609.113 

77,220.432 

79,923,147 

82,720,457 

2,063,649! 

2,506,986 

2,980,750. 

3.486,604 

4,026,294 

4,601,653 

22,785,075: 

21,060,684 

18,638.381 

15.553.436 

12.010186 

7,955,360 

-20,72  l,426i 

-18.553,698 

-15,657,631 

-12,066,832 

-7,983,892 

-3,353,707 

.147.109,459 

1 

AR 

147,329.112; 

153.248.059 

1 59,404.800 

165.808,888 

172,470.260 

179,399,253 

99.765.208' 

103.256.990 

106870.985 

110.611,469, 

114,482,871 

118,489,771 

47.563.904 

49,991.069 

52.533,815, 

55.197.419; 

57,987.389 

60.909.482 

180,495,006 

205.073,996 

184,564,874, 

165.593.805, 

145.807.607 

124.314.819 

-132,931,102 

■155,082,927 

-132.031,059, 

-110.396.387: 

-87,820.218' 

-63.405.338 

r964.334,216 

1 

AZ 

61,119.666; 

63,575,149 

66129.280: 

68.786.024 

71,549,503 

74,424.004 

47,282.799J 

48.937.697 

50.650.516 

52.423.284 

54.258.099' 

56157.133 

13.836.867 

14,637.452 

15,478.764 

16.362.740 

17.291.403, 

18.266.871 

33.995.522 

32,105.141 

29,013,919 

24.755.781' 

19.483.012 

13.370.277' 

-20.158.655 

-17,467.689 

-13,535,155 

-8.393.041' 

-2.191.609 

4.896.594 

■104.396.813 

CA 

283.378.812 

294,763.556 

306605.682 

318.923.565: 

331.736.319 

345.063.826 

187.824.834! 

194,398.704 

201.202,658: 

208.244.751 

215.533.318 

223.076.984 

95.553.9781 

100.364.852 

105,403,023] 

110.678.814, 

116.203.002: 

121,986.842: 

147.91 1.S7l| 

156.248.654 

139,610,968; 

122,437,805, 

104.560,946: 

85.029.363 

-52,357,593' 

-55.883.801 

-34.207.9451 

-11.758.991; 

11.642,056: 

36957.479 

-173,844.307 

1 

CO 

248.080.027 

258.046.642 

268.413.666: 

279.197.185 

290,413,931 

302,081,311 

101.916.865 

105.483,955 

109.175.893' 

112,997.050 

116,951,947' 

121,045,265 

146163.162 

152,562,687 

159.237.772 

166200,135 

173,461,985 

181,036.047' 

63.626,441 

52.076.082 

40.380,726, 

28.816244 

21.265.634 

13,688.122, 

82.536,721 

100.486604 

1  18.857.046' 

137.383.890 

152.196.351 

167.347,924 

1.056.781.012 

i                        '                         '                                                                                                                                  1 

CT 

427.300' 

444.467 

462,324; 

480,898 

500.218 

520.314 

286.846' 

296.885 

307,276: 

318,031 

329,162 

340.683 

I40.45SJ 

147.582 

155,047 

162.867 

171,056 

179.631 

294.681 

234.191 

172.995' 

114.153 

56.253; 

0 

-154.226 

-86609 

-I7.94^__ 

48.713' 

1  1 4.803 

179.631 

-585.886 

1 

DE 

1.827,855' 

1.901.289 

1.977,673 

2.057.126 

2.139,771. 

2.225.736 

976235: 

I.0I0,40; 

1.045.767' 

1.082.369 

1.120.252: 

1.159.461 

851.620 

890.885 

931.906' 

974.757, 

1.019.519: 

1.0662751 

1.529.720: 

1,231,443 

929.6231 

640.081 

381.141 

125.969: 

-678,1011 

-340557 

2.2831 

334.6751 

636.378 

940.306: 

-1.768.095 

1 

FL 

14.596,278 

15,182,684 

15,792,648 

16,427,118 

17.087.077 

17,773,550 

16,700,755, 

17,285,281 

17.890266, 

18.516.425 

19.164.500, 

19,835.257 

-2,104.476 

-2.102.597 

-2.097.618 

-2.089.307 

-2.077.423: 

-2.061.707 

3.792,175 

3.360.516 

2,844.920, 

2,260.713: 

1,633.341 

958.896 

-5.896,651 

-5,463,113 

-4.942.538' 

-4,350.020 

-3.710.764, 

-3.0206031 

.49.689.893 

1                        '                         1 

GA 

138.658.434' 

144,229,037 

150.023.438 

156,050,630 

162.319.964 

168,841,168 

109.542.249' 

113,376.228 

117.344,396 

121,451.450 

125,702,250 

130101,829 

29.116.185 

30.852.809 

32.679.042 

34,599.180 

36,617,713 

38,739.339 

36.166222: 

31.947,407 

26.993.442 

21.408,379 

16.004,415 

10132.089 

-7.050.037' 

-1,094.598 

5.685,601 

13.190,801 

20,613.298 

28.607.250 

34.805.058 

! 

lA 

599,903,530 

624.004.654 

649,074.04 1 

675,150,590 

702,274,765 

730488.654 

348.208,856 

360396166 

373,010.032 

386,065,383 

399,577,671 

413,562,890 

251.694.674 

263.608,488 

276,064,009 

289,085,208 

302,697.094 

316925.764 

260.844.328 

207307.832 

,        153,146.234' 

101.065.871 

49,837.241 

66.774 

-9.149,655' 

56.300.656 

122.9 17.7751 

188.019.337 

252.859.853 

316858.990 

759.178.517 

: 

ID 

174.199.216 

181.197.669 

188.477.286 

196.049.361 

203.925.644 

212,118.356 

100.893.444 

104,424.715 

108,079.580 

111.862.365 

115,777,548 

119.829,762 

45 


The  State-by-S(ate  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


1996 

1997 

1998 

1999 

Additional  Net  Income  from  Added  Acres 

-(5,081,029 

55.555,967 

63,721,462 

69,989,477 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentege  Plan 

23,234.942 

34.349.633 

39.728,952 

50,615,299 

Total  Net  Farm  Income  from  Added  Acres  Under  ttie  Heritage  Plan 

21.949,088 

21,206.334 

23,992,510 

19,374.176 

1 

Additional  Gross  Income 

286.340.989 

309,955,173 

328,855,774 

346.774.762 

IL      Additional  Cost  of  Farm  Inputs 

163.279.947 

164.811,668 

166,419.567 

172,244.273 

Additional  Net  Income  from  Added  Acres 

123.061.043 

145,143.505 

162.436,187 

176.530.490 

Cost  of  Reduction  in  DeHciency  Payments  Under  the  Hentage  Plan 

128.670,378 

185,693,753 

231,101,010 

266.093,210 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-5,609.336 

-40.550,249 

■68.664.822 

■91,562.720 

Additional  Gross  Income 

146945.372: 

159,063,773 

168,763,243 

178,965,332 

IN     Additional  Cost  of  Farm  Inputs 

83,098.2311 

83.877,772 

84,696,091 

87.660,455 

Additional  Net  Income  from  Added  Acres 

63.847.141 

75,186,001 

84,067.152 

91.324,676 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

57.735.142 

83.327,644! 

103.728.731 

120,265,436 

Total  Net  Farm  Income  from  Added  Acres  Under  tlie  Heritage  Plan 

6,111.999 

__-8.l4l,643 

-19,661.579 

■26,960,558 

1 

lAddibonal  Gross  Income 

532,517.741 

576.433.813 

611.583.663 

646.627,878 

KS    Additional  Cost  of  Farm  Inputs 

229,526.309 

231,679.464 

233,939.772 

242,127.664 

Additional  Net  Income  from  Added  Acres 

302.991,432, 

344,754,329 

377,644,11, 

406500,214 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

118.255,527' 

169,922,386! 

211.520.124 

274.444,300 

Total  Net  Farni  Income  from  Added  Acres  Under  the  Heritage  Plan 

184.735,905: 

174.831,943: 

166123.987 

132,055.915 

1 

Additional  Gross  Income 

:      79,585,068: 

86,148.350 

91.401,547 

96.937.792 

KY    Additional  Cost  of  Farm  Inputs 

;      62,351,431 

62.936347, 

63,550.360, 

65.774.623 

Additional  Net  Income  from  Added  Acres 

17.233.637: 

23.212.002 

27.851,186, 

31.163.169 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

13,708.582! 

19.914,206; 

24.826.828! 

29.652,453 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

3.525.055: 

3,297,796 

3.024.356 

1.510,716 

Additonal  Gross  Income 

86.107.523 

93.208,703 

98.692.430 

104.862,403 

LA    Additional  Cost  of  Farm  Inputs 

71.685,888, 

72,358,370 

73.064.305 

75.621,556 

Additional  Net  Income  h-om  Added  Acres 

14.421,635 

20,850,333: 

25.828.125 

29,260,847 

Cost  of  Reduction  m  Defiaency  Payments  Under  the  Heritage  Plan 

37.931.466 

53,493.651 

65.936.476 

66332.429 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■23,509,83  h 

■32,643.318 

■40.108.352 

-57.071.563 

Additional  Gross  Income 

,            150,726! 

163.156 

173.105 

183.591 

«A   Additional  Cost  of  Farm  Inputs 

117,414' 

118.515; 

119.672 

123.860 

Additional  Net  Income  from  Added  Acres 

33,312' 

44.64  1 

53.434 

59,730 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

58,3611 

64.252: 

104,829 

120,074 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-25.049 

■39.611' 

■51.395' 

.     ^60.344 

Additonal  Gross  Income 

7.867.1631 

8,515.958 

9,035,249 

9.562,519 

VID  Additional  Cost  of  Farm  Inputs 

5,816.283' 

5,870.845 

5.926,122 

6.135,606 

Additional  Net  Income  from  Added  Acres 

2.050,880; 

2.645,1131 

3.107.127 

3,446,913 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

,        2,914.718! 

4.229,093  < 

S.I  84.676 

5,904.699 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

i          -863,839! 

■1.563,981 

-2.077.550 

-2,457.767 

Additional  Gross  Income 

1.061.6571 

1,149.210 

1.219.267 

1.293.140 

ME  iAdditional  Cost  of  Farm  Inputs 

1. 101.858] 

1,112,194 

1.123.045: 

1.162,351 

Additional  Net  Income  from  Added  Acres 

-40,201  i 

37,016' 

96.243' 

130,789 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

169,703, 

246,457 

287,015 

326,403 

Total  Net  Farm  Income  from  Added  Acros  Under  the  Heritage  Plan 

■209,904, 

■209,440 

■190,773 

-195.614 

Additional  Gross  Income 

94,635.005 

102.439,436 

108.686.039 

115.269.216 

Ml     Additional  Cost  of  Farm  Inputs 

67.474.012: 

68,106.983 

66,771.441 

71.178.442 

Additional  Net  Income  from  Added  Acres 

27.160,993 

34,332,453 

39,914.598 

44.090,775 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

29,604.064, 

42,725,223 

53.082,818 

62,360,301 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■2.443,071 

■8.392,770 

•13.168,221 

-16,269.527 

^ 

Additional  Gross  Income 

266,510,342 

310,138,492 

329,050,272 

348,981.040 

MN   Additional  Cost  of  Fanri  Inputs 

176,643,784 

178.300.371 

180.040.392 

186,341.805 

Additional  Net  Income  from  Added  Acres 

109,866.558 

131.837.621 

149,009.660 

162,639,235 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

96. 1 90, 1 94 

139,684,613 

170,404,527 

201,539.123 

46 


The  State-by-state  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


2000 

2001 

2002 

2003 

2004 

200S 

Total 

73,305.771 

76.772.954i 

80,397,706 

84,186.995 

88,148,096 

92.288.594 

50.622.553 

42.047.872! 

33,354,664 

24,881.226 

20.077,177 

15.178.804; 

22.683.218 

34.725,082 

47.043,042 

59.305,769 

68,070,919' 

T7. 109.790 

395.359.930 

1 

362.786.788 

377.361.747. 

392,522,256 

408291,637 

424.694.962 

441.757.062 

IL 

I7B.272.822 

184,512,371 

190,970304 

197654,265 

204.572,164 

211732.190 

184,513,966 

192,849,377 

201,551,952 

210637573 

220122,798 

230024.692 

224,635.797 

179,239,832 

133,310841 

88,954,722 

47,301,812 

6,699.833 

-40121.830 

13,609,545. 

68,241,111 

121,682,850 

172,820,986; 

223.325,059 

353.170.595 

1 

186.176.068 

193,655,6921 

201,435,809: 

209.528,493 

217.946.300! 

226702.292 

IN 

90728.570 

93,904,070 

97.190713 

100,592,388 

104.113,121 

107,757,081 

95.447.498 

99.751.621 

104.245.096; 

108,936.105 

113,833,176 

118,945,212 

100,781.561 

80.415.241 

59.804.213 

39,903.525 

21,119.260 

2.888,422 

-5,334,064 

I9.336,380l 

44.440.883; 

69,032380 

92713.918: 

116,056,789! 

285.594,705 

1 

674.686,503 

701.792,034: 

729.986.528 

759,313,737 

789.819,167 

821,550152 

KS 

250602,132 

259,373,207 

268.451,269, 

277,847.063 

287,571711 

297.636,721 

424,084,371 

442,41 8.827' 

461,535,259 

481,466,674 

502,247,456 

523,913,431 

265,374,012 

217.216.749 

1 68.785.047  i 

120.313,501 

95,484.200 

65,675,635 

158,710.359 

225.202,078: 

292750.212: 

361,153,173: 

406,763.256 

458,237.796, 

2.560.564.624 

1 

100.832.268 

104.883,204' 

I09.096887| 

113,479,854, 

118,038,908, 

122,781.121, 

KY 

68.076.735 

70,459,421 

72,925,500! 

75.477.893 

78119,619! 

80853.8061 

32.755.533 

34.423,7841 

36. 171.3871 

38.001.9621 

39,919,289: 

41,927,315; 

26.354.568 

2 1 ,726.073 

16.895.557! 

12.054.2671 

7,543,082 

3,046563 

6,400,965 

12,697,710  ' 

19.275.830: 

25,947.694' 

32,376,207 

38,880,752 

146.937.084 

'                                                     '                           '                                  1 

!        109,096,053 

113,478.987 

118.038.006} 

122,780163 

127712,876 

132,843.741 

LA 

78.268.310 

81,007,701 

83,842,971 

86.777.475 

92,958.201 

30,827.743 

32.471,286! 

34,195,035 

36.002.708 

37,698190 

39.865.541 

100,801,567 

109.060.8421 

98,345,297, 

67.191.478 

74,611,964 

60537.062 

-69.973.824 

-76.589.556 1 

-64,150262; 

-51,168,770, 

-36713.774, 

-20.651.521 

-472.600,791 

■                        1                         '                                                                                                                                  1 

190.966 

198.638 

206.619, 

214,920 

223.554 

232.535 

MA 

132.682! 

137.326' 

142,132, 

147.107' 

152.256 

62.771 

65,956| 

69,293! 

72,787' 

76.447; 

60,260 

98.644 

78,395' 

57,910! 

36.213; 

18.831 

0 

,              -35.673 

-I2,439j 

11.383 

34.575 

57.617' 

80,280 

■40.856 

i                         1                         !                         : 

!           9,967.497 

10.367.941 

1 0.784.473 1 

11.217.739 

11.668.412! 

12,137.1901 

MD 

6.350.352 

6.572.6151 

6.802.6561 

7.040.749! 

7287,176' 

7.542.227' 

3.617.144 

3.795,326; 

3.981.816: 

4.176.990; 

4.381,236 

4.594,963 

4.857.730 

3.869.7981 

2,870.631 

1.915.8561 

976,062 

55,541 

-1.240,586 

-74.472' 

1. III. 186: 

2.261.133: 

3,405.174, 

4,539.423 

3,018.702 

■ 

1.345.092 

I.399.I3I 

1.455.341 

1,513,610 

1,574,627 

1.637.668 

ME 

1.203.034 

1.245,140] 

1.288,720 

1,333,825 

1.360509 

1.428.826 

142.059 

153,992 

166,622: 

179,985 

194.116 

209.061 

254,855 

202.540l 

149.615 

98726 

48650 

0 

-112,796 

-48.549 

17,006 

81.259 

145.468! 

209,061 

■514.281 

, 

119.900.157 

I24.7l7.l46i 

129,727,657 

134.939.466 

140.360.659; 

145,999.648 

Ml 

73.669.687 

76.248,126! 

78,916,811 

81.678,699 

84.537.661 

87.496,479' 

46,230,470 

48,469,020 

50.810.847 

53,260567 

55,822,996 

56,503,170 

53,242,512 

42,656.853 

31.940174 

21,547,579 

12,174,535 

3,068,429 

-7.012.042 

5,812,167 

18,870,673: 

31712.988 

43,648,463 

55,4I4,7_41 

106.173,401 

: 

363.001.354 

377.584,933 

392754,408! 

408,533,316 

424,946.142' 

442,016,353 

MN 

192,863769 

199,614,000 

206,600,490 

213.831.506, 

221.315.610! 

229,061,657 

170137,585 

177.970.933 

186,153,917 

194,701.808 

203.630.532 

212,956,697 

176,052,386 

142,013.990 

107.553,697 

74,231.860 

45.680144 

17726213 

47 


The  State-by-State  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


1996 

1997 

1998 

1999 

— 

'  Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

13,676,364 

■7.C46,992 

■21.394.647 

-36  699  887 

Additional  Gross  Income 

206,241,000 

223,252,685 

236.866.299 

251,213.430 

MO  Additional  Cost  of  Farm  Inputs 

119,664.145 

120,786,709 

121,965.116 

126233.895 

Additional  Net  Income  from  Added  Acres 

66,579.655 

102,465,976 

114.901,183 

124.979,535 

41,929,024 

60,204,600 

74.906,566 

92,557,597 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

44,650,831 

42.261,376 

39,994,617 

32,421,938 

1 

MS 

Additonal  Gross  Income 

152,442,880 

165.014.653 

175,076,999 

165,661,516 

Additional  Cost  of  Fami  Inputs 

120,315,700 

121,444,375 

122,629,199 

126.921,221 

MT 

Additional  Net  Income  from  Added  Acres 

32,127,180 

43,570.278; 

52,447,801 

58,760,296 

Cost  of  Reduction  in  Deficiency  Payments  Under  ttie  Hentage  Plan 

36,455.795 

53.484,836 

66,819,743 

87,987199 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■4,328,615 

■9.914,558 

-14.371.942 

-29,226,904 

Additional  Gross  Income 

i     245,898,959 

266.177.939 

282,409,070 

299,514754 

Additional  Cost  of  Farm  Inputs 

144.535,619 

145.891.501 

147,314,833 

152,470,652 

Additional  Net  Income  from  Added  Acres 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Hentage  Plan 

101,363,340 
47,081,373 

120,286.438 
69.678.546 

135,094,238 
30,222,562 

147,043,902 
102,043,934 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

54.281.967 

50.607,892 

54,871,676 

44,999,968 

1 

NC 

Additional  Gross  Income 

55,576.573 

60.159.904, 

63,828,365 

67,694,486 

Additional  Cost  of  Farm  Inputs 

53.548.987 

54.051,327, 

54,578,657 

56,486,910 

Additional  Net  Income  from  Added  Acres 

2.027.587 

6.108,577; 

9,249,707; 

11,205,576 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

1       14.116.650 

20,729,871: 

25,876,099, 

31,597,720 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-12,069,06: 

-14,621,294 

■16,628,392 

-20,392.144 

Additional  Gross  Income 

296,473,925 

320923,759' 

340,493,208 

361,117,082 

ND 

Additional  Cost  of  Fami  Inputs 

169,919,608 

171,513,616! 

173.186,919; 

179,248,461 

Additional  Net  Income  from  Added  Acres 

126,554,317 

149,410,143 

167306,289 

181,868,621 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Hentage  Plan 

94,437,442 

139,007,840 

162,215,876 

206,629,940 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

.      32,116,874 

10,402.304, 

5,090,410 

■24,761,319 

NE 

Additional  Gross  Income 

1     357.620,216 

387.112.708 

410,718,260 

435,595,707 

Additional  Cost  of  Farm  Inputs 

1     194,841.546 

196,669,346 

196,566,071 

205,538,653 

Additional  Net  Income  from  Added  Acres 

162,778,670 

190,443,363 

212,130,189 

230,057,054 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

118,377,723 

170,602,161 

211,859,538, 

250,439,144 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

44,400,941 

19,841.201; 

270,651 

■20,362,090 

Additional  Gross  Income 

177,1901            191,802, 

203,498; 

215.824 

NH 

Additional  Cost  of  Farm  Inputs 

138,029 

139.323 

140,633- 

145.607 

Additional  Net  Income  from  Added  Acres 

39,16 

52.479; 

62,815- 

70,218 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

43,324 

62.544' 

77,620 

89,137 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■4,163 

■10.066; 

■15,004 

-18,920 

- 

Addibonal  Gross  Income 

2,724,063 

;         2.948,713 

3,128,521 

3,316,017 

NJ 

Additional  Cost  of  Fami  Inputs 

2,044,212 

2,063,389 

2,083.520 

2.156,443 

Additional  Net  Income  from  Added  Acres 

679,850 

865,324 

1.045,001 

1,161,574 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

694,856 

1,005,963 

1.241.386 

1,417,379 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-15,006 

-120.640 

-196,385 

-255,604 

NM 

Additional  Gross  Income 

63,008,73- 

:       68,204,987 

72,364,025 

76,747156 

Additional  Cost  of  Farni  Inputs 

40,460.01 

40,839,566 

41.238,001 

42,661,331 

Additional  Net  Income  frx>m  Added  Acres 

22.548,723 

27,365,421 

31.126.024 

34,065,826 

— 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

5,593,14. 

8,128,295 

10.162.635 

12,995,612 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

16,955,57; 

19,237.126 

20,963,189 

21,070.21: 

Additional  Gross  Income 

581.96 

629.955 

666,369 

706,852 

NV 

Additional  Cost  of  Farm  Inputs 

319,88 

322.890 

326,040 

337,452 

Additional  Net  Income  from  Added  Acres 

262,07 

307.065 

342,328 

371,400 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

60,305,             96,223 

86,714 

84,720 

Total  Net  Farm  Income  ftt>m  Added  Acres  Under  the  Heritage  Plan 

201.767            210,842 

255,615 

266,680 

48 


The  State-by-State  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


2000 

2001             : 

2002 

2003 

2004 

2005 

Total 

.5.9H.B0I 

35.956,9421 

76,600,221    _ 

__  120.469.948^ 

157,950,387 

195,230,484 

527,828.0181 

i                       1                                                                                                                                                1 

261,305.929 

271,803,895' 

282,723,617 

294,082,038: 

305,696,784 

316186,167 

MO 

130,652.081 

135,224.904' 

139,957,775 

144,856,296 

149.926,268 

155,173.687 

130653.849 

136.578,991 

142,765,841 

149,225740 

155,970516 

163.012,500 

87,712.282 

76,518,576, 

61,438,202 

46,420636 

34,499,834 

21,550158 

42,911,566 

60,060,4 15I 

81,327,639 

102,805,104, 

121,470,682, 

141,462,342 

709.396.512 

:                                                                                         1 

193,141,271 

200,900,722^ 

208,971,908 

217367,355 

226100,066: 

235.183,659 

MS 

131,363,463 

135,961.185' 

140,719,826 

145,645,020 

150742,596 

156,018,586 

61.777,806 

64,939,537, 

66.252,082 

71,722,335, 

75,357,493 

79,165,073 

99,233,411 

100,350629 

90,449.506 

78,646,651 

64,801,932 

48.992,057 

-37,455,603 

-35,411,291' 

-22,197,423 

-6,924,317 

10555,561 

30,173,016 

.119,102.077 

1                          '                           '                                                                                                                                           1 

311,547.759 

324.064,190! 

337,083,469 

350625,798 

364,712,189 

379,364,501 

m 

157.807.332 

163.330.588 

169,047,159 

174,963,809 

181,067543 

187,425,607 

153,740,428 

160.733.6021 

168,036,310 

175,661,988 

183,624,646 

191,938,895 

101,971,074 

84,730,836  i 

67,253,255 

50,237,899 

40,611,675 

30,768,343 

51,769,354 

76,002,766! 

100,783,056 

125,424.089, 

143,012,772 

161,170552 

862,924,091 

1                                   '                  '                                                                           1 

70,414,112 

73,242,9991 

76,1 85,537  i 

79.246.29 1| 

62,430,0 10( 

85,741,636 

NC 

58,466,022 

60,512,333 

62,630,2651 

64,622,324 

67,091,105 

69,439,294 

11,948,090 

12,730,666! 

13,555,272 

14,423,967: 

15,336,905, 

16302,342 

29,543,296 

25,305,401 

20622,852 

15,658,4741 

10,747,039: 

5.621,951 

■17,595,206 

-12,574,7351 

-7,067,5801 

-1,234,5071 

4,591,866, 

10,680,391 

.86.930.663 

1                         '                         '                                                                                                         1 

375,624,961 

390715,694: 

406412,697' 

422,740327 

439723,919, 

457,389,828 

ND 

185,522,158 

192,015,433 

198,735,973, 

205,691,732 

212,690.943 

220342,126 

190102,803 

198,700,261 

207,676,723 

217,046,594 

226,832,976 

237,047,702 

204,376,259 

169306,966 

133.748,128 

98.949,758 

78,579,635 

58,060274 

.14,273,455 

29,393,295 

73,928,596 

118,096,636, 

148,253,341 

178,967,428 

557.216,310 

453,095,765 

471,298,887 

490233,320 

509,928,443 

530414,819 

551,724,234 

NF 

212,732,506 

220.178,144 

227,884,379 

235,860332, 

244,115,444 

252,659,485 

240363,258 

251,120,743 

262,348,941 

274,068,111 

286,299,375  i 

299,064,749 

214,377.438 

171,693,340' 

128,700.345 

86,868,258: 

52.703,162: 

16,464,577 

25.985,820 

79,427,403' 

133.648,596' 

187,199,8531 

233,596,2121 

262,560173 

986.568.760 

•                         '                         '                                                  '                                                                                 1 

224,495 

233.514i 

242,895; 

252,654 

262,804, 

273,362 

NH 

150.703 

155,9771 

161,4371 

167,087 

172,935 

176,968 

73,792 

77,5371 

81,459 

85,567 

69,669: 

94,375 

73.22E 

58,1971 

42,989 

28,367 

13,979 

0 

564 

19,340, 

38,469 

57,200' 

75.890 

94,375 

237.68* 

3.451.319 

3.589,975, 

3,734,203: 

3.884,224, 

4.040,273 

4,202,591 

N.I 

2,231,916 

2,310.035: 

2,390,887 

2,474.568 

2.561.176 

2,650,819. 

1.219.400 

1,279,940 

1,343,316 

1,409,656 

1,479.0951 

1.551,772 

1.165.391 

927,405! 

686,681 

456,014 

228,998' 

7,441 

54.009 

352,535i 

656.635 

953,643 

1,250,097 

1,544,331 

4.223.416 

79.830.473 

83,037,663 

86,373.701 

89,843.764 

93,453,237 

97,207,72 1 

NM 

44,175,177 

45,721,309 

47,321,554 

48,977.809 

50692,032 

52,466,253 

35,655,296 

37,316,354 

39,052,146^ 

40865,955 

42,761,205 

44,741,468 

12,545,575 

10,615,239, 

8,571,905, 

6,420,247 

5,052,036 

3,250,975 

23,109,721 

26,701,115 

30480242. 

34,445,708 

37,709,170 

41,490,493 

272,162.555 

737,330 

766,953 

797,765 

829,615 

663,153 

697,630 

NV 

349,263 

361,487 

374,139 

387.234 

400,767 

414,614 

388  068 

405,4661 

423,626 

442,581 

462,366 

483,016 

72,760 

61,796' 

50832 

42,859 

34,885 

23,921 

315,308 

343,670 

372,794 

399,723 

427,481 

459,095 

3,272.973 

49 


The  State-by-State  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


1996 

1997 

1998 

1999 

Additional  Gross  Income 

21.224,972 

26.222.776 

27.821.801 

29,506,984 

NY 

Additional  Cost  of  Farm  Inputs 

26.738,659 

26,989.493 

27.252.805 

28,206,653 

Additional  Net  Income  from  Added  Acres 

■2,513.687 

-766.718 

568.996 

1,300330 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

■11,428.399 

12.872.428 
■13.639.145 

-^'m'Mr 

18,587,758 
■17.287.427 

Total  Net  Farm  Income  from  Added  Acres  Under  ttie  Heritage  Plan 

1 

Additonal  Gross  Income 

103.330.801 

111.852,363 

118.672.952 

125.861.042 

OH 

Additional  Cost  of  Farm  Inputs 

67,121.197 

67.750,858 

68.411.842 

70.806.256 

Additional  Net  Income  from  Added  Acres 

36.209.604 

44,101,505 

50.261.110 

55.054.786 

Cost  of  Reduction  in  Deficiency  Payments  Under  tfie  Hentage  Plan 

40.506.391 

58,445,178 

72.758.739 

85.811.766 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-4.296.788^ 

■14,343,674. 

-22.497.628 

-30.756.980 

1 

OK 

Additional  Gross  Income 

<     146.371.498; 

158.442.572 

168.104.162 

178,286.330 

Additional  Cost  of  Farm  Inputs 

101.8668691 

102.822,477' 

103.825.624 

107,459,520 

Additional  Net  Income  from  Added  Acres 

44.504.628, 

55.620.095 

64.278.539 

70,826,810 

45.383.773: 

65.615.733 

82.233.450 

110,697,261 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■879.144, 

-9.995.639 

-17,954,911 

-39,870,451 

1 

Additional  Gross  Income 

90,025.520, 

97.449.812 

103.392.156 

109,654,679 

OR 

Additional  Cost  of  Fann  Inputs 

44,891.785 

45.312.913 

45.754.990 

47.356,415 

PA 

Additional  Net  Income  from  Added  Acres 

45.133.735; 

52.136.900 

57.637.166 

62.298.265 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

11.391.075 

16588.664 

20.041,169 

26,441,317 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

33.742.660, 

35.548.236 

37.595,997 

35,656,948 

Additional  Gross  Income 

17.982.4051 

19.465.392 

20.652.362, 

21,903.288 

Additional  Cost  of  Farm  Inputs 

15.232.224 

15.375.117 

15.525.118 

16.068.497 

Additional  Net  Income  from  Added  Acres 

2.750.181 

4.090.275 

5,127.244 

5.834.790 

— 

Cost  of  Reduction  m  Deficiency  Payments  Under  the  Hentage  Plan 

5.235.846! 

7.570.823 

-'W.h 

10.766,909 
■4,952,118 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-2.485.666, 

■3.480.549 

lAdditional  Gross  Income 

1.4901 

1.612 

1.711 

1,814 

Rl 

lAdditional  Cost  of  Farm  Inputs 

I.l60i 

I.I7I 

1.183 

1.224 

Additional  Net  Income  from  Added  Acres 

329 

441 

528 

590 

Cost  of  Reduction  m  Defiaency  Payments  Under  the  Hentage  Plan 

882, 

1.273 

1.584 

1.814 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

■553 1 

■832 

-1.056 

■1.224 

:                                  1 

sc 

Additional  Gross  Income 

49.820.196' 

53.928.805 

57.217.303 

60.682.988 

Additional  Cost  of  Farm  Inputs 

58.202.312 

58.748.305 

59.321.460 

61.397.711 

Additional  Net  Income  from  Added  Acres 

■8.382.116, 

■4.819.500 

-2.104.157, 

-714722 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

8.728.345: 

12.836574 

16.063.121 

20.108.418 

- 

Total  Net  Farm  Incoitw  from  Added  Acres  Under  the  Heritage  Plan 

!     -17.110.461 

-17.656.074 

-18.167.278 

-20.623.140 

Additional  Gross  Income 

212.124.938 

229,618.617 

243,620.416 

258.376.648 

SD 

Additional  Cost  of  Fann  Inputs 

136.129.751 

137.406.778 

138,747,332 

143.603.489 

Additional  Net  Income  from  Added  Acres 

75.995.1871 

92.211.839 

104,873,084 

114.773.159 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 

50.503.863 

73.286.318 

88,754,973 

108.518.845 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritaae  Plan 

25.491.324: 

18.925.521 

16118,110 

6.254.314 

: 

Additional  Gross  Income 

67.526.239  i 

73.095.043 

77,552,270 

82.249.656 

TN 

Additional  Cost  of  Fami  Inputs 

50.624.3011 

51.099.205 

51.597.734 

53.403.654 

~ 

Additional  Net  Income  h-om  Added  Acres 

16.901.938 

21,995,839 

25.954.536 

28.846.002 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

13.365.670 

19,934.604 

25.072.315 

31.925.212 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

3.536.269 

2.061.234 

882.221 

-3.079,210 

Additional  Gross  Income 

814.241,1371 

881.390.586 

935.136.461 

991.778.227 

TX 

Additional  Cost  of  Farm  Inputs 

625.768.9431 

631.639.252 

637.801.586 

660.124.642 

Additional  Net  Income  from  Added  Acres 

188.472.194 

249.751.334 

297.334.675 

331.653.585 

136.781.929 

199.600.714 

249.049.119 

321.783.365 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

51.690.265 

50.150.620 

48.285.756 

9.870.22 1 

Additional  Gross  Income 

19.048.702 

20.619.625 

21.876,978 

23.202.080 

Ut 

Additional  Cost  of  Farni  Inputs 

13,835,095 

13.964.881 

14,101,124 

14,594,663 

50 


The  State-by-state  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


2000 

2002 

2003 

2004 

2005 

Total 

30.692,427 

31.925.495 

33.208102 

34.542,237, 

35,929,972: 

37,:  73,459 

MY 

29,193,886 

30.2 1 5.672 

3 1.273.22  !■ 

32,367,784^ 

33,500,656 

34,(73,179 

1,498,541 

1. 709.823 1 

1.934.881 

2,174,454' 

2,429,316 

2,700,279 

15,682,073 

12.542.061 

9.363.680 

6,287,2651 

3,456,433' 

710,906 

■14,183,533 

-10.832.233' 

-7.428.7991 

-4,112,812; 

-1,027,167; 

1,989,373 

-93.303,815 

•                                                                                                                                                                     1 

130,917,510 

I36.177.I2I1 

141.648.036 

147,333,746' 

153,258,030 

159,415,224 

DH 

73,284,475 

75.849.432 

78.504.162 

81,251,307; 

34,095,621 

87,038,967 

57,633,035 

60.327.689 

63.143.875' 

66,086,939 

69,162,460, 

72,376,256 

73,773,308 

59.1 70.590 1 

44.385.680 

30,030713, 

17,248,861 

4,362,558 

1 

-16,140,273 

1,157,0991 

18.758.195, 

36,056,221, 

51,913,599; 

67,513,693, 

87.363.47« 

'               1               1               ■               :               :                                  1 

185,448,984 

192,899,397, 

200.649.1 30: 

208,710,209] 

217,095,141 

225,316,939; 

OK 

111,220,604 

ll5,113,325i 

1 19.142.291 ; 

123,312,2711 

127,623,201 

132,095,138' 

74,228,380 

77,786,072. 

81.506.839, 

35,397,937! 

89,466,941 

93.721,751, 

113,696,868 

95,260,727 1 

76.136.356: 

56,569,796 

45,517,393; 

34.2l3.978i 

1 

-39,468,488 

-I7,474,655j 

5.320.4331 

23.323.141, 

43,949,043; 

59.507.773, 

11,962,151 

i             1              :              ,              :          ■                                  1 

114,060.056 

118,642.419 

123.408.878' 

128.366.830 

133,523,967 

138.888.293' 

OR 

49.013.889 

50.729.375 

52.504.903 

54.342.575 

56,244,565 

58.213.125 

65.046.167 

67.913.044, 

70.903.975, 

74.024.255, 

77,279,402, 

30.675.163 

, 

26.844.166 

22.247.757' 

1 7.582.420; 

1 2.933.330! 

10,426,392 

7.966.342 

1         38.202,001 

45.665.287 

53.321.555; 

61.035.375; 

66,353,010; 

72,703,326 

480,580,396 

I            '            :                                       1 

22,783.252 

23.698.570 

24.650.660! 

25.641.000, 

26,671,127, 

27,742,640 

PA 

16.630.895 

17.212.976: 

17.315,430' 

1 3.433.970: 

19,034,334; 

19,752,236 

6.152.358 

6.485.593. 

6,335,229, 

7.202.029, 

7,536,7931 

7,990354 

8.989.488 

7175.6881 

5,340,245, 

3.570.397, 

I.898I08| 

271,332; 

-2.837.130 

-690.094! 

1,494,984, 

3.631.1321 

_      5J588.6851 

7.719,022' 

-111,222 

!                         :                         '                         !                         :                                                        1 

1.887 

1.963: 

2,042' 

2,124 

2.2091 

2,298' 

Rl 

1.267 

I.3II 

1,357, 

1.405 

1.454 

1,505 

620 

6521 

685, 

719 

755, 

793 

1.490 

1.184! 

875, 

5771 

284, 

0 

t 

-870 

-533: 

-190' 

142 

471 

793 

-3,85? 

!                      ■                      '                      ;                      ^                      !                                                  1 

63.120,928 

65.656.811 

68,294,573: 

71.038.308, 

73.892.272i 

76,360,894, 

sc 

63,546,630 

65.770.763 

68,072,739 

70.455.285, 

72.92 1.220; 

75,473,463, 

-425,703 

-113.952: 

221,834 

533.023 

97l.052| 

1,387,431 

19,461,793 

16.826.064 

13,877,1711 

1 0.694.09 1| 

7.704.329' 

4,562,942 

-19,887.496 

-I6.940.016l 

-13,655,337; 

-10.111.069, 

-6.733.2781 

-3,175,511 

-144,259,66C 

1             ■              ;              .              i              ■              ■                 1 

268.756.929 

279.554.239. 

290,785,331 

302.467631 

314.619.263; 

327,259,097 

SD 

148.629.611 

153.831.647: 

159,215,755 

164.788306 

170555.897! 

176,525,353 

120127.319 

125.722.592; 

131,569,576 

137.679.325 

144.063.371; 

1 50733,744 

98.589.612 

80.163.279, 

61,519,935 

43.276.837, 

29.826.363 

16,314,548 

21.537.707 

45.559.3 13, 

70,049,640] 

94.402.433: 

114,237.004 

134,419,196, 

546,994,617 

85.554.036 

88.991.169, 

92,566,390 

96.285.244 

100,153,504 

104,177171 

TN 

55.272.782 

57.207.330 

59,209,536 

61.281.922 

63,426,789 

65,646,727. 

30,281.254 

31.783.840, 

33,356,804 

35.003.323 

36,726,715 

38,530,445 

32,282,773 

1          28.979.560, 

24,893,902 

20.112.996 

15,039,337 

9,512,893 

( 

-2,001,520 

!           2.804.280! 

8,462,901; 

14.890.327, 

21,637,323^ 

29,017551 

78,211.383 

1                           ,                           ... 

1.03 1.622.9 17 

1.073.068.368' 

1,116,178890 

1. 161.021.377 

1,207,665,410 

1,256,183,368, 

TX 

683.229.004 

707142.019 

731,391,990 

757.508.209 

784,020,997 

811,461.732: 

348.393.913 

365.926.349; 

384,286,900 

403.513,167 

423,644,414 

444.721.637 

335.201.77-! 

313.670879! 

270235,246 

222,162,284 

179,706,050 

128236.667 

13.192.135 

!          52.255.470 

114,051,654, 

181,350,833; 

243,938,364 

316.484.970 

1.081.270,340 

' 

24.134.22: 

25.103.816, 

26,112,362, 

27161,426 

23,252,636' 

29.337.686 

or- 

I5.I05.47« 

15.634.168 

16,181,364 

16,747,712 

17,333,882 

17.940,568 

51 


The  State-by-state  Analysis:  What  Farmers  Stand  to  Cain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


1996 

1997 

199B 

1999 

Additional  Net  Income  from  Added  Acres 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Hentage  Plan 

Total  Net  Farm  Income  from  Added  Acres  Under  ttie  Heritage  Plan 

5.213,607 
2.006,213' 
3.207.394 

6.654,743 

7,775,854 

8,607,417 

2,992,665 
3.662.078 

3,365,117 

4,199,634 

4,410,738 

4.407783 

Additional  Gross  Income 

16.527,458 

17,890,457 

18,981.390 

20,131,104 

VA    Additional  Cost  of  Farm  Inputs 

16.200.607 

16,352.584 

16,512.121 

17,090,045 

Additional  Net  Income  from  Added  Acres 

326.852 

1.537,874 

2,469,269 

3,041,059 

Cost  of  Reduction  in  Deficiency  Payments  Under  tfie  Hentage  Plan 

4.504.552 

6.507.561 

8,116,931 

9,765.184 

Total  Net  Farm  Income  from  Added  Acres  Under  tfie  Heritage  Plan 

■4.177,700. 

■4.969.688, 

-5,647.662 

-6724.125 

Additional  Gross  Income 

1           481.231 

520.917 

552.682 

VT    Additional  Cost  of  Fami  Inputs 

1           374,873 

378.390; 

382,081 

395,454 

Additional  Net  Income  from  Added  Acres 

!           106,358; 

142.528 

170,601 

190,704 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Heritage  Plan 

152,425: 

220,045 

273,788 

313,605 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-46,067  i 

■77,517 

-103,187 

-122,901 

Additional  Gross  Income 

134,265.483 

145,338.190 

154.200.695 

163.540721 

WA  Additional  Cost  of  Farm  Inputs 

72.241.752 

72.919.448: 

73.630.857 

76.207.937 

Additional  Net  Income  from  Added  Acres 

62.023.732 

72.418.742 

80.569,837 

87.332,784 

32,590.295' 

47.809.260 

56,590,093, 

73,423,746 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

29433.436, 

24,609,482' 

23.979,744 

13,909.038 

: 

Additional  Gross  Income 

i     104.561.8071 

113,184,888, 

120.086.733 

127.360.457 

Wl    Additional  Cost  of  Fami  Inputs 

78.126,7481 

78,859,651 

79.629.014; 

82.416,029 

Additional  Net  Income  from  Added  Acres 

26,435,0591 

34.325.237l 

40,457,7191 

44,944.428 

32,308,803 

46.682.949' 

57,715,289 

66.261.308 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-5,873,744, 

■12.357.712: 

-17,257,569 

-21.316.880 

Additional  Gross  Income 

1.205.400 

1.304.808 

1.384,373 

1.468,226 

WV  Additional  Cost  of  Farm  Inputs 

1.592.848 

1,607.790 

1,623,476 

1,680,298 

Additional  Net  Income  from  Added  Acres 

-387,448 

-302,982 

-239,103 

-212,072 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Heritage  Plan 

1           470.803 

679.602 

844,776 

978,264 

Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

-858,251 

-982.585 

-1,083,879 

-1,190,337 

Additonal  Gross  Income 

14,087,663! 

15.249,455; 

16179,344' 

17,159,336 

WY  lAdditional  Cost  of  Fann  Inputs 

6,792,038 

6,855,754! 

6,922,640 

7,164,932 

Additional  Net  Income  from  Added  Acres 

7,295,624 : 

8,393,701 

9,256,704' 

9,994,404 

Cost  of  Reduction  in  Defiaency  Payments  Under  the  Hentage  Plan 

2,380,812 

3.505,384 

4,093,412 

5,090,120 

Total  Net  Fanm  Income  from  Added  Acres  Under  the  Heritaqe  Plan 

4,914,812 

4.888,3161 

5,163,292 

.4,904,284 

U.S.  New  Net  Income  Under  the  Heritage  Proposal 

Additional  Gross  Income 

4,014,585.558 

4,052,246,194 

4.091780,303 

4.234.992.614 

Additional  Cost  of  Farm  Inputs 

2.076.034.326 

2,542,824,438 

2,905.447843 

3.186.061758 

AddiUonal  Net  Income  from  Added  Acres 

6.656.671.466 

11,333,601,264' 

13,037,600.432 

14,752,350876 

Cost  of  Reduction  in  Deficiency  Payments  Under  the  Hentage  Plan 
Total  Net  Farm  Income  from  Added  Acres  Under  the  Heritage  Plan 

1.610.508.428 
467.525.900, 

2.329,694,074 
213.130.364 

2,864.845.626, 
40.602.015, 

3,537,045,131 
-350,963,373 

■ 

^te-  Numbers  may  not  add  up  due  to  rounding. 

52 


The  State-by-State  Analysis:  What  Farmers  Stand  to  Gain  By  Planting  on  Government  Idled  Acres 
Under  the  Heritage  Plan 


2000 

2001 

2002 

2003 

2004 

2005 

Total 

9.028.7t7 

9.469,648 

9.930.998 

10,413,714 

10,918,754 

1  1,4-, 7,1  18 

4.163,961 

3.465,308 

2.757.525 

2.077.324 

1,683,202 

1,2",  0,626 

j           4,864.786} 

6,004,339 

7.173,473 

8.336.390 

9,235,553 

10176,492 

61.479.025 

1                                                                                                                                                                     1 

20,939.8721 

21.781.131 

22,656,188 

23.566.400 

24,513.180 

25,497.997 

VA    1         17.688.1971 

1 8.307.2841 

18.948,039, 

19.611.220 

20.297,613 

21.006.029 

;           3.251,675] 

3.473.847' 

3.708.149 

3.955.160: 

4.215.566, 

4,489,968 

j           8,677.3131 

7.041.1 12 

5.371.634 

3.729.254 

2,332.088! 

970,025 

1          -5.425.6381 

-3.567.265. 

-1.663.484    __ 

225.9261 

1,863.4791 

3.519.943 

.26.546,214 

1                          1                                                                                                                                                                     1 

609.707! 

634.202, 

659.681, 

686.184, 

713,751 

742,426 

VT 

409.2951 

423,620: 

438.447 

453,793 

469,675] 

486,114 

200.4l2i 

210,5821 

221.234; 

232.391] 

244,076] 

256.312, 

257.6341 

204,7491 

151.2471 

99.802 

49.161 

0 

-57.2211 

5.833! 

69.988' 

132.589' 

194.8951 

256.312 

252.724 

1 

!        170.1 10.9701 

176,945.1781 

184.053.951 

191,448,316 

199.139.754 

207.140.194, 

WA  !         78,875.215; 

81.635.848, 

84.493.102 

87.450.361 

90,511.124 

93.679.013 

91.235.7551 

95.309.330 

99,560,848 

103.997.957] 

106.626.631 

113.461.181 

74.036.931 

61.421,153 

46,623,142 

36,007,643 

29.025.456, 

22.054.914 

17198.824! 

33.886,177^ 

50,937.706 

67,990,314 

79.603.174, 

91.406.267 

432.956,163 

1                                                                                                                                           1 

132.477163, 

137,799.433 

143.335.526 

149,094,030 

155.083.883, 

161.314,378 

Wl     !         85.300.590! 

88.286.1  Hi 

91.376,125^ 

94,574,289: 

97.884.389, 

101.310.343 

47.176.573 

49.513.323! 

51.959.401 

54.519,741 

57,199.494! 

60.004.035 

54.538.8371 

43,401,761 

32.l33.930i 

21.293.127: 

10.746,445' 

495.049 

1          -7.362,263! 

6,lll,562i 

19.825,471 

33.226.614' 

46.453.049 

59,508.966 

100.957.513 

'                           '                           '                                                                                                                 1 

1.527.212' 

1.588,567 

1.652.388 

1.716.773, 

1,787,824 

1.859.650 

WV              1.739. 108 

1.799,977 

1.862.976 

1.928.180 

1,995,667, 

2.065.515 

-21  l.897i 

-211.4101 

-210.588 

-209.408, 

-207,842. 

-205.665 

817.255, 

651.848] 

484.459: 

322,905, 

169.779 

-         21.148 

]          -1.029.152^ 

-863,2581 

-695.047, 

-532.313, 

-377.621 

-227.013 

-7.839.454 

1 

17.848,712: 

18,565,784 

19,311,665 

20.087511 

20.894.527 

21.733.964 

WY  '           7.415,705^ 

7,675,254 

7,943,668 

8.221.924 

8.509.692 

8.807.53 1 

i         10.433.008 

10,890,530 

11,367.776 

11.665.567 

12.384,8351 

12.926.433 

4,891.547 

4,033,565 

3.164.132 

2.319.716 

1.770.821 

1.218.203 

1           5.541.461 

6,856,965, 

8.203.644 

9.545.87  li 

10.614.014. 

1  1.708.230 

72,340.888 

'                          1                           '                                                                                1 

i                              :                               ;                                                              ' 

1       4.383.217.356' 

4.536.629.963: 

4.695412,012 

4.B59751.432; 

5.029.842732 

5.205.887.228 

3,335.977.875 

3.492.683.936, 

3,656,479,574 

3,627.677,398! 

4,006,603,551 

4.193.598.285 

'■      15.538.792.624 

16.363.611,480 

17,226,586,610 

18,135,576,961 

19,086,524766 

20,083.459,184 

3.377.494462! 

2,945.000,000 

2,377,000,000 

1,809,000,000 

1,340,000,000 

848,000,000 

-4I.5I6.5B6 

547.683.936, 

1 .279.479,574 

2,018,677,396 

2.666,603,551 1 

3,345,598_,2B5 

!                   1                    1 

53 


'm 


National  Association  of  State  Departments  of  Agriculture 

1156  15th  Street.  N.  W.  •  Suite  1020  •  W^SHl^CTON.  DC  20005 
Telephone:  202 / 296-96S0  •  F-ix.  202/296-9686 


OSITION  STATEMENT 


Testimony  of 

Richard  T.  McGuire,  Commissioner 

New  York  Department  of  Agriculture  and  Markets 

on  behalf  of  the 

National  Association  of  State  Departments  of  Agriculture 

before  the 

House  Small  Business  Subcommittee  on 

Procurement,  Exports  and  Business  Opportunities 

U.S.  House  of  Representatives 

May  17,  1995 

re:  Small  Business  Exports  &  Federal  Agricultural  Export  Programs 

Good  morning.  Thank  you,  Mr.  Chairman,  and  members  of  the  Subcommittee.  I  am  Richard  T.  McGuire, 
Commissioner  of  the  New  York  Department  of  Agriculmre  and  Markets  and  Chairman  of  the  Trade 
Committee  of  the  National  Association  of  State  Departments  of  Agriculmre  (NASD A).  It  is  a  pleasure  to 
appear  before  this  Subcommittee  on  behalf  of  NASDA  to  discuss  how  federal  agriculttiral  export  programs 
provide  oppormnities  for  increased  exports  by  small  businesses  in  the  United  States.  NASDA  is  the 
nonprofit  association  of  public  officials  representing  the  Commissioners,  Secretaries  and  Directors  of 
Agriculmre  in  the  fifty  states  and  the  territories  of  American  Samoa,  Guam,  Puerto  Rico,  and  the  Virgin 
Islands.  As  the  chief  state  agriculmre  officials,  NASDA's  members  are  keenly  aware  of  the  importance  of 
agriculmral  exports  to  their  state's  and  the  nafion's  economy. 

Summary 

Currently,  the  U.S.  domestic  market  is  not  increasing  fast  enough  to  utilize  the  growing  productivity  made 
possible  by  continued  advances  in  production  technology  and  support  the  economy  of  scale  necessary  to  keep 
farmers  and  ranchers  fiscally  viable.  The  fumre  of  American  agriculmre  depends  on  wise  and  sustainable 
use  of  available  resources,  backed  by  a  solid  commitment  from  the  United  States  government  to  protect, 
maintain  and  increase  the  U.S.  share  of  the  world  market  for  food  and  fiber.  With  about  one  in  every  three 
acres  of  U.S.  cropland  producing  for  export,  production  and  marketing  decisions  and  government  policy 
must  be  based  on  global  as  well  as  local  and  national  agriculmral  conditions. 

The  U.S.  is  one  of  the  worid's  largest  food  exporters.  In  1993,  U.S.  exports  totaled  $42.5  billion,  second 
only  to  the  record  set  in  1981 .  In  1993,  20  percent  of  U.S.  agriculmral  exports  went  to  markets  that  impose 
some  form  of  nontariff  trade  barrier.  Almost  60  percent  of  U.S.  agricultural  exports  in  1993  faced 
subsidized  export  competition.   Many  markets  remain  inaccessible  to  U.S.  agriculmral  exports. 

nasda  is  a  nonprofit  association  of  public  officials  rspresentinc  the  commissioners. 
Secretaries  and  Directors  of  Agriculture  in  the  fiftt-^tates  and  four  territories 


54 


Finding  and  maintaining  export  markets  requires  careful  planning,  expert  and  timely  information,  and  a  high 
quality  product  from  a  reliable  source.  Even  with  all  production  and  market  variables  met,  U.S.  producers 
are  often  denied  access  to  foreign  markets  by  trade  barriers,  licensing  schemes,  complicated  internal 
systems,  or  simply,  trade  politics. 

Passage  of  the  North  American  Free  Trade  Agreement  (NAFTA)  and  the  Uruguay  Round  of  the  General 
Agreement  on  Tariffs  and  Trade  (GATT)  has  already  and  will  continue  to  expand  trade  opportunities.  Some 
members  of  the  GATT  have  indicated  they  are  committed  to  considering  further  liberalization.  GATT  will 
impose  much  needed  discipline  on  member  countries  which  might  otherwise  close  markets,  initiate  internal 
subsidies  and  subsidize  exports.  Even  with  these  multinational  agreements,  however,  help  is  needed  to 
increase  and  maintain  the  U.S.  agricultural  market  presence.  Other  countries  are  stepping  up  their  efforts 
to  gain  and  expand  current  foreign  market  shares,  utilizing  all  possible  provisions  in  these  agreements. 

Even  with  the  signing  of  NAFTA  and  GATT,  U.S.  agriculture  commodities  face  export  challenges 
throughout  the  world  and  at  home.  Bulk  commodities  have  traditionally  dominated  U.S.  exports.  In  1992 
high-value  or  value-added  products  (HVP)  exceeded  bulk  exports.  It  is  advantageous,  from  both  a  political 
and  economic  point,  to  process  greater  quantities  of  bulk  commodities  within  the  U.S.  Creating  high-value 
products  results  in  increased  demand  for  farmers,  more  processing,  packaging  and  transportation  jobs,  and 
more  stable  rural  communities.  The  General  Accounting  Office  (GAO)  has  found  that  significant  barriers 
exist  to  expanding  HVP  trade  under  existing  program  designs.  Changes  in  export  programs  and  new 
incentives  must  be  found  if  U.S.  agriculmral  exports  are  to  survive  at  the  current  level  or  increase. 

Current  Export  Programs 

USDA  and  Congress  have  created  export  and  assistance  programs  designed  to  accomplish  multiple 
objectives  in  domestic,  trade,  himianitarian  and  foreign  policies.  USDA  uses  four  basic  methods  to  increase 
agricultural  exports:  price  reductions  through  bonus  payments;  export  credit;  food  aid;  and  promotional 
assistance.  Export  assistance  programs  include: 

•  P.L.  480,  also  known  as  the  Food  For  Peace  program,  primarily  provides  food  aid. 

•  Enterprises  for  the  Americas,  established  within  the  Department  of  the  Treasury,  allows  the 
President  to  reduce  Title  1  debt  for  Latin  American  and  Caribbean  nations  that  meet  certain 
conditions. 

•  Food  for  Progress  allows  the  U.S.  to  enter  into  agreements  with  private  voluntary  organizations, 
nonprofits,  cooperatives  and  emerging  democracies.  Funds  can  be  used  for  private  sector 
development. 

•  Export  Credit  Programs  includes  GSM- 102  which  guarantees  repayment  with  up  to  three  years  to 
finance  export  sales  of  privately  owned  stock  and  GSM- 103  which  guarantees  repayment  of  loans 
between  three  and  ten  years  that  directly  benefit  U.S.  farmers  and  credit  guarantees  to  promote 
agriculmral  exports  to  emerging  democracies. 


55 


•  The  Export  Enhancement  Program  (EEP)  initiated  in  1985  enables  U.S.  exporters  to  meet 
prevailing  world  prices  for  "targeted"  agricultural  commodities  in  markets  lost  to  heavily  subsidized 
exports  from  the  European  Community. 

•  The  Market  Promotion  Program  (MPP)  assists  eligible  organizations  to  expand  export  sales  and 
combat  unfair  foreign  trade  actions.  Cost  of  the  program  is  shared  by  the  organizations  and  USDA. 

•  Barter  allows  USDA  to  provide  Commodity  Credit  Corporation  (CCC)  commodities  in  exchange 
for  foreign  products. 

U.S.  Food  Export  Showcase 

For  three  successive  years  beginning  in  1993,  NASDA  and  FAS  have  co-sponsored  a  very  effective 
domestically  based  international  trade  event  in  Chicago.  The  U.S.  Food  Export  Showcase  (USFES)  is  held 
aimually  in  conjunction  with  the  Food  Marketing  Institute's  (FMl)  International  Supermarket  Industry 
Convention  and  Exposition  in  Chicago.  (FMI  is  a  nonprofit  association  conducting  programs  in  research, 
education,  industry  relations,  and  public  affairs  on  behalf  of  its  1,500  members  —  food  retailers  and 
wholesalers  and  their  customers  in  the  U.S.  and  around  the  world.)  FMl's  convention  and  exposition  are 
the  world's  premier  event  for  the  supermarket  industry.  NASDA's  USFES  is  specifically  designed  to 
provide  small  and  medium  sized  companies  with  a  reasonably  priced  domestic  forum  to  show  their  high 
value  food  products  to  some  of  the  world's  most  important  buyers  and  importers.  The  supermarket  industry 
focus  of  FMI  has  proven  to  be  the  perfect  partner  for  our  efforts  to  provide  USFES  exhibitors  with  an 
international  audience  which  includes  strength  in  numbers  and  in  purchasing  power. 

In  1992,  the  last  year  FMI  held  their  convention  and  exposition  without  a  USFES  component,  international 
attendance  totaled  about  4,000.  In  1993  and  1994  international  attendance  at  the  combined  event  increased 
to  5,000  and  5,500  respectively.  (The  numbers  are  even  higher  if  we  count  international  traders  with 
domestic  addresses.)  We  expect  that  the  numbers  for  the  just  completed  1995  event  will  be  higher. 

More  importantly,  independent  surveys  show  that  the  1993  and  1994  USFES  events  helped  our  more  than 
300  exhibitors  export  more  than  $400  million  of  American  products  including:  grains  and  cereals, 
confections,  snack  foods,  fruits  and  vegetables,  dairy  products,  meat,  poultry,  fish,  seasonings,  pet  food, 
bakery  products  and  many  more.  This  is  good  evidence  that  the  partnership  of  NASDA,  FAS  and  FMI  has 
provided  an  audience  with  outstanding  purchasing  power.  Our  surveys  indicate  that  the  buying  influence 
of  our  international  visitors  is  extraordinarily  high  —  82  percent  in  1993  and  88  percent  in  1994. 

One  of  the  most  important  aspects  of  the  USFES  has  been  our  success  in  making  it  accessible  to  small 
companies  interested  in  exporting.  This  access  would  not  be  possible  without  a  program  like  MPP  providing 
the  federal  funds  to  help  small  and  medium  size  companies  participate.  FMI's  world  class  event  has  been 
painstakingly  constructed  on  the  backs  of  large  company  exhibitors  eager  to  stay  in  touch  with  their 
supermarket  buyers.  The  cost  of  a  minimum  sized  exhibit  space  at  FMI  is  about  $5,000  unfurnished.  The 
cost  of  the  completed  project  would  be  out  of  reach  to  many  small  companies. 

USFES  exhibit  space  with  basic  furnishings  is  available  to  our  smaller  exhibitors  for  less  than  half  the  basic 
FMI  cost.  The  following  tables  show  that  most  of  our  participants  are  small  in  terms  of  employees  and 
revenues. 


56 


^fUMBERof 

EMPLOYEES 

1993,  % 

1994,  % 

1-19 

29 

25 

20-49 

10 

14 

50-99 

10 

11 

100-249 

21 

16 

250-499 

9 

10 

500  or  more 

16 

19 

undefined 

5 

5 

ANNUAL  SALES 

1993,  % 

1994,  % 

Less  than  $500,000 

5 

$500,000  to  $999,999 

6 

$1,000,000  to  $4,999,999 

12 

17 

$5,000,000  to  $9,999,999 

11 

$10,000,000  to  $24,999,999 

12 

14 

$25,000,000  to  $49,999,999 

6 

$50,000,000  to  $99,999,999 

10 

$100,000,000  or  more 

18 

17 

Undefined 

20 

20 

We  are  pleased  with  the  effectiveness  of  our  partnership  with  FAS  and  with  FMI,  with  the  success  of  efforts 
to  attract  a  growing  international  audience,  with  the  export  sales  generated,  and  with  the  fact  that  many  of 
these  sales  are  enjoyed  by  small  and  mid-sized  companies. 

The  partnership  of  NASDA  and  FAS  has  enabled  an  entirely  new  group  of  exhibitors  to  enjoy  the  benefits 
of  FMI's  world  class  supermarket  industry  event.  In  addition  to  the  cost  saving  opportunity,  many  of  the 
USFES  exhibitors  receive  direct  assistance  through  die  efforts  of  state  department  of  agriculture  international 
marketing  personnel.  My  state  of  New  York  is  one  of  many  which  has  organized  a  pavilion  and  provided 
a  variety  of  services  to  our  exhibitors. 

To  put  the  value  of  this  small  company  oppominity  in  perspective,  consider  die  following  figures  from  the 
Exhibit  Surveys  report  on  the  1994  U.S.  Food  Export  Showcase. 


"Thirty-eight  percent  of  the  exhibitors  expect  to  generate  export  sales  as  a  result  of  the  show  (54%  in 
1993).  The  average  expected  sale  is  nearly  $1  million  and  the  median  is  $200,000.  Using  the  mean, 
a  projection  of  the  total  export  sales  generated  as  a  result  of  the  show  is  about  $122  million.  " 


57 


We  believe  that  the  future  of  exporting  will  be  in  the  hands  of  a  wide  variety  of  energetic  American 
companies.  We're  particularly  proud  that  our  USFES  event  is  able  to  provide  a  first  or  additional  exporting 
opportunity  for  many  small  American  companies. 

1995  Farm  Bill 

To  ensure  that  the  U.S.  maintains  and  expands  its  share  of  the  world  market  for  food  and  fiber,  in  the  1995 
Farm  Bill  Congress  should  authorize  agriculmral  export  promotion  and  development  programs  and  fund 
them  to  the  extent  allowed  under  international  treaties  for  the  next  five  years. 

AG-EXPORT 

NASDA  has  suggested  to  Congress  that  the  1995  Farm  Bill  should  create  a  new  USDA  export  development 
program  —  called  AG-EXPORT  —  which  will  strategically  coordinate  federal,  state  and  private-sector 
efforts  to  make  U.S.  farmers  and  agribusinesses  more  competitive  in  international  markets.  Through  this 
program,  the  U.S.  would  maintain  and  expand  its  share  of  world  markets  for  food  and  fiber  products.  The 
AG-EXPORT  program  is  designed  to  replace  the  Market  Promotion  Program  (MPP).  Congress  has  raised 
a  number  of  concerns  with  the  MPP  program  —  one  of  which  is  assuring  that  small  businesses  are  the 
companies  using  the  program  —  which  we  have  been  addressed  in  the  AG-EXPORT  proposal. 

The  goal  of  AG-EXPORT  should  be  to  increase  annual  U.S.  food  and  agricultural  exports  to  $60  billion  by 
the  year  2000.  With  an  emphasis  on  value-added  products,  these  expanded  exports  will  create  500,000  new 
jobs  by  the  mrn  of  the  century.  Federal  tax  revenues  will  grow  with  more  high-value  exports  and  jobs  in 
rural  and  urban  communities,  resulting  in  low  overall  costs  to  the  federal  treasury  and  the  U.S.  taxpayers. 

Industries,  companies,  and  state/regional  trade  groups  who  successfully  apply  to  the  Foreign  Agricultural 
Service  (FAS)  should  be  able  to  utilize  AG-EXPORT  resources  to  carry  out  market  research,  industry 
seminars,  technical  assistance,  trade  missions,  trade  shows  (including  overseas  and  domestic  shows  with 
export  themes),  distributor  development,  trade  and  consumer  promotions,  information  networks,  and  other 
activities  that  will  contribute  to  export  market  expansion.  Multi-year  marketing  plans  should  be  encouraged. 
Once  a  marketing  plan  has  been  approved,  however,  participants  should  have  the  option  of  reallocating 
resources  among  eligible  categories  to  meet  changing  market  conditions. 

The  focus  of  AG-EXPORT  branded  programs  must  be  to  assist  small  and  new-to-export  businesses  and 
grower  cooperatives.  There  should  also  be  a  50/50  match  requirement  (cash  and  in-kind)  for  participants 
in  any  branded  program.  To  provide  a  proper  definition  of  a  small  agricultural  business,  the  Small  Business 
Administration's  definitions  of  small  firms  should  be  reviewed  and  adjusted,  if  necessary,  to  reflect  current 
conditions  in  U.S.  agricultural  production,  food  processing  and  other  export-related  sectors  of  agribusiness. 

Participants  should  be  asked  to  make  a  five-year  commitment  to  export  development  in  target  markets,  at 
which  time  they  should  graduate  from  the  program.  Participant  associations  should  be  required  to  certify 
that  AG-EXPORT  funds  will  supplement,  not  replace,  private-sector  expendimres. 

AG-EXPORT  programs  should  be  closely  coordinated  with  FAS  overseas  posts.  Joint  strategic  planning 
of  marketing  programs  among  FAS  posts  and  AG-EXPORT  participants  should  be  encouraged.  AG- 
EXPORT  programs  will  complement  the  trade  policy  and  export  finance  programs  of  USDA  and  other 
federal  agencies.  State  regional  trade  groups  would  be  in  a  position  to  coordinate  export  programs  with  the 
one-stop  export  centers  in  their  respecfive  regions. 


58 


Congress  should  fund  the  AG-EXPORT  program  at  a  level  of  $200  million  per  year  for  five  years  for  all 
food  and  agricultural  products  and  commodities,  including  seafood,  forest  products,  and  processed  foods 
and  beverages.  Three-fourths  of  this  annual  appropriation  shall  be  devoted  to  export  programs  for  high- 
value  food  and  agricultural  products  and  services.  There  may  also  be  an  opportunity  to  provide  an  umbrella 
approach  combining  the  AG-EXPORT  program  and  the  Foreign  Market  Development  (FMD)  cooperator 
program  under  the  same  appropriations  line  item  as  long  as  a  certain  percent  of  the  fiinds  are  committed  to 
the  FMD  program. 

Renewed  FAS  Focus 

The  1995  Farm  Bill  should  require  the  Secretary  of  Agriculture  to  develop  a  renewed  focus  for  FAS 
activities  on  the  export  of  food  and  fiber  through  the  development  of  a  strategic  long-range  plan  that  requires 
the  involvement  of  the  production  and  processing  industries.  There  should  be  an  emphasis  on  matching 
products  with  potential  foreign  markets  and  on  moving  value-added  products  into  new  export  markets. 
Export  development  plans  should  recognize  and  encourage  use  of  new  technologies  and  encourage  their  use 
to  match  products  with  targeted  markets.  Every  effort  should  be  made  to  expand  technological  growth  and 
incorporate  new  technologies  into  production  and  processing  industries.  The  Secretary  should  establish  an 
industry-interagency  working  group,  that  includes  the  production  and  processing  industries,  to  focus  on 
export  market  development.  The  interagency  working  group  should  be  directed  to  develop  a  world  wide 
strategic  plan  for  finding,  financing  and  matching  products  to  market  needs. 

Conclusion 

Modification  and  continuation  of  these  important  export  programs  will  allow  American  agriculnire  to 
maintain  and  increase  its  role  in  international  marketing  of  food  and  fiber.  With  access  to  the  tools  to  reach 
international  markets,  the  American  farmer  will  remain  viable  and  the  American  public  will  be  assured  of 
the  continuation  of  a  reasonably  priced  food  supply.  World  market  demand  will  be  more  accurately  and 
efficiently  met  by  American  producers  using  the  most  modem  technology  and  information  available  to 
service  world  markets.  As  the  American  farmer  and  rancher  becomes  more  economically  stable  and  income 
is  in  line  with  production  there  will  be  more,  inexpensive  food  available  to  feed  a  hungry  world. 


59 


STATEMENT  OF 

THE  AMERICAN  FARM  BUREAU  FEDERATION 

TO  THE 

SMALL  BUSINESS  COMMITTEE 

SUBCOMMITTEE  ON 

PROCUREMENT,  EXPORTS  AND  BUSINESS  OPPORTUNITIES 

Representative  Donald  Manzullo,  Chairman 


Presented  by 

Linda  Reinhardt 

Chairman  AFBF  Women's  Committee 


May  17,  1995 


Thank  you  for  this  opportunity  to  testify.   Mr.  Chairman  and  distinguished 
subcomminee  members,  my  name  is  Linda  Reinhardt   I  am  chair  of  the  American  Farm 
Bureau  Women's  Committee.  My  husband  and  I  are  farmers/stockmen  in  southeast,Kansas.   I 
grew  up  on  a  farm  and  have  used  the  programs  and  services  of  the  USDA  ever  since  my 
youth,  as  a  4-H  Club  member  through  the  Extension  program. 

We  raise  soybeans,  milo,  wheat,  and  alfalfa.  We  have  a  small  cow  herd  and 
background  cattle.  My  husband  served  on  the  Kansas  State  Board  of  Agriculture  for  nine 
years.  We  now  call  this  the  Dept.  of  Agriculture  in  Kansas. 

The  American  Farm  Bureau  Federation,  with  a  membership  of  over  4.4  million  family 
members,  is  the  nation's  largest  organization  representing  farmers  and  ranchers.  Farm  Bureau 
is  not  a  cooperator  organization  under  the  Foreign  Market  Development  program  (I^MD)  of 
the  Foreign  Agricultural  Service  (FAS)  and  receives  no  funding  under  the  Market  Promotion 
Program  (MPP).   However,  the  Farm  Bureau  strongly  supports  the  FAS  export  programs  as 
being  vital  to  the  future  economic  health  of  our  producer  members  and  the  country's 
economy. 

Like  the  MPP  program,  the  Foreign  Market  Development  program  is  especially 
important  as  farmers  become  more  reliant  on  the  international  market  for  income.   In  the 
intemational  marketplace,  U.S.  farmers  will  continue  to  confront  substantial  subsidies  from 
the  European  Union  and  other  developed  market  countries  who  are  expected  to  utilize  all 
GATT  legal  programs  to  the  fullest  The  federal  market  development  and  promotion 
programs  are  at  least  a  partial  offset  to  these  continued  EU  export  subsidies. 

The  farm  community  is  very  proud  of  its  economic  contribution  to  our  nation's 
economy  and  especially  the  opportunity  we  provide  for  small  businesses.   In  today's  world, 
the  health  and  vitality  of  small  businesses  is  more  important  than  ever.   Small  business  is  the 


60 


job  creating  engine  of  our  economy  and  currently  helps  create  almost  75%  of  all  new  jobs  for 
Americans.   As  farmers  we  are  pan  of  the  small  business  community  and  look  forward  to 
working  with  small  businesses  to  help  create  new  jobs. 

The  Chamber  of  Commerce  calculates  that  each  $50,000  of  revenue  provided  by  a 
successful  state  or  federal  export  program  creates  one  new  American  job.  For  example,  the 
current  Market  Promotion  Program  (MPP),  administered  by  the  Foreign  Agricultural  Service 
of  the  Department  of  Agriculture,  is  responsible  for  the  direct  creation  of  approximately  2,000 
jobs  and  the  indirect  creation  of  another  3,000  for  a  grand  total  of  5,000  American  jobs. 

Given  the  importance  of  small  business,  the  majority  of  these  jobs  would  be  created 
for  the  types  of  firms  deemed  important  by  this  committee.  This  jobs  figure  may  not  sound 
like  a  gigantic  number,  but  just  like  each  small  business  in  America,  when  added  to  other 
strong  programs  the  final  tally  becomes  quite  significant.   In  short,  we  need  to  continue 
strong  export  programs  that  have  proven  to  be  successful.  These  programs  keep  rural 
America  and  small  business  growing  and  strong. 

In  my  home  state  of  Kansas,  agriculture  is  the  number  one  industry  and  contributes 
approximately  $7  billion  in  commodity  marketings  annually.  Our  industry  benefits  many  of 
the  family  farms  in  Kansas  and  impacts  each  of  our  towns  and  small  businesses. 

USDA  statistics  indicate  that  Kansas  ranks  sixth  nationally  for  agricultural  exports  at 
approximately  $2  billion  per  year  for  die  past  two  years.  Food  and  kindred  product 
processing  (value-added)  is  the  second  largest  employment  industry  group  in  the  state.  Our 
state  Market  Promotion  Program  (MPP)  relies  on  help  from  the  federal  government  to 
survive.   A  full  60%  of  the  companies  responding  to  a  recent  market  promotion  survey  are 
considered  small  companies  reporting  sales  of  $500,000  or  less.  The  FAS/MPP  program  has 
allowed  the  private  sector  to  parmer  with  the  U.S.  government  to  pursue  and  develop  new 
business  opportunities  in  foreign  markets. 

MPP  embodies  the  type  of  cooperative,  cost  shared  programs  the  country  needs  to 
create  jobs  here  at  home,  strengthen  the  economy  and  help  American  agriculture  and  small 
value-adding  companies  establish  long-term  trading  relations  in  world  markets. 

During  the  past  tiiree  fiscal  years  (1992-1994),  the  Kansas  Department  of  Agriculture 
has  conducted  47  individual  major  foreign  marketing  activities  which  have  produced  more 
than  $7  million  in  first  time  new  sales  for  Kansas  food  products.  This  does  not  include 
ongoing  sales  of  basic  commodities.  The  success  of  this  program  would  not  have  been 
possible  without  the  help  of  USDA  export  programs.  The  use  of  federal  matching  funds  has 
made  it  possible  for  Kansas  to  generate  this  additional  business  and  has  also  aided  in  keeping 
the  price  of  food  products  steady.   It  is  estimated  that  for  every  dollar  invested  in  the  export 
programs  for  agriculture,  exports  rose  by  $16.   Sixteen  dollars  for  every  $1  spent  is  a  solid 
return  on  your  investment! 

We  are  confident  our  strategy  in  Kansas  and  the  future  direction  of  enhancing  these 
programs  is  correct.   Last  fiscal  year,  four  Kansas  companies  were  provided  assistance  in 


61 


developing  their  applications  and  marketing  plans  for  the  MPP  program.   Allocations  ranged 
from  $150,000  to  $35,000;  the  company  size  included  a  small  business  with  just  220 
employees.   Based  on  this  experience  the  Department  significantiy  expanded  our  assistance  to 
help  more  companies  access  the  MPP  program.   We  will  continue  to  develop  state  export 
market  development  projects  Uiat  work  with  otiier  government  and  private  programs.   Alone, 
we  may  fail.   But  togetiier,  we  will  succeed. 

Overall,  the  farm  community  believes  that  higher  living  standards  tiiroughout  the 
world  depend  on  mutually  beneficial  trade  among  nations.   We  urge  that  trade  and  other 
economic  policies  be  developed  that  promote  rather  tiian  retard  the  growth  in  worid  trade. 
We  support  adequate  funding  for  die  Export  Enhancement  program  (EEP),  Market  Promotion 
Program  (MPP)  and  Dairy  Export  Incentive  Program  (DEIP)  to  retain  and  expand  our  foreign 
export  markets.   All  GATT  legal  export  promotion  and  development  programs  must  be  fully 
funded  to  enable  us  to  maintain  a  place  in  international  markets  for  our  products  and  to 
continue  to  create  jobs  here  at  home.   Strong  export  programs  will  keep  our  economy  healthy 
and  provide  new  jobs  for  Americans. 

According  to  the  World  Trade  Organization  (WTO)  total  worid  exports  rose  by  9 
percent  during  1994.   This  is  the  largest  percent  gain  in  almost  20  years  and  increased  the 
value  of  worid  trade  to  over  $4  trillion  for  tiie  year.   Current  export  figures  tell  us  that  die 
export  programs  administered  by  die  Department  of  Agriculture  are  working.  Total  exports  of 
agriculture  products  from  the  United  States  rose  from  $42.5  billion  in  1993  to  $43.5  in  fiscal 
1994.  Led  by  GATT  and  NAFTA,  U.S.  exports  of  agricultural  products  are  projected  by 
USDA  to  rise  from  $43.5  billion  in  fiscal  1994  to  $68  billion  by  2005  -  a  gain  of  56.6 
percent.   By  2005,  die  U.S.  will  be  running  a  $25  billion  ag  trade  surplus  widi  the  rest  of  the 
world.   We  do  not  believe  any  odier  segment  of  the  economy  can  show  such  positive  returns 
for  investment  of  our  dollars. 

Your  commitment  to  continue  investment  in  USDA's  export  programs  will  benefit  not 
only  die  agricultural  industry,  but  also  the  American  economy  and  the  small  business 
community.   In  1994,  die  year  die  Foreign  Agricultural  Service  (FAS)  began  die  small 
business  preference,  over  500  small  companies  benefitted  from  die  government's  investment 
in  FAS  programs.   According  to  die  USDA,  the  number  of  jobs  created  per  billion  dollars  of 
agricultural  exports  is  about  18,0(X).   Many  of  diese  jobs  are  created  in  small  businesses. 

Export  programs  are  an  investment  in  die  future  of  die  U.S.  and  create  jobs  at  home 
both  on  the  farm  and  for  small  businesses.   The  programs  run  both  here  at  home  and  abroad 
dirough  die  attache  and  trade  offices  of  USDA  are  critical  to  die  continued  growdi  in 
agricultural  exports.  I  have  had  die  opportunity  to  visit  numerous  Trade  Offices  in  die 
Asian  and  European  Countries.  I  have  participated  in  one  USDA  Asian  Trade  Mission  and 
one  American  Farm  Bureau  women's  trade  mission  to  Europe.  The  USDA  Trade  Offices  have 
been  very  helpful  to  us  as  we  have  gathered  infortnation  about  agriculture  in  the  country  and 
how  promotion  of  U.S.  products  is  conducted. 

Five  years  ago  I  attended  the  Gastronord  Trade  Show  in  Stockholm,  Sweden.  I  had  a 
first  hand  experience  of  seeing  American  product  promotions  at  a  foreign  trade  show.  I 


90-898  0-95 


62 


particularly  remember  the  rice,  popcorn  and  Cajun  spice  promotion. 

Visiting  USDA  offices  and  seeing  firsthand  how  USDA  programs  are  working  to 
promote  American  products  around  the  world  made  me  proud  of  these  programs  that  help 
promote  my  farm  products.  These  programs  must  remain  within  the  Department  of 
Agriculture  where  they  are  free  of  the  political  overtones  of  State  Department  activities. 
Even  more  importantly,  I  believe  the  industry  is  best  served  by  those  individuals  working  for 
USDA  whose  main  focus  is  market  development.   The  FAS  employees  in  these  posts  also 
have  a  knowledge  of  agriculture  and  its  unique  market  needs  and  advantages.   FAS,  through 
USDA,  is  best  positioned  to  help  us  promote  the  highest  quality,  safest  food  in  the  world. 

As  this  testimony  indicates,  the  MPP  and  other  government  export  programs  in  the 
FAS  budget  are  a  key  to  the  future  of  agricultural  exports  and  to  the  growth  of  jobs  in  small 
businesses.   Thank  you  for  keeping  these  programs  strong.   The  major  benefactors  well  be  the 
small  businesses  and  small  farmers  of  America. 


Additional  factors  to  consider: 

The  branded  export  programs  play  a  vital  role  in  foreign  market  development.   These 
programs  help  companies  enter  new  markets  and  allows  them  to  introduce  new  products  in 
existing  markets  where  company  resources  are  limited.  In  many  cases,  the  branded  program 
has  meant  the  difference  between  a  successful  U.S.  company  reaching  out  to  foreign  trade  or 
simply  staying  home. 

Over  seventeen  percent  of  U.S.  jobs  are  food  related.   The  U.S.  consumer  spends  less  than  10 
percent  of  their  income  on  food.   America  produces  more  agricultural  products  (food  and 
fiber)  than  she  can  consume.  To  protect  the  availability  of  low  cost  food  and  clothing  for  our 
people,  new  export  markets  must  be  developed  and  current  markets  expanded. 

Exporting  is  the  key  to  profitability  for  American  agriculture  and  related  small  businesses, 
and  to  maintaining  a  safe  and  secure  food  supply  for  the  nation. 

Responding  to  the  administration's  commitment  to  streamline  government  programs,  new 
MPP  regulations  were  published  on  February  1,  that  increased  flexibility  and  simplified  and 
clarified  program  requirements  for  the  participants.   The  new  rule  reflects  public  comment 
and  changes  required  by  die  Omnibus  Budget  Reconciliation  Act  of  1993.   Specific  changes 
in  the  final  rule  include: 

Small  businesses  seeking  MPP  fixnds  will  receive  priority  assistance; 

U.S.  exporters  no  longer  need  to  show  that  a  U.S.  agricultural  commodity 
faces  an  unfair  trade  practice  in  an  overseas  market; 

The  application  process  is  explained  in  step-by-step  detail; 

Application  and  allocation  approval  criteria  are  clarified; 

Paperwork  requirements  are  reduced; 

Procedures  for  appealing  compliance  findings  are  added;  and 

Program  evaluation  requirements  are  clarified  and  simplified. 
In  response  to  GAO  and  OMB,  the  regulations  have  also  been  tightened  with  regards  to 
funding  and  additionality  and  evaluation  (export  additionality).  For  funding  and  additionality, 
requirements  have  been  added  for  the  participant  to  provide  justification,  upon  request,  to 
demonstrate  "additionality".  For  evaluation,  reference  was  added  to  the  Government 
Performance  and  Results  Act  (GPRA)  in  the  activity  plan  and  evaluation  sections.  The 
critical  point  is  that  language  now  appears  in  the  rule  which  states  that  "a  participant  that  can 
demonstrate  additional  sales  compared  to  a  representative  base  period,. ..will  have  met  the 
overall  objective  of  the  GPRA  and  the  need  for  evaluation." 


Statement  by  August 

Administrator 

Foreign  Agricultural  Service 

U.S.  Department  of  Agriculture 

Before  the 

Subcommittee  on  Procurement,  Exports  and  Business  Opportunities 

House  Small  Business  Committee 

May  17,  1995 

Mr.  Chairman  and  members  of  the  Subcommittee,  I  appreciate  this  opportunity  to 
discuss  the  Department  of  Agriculture's  (USD A)  export  assistance  efforts  for  small 
businesses.    Today's  topic  combines  two  top  priorities  of  USDA's  Foreign  Agricultural 
Service  -  increasing  exports  of  U.S.  agricultural  products  and  the  involvement  of  small 
businesses,  in  both  rural  and  urban  areas,  in  the  export  market. 

Before  I  discuss  the  programs  of  FAS  and  how  we  work  with  small  businesses,  let  me 
address  the  issue  of  federal  support  for  agricultural  export  promotion  programs.   Because 
"food  security"  has  long  been  an  issue  of  vital  interest  to  most  governments,  the  agricultural 
sectors  of  virtually  every  nation  of  the  world  have  received  special  attention.   Ensuring  an 
abundant  food  supply  for  U.S.  consumers  has  long  been  an  objective  of  our  government 
policy  as  well.   Consequently,  virtually  all  of  the  domestic  support  and  export  promotion 
programs  for  U.S.  agriculture  are  an  outgrowth  of,  and  are  directly  linked  to,  maintaining  a 
strong  agricultural  and  food  sector  which,  comprising  16%  of  our  Gross-Domestic  Product 
(GDP),  is  the  largest  sector  of  our  nation's  economy. 

A  major  component  of  maintaining  a  strong  agricultural  sector  is  maintaining  strong 
commodity  prices.   Agricultural  export  promotion  helps  to  increase  the  price  fanners  receive 
for  their  products,  and  thus  reduces  the  cost  of  domestic  commodity  price  and  income 
support  programs.   For  example,  one  very  general  rule  of  thumb  is  that  for  each  one  cent 
increase  in  the  U.S.  price  of  com,  Commodity  Credit  Corporation  (CCC)  outlays  for  the 


65 


domestic  support  program  for  com  can  decrease  by  as  much  as  $50  million.   For  wheat,  a 
similar  price  increase  can  lower  CCC  outlays  by  as  much  as  $20  million.   Thus,  agricultural 
exports  can  help  reduce  domestic  program  outlays. 

Our  competitors  have  put  in  place  multi-billion  dollar  programs  to  support  the 
production  and  export  of  their  agricultural  goods.   The  countries  of  the  European  Union 
(EU)  will  spend  nearly  $50  billion  this  year  in  domestic  and  export  support  payments  for 
agriculture  (including  $1.6  billion  in  charges  from  last  year's  budget).   In  contrast,  the 
President's  February  budget  projected  total  CCC  outlays  in  1995  at  $10.6  billion,  and  then 
declining  to  $9. 1  billion  in  1996.   The  EU  is  the  chief  subsidizer  of  agricultural  exports, 
with  estimated  spending  of  $11.5  billion  in  1993  and  appropriations  of  $9.3  billion  for  1994 
and  1995.  To  unilaterally  cut  farm  program  spending  when  our  overseas  competitors  are 
spending  five  times  as  much  as  we  are  here  in  the  United  States  is  short  sighted.   President 
Clinton  emphasized  this  point  when  he  said  that  he  has  worked  too  hard  on  the  GATT 
agreement  to  "unilaterally  disarm"  on  farm  programs. 

I  should  also  point  out  that  USDA  expenditures  to  develop  markets  for  U.S. 
agricultural  goods  are  not  out  of  line  with  similar  expenditures  for  other  domestic  sectors. 
Over  half  of  the  fiscal  year  1994  trade  promotion  activities  budget  listed  for  agriculture  in 
the  October  1994  report  of  the  Trade  Promotion  Coordinating  Committee  (TPCC),  is  used  to 
combat  foreign  subsidies.   This  is  comprised  of  CCC  expenditures  for  the  Export 
Enhancement  Program  and  the  Dairy  Export  Incentive  Program.   These  programs  are 
integrally  related  to  the  U.S.  domestic  price-support  programs.   Other  funding  includes 
international  food  assistance  (P.L.-480,  Title  I),  and  export  credit  guarantee  programs  that 


66 


are  used  to  meet  the  agricultural  credits  offered  by  other  exporters  and  to  fecilitate  export 
trade  to  developing  countries.   Once  you  account  for  these  expenditures,  which  serve  various 
objectives  other  than  market  development,  expenditures  for  agricultural  trade  promotion  fall 
well  below  the  50  percent  level  cited  in  the  Subcommittee's  letter  of  invitation.   The  TPCC 
Report  correctly  states  that  USDA  expenditures  for  developing  markets  for  U.S.  agricultural 
goods  and  for  providing  international  counseling  and  export  assistance  services  totalled  about 
$160  million  in  1994,  with  the  1995  request  totalling  about  $140  million. 
Importance  of  Agricultural  Exports 

Now  let  me  turn  to  our  efforts  on  behalf  of  small  businesses.  The  Department, 
through  FAS,  is  working  diligently  to  help  small-scale  U.S.  producers,  processors,  and 
exporters  compete  in  world  agricultural  trade. 

Agricultural  exports  contribute  to  farmer  income  and  create  employment  both  on  and 
off  farm.   Let  me  cite  just  a  few  statistics  to  show  the  importance  of  agricultural  trade  to 
U.S.  farmers  and  the  economy  as  a  whole. 

Production  from  more  than  a  third  of  U.S.  cropland  is  exported.   Last  year,  U.S. 
agricultural  exports  generated  more  than  three-quarters  of  a  million  jobs  and  generated  an 
additional  $60  billion  in  support  services  to  harvest,  process,  package,  store,  transport,  and 
market  the  products.   That  adds  up  to  over  $100  billion  of  U.S.  economic  activity  related  to 
farm  exports.   Dollar  for  dollar,  we  export  more  com  than  coal,  more  meat  than  cosmetics, 
more  fhiits  and  vegetables  than  steel,  iron,  and  aluminum  combined.   Among  the  major  U.S. 
industries,  agriculture  is  the  second  largest  positive  contributor  to  the  U.S.  merchandise  trade 
balance,  generating  a  trade  surplus  projected  at  $20  billion  this  year. 


67 


One  area  where  we  are  seeing  particularly  strong  growth  is  in  the  export  of  high- 
value  products.    "High-value  products"  refers  to  those  agricultural  products  with  value  added 
through  processing,  (such  as  soybean  and  other  processed  oils  and  many  consumer-ready 
products)  and  those  that  require  special  handling  or  shipping  (such  as  fresh  fruit.)  This  is 
also  the  area  where  the  number  of  small  businesses  participating  in  our  programs  is 
blossoming.   High-value  products  today  represent  two-thirds  of  total  world  agricultural  trade, 
up  from  54  percent  in  1985,  and  this  share  is  projected  to  climb  to  75  percent  by  1998.   This 
is  the  growth  sector  in  world  agricultural  trade  -  the  future  for  U.S.  agricultural  exports. 
High-value  product  exports  generate  income  for  farmers  who  produce  the  raw  materials,  as 
well  as  generate  farm  employment.   In  addition,  high-value  product  exports  also  support 
thousands  of  off-farm  jobs,  such  as  jobs  in  processing  and  shipping. 
Fytyry  Prpspeyts  an  J  Cyrrgnt  ActivftiCS 

The  future  for  U.S.  agricultural  exports  will  be  made  even  brighter  as  countries 
implement  the  Uruguay  Round  Agreement  under  the  GATT.    Studies  suggest  that  the 
increase  in  world  income  as  a  result  of  this  agreement  could  be  as  much  as  $5  trillion  over 
10  years.   This  income  growth  wall  increase  the  demand  for  agricultural  products, 
particularly  for  income-sensitive,  high-value  products  like  meat,  fruits,  vegetables,  and  other 
specialty  crops,  thereby  improving  prospects  for  U.S.  exports. 

We  expect  American  agriculture  to  benefit  greatly  from  the  Uruguay  Round's 
disciplines  on  export  subsidies  as  well.      The  export  subsidy  limits  will  help  us  to  get  at 
hidden  European  Union  processing  subsidies  that^ve  them  an  unfair  edge  in  the  high-value 
area.   However,  U.S.  market  development  programs,  the  Market  Promotion  Program  (MPP) 


and  the  Foreign  Market  Development  Cooperator  Program  (FMD),  are  not  export  subsidies 
that  are  required  to  be  reduced  under  the  Uruguay  Round  Agreement,  and,  therefore,  are  not 
subject  to  the  export  subsidy  reductions  required  by  the  Agreement.   The  President's  budget 
for  FY  1996  fulfills  the  Administrations's  commitment  to  Congress  to  increase  program 
levels  for  "greenbox"  and  other  GATT-consistent  export  promotion  and  related  programs. 
Assistance  for  Small  and  New-to-Market  Companies 

The  Market  Promotion  Program  (MPP)  plays  an  instrumental  role  in  our  effort  to 
assist  American  agriculture  and  our  processors  in  competing  internationally.   We  are 
increasing  our  assistance  to  small-size  and  new-to  market  export  companies.    Most  of  these 
small  companies  receive  funding  from  FAS  on  a  cost-share  basis  through  nonprofit  trade 
organizations  and  four  State-Regional  Trade  Groups  comprised  of  State  Departments  of 
Agriculture. 

The  four  State-Regional  Trade  Groups  -  Mid-America  International  Agri-Trade 
Council  (MIATCO),  the  Eastern  U.S.  Agricultural  and  Food  Export  Council  (EUSAFEC), 
the  Western  U.S.  Agricultural  Trade  Association  (WUSATA)  and  the  Southern  U.S.  Trade 
Association  (SUSTA)  -  support  FAS'  efforts  to  coordinate  international  marketing  programs 
for  processed  foods  and  other  regional  agricultural  products.   These  partnerships  combine  the 
resources  of  the  private  sector  and  State  Departments  of  Agriculture  with  program  and 
financial  resources  of  FAS  and  the  CCC  to  expand  exports  of  U.S.  agricultural  products  and 
to  educate  companies  in  export  marketing.   Working  with  trade  and  regional  organizations 
helps  us  reach  those  that  can  benefit  most  from  export  promotion  assistance-namely,  small 
business. 


In  addition,  many  agricultural  cooperatives  comprised  of  small-sized  growers 
participate  in  the  program.   Without  these  cooperatives,  many  growers  would  not  otherwise 
be  able  to  compete  in  the  marketplace  and  would  not  participate  in  any  international  market 
promotion  effort.   Some  20,000  family  farm  members  of  these  cooperatives  benefit  from 
MPP  assistance. 

Another  aspect  of  MPP  that  I  would  like  to  mention  are  the  recent  changes  in 
program  regulations  made  by  this  Administration.  These  changes  are  an  example  of  this 
Administration's  commitment  to  streamlining  government  programs,  helping  U.S.  exporters 
particularly  small  businesses,  break  into  and  hold  onto  export  markets.   These  new 
regulations  include  a  greater  emphasis  on  assisting  small  businesses  and  cooperatives, 
reducing  paperwork  requirements  and  simplifying  application  procedures.    At  the  same  time, 
we  have  listened  carefully  to  the  program's  critics  and  established  performance  measurements 
for  the  program.   We  have  also  imposed  new  standards  aimed  at  limiting  the  time  that  MPP 
may  be  used  to  promote  a  single  product  in  a  particular  market. 

MPP  funds  have  also  been  used  to  expand  outreach  efforts.   Since  1992,  FAS  has 
approved  the  use  of  MPP  funds  for  educational  seminars  targeiting  small  and  economically 
disadvantaged  businesses.   This  on-going  effort  is  being  conducted  in  coordination  with  the 
four  State  Regional  Trade  Groups. 

Last  year,  the  State  Regional  Trade  Groups  conducted  over  25  educational  seminars 
targeting  small  and  economically  disadvantaged  businesses.   Among  the  hundreds  of 
businesses  in  all  regions  of  the  United  States  and  Puerto  Rico  that  were  reached  by  the 
seminars,  about  100  companies  were  projected  to  become  new  MPP  applicants.   Over  100 


70 


export  seminars  have  been  conducted  in  45  states  as  a  result  of  this  program. 

CCC's  export  credit  guarantee  programs,  as  well  as  our  export  subsidy  programs,  are 
open  to  businesses  of  any  size;  there  are  no  minimum  levels  for  export  transactions.  Under 
our  Dairy  Export  Incentive  Program  (DEIP),  we  have  worked  closely  with  the  U.S.  dairy 
industry  to  encourage  participation  in  the  program.  We  have  made  presentations  at  industry 
meetings  and  conferences  and  have  conducted  numerous  one-on-one  meetings  with  potential 
participants.  As  a  result  of  this  effort,  the  number  of  exporters  who  have  participated  in  the 
program  has  grown  from  eight  in  1991  to  57  in  May  1995. 

We  have  also  just  announced  changes  in  the  eligibility  requirements  for  U.S. 
companies  to  participate  in  the  Export  Enhancement  Program  and  DEIP.   Effective  May  31, 
interested  parties  will  no  longer  have  to  demonstrate  prior  export  experience  in  order  to 
participate.   This  will  assist  companies  new  to  export  trade  in  using  these  programs,  we 
anticipate  that  most  of  these  new  companies  wUl  be  small  businesses. 
Increasing  Qutreach 

During  my  tenure  as  the  FAS  Administrator,  I  have  worked  diligently  to  expand  our 
outreach  efforts.   If  we  are  serious  about  the  role  that  exports  must  play  in  the  health  of  the 
U.S.  agricultural,  fish  and  forest  products  industries,  then  we  must  work  harder  to  assist 
current  and  potential  exporters. 

In  my  first  eight  months  on  the  job,  we  have  held  export  seminars  across  the  country 
to  reach  out  to  small  and  medium-size  firms  with  the  potential  to  enter  the  export  market.   I 
have  been  impressed  by  the  level  of  interest  in  the  export  market  that  I  have  seen  from 
Vermont  to  Georgia,  from  West  Virginia  to  Washington.   Clearly,  small  businesses  are 


71 


strong  advocates  for  continued  export  market  development  and  a  perfect  example  of  how  the 

economic  benefits  of  exports  reach  deep  into  local  communities. 

Conclusion 

I  think  I  can  best  highlight  USDA-FAS  export  assistance  by  giving  you  a  few 
examples  of  how  USDA's  export  promotion  programs  help  small  businesses  and  the 
communities  where  they  are  located. 

Nfilk  Specialties  Company  employs  180  people  at  Dundee,  Huntley,  and  Hampshire, 
Illinois.  They  participate  in  the  MPP  through  one  of  the  State  Regional  Trading  Groups.  In 
the  four  years  that  they  have  received  MPP  fiinds,  the  company  has  doubled  its  export  sales. 
According  to  the  firm's  director  of  International  Sales  and  Marketing,  these  additional  export 
sales  have  provided  more  job  security  to  curroit  employees,  and  the  firm  has  hired  eight 
additional  employees.  The  company  has  purchased  additional  input  supplies,  benefiting  U.S. 
agricultural  producers  and  decreasing  their  reliance  on  domestic  programs.  The  company  has 
spent  $4  of  its  own  money  for  every  MPP  dollar  received. 

Hill's  Pet  Nutrition,  a  pet  food  manufacturer  in  Topeka,  Kansas,  has  seen  its  export 
sales  rise  to  nearly  half  of  its  annual  sales  with  the  help  of  MPP  funds.   Hill's  has 
participated  in  the  MPP  since  1990.   In  1993,  the  company  spent  just  over  $132,000  in  MPP 
funds  to  advertise  its  products  in  Japan.   As  a  result  of  that  advertising  campaign.  Hill's 
export  sales  to  Japan  jumped  11  percent  in  one  year.   Hill's  employs  297  people  in  its 
Kansas  plant  and  expects  to  hire  at  least  eight  new  employees  because  of  its  MPP  success. 
In  addition,  Hill's  purchase  of  agricultural  inputs!,  most  of  which  originate  from  Kansas  or 
other  Midwestern  states,  will  increase  in  response  to  the  increase  in  export  sales.  "  For 


72 


example,  half  of  the  $5  million  in  Hill's  yearly  soy  meal  purchases  originates  firom  Kansas. 

Of  course,  not  all  small  businesses  are  located  in  rural  -areas.    Rubschlager  Baking 
Corporation,  a  wholesale  bakery  in  Chicago,  has  achieved  a  56  percent  increase  in  its  export 
sales  while  participating  in  the  MPP.   In  1993,  Rubschlager  used  $2,200  in  MPP  funding  and 
an  equal  amount  of  its  own  funds  to  market  a  line  of  cocktail  breads  in  the  Canadian  retail 
market.   The  funds  were  used  to  attend  Canadian  food  trade  shows  and  to  organize  retail 
store  demonstrations.    As  a  result  of  these  activities,  Rubschlager's  export  sales  to  Canada 
have  climbed  from  $91,000  in  1992  to  over  $142,000  in  1994.   The  firm  expects  to  hire  an 
additional  2  to  3  employees.   The  company  estimates  that  its  yearly  purchases  of  flour  and 
other  agricultural  inputs  will  grow  10  percent  to  almost  $1  million  by  the  end  of  1995. 

Ontario  International  is  a  wholesale  vegetable  broker  located  in  Syracuse,  New  York. 
The  firm  has  used  MPP  funds  to  promote  the  sale  of  green  cauliflower,  celery  and  broccoli 
to  Sweden.   The  company  works  with  local  supermarkets  to  have  in-store  displays  with 
tastings  and  point-of-sale  materials  containing  recipes.   From  1992  to  1993,  Ontario's  export 
sales  increased  88  percent  to  over  half  a  million  doUars. 

TreeTop,  Incorporated,  of  Saleh,  Washington,  is  a  farmer  cooperative  that  has  used 
the  MPP  to  successfully  expand  its  export  markets.   In  1993,  TreeTop  used  $55,000  in  MPP 
matching  funds  to  promote  its  products  in  China.   Sales  rose  from  $186,000  in  1992  to 
nearly  $408,000  in  1993,  a  1 19  percent  increase.   In  the  same  year,  $37,000  in  MPP 
matching  funds  were  used  for  promotion  in  Mexico.   Sales  to  Mexico  rose  from  about 
$30,000  in  1992  to  $482,000  in  1993,  a  one-year  gain  equal  to  12  times  the  amount  of  MPP 
expenditures. 


73 


Mr.  Chairman,  these  examples  illustrate  how  U.S.  agriculture  is  inextricably  linked  to 
the  global  economy.   Today,  events  around  the  world  —  weather  in  China,  consumer  demand 
in  Russia,  a  trade  policy  difference  with  Canada,  the  dollar's  fall  against  the  yen  or  the 
Mexican  peso's  fall  against  the  U.S.  dollar  -  can  have  as  much  impact  on  a  company  in 
Dundee,  Illinois  as  events  in  Washington,  D.C. 

In  just  the  next  60  minutes,  around  $5-1/2  million  in  U.S.  agricultural  products  ~ 
grains,  oilseeds,  cotton,  meats,  vegetables,  snack  foods,  you  name  it  -  will  be  consigned  for 
export  to  foreign  markets.   That's  what  this  nation's  producers  and  processors  export,  on 
average,  every  hour,  24  hours  a  day,  365  days  a  year  to  more  than  180  countries  around  the 
world.   And  a  growing  proportion  of  that  is  coming  firom  our  nation's  small  businesses. 

When  workers  in  a  small  Shenandoah,  Virginia,  processing  plant  separate  chicken 
parts,  the  breast  meat  may  be  heading  to  Baltimore,  the  leg  quarters  to  Moscow,  the  chicken 
feet  (paws)  to  Hong  Kong,  and  other  parts  for  premium  pet  food  to  Mexico.    Agriculture  is  a 
global  market. 

As  small  businesses  spring  up  and  look  to  the  growing  export  market  in  addition  to 
the  mature  domestic  market,  we  must  make  sure  the  opportunities  to  take  advantage  of  these 
markets  are  there.   It  is  clear  that  some  of  the  greatest  and  most  promising  opportunities 
today  and  in  the  years  ahead  are  in  exports. 

Mr.  Chairman,  that  concludes  my  testimony.  I  would  be  happy  to  answer  any 
questions. 


74 


DONA1.0A.MANZULL0  EVA  ClAVTON.  No«th  Cmoun. 


CongrtfiB  of  the  Bnitcd  States 

luiuse  of  Heprtstncatiou 

iiHdi  CongrtBS 
Comniittee  on  ^mall  TSnmm 

^bcommintc  on  procirtmnii.  £i|io(U,  and  JBoBmcBi  Gpporainidcs 
)B-5t5  Kaabom  t\mt  GIfict  Bmldmg 


May   18,    1995 


The  Honorable  August  Schumacher,  Jr. 

Administrator 

Foreign  Agricultural  Service 

Room  5071,  South  Agriculture  Building 

14th  Street  &  Independence  Avenue,  S.W. 

Washington,  D.C.   20250 

Dear  Mr.  Schumacher: 

Thank  you  for  taking  the  time  out  of  your  busy  schedule  to 
testify  yesterday  before  the  House  Small  Business  Subcommittee  on 
Procurement,  Exports,  and  Business  Opportunities.   I  would  like 
to  take  this  opportunity  to  ask  several  additional  questions  that 
will  be  submitted  for  the  record. 

1)  Can  you  please  describe  to  the  Subcommittee  how  the  FAS  came 
up  with  its  1996  budget  request  for  agriculture  export  promotion 
programs. 

a)  Did  you  meet  with  your  counterparts  from  the  Trade 
Promotion  Coordinating  Committee  (TPCC)  as  you  developed  your 
budget  request? 

b)  If  yes,  did  the  TPCC  come  up  with  an  overall  budget 
figure  and  the  19  members  of  the  TPCC  divide  up  that  amount? 

c)  If  no,  did  each  member  of  the  TPCC  devise  its  own  budget 
request  through  regular  departmental  channels  to  OMB  outside  of 
the  TPCC  framework? 

2)  In  general,  how  often  do  you  meet  with  the  TPCC?   When  was 
the  last  TPCC  meeting  you  attended? 

3)  In  your  oral  testimony,  you  suggested  that  the  Subcommittee 
should  not  count  taxpayer  dollars  set  aside  to  combat  foreign 
export  subsidies  as  part  of  export  promotion.   Yet,  when 
comparing  the  1996  budget  request  (source:   pages  163  and  164  of 
the  Analytical  Perspectives  volume)  for  the  USDA  under  the 


75 


classification  of  "Providing  Information,  Counseling,  and  Export- 
Assistance  Services;"  and  "Developing  Foreign  Markets,"  with 
those  agencies  serving  the  non-agriculture,  commercial  sector 
(Department  of  Commerce,  the  Export-Import  Bank,  the  Small 
Business  Administration,  and  the  Trade  Development  Agency) ,  they 
are  very  similar  (agriculture  requested  $201,865  million; 
commercial  agencies  requested  $222,045  million). 

a)   How  did  the  TPCC  come  up  with  this  budget  request  where 
agriculture,  accounting  for  nearly  10  percent  of  total  U.S. 
exports  receives  47.6  percent  of  the  export  promotion  funding 
while  other  agencies,  accounting  for  the  other  90  percent  of 
total  U.S.  exports,  receives  only  52.3  percent  of  the  federal 
government's  export  promotion  funding? 

4)   The  Congressional  Research  Service  reports  that  wheat 
receives  80  percent  of  the  EPP  bonus  payments;  three  large  agri- 
business firms  receive  49  percent  of  all  EPP  bonuses;  and  EEP 
sales  have  primarily  gone  to  only  four  countries.   Would  you 
recommend  any  changes  in  this  area  to  help  small  farmers, 
especially  those  who  grow  a  commodity  other  than  wheat  who  wish 
to  sell  beyond  the  former  Soviet  Union,  Egypt,  China,  and 
Algeria? 

Thank  you  for  your  kind  attention  to  the  questions  of  the 
Subcommittee.   Please  forward  your  response  to  my  staff  director, 
Phil  Eskeland,  in  Room  B363  of  the  Rayburn  House  Office  Building, 
by  June  9  . 


Donald  Manzullo 
Chairman 


76 


United  States  Foreign 

Department  Agricultural 

of  Agriculture  Service 


JUN  1  3  1535 


Honorable  Donald  ManzuUo 

Chainnan 

Subcommittee  on  Procurement,  Exports,  and 

Business  Opportunities 
Committee  on  Small  Business 
B-363  Raybura  House  Office  Building 
Washington,  D.C.   20515 

Dear  Mr.  Chairman: 

Thank  you  for  giving  me  an  opportunity  to  testify  before  the  House 
Small  Business  Subcommittee  on  Procurement,  Exports,  and  Business 
Opportunities  on  May  17.   The  Foreign  Agricultural  Service  is  pleased  to 
have  had  an  opportunity  to  contribute  to  your  hearings. 

We  are  also  pleased  to  provide  the  enclosed  answers  to  your 
foUowup  questions  which  you  posed  in  your  letter  of  May  18. 


ft  S(5mimacher,  Jr. 
[istrator 


l^» 


Foreign  Agncultural  Service 

IS  an  Agency  ol  the 

United  Stales  Deparlfnent  of  Agncufture 


77 


QUESTIONS  FROM  THE  HOUSE  SMALL  BUSINESS 
SUBCOMMITTEE  HEARING 


QUESTION:  Can  you  describe  to  the  Subcommittee  how  the  FAS  came 
up  with  its  1996  budget  request  for  agriculture  export  promotion 
programs.  Did  you  meet  with  your  counterparts  from  the  Trade 
Promotion  Coordinating  Committee  (TPCC)  as  you  developed  your 
budget  request? 

ANSWER;   USDA  has  been  very  active  in  the  TPCC  process  in 
developing  uniform  information  on  the  trade  promotion  budgets  of 
numerous  government  agencies.  This  information  in  turn  was 
published  in  the  October,  1994  TPCC  report  to  Congress.   USDA 
participated  in  all  of  the  TPCC  budget -related  sessions,  insuring 
the  inclusion  and  accuracy  of  agency  export  promotion  budgets  in 
such  categories  as  "Information,  Counseling,  and  Export - 
Assistance  Services". 


QUESTION;  If  yes,  did  the  TPCC  come  up  with  an  overall  budget 
figure  and  the  19  members  of  the  TPCC  divide  up  that  amount? 

ANSWER;  The  TPCC  found  that  while  the  concept  of  a  unified 
federal  budget  for  trade  promotion  activities  proved  quite 
interesting,  there  are  presently  technical  and  budgetary 
difficulties  in  developing  and  implementing  such  a  budget.   A 
select  TPCC  budget  working  group  is  now  trying  to  address  at 
least  one  of  these  issues  -  the  development  of  government -wide 
uniform  performance  measures  for  the  export  promotion  programs. 

QUESTION;  If  no,  did  each  member  of  the  TPCC  devise  its  own 
budget  request  through  regular  departmental  channels  to  0MB 
outside  of  the  TPCC  framework? 

ANSWER ;   The  Department's  budget  submission  to  0MB  was  the 
culmination  of  a  comprehensive  review  and  decision-making  process 
within  the  Department  which  reflects  the  Secretary  of 
Agriculture's  priorities  for  funding  in  FY  1996.   It  represents 
numerous  decisions  and  tradeoffs  among  the  many,  diverse  programs 
which  the  Department  administers  and  reflects  the  Secretary's 
priorities  and  objectives  within  the  funding  levels  established 
for  USDA  in  FY  1996.   USDA's  recommendations  also  reflect  the 
unique  characteristics  of  the  agriculture  sector,  such  as  the 
high  proportion  of  domestic  production  which  is  exported  and  the 
close  linkages  between  the  operational  and  costs  of  the  domestic 
agriculture  programs  and  exports. 


78 


QUESTION;  In  general,  how  often  do  you  meet  with  the  TPCC?  When 
was  the  last  meeting  you  attended? 

ANSWER :   USDA  representatives,  ranging  from  the  Secretary  to 
related  FAS  support  staff,  have  attended  all  of  the  TPCC  budget 
meetings  pertaining  to  USDA's  export  promotion  interests.   There 
are  now  over  15  on- going  TPCC  working  groups  requiring  some  level 
of  agency  participation,  and  at  least  one  meets  weekly.   I  have 
taken  the  opportunity  to  attend  select  TPCC  budget  sessions 
during  the  past  few  months,  and  will  attend  more  as  the  issues 
dictate. 


QUESTION:  In  your  oral  testimony  you  suggested  that  the 
Subcommittee  should  not  count  taxpayer  dollars  set  aside  to 
combat  foreign  export  subsidies  as  part  of  export  promotion.   Yet 
when  comparing  the  19  9  6  budget  request  for  the  USDA  under  the 
classification  of  "Providing  Information,  Counseling,  and  Export- 
Assistance  Services;"  and  "Developing  Foreign  Markets,"  with 

those  agencies  serving  non-agriculture,  commercial  sector 

they  are  very  similar 

How  did  the  TPCC  come  up  with  this  budget  request  where 
agriculture,  accounting  for  nearly  10  percent  of  total  U.S. 
exports  receives  47.6  percent  of  the  export  promotion  funding 
while  other  agencies,  accounting  for  the  other  90  percent  of 
total  U.S.  exports,  receives  only  52.3  percent  of  the  federal 
government's  export  promotion  funding? 

ANSWER:   The  inclusion  of  export  subsidies  under  the  TPCC 
definition  of  trade  promotion,  resulted,  we  feel,  in  an  over- 
representation  of  USDA  programs  in  the  TPCC  budget  summary.   In 
the  process  of  developing  the  unified  budget  information,  it 
became  clear  that  the  trade  promotion  budgets  for  different 
agencies  focus  on  activities  designed  to  counter  market 
imperfections  specific  to  their  sectors.   The  bulk  of  USDA's 
trade  promotion  budget  is  used  to  combat  foreign  export  subsidies 
which  had  skewed  trade  patterns.   Unlike  manufactured  goods, 
agricultural  products  were  effectively  excluded  from  GATT 
disciplines  affecting  trade  until  the  recent  Uruguay  Round.   In 
light  of  this  situation,  our  competitors  had  put  in  place 
multibillion  dollar  programs  to  support  the  export  of  their 
agricultural  goods.   Therefore,  over  half  of  the  trade  promotion 
expenditures  listed  for  U.S.  agriculture  ($1.2  billion  of  the 
approximately  $2  billion)  are  used  to  combat  foreign  subsidies 
particularly  those  of  the  European  Union. 

Under  the  TPCC  approach,  a  program  was  classified  as  promoting 
trade  and  included  in  the  unified  budget  if  the  program's  primary 
or  secondary  mission  was  to  facilitate  the  development, 
maintenance,  or  increase  of  U.S.  exports  of  goods  and  services. 


79 


The  "trade  promotion"  definition  used  for  the  FY  1996  TPCC  budget 
submission  is  much  more  narrow  than  the  term  "export  related" 
used  in  FY  1995.   The  USDA  argued  that  many  USDA  programs  such  as 
EEP  and  PL  480  Title  1  serve  multiple  objectives  such  as  trade 
policy  and  humanitarian  assistance  respectively  in  addition  to 
export  development,  and  should  not  be  counted  as  totally  "trade 
promotion"  activities.   The  end  result  was  the  inclusion  of  a 
footnote  on  page  106  of  the  October,  1994  TPCC  Report  to  Congress 
which  denotes  that   "...while  USDA  spends  approximately  $2 
billion  on  "trade  promotion" ....  it  is  important  to  acknowledge 
the  complexity  of  these  programs,  especially  their  other  multiple 
objectives  (domestic  policy,  export  development,  and  humanitarian 
assistance) . 


QUESTION:   The  Congressional  Research  Service  reports  that  wheat 
receives  80  percent  of  the  EEP  bonus  payments;  three  large  agri- 
business firms  receive  49  percent  of  all  EEP  bonuses;  and  EEP 
sales  have  primarily  gone  to  only  four  countries.   Would  you 
recommend  any  changes  in  this  area  to  help  small  farmers, 
especially  those  who  grow  a  commodity  other  than  wheat  who  wish 
to  sell  beyond  the  former  Soviet  Union,  Egypt,  China  and  Algeria? 

ANSWER:   Under  GATT,  the  United  States  is  required  to  reduce  all 
subsidized  commodity  exports  from  a  historical  base.   Thus,  it  is 
not  possible  for  the  United  States  to  start  subsidizing  exports 
of  one  commodity  at  a  greater  rate  than  in  the  past.   Even  if 
there  were  no  expenditures  on  wheat  subsidies,  the  money  saved 
could  not  be  spent  on  greater  subsidized  exports  of  other 
commodities . 

The  reason  a  large  percentage  of  EEP  subsidies  have  been  used  for 
wheat  is  because  it  is  one  of  the  commodities  most  heavily 
subsidized  by  our  competitors  and  has  generally  suffered  the 
largest  reduction  in  export  volume  due  to  subsidized  competition. 

Furthermore,  although  there  have  been  large  EEP  sales  to  four  or 
five  markets,  there  have  been  many  sales  to  over  thirty  other 
markets.   It  has  simply  been  the  case  that  four  or  five  of  the 
largest  markets  in  the  world  have  also  been  among  the  markets 
most  difficult  to  compete  in  because  of  subsidized  competition; 
thus  they  have  required  a  larger  proportion  of  EEP  subsidies. 

The  benefit  from  the  EEP  bonuses  really  goes  to  the  farmers  and 
not  to  individual  exporters.   As  evidence  of  this,  producer 
groups,  representing  individual  farmers,  have  strongly  supported 
EEP,  while  exporter  association  groups  have  generally  tended  to 
oppose  the  EEP.   The  reason  individual  US  farmers  benefit  is 
because  EEP  facilitates  US  exports,  thereby  maintaining  demand 
and  supporting  domestic  price  levels.   Without  EEP,  exports  would 
decrease  and  prices  for  all  farmers,  big  or  small,  would  fall. 


80 


One  of  the  reasons  exporters  have  not  always  favored  EEP  is 
because  bonuses  only  make  up  the  difference  between  US  costs  and 
world  costs,  leaving  little  room  for  profit,  especially  with 
competitive  bidding  procedures  under  EEP.   In  fact,  one  of  the 
three  companies  who  have  received  a  large  portion  of  EEP 
subsidies  recently  sold  its  huge  network  of  grain  elevators  in 
the  United  States  due  mainly  to  low  profits  on  exports.  Since 
exporters  generally  bid  competitively  under  the  EEP  program,  an 
individual  company's  share  of  US  exports  is  not  greatly  different 
than  without  subsidies,  where  the  lowest  cost  companies  would 
export  the  largest  amounts. 


81 


CRS  Report  for  Congress 


Export  Enhancement  Program: 
Background  and  Current  Issues 


Lenore  Sek 

Specialist  in  International  Trade  aind  Finance 

Environment  and  Natural  Resources  PoUcy  Division 


March  15,  1995 


CRS 


1        Congress 

lional  Research  Service  •  1 

[Tie  Library  of  Congress                                                           1 

lillllll 


Export  Enhancement  Program: 
Background  and  Current  Issues 


SUMMARY 

The  Export  Enhancement  Program  (EEP)  was  established  in  1985  with  the 
purpose  of  countering  unfair  foreign  trade  practices.  Under  EEP,  the 
Commodity  Credit  Corporation  (CCC)  of  the  U.S.  Department  of  Agriculture 
(USDA)  offers  "bonuses"  to  exporters  to  help  U.S.  agricultural  exports  compete 
with  subsidized  exports  of  foreign  countries.  Bonuses  were  in  the  form  of 
certificates  for  CCC-owned  commodities  at  first,  but  have  been  paid  out  in  cash 
since  the  1990  farm  bill  allowed  cash  pa3mients. 

The  benefits  of  the  EEP  program  are  somewhat  concentrated  regarding 
commodity,  exporter,  and  country  of  import.  Wheat  sales  receive  about  four- 
fifths  of  EEP  bonus  payments.  Three  U.S.  exporting  firms  account  for  about 
half  of  all  EEP  bonuses.  And  in  recent  years,  most  program  sales  have  been  to 
the  same  four  countries. 

The  most  important  recent  development  affecting  EEP  was  the  negotiation 
of  limits  on  export  subsidies  as  part  of  the  Uruguay  Round  multilateral  trade 
agreement.  The  trade  agreement  places  limits  on  the  financial  assistance  that 
governments  can  provide  for  exports  and  on  the  quantity  of  exports  that  can 
receive  such  assistance.  Based  on  the  agreement,  subsidy  outlays  must  drop  36 
percent  and  the  quantity  subsidized  must  drop  by  21  percent  over  six  years. 
These  commitments  will  require  substantial  cuts  by  the  Congress  in  the  EEP 
program  over  the  six -year  period. 

Whether  the  EEP  program  should  be  cut  more  than  required  by  the  trade 
agreement  or  even  be  terminated  is  a  topic  of  debate  as  Congress  faces  a  1995 
farm  bill  and  pressure  for  deficit  reduction.  On  February  15,  1995,  Senator 
Richard  Lugar,  Chairman  of  the  Senate  Agriculture,  Nutrition,  and  Forestry 
Committee,  proposed  ending  the  program.  He  said  that  if  reduced  FederaJ 
spending  was  the  goal  of  Congress,  then  ending  the  EEP  program  would  be  a 
step  toward  this  goal. 

President  Clinton  supports  continuation  of  the  EEP  program  in  his  FY 
1996  budget  proposal.  He  put  forward  a  funding  level  of  $958.7  million  in  FY 
1996,  which  is  the  maximum  allowed  under  the  Uruguay  Round  trade  agreement 
and  is  actually  an  increase  over  the  FY  1995  appropriation  of  $800  million. 

The  104th  Congress  will  consider  the  question  of  whether  the  EEP  program 
will  continue,  and  if  so,  at  what  funding  level  within  the  context  of  the  budget 
and  omnibus  farm  legislation.  Several  other  questions  might  be  considered  as 
well.  For  example,  should  the  EEP  program  be  restructured  to  focus  on  markets 
with  long-term  potential?  Should  EEP  and  the  other  export  subsidy  programs 
be  reorganized,  perhaps  into  one,  comprehensive  export  subsidy  program?  As 
EEP  funding  decreases  under  the  Uruguay  Round  commitments,  should  funds 
be  shifted  into  other,  permitted  export  programs  such  as  the  USDA  Market 
Promotion  Program? 


CONTENTS 


THE  EXPORT  ENHANCEMENT  PROGRAM 1 

THE  URUGUAY  ROUND  AGRICULTURE  AGREEMENT  AND 

THE  EEP  PROGRAM 7 

The  Trade  Agreement    7 

The  Implementing  Legislation 8 

LEGISLATIVE  ISSUES  RELATED  TO  THE  EEP  PROGRAM 9 


UST  OF  TABLES 

Table  1.        Program  Levels  for  the  Export  Enhancement  Program 

from  FY  1985  to  FY  1995    3 

Table  2.        Bonus  Payments  Under  the  Export  Enhancement  Program, 

by  Commodity,  from  FY  1991  to  FY  1994   4 

Table  3.        Bonus  Payments  Under  the  Elxport  Enhancement  Program, 

by  Country  of  Sale,  from  FY  1991  to  FY  1994 6 

Table  4.        U.S.  Commitments  for  Wheat/Flour  Under 

the  Uruguay  Round 8 


UST  OF  FIGURES 

Figure  1.      Program  Levels  for  the  Export  Enhancement  Program 

from  FY  1985  to  FY  1995    3 

Figure  2.      Bonus  Payments  Under  the  Export  Enhancement  Program, 

by  Commodity,  from  FY  1991  to  FY  1994   4 

Figure  3.      Bonus  Payments  Under  the  Export  Enhancement  Program, 

by  Country  of  Sale,  from  FY  1991  to  FY  1994 6 


84 


Export  Enhancement  Program: 
Background  and  Current  Issues' 

THE  EXPORT  ENHANCEMENT  PROGRAM 

The  Export  Enhancement  Program  (EEP)  was  estabhshed  under  the  Food 
Security  Act  of  1985  (P.L.  99-198;  the  1985  Farm  Bill)  with  the  principal 
purpose  of  helping  U.S.  agricultural  commodities  compete  in  the  world 
marketplace.  U.S.  agricultural  exports  had  peaked  around  1980  and  were 
declining.   The  U.S.  share  of  world  agricultural  exports  was  becoming  smaller. 

This  decline  was  due  in  part  to  U.S.  monetary  and  agricultural  policies. 
The  U.S.  Federal  Reserve  Board  acted  to  raise  U.S.  interest  rates,  which  caused 
the  dollar  to  appreciate.  The  higher  value  for  the  dollar  relative  to  foreign 
currencies  made  U.S.  agricultural  exports  more  expensive  relative  to  other 
countries'  exports.  A  second  policy  that  hurt  U.S.  exports  was  the  high  price- 
support  levels  set  in  1981  legislation.  Those  support  levels  pushed  domestic 
prices  well  above  world  prices  and  allowed  foreign  suppliers  to  underbid  U.S. 
suppliers. 

The  decline  of  U.S.  agricultural  exports  also  was  due  to  developments 
overseas.  Developing  countries  were  reducing  imports  because  of  severe  debt 
problems.  The  European  Community  (now  the  European  Union)  was  pursuing 
an  agricultural  policy  that  promoted  production  beyond  domestic  consumption, 
causing  it  to  move  from  a  net  importer  of  agricultural  goods  to  a  net  exporter. 

A  result  of  these  changes  was  growth  in  the  stock  of  Government-owned 
commodities.  Thus,  with  a  large  stockpile  on  hand  and  domestic  producers 
complaining  about  foreign  subsidies,  the  Government  decided  to  offer 
commodities  to  U.S.  exporters  at  a  relatively  low  cost  to  enhance  sales. 

The  1985  Farm  Bill  directed  the  U.S.  Department  of  Agriculture  (USDA) 
to  provide  commodities  owned  by  the  Commodity  Credit  Corporation  (CCC)  to 
U.S.  exporters  as  bonuses  for  the  purpose  of  developing  export  markets. 
(Bonuses  are  now  in  the  form  of  cash.)  The  1985  legislation  stated  that  the 
program  was  to  offset:  (1)  the  adverse  affects  of  foreign  subsidies;  (2)  the 
adverse  effects  of  U.S.  price  support  levels  that  were  above  prices  of  competitors; 
and  (3)  fluctuations  in  the  dollar  exchange  rate.  Some  analysts  also  say  that  the 
export  subsidy  program  was  a  bargaining  tool  to  compel  the  Europeans  to 
participate  more  seriously  in  multilateral  trade  negotiations. 


'  David  M.  Bearden,  Environment  and  Natural  Resources  Policy  Division,  provided 
both  production  and  research  assistance  in  the  preparation  of  this  report. 


85 


Administration  of  the  program  is  somewhat  complicated.^  Industry 
representatives,  USDA  personnel,  and  others  make  recommendations  to  the 
USDA  Foreign  Agricultural  Service  (FAS)  concerning  commodities  and  countries 
to  target  under  the  EEP  program.  FAS  specialists  examine  the 
recommendations  in  light  of  market  data  and  legal  requirements.  An 
interagency  body  then  reviews  the  recommendations.  FAS  issues  invitations  to 
exporters  to  "bid"  for  bonuses:  exporters  negotiate  sales  and  prices  with 
importers,  calculate  how  much  bonus  is  necessary  to  meet  that  price,  and  submit 
the  bonus  and  price  to  FAS.  FAS  awards  bonuses  based  on  the  most  competitive 
bids  and  on  the  amount  of  funding  available. 

When  the  EEP  program  was  established  in  1985,  it  was  authorized  for  five 
years  at  a  level  of  no  less  than  $325  million  annually.  The  Food,  Agriculture, 
Conservation,  and  Trade  Act  of  1990  (P.L.  101-624;  the  1990  Farm  Bill) 
reauthorized  the  program  for  five  more  years  and  raised  the  minimum  level  to 
$500  million  annually.  Last  year,  the  program  was  reauthorized  through  the 
year  2001  as  part  of  legislation  implementing  the  Uruguay  Round  trade 
agreements  (P.L.  103-456).  When  the  program  first  began,  bonuses  were 
available  only  in  the  form  of  certificates  redeemable  for  CCC  commodities.  By 
1990,  however,  CCC  stocks  had  dropped  significantly.  The  1990  Farm  Act 
provided  that  the  CCC  could  give  bonuses  in  the  form  of  agricultural 
commodities  or  cash  payments.  Bonus  payments  shifted  completely  to  cash  soon 
after. 

Table  1  and  figure  1,  on  page  3,  show  EEP  program  levels  since  the 
program  began.  Program  levels  generally  have  been  in  the  range  of  $800  million 
to  $1.15  billion,  except  for  the  start  of  the  program  and  a  dip  in  1989-90.  The 
current  (FY  1995)  appropriation  is  $800  million.  Future  funding,  however,  is 
expected  to  fall  because  of  commitments  under  the  Uruguay  Round  trade 
agreement  (see  next  section). 

Subsidies  on  exports  of  the  EEP  program  accrue  principally  to  the  wheat 
sector.  Wheat  represented  77  percent  of  all  EEP  bonus  payments  in  FY  1994 
and  represented  even  higher  proportions  in  preceding  years  (see  table  2  and 
figure  2  on  page  4).  In  distant  second,  third,  and  fourth  places  were  feed  grains, 
wheat  flour,  and  vegetable  oil,  respectively.  Other  commodities  that  were 
subsidized  since  FY  1991  were  rice,  frozen  poultry,  eggs,  bfirley  malt,  canned 
peaches,  and  fi-ozen  pork. 


2  This  paragraph  draws  from  U.S.  General  Accounting  Office.  High-Value  Product 
Sales  are  Limited  in  Export  Enhancement  Program;  Report  to  the  Honorable  Dan 
Glickman,  House  of  Representatives.  GAO/RCED-93-101,i^ril  1993.  Washington,  1993. 
p.  3-5. 


86 


Table  1.  Program  Levels  for  the  Export  Enhancement  Program 

from  Fiscal  Years  1985  to  1995  (Appropriation)                    | 

Fiscal  Year 

Program  Levels  ($) 

1985 

22,500,000 

1986 

256.300,000 

1987 

927,800,000 

1988 

1,013,700,000 

1989 

338,800,000 

1990 

311,800,000 

1991 

916,600,000 

1992 

968,200,000 

1993 

967,300,000 

1994 

1,149,700,000 

1995  (Appropriation) 

800,000,000 

Source:  Data  for  FY  1985-1994  provided  by  the  US  Department  of  Agriculture, 
Foreign  Agricultural  Service,  CCC  Operations  Division.  Data  for  FY  1995  appropriations 
is  from  PL.  103-330,  section  721. 


Figurel 

Program  Levels  for  the  Export  Enhancement  Program 
from  Fiscal  Years  1985  to  1995  (Appropriation) 


.200- 

millloM  of  doIlM 



.000- 
•00- 

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\ 

-"-^z^^ 

^^i 

V 

,' 

\ 

1 

600- 

1 

7 

J 

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1M8  1900  1990  1991   1992  1993  1994  1995 


87 


1                             Table  2.   Bonus  PaymenU  Under  the  Export  Enhancement  Program,  by  Commodity                            1 
from  Fiscal  Yean  1991  to  1904                                                                           | 

Commodity 

FY  1991 

FY  1992 

FY  1993 

FY  1994                1 

Amount  (t) 

% 

Amount  (t) 

% 

Amount  («) 

% 

Amount  (t) 

% 

Whe^t 

767.702,185 

8376 

813.192,598 

83  99 

774,825.767 

80  10 

890.511.305 

77  46 

Fe«d  Grains 

74,414,097 

812 

54,319,688 

561 

43.324,191 

4  48 

90.170,309 

784 

Wheat    Flour 

38,223.8«8 

4  17 

25,428,457 

263 

78,21Z885 

809 

78,068.564 

6  79 

Vegetable  Oil 

14,195,641 

155 

30,212,213 

3  12 

35,747,107 

3  70 

29,805.449 

259 

Rice 

4,091,380 

045 

23,438,097 

242 

13,308,374 

138 

2,309,215 

020 

FroMn  Poultry 

10,405,223 

114 

14,406,096 

149 

4,456,808 

046 

20.661,730 

180 

Eggs 

4,811,701 

052 

4,885,634 

050 

12,683,587 

131 

14,972,147 

130 

Barley  Malt 

2.755,116 

030 

2.093.500 

022 

4,373,005 

045 

9.560.260 

083 

Canned  Peaches 

0 

000 

209.679 

002 

346,198 

004 

0 

000 

Froien  Pork 

0 

0  00 

0 

000 

0 

000 

13,630.247 

119 

Total 

916,599,231 

100  00 

968,198,566 

100  00 

967,277,923 

100  00 

1,149.694,225 

100  00 

US  Department  of  Agriculture.  Foreign  Agricultural  Service,  CCC  Operations  Division 


Bonus  Payments 


Under  the  Export  Enhancement  Program,  by  Commodity, 
from  Rscal  Vlears  1991  to  1994 


millions  of  dollars 


1.200 

H| 

« 

nan 

■H 

'"'"■"""'■"^ 

•00  - 

aoo    - 

I 

"B" 

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400      - 

200      - 

iW 

^ 

^t_ 

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id   m 

I  FkMir  BvsgMaMa  Oil  ■o«ar 


88 


The  EEP  bonuses  are  a  sizeable  portion  of  the  total  value  of  all  overseas 
sales  made  with  EEP  assistance.  They  were  an  average  of  26  percent  of  the 
total  value  of  sales  made  with  EEP  assistance  in  FY  1993  and  27  percent  the 
year  before.  (FY  1993  data  are  the  most  recent  available.  USDA  no  longer 
reports  the  value  of  total  sales  under  EEP.)'  The  size  of  the  bonus  relative  to 
sales  value  varies  by  commodity.  In  FY  1993,  bonuses  for  flour  and  frozen 
poultry  were  each  44  percent  of  total  sales  value,  while  in  contrast,  bonuses  for 
canned  peaches,  rice,  and  vegetable  oil  were  12  percent,  16  percent,  and  19 
percent  of  total  sales  value.  These  same  commodities  were  on  the  high  and  low 
ends  the  previous  year  as  well.  Bonuses  for  wheat,  the  major  EEP  commodity, 
were  25  percent  of  total  sales  value  in  FY  1993  and  27  percent  in  FY  1992. 
Bonuses  are  higher  for  value-added,  or  more  processed,  commodities  than  for 
bulk  commodities. 

A  high  percent  of  total  exports  of  individual  commodities  are  sometimes 
exported  under  the  EEP  program.  A  few  selected  cases  will  illustrate.  In  FY 
1994,  exports  under  EEP  were  61  percent  of  total  exports  for  wheat,  54  percent 
for  wheat  flour,  and  22  percent  for  vegetable  oil. 

Not  only  have  EEP  bonuses  and  sales  been  concentrated  among  a  few 
commodities,  they  also  have  been  used  by  a  small  number  of  exporters.  Last 
year,  an  appropriations  subcommittee  asked  USDA  officials  to  rank  exporters 
by  amount  awarded  since  the  start  of  the  EEP  program.*  The  USDA  reported 
that  three  large  exporters  --  Cargill  Inc.,  Continental  Grain  Company,  and  Louis 
Dreyfus  Corporation  --  were  the  leading  recipients,  accounting  for  19  percent, 
16  percent,  and  14  percent  of  EEP  bonuses,  respectively,  or  combined,  nearly 
half  of  all  EEP  bonuses  ever  awarded.  The  USDA  also  reported  that  another 
131  companies  had  received  bonus  awards  under  EEP,  but  none  accounted  for 
more  than  4  percent  of  EEP  bonuses. 

EEP  sales  are  made  to  a  large  number  of  countries,  but  four  --  the  former 
Soviet  Union  (FSU),  Egypt,  China,  and  Algeria  --  have  accounted  for  major 
shares  of  EEP  bonus  payments  in  recent  years  (see  table  3  and  figure  3  on  page 
6).  During  the  FY  1991  to  FY  1994  period,  these  four  countries  accounted  for 
43  percent  to  74  percent  of  annual  sales  under  the  EEP  program.  Their 
individual  shares  varied  from  year  to  year.  In  FY  1991,  China  accounted  for  the 
largest  share  (26  percent);  in  FY  1992,  the  FSU  had  the  largest  share  (38 
percent,  more  than  32  "other  countries"  combined);  in  FY  1993,  three  of  the  four 
countries  had  almost  the  same  share  (12  percent);  and  in  FY  1994,  Egypt  had 
the  largest  share  (23  percent). 


'  Bonuses  were  30%  of  the  total  value  of  sales  under  EEP  from  1985  to  1992.  See 
U.S.  CJeneral  Accounting  Office.  High-Value  SaUs  are  Limited  in  Export  Enhancement 
Program,   p.  23. 

*  House.  Committee  on  Appropriations.  Subcommittee  on  Agriculture,  Rural 
Development,  Food  and  Drug  Administration,  and  Related  Agencies.  Agriculture,  Rural 
Development,  Food  and  Drug  Administration,  and  Related  Agencies  Appropriations  for 
1995.  Hearings,  March  24,  1994.  103d  Congress,  2d  session.  Washington,  U.S.  (}ovt. 
Print.  Off.,  1994.   pgs.  209-214. 


89 


'                          Table  3.    Bonus  PaymenU  Under  Ihe  Export  Enhancement  Program,  by  Country  of  Sale                          1 
from  Ftacal  Yearg  1991  to  1994                                                                               [ 

Country 

FY  1991 

FY  1992 

FY  1993 

FY  1994                1 

Amount  (») 

* 

Amount  (t) 

% 

Amount  ($) 

% 

Amount  (t) 

% 

Algena 

94,8*5,404 

10  35 

56,350,972 

582 

55,695.116 

5  76 

110,571,500 

9  62 

China 

244,410,712 

26  66 

91,632,534 

9  46 

119.194.832 

1232 

109,457.202 

9  52 

Egypt 

83,798.723 

9  14 

196,766,380 

20  32 

123.307.806 

1275 

266,718,995 

23  20 

rsu 

146,461.786 

1598 

369.171,145 

38  13 

117.069.916 

12  10 

62,462351 

543 

Subtotal 

569,556,625 

6214 

713.921,031 

73  74 

415.267.670 

4293 

549,210,048 

47  77 

Other  Countries 

347,042,606 

37  86 

254.277,535 

26  26 

552.010.253 

5707 

600,484,177 

52  23 

Grand  Total 

916.599,231 

100  00 

968,198,566 

100  00 

967.277.923 

100  00 

1,149,694,225 

100  00 

Source:   US  Departn 


;  of  Agriculture.  Foreign  Agricultural  Service.  CCC  Open 


Under  the  Export  Enhancement  Program,  by  Country  of  Sale 
from  Fiscal  Years  1991  to  19S4 


90 


THE  URUGUAY  ROUND  AGRICULTURE  AGREEMENT  AND 
THE  EEP  PROGRAM 

The  Trade  Agreement 

In  April  1994,  after  many  years  of  negotiation,  over  100  countries  signed 
a  comprehensive  package  of  trade  agreements  to  lower  trade  barriers  and  reduce 
discriminatory  practices.  Those  negotiations,  called  the  Uruguay  Round,  covered 
a  broad  range  of  issues.  One  of  the  most  important,  and  a  priority  of  the  United 
States,  was  reform  of  trade  practices  that  distort  agricultural  trade. 

When  the  negotiations  began  in  1986,  the  United  States  had  pressed  for  the 
elimination  of  all  agricultural  export  subsidies  and  import  barriers.  The  result 
fell  short  of  this  ambitious  goal,  but  it  did  place  definite  limits  on  agricultural 
trade-distorting  practices.*  For  export  subsidies,  the  agreement  prescribed  that 
over  a  six -year  period,  outlays  for  export  subsidies  must  fall  by  36  percent  and 
the  quantity  of  subsidized  exports  must  fall  by  21  percent.^  Cuts  will  be  made 
by  commodity.  The  base  for  calculating  the  cuts  will  be  the  1986-90  average; 
however,  the  starting  point  for  the  cuts  can  be  either  the  1986-1990  average  or 
the  1991-92  average,  whichever  is  higher. 

Table  4,  on  page  8,  illustrates  the  U.S.  export  subsidy  reduction 
commitment  for  wheat,  the  major  EEP-assisted  commodity.  (Note  that  the 
wheat  commodity  group  includes  wheat  flour.)  The  starting  point  for  the 
reductions  is  the  1991-92  average  of  $845.8  million  because  it  is  higher  than  the 
1986-90  average.^  At  the  end  of  six  years,  budget  outlays  to  subsidize  wheat 
exports  can  be  no  higher  than  $363.8  million  (the  1986-90  average  of  $568.5 
million  less  36  percent).  The  maximum  outlay  for  wheat  export  subsidies  the 
first  year  of  reduction  will  be  $765.5  million  and  outlays  for  wheat  will  decrease 
by  $80.3  million  each  year  until  year  6. 


*  For  information  on  the  agriciiltural  provisions,  see  U.S.  Libraiy  of  Congress. 
Congressional  Research  Service.  Agriculture  in  the  Uruguay  Round:  An  Assessment,  by 
Charles  E.  Hanrahan.   CRS  Report  94-582  S.  July  19,  1994.    10  p. 

*  Developing  countries  are  given  different  treatment.  They  must  reduce  such  outlays 
by  24%  and  output  by  14%  over  a  ten-year  period. 

''  In  the  United  States,  budget  outlay  commitments  for  all  commodities  will  be 
implemented  by  fiscal  year  beginning  October  1  1995.  Quantitative  commitments  wiU 
be  iniplemented  by  marketing  year  beginning  July  1  1995. 


91 


Table  4.   U.S.  Commitments  for  Wheat/Flour  Under  the  Uruguay  Round                 | 

Budget  Outlays  ($  million) 

Quantity  (million  metric  tons)                 | 

Base 

Commitment 

Base 

Commitment          | 

1986-90 

1991-92 

Year  1 

Year  6 

1986-90 

1991-92 

Year  1 

Year  6 

$5685 

$8458 

$765.5 

$363.8 

18.4 

21.4 

202 

145 

Source:  Message  from  President  Clinton.  Uruguay  Round  Trade  Agreements,  Texts  of  Agreements, 
Implementing  Bill  Statement  of  Administrative  Action,  and  Required  Supporting  Statements.  House 
Document  103-316,  vol.  2.    103rd  Congress,  2nd  Session.   September  27,  1994.   pp.  3845  and  3929. 


Table  4  also  includes  the  commitments  for  the  quantity  of  subsidized  wheat 
exports.  The  starting  level  for  reductions  will  be  the  1991-92  average  of  21.4 
million  metric  tons.  The  final  level  will  be  14.5  million  metric  tons  (the  1986- 
1990  average  of  18.4  million  metric  tons  less  21  percent).  The  annual  reduction 
is  1.1  million  metric  tons,  so  the  United  States  will  be  limited  to  a  maximum  of 
20.2  million  metric  tons  in  subsidized  exports  of  wheat  in  year  1. 

The  trade  agreement  includes  further  provisions  that  place  limits  on  export 
subsidies.  First,  the  agreement  stipulates  that  governments  may  not  provide 
export  subsidies  that  are  not  in  conformance  with  the  agreement  and  national 
commitments.  Thus,  governments  may  not  begin  new  subsidy  programs. 
Second,  the  agreement  asserts  that  governments  may  not  circumvent  the 
restrictions  on  export  subsidies,  nor  may  they  use  noncommercial  transactions 
to  circumvent  the  rules.  In  other  words,  countries  may  not  shift  subsidies  into 
food  aid  or  other  programs  to  get  around  the  export  subsidy  restrictions. 

The  Uruguay  Round  agreement  also  provides  for  continuing  talks  on 
agricultural  reform.  Countries  agreed  that  beginning  one  year  before  the 
implementation  period  is  over  (or,  in  five  years),  they  would  initiate  negotiations 
to  continue  the  process  of  reducing  agricultural  support.  The  long-term 
objective  of  such  talks  is  "substantial  progressive  reductions  in  support  and 
protection  resulting  in  fundamental  reform." 

The  Implementing  Legislation 

Legislation  to  implement  the  Uruguay  Round  trade  agreements  was  enacted 
late  in  1994  as  the  Uruguay  Round  Agreements  Act  (P.L.  103-465).  The 
legislation  made  statutory  changes  that  were  necessary  for  the  agreements  to 
take  effect  and  included  other,  related  provisions. 

Title  IV  of  the  Act  (Agriculture-Related  Provisions)  reauthorized  the  EEP 
program  through  the  year  2001  and  continued  program  authority  at  the  current 
level  of  at  least  $500  million  annually.  It  directed  the  CCC  to  cany  out  the  EEP 
program  "...to  encourage  the  commercial  sale  of  United  States  agricultural 
commodities  in  world  markets  at  competitive  prices"  and  specified  that  program 


92 


activities  "...shall  not  be  limited  to  responses  to  unfair  trade  practices."  It 
directed  the  CCC  to  administer  the  program  in  a  manner  consistent  with  the 
obligations  of  the  Uruguay  Round  agreements.  Among  these  obligations  were 
the  ceilings  on  export  subsidy  programs. 

The  Senate  Committee  on  Agriculture,  Nutrition,  and  Forestry  stated  in  its 
report  on  the  implementing  bill  that  it  expects  the  Administration  to  fully 
utilize  export  programs  to  benefit  agriculture  producers.*  One  reason  the 
Committee  gave  for  this  mandate  was  that  the  European  Union  (EU)  had  higher 
ceilings  than  the  United  States,  and  thus  U.S.  exporters  had  a  continuing  need 
for  protection  from  subsidized  competition.  Another  reason  was  that  the 
agreement  stipulated  that  further  negotiations  would  begin  in  five  years  and  the 
United  States  should  continue  to  use  subsidies  to  induce  the  EU  to  agree  on 
further  reductions. 


LEGISLATIVE  ISSUES  RELATED  TO  THE  EEP  PROGRAM 

The  leading  issue  related  to  EEP  is  whether  the  program  will  continue,  and 
if  so,  at  what  level  of  funding.  On  February  15,  1995,  Senate  Agriculture 
Committee  Chairman  Richard  Lugar  proposed  terminating  the  EEP  program. 
He  estimated  that  this  action  would  save  $3.4  billion  over  five  years.  That 
saving  is  based  on  the  maximum  but  declining  outlays  allowed  under  the 
Uruguay  Round  trade  agreement.  Chairman  Lugar  said  that  these  cuts,  plus 
other  savings  from  reducing  target  prices  for  crop  programs,  would  save  almost 
$15  billion  from  agricultural  programs  over  five  years.  USDA  officials  and  some 
Members  who  represent  farm  States  responded  that  ending  the  program  would 
have  harmful  effects.  For  example,  Senator  Kent  Conrad  of  North  Dakota 
predicted  that  such  reductions  would  cause  a  decrease  in  farm  output  and 
disastrously  low  prices.' 

President  Clinton  proposed  continuing  the  EEP  program  at  the  maximum 
allowed  level  in  his  FY  1996  budget  package.  He  proposed  a  funding  level  of 
$958.7  million  in  FY  1996,  which  is  higher  than  the  FY  1995  appropriation  of 
$800  million.  The  strikingly  different  proposals  of  Senator  Lugar  and  President 
Clinton  suggest  that  funding  for  the  EEP  program  will  be  controversial. 

Apart  from  funding,  another  important  issue  is  whether  the  EEP  program 
should  be  restructured.  Any  restructuring  probably  would  be  considered  during 


*  U.S.  Congress.  Committee  on  Finance.  Committee  on  Agrioilture,  Nutrition,  and 
Forestry.  Committee  on  Governmental  Affairs.  Uruguay  Round  Agreements  Act.  Joint 
report  to  accompany  S.  2467.  November  22,  1994.  Report  103-412.  103d  Congress,  2d 
session,  p.  212-213.  The  House  Committee  on  Agriculture  did  not  report  the 
implementing  bill. 

'  Abbott,  Charles.  Farm  Cuts  Too  Steep  for  Safety,  US  Official  Says.  Reuters, 
February  16,  1995.   5:27  PET. 


93 


debate  on  the  1995  farm  bill.'"  First,  should  the  program  itself  be 
restructured?  The  Uruguay  Round  bill  eliminated  the  requirement  that  the 
EEP  program  be  used  to  discourage  unfair  foreign  practices.  It  also  directed 
that  the  implementation  of  the  program  should  be  sensitive  to  markets.  Greater 
flexibility  could  improve  the  program  in  some  respects.  The  program  might  be 
directed  to  emerging  markets  or  to  foreign  markets  with  strong  growth 
potential. 

Second,  should  EEP  and  the  other  export  programs  be  reorganized 
completely?  One  suggestion  is  to  roll  EEP  and  the  other  export  subsidy 
programs"  into  one  super  subsidy  program  with  an  improved  strategy  to  meet 
foreign  competition. 

Third,  should  funds  be  shifted  among  the  export  support  programs?  Many 
agriculture  groups  have  argued  that  future  cuts  in  export  subsidies  should  be 
offset  with  increases  in  allowed  programs.  These  allowed,  or  "greenbox," 
programs  include  export  credits  and  market-promotion  programs.  In  the  FY 
1996  proposal,  President  Clinton  proposed  increasing  funds  for  "greenbox" 
activities  by  $600  million  over  5  years. 

A  final  issue  is  the  relationship  between  the  EEP  program  and  foreign 
relations  policy.  Some  critics  have  claimed  that  EEP  funds  are  used  to  gain 
political  influence  in  other  countries.  The  Congress  might  consider  the  merits 
of  this  claim  and  the  relative  effectiveness  of  agricultural  export  subsidies  for 
this  purpose. 


'**  For  further  information  on  the  1995  farm  bill,  see  U.S.  Library  of  Congress. 
Congressional  Research  Service.  1995  Farm  Bill  Issues,  coordinated  by  Jean  Yavis 
Jones.   CRS  Report  95-219.   January  31,  1994.   65  p. 

' '  Other  expxjrt  programs  include  the  Dairy  Export  Incentive  Program  (DEEP),  the 
Cottonseed  Oil  Assistance  Program  (COAP),  and  the  Sunflowerseed  Oil  Assistance 
Program  (SOAP). 


90-898  0-95-4 


94 


TABLE  10-1.    U.S.  GOVERNMENT  TRADE  PROMOTION  EXPENDITURES  BY  CLASSIFICATION  i 

(Budget  auVwcity  in  tiousands) 


•CM 

199(au<lg« 

tOltl 

1*93 

1M( 

IW 

132^7 

149.910 

W»S 

147^ 

D«pat»n«nl  o(  Comrwc* 

39^18 

43  443 

42.386 

38905 

TnD»  Dw.lopm.ni  Agency 

_ 

Eipod-lmpoft  Bank 

Overseas  Pnvale  Investnenl  CoipouDon 

_ 

Smal  Busness  Admnstralion 





Depanmeni  ol  Suie 

6i114 

74312 

7^9b6 

74687 

US.  Wcxmalion  Agency 



_ 

OepartTMTt  o(  Agncullur. 

6.524 

6.585 

6.673 

7530 

U.S.  Trade  Repcesenlative 

20.492 

21150 

20.949 

20  949 

O^Mitnent  ol  Transpodabon 

Oepamient  ol  Tieasiwy 

a^oob 

2000 

2.000 

1400 

0«pam»nto(  Energy 

248 

704 

V.m 

1868 

Oepaitnent  o<  Labor 

1.631 

1716 

1.805 

1868 

CemiMting  Ferttgn  Export  SutaidiM 

1.135J2« 

1.423.07J 

1.12J.740 

1423J29 

Departnent  ol  Commerce                                   

_ 

Trade  Oeveiopmenl  Agency 

i'^wii 

1307 

1.350 

Expon-import  Bank 

110.504 

212J0O 

208.286 

245903 

Overseas  Prrvate  Investnenl  Corporation 





Smal  Business  Admnstration 



_ 

Depanmeni  ol  Stale 

US  Information  Agency 

_ 

Deparwtienl  o«  AgncuHure 

I'mjia 

1209465 

914.104 

1077926 



Depament  o(  Transportation 

_ 

Departn«rto(  Treasury 



_ 

Envtronmental  Protection  Agency                                                        -     . 



_ 

Oepartnent  at  Energy 





Departnent  o(  Ubor 

_ 



FiMne*«g  and  kieuring  U5  Trwlt  and  ki  ConHMTM     _    -- 

^M^W 

i,4aa,4ii 

1,190^ 

1^.701 

Departnent  o(  CommefM                              

Trade  Development  Agency                     -           



ExporWrrport  Bank           _.                 .        __.     .  _ 

562.259 

766845 

563.142 

664848 

Owseas  PnvatB  mvestnanl  Corporabon  (Not  KkjdMl  11  Touts)   - 

-132.000 

-98000 

-115.000 

-96500 

13.618 

8385 

11.508 

9300 

Depwtnwit  o<  State                                                         

US.  lr*)rmation  Agency                         

-—- 





Oepaitnent  a<  AgncuKure 

696302 

592.532 

511675 

U.S.  Tnde  Represanbtv*         _    __    .    - 

Oepwtnant  ct  Trwsportaton 

16000 

Itodb 

20000 

Depwtnent  ol  Treasury                     __ 

_ 

Environmental  Protecton  Agency         _           --       - 

„ 



__ 

Oepertnenl  ol  Energy                         .           _           __ 

10.147 

li86 

1.884 

1478 

Oepwtnant  ol  Labor        _.    

138,178 

22WJ7 

165613 

182366 

"275*1 
197195 

Departnent  ol  Commerce              _                     _        __ 

Trade  Development  Agency           _.                _       

Export-Import  Bank                                      _    _                 

2!«b 

2450 

"i/isb 

2450 



_ 

Sma  Business  Admnslration            _ 

_ 

3.200 

3.200 

D^)artnent  ol  State                               .         -      . 

U.S.  Mormalion  Agency 

25.689 

28.618 

2e!432 

28  069 

Oepwtnent  ol  Agncullute 

28.288 

29905 

X.619 

36398 

_ 

_ 

Departnent  ol  Transportaton                 .                           -     _  -       . 



Departnent  ol  Treasury 



Environmental  Protecton  Agency              __      



Department  ol  Energy 

\.*S3 

2.351 

606 

8639 

95 


TABLE  10-1.    U.S.  GOVERNMENT  TRADE  PROMOTION  EXPENDITURES  BY  CLASSIRCATION  i 
Continued 

(Budget  autionty  n  twusands) 


«CMI 

\mbuat» 

teufi 

INS 

IM< 

<MS 

Departneni  o(  Libof 

263S9 

J4'l06 

36,471 

37'.9S8 

D«paf«T>8nl  o(  Comrnerc* 

14.844 

15.780 

17  969 

18.950 

Trade  Devetopmem  Agency 

Export-Import  Bar* 









Smal  Busness  AdmnstratMn 



Oepattnent  ol  State 

iibis 

18.328 

18,502 

19.008 

US  mlonnalion  Agency 





Department  o»  Agncultixe 





US  Trade  Represarutne 





Oepattnent  d  Transportation 





Department  o(  Treasury 





Envronnwntal  Proledun  Agency 







Department  o(  Energy 
Departrnenl  o(  UDof 



M^iw 

40,ifiif 

33,750 

4i!obb 

Departnenl  o(  Conmeree 



32!439 

40.717 

33.750 

iiibob 

Ej^ort-lirport  Bank 





Ovweas  Pnyale  lnves«nenl  Coipofaten      .    - 





Smal  Busrass  Adrmstiatan                          -           





Department  a<  Slate                                   



US.  Womalion  Agency                 





Depai*nent  o(  Agnojftje                   _    -      - 











Department  o«  TransportalBn 



Departnent  o*  Treasury 



Envfonmental  Prolectjon  Agency 





Department  o(  Energy 





Department  ol  Labor 





tevelopjng  Forwgn  Harkels 

257.434 

233.928 

190,714 

iowTo 

Department  of  Commerce 

8,796 

8.533 

9.282 

10,200 

Trade  Devetopmeni  Agency 

9,210 

11.990 

9900 

9.000 

Ejport-tmport  Bank 











Smal  Buaness  AdmnstialMn 





Department  o(  State                       ... 







US  Woimalior  Agency 



Department  o(  AgncjUif e                          ... 

237.975 

210.255 

163,144 

i«i;467 

US  Trade  Representative               _      



_ 



Department  odransportaHon             ._      _       _  . 



Department  on  reasury                      __                      _    __ 

_ _ 

__ 



EnvTonmentai  Protscton  Agency           .           . 





Depaitnent  o«  Energy 

i^isii 

3.150 

8388 

21.903 

Depamwnt  o(  Latxx 

Total!  

3,121456 

3600,090 

2.970,749 

3,240,216 

Department  o(  Commerce 

201.036 

233.369 

252.503 

265.250 

42.741 

54.014 

45.000 

50.000 

Ejport-lmport  Bank 

675.213 

981.595 

773.878 

913.201 

-132.000 

-98.000 

-115.000 

-96.500 

Smal  Busvttss  Admnstration 

13.618 

8.385 

14.708 

12,500 

Departnent  o(  State 

74.129 

92.640 

91,408 

93.695 

US,  Wormalion  Agency 

25.689 

28.618 

Depa(»Tient  o(  Agnojlture 

2.1K;512 

1.707:072 

1.7^:996  J 

U  S  Trade  Representative 

20.492 

2i;50 

20:949 

ii'Mr 

Depa/tnent  of  Transportatnn                        

16.000 

21.000 

20.000 

Department  ol  Treasury 

2.000 

iooo 

2!000 

l!400 

Department  o(  Energy                      

13.301 

8.091 

11.994 

34.288 

Department  of  Lafior 

1.631 

1.716 

1.805 

1.868 

96 


EwopMn  Union  A«rioutural  SpMidkig  by  Commodty  and  Eoonomlc  Typ* 


'wm 


4,307 

Z612 
ZM7 
9,365 
Z129 
7,236 
2,412 


-?^ 


2188 


:mm 


Carryovf  (prevtout  yr.) 


34,7S9 


Total  Untod  StalMf 


Aflitaifciil  Spaodlna  ft  MB  I        6.471 


io.no 


^ 


16.047 


10.a36 


lO.f 


iatol20kluch199SandSMay199S. 

I  ECU'SUTS.  buOgel year  1990 (iaiS/a9-10/15/90) 

I  ECU'SIJIO.  budgelyear  1991  (IW16m-ia/15/91) 

r  ECU  '  tl.283,  budget  year  1992  (1(yiS/91-10/IS/92) 

I  ECU-  JI.1723.  budaelyear  1993  (10/1/929^093) 

I  ECU  =  SUIOa.  budget  year  1994  (10n/93-9no/94) 

I  ECU -S1^,  budget  year  (10/1/94-90095)  Rale  eaUmite  tor  budget  year  avenge  aaot  20  Uaroh199S.  F^uib  is  pratmlnaiy. 

I  ECU  '  SI. 345.  Rate  as  ol 5  May  1995.  Figure  b  prelnilnary 

\jroe:  OmcM  Journal  ct  the  EC  (  OJ  LH.  1/29/90,  OJ IX,  20/92,  OJ  L31.  2/a/93:  OJ  L34,  2/7/94,  OJ 1362,  1201/94,  OJ  1.369,  1201/94) 

leed  UMay1995 


97 


Eurapwn  Union  A«ric<«ural  Export  SiiMUM  by  Commodlly 


Co™no«y 

iseo 

Ej<p«««tur. 
$MMon.1/ 

isei 

Expendkur. 
»MMon.2^ 

igez 

$Miak>n.3/ 

iges 

Exp««»ur. 
*MMans« 

ise4 

Approp. 

%UnoimSI 

ise4 

ECU 

1J11  , 

1005 

Apprap. 

$MIIUonsW 

isas 

ECU 
1J4S 

1S95 
Appmp. 

$Mligon.7/ 

wh«,Mtour 

1,531 

2.225 

1.871 

1.581 

1,085 

896 

778 

603 

811 

bariey/mall 

941 

,275 

1.181 

695 

648 

535 

481 

373 

502 

dunim 

271 

485 

539 

474 

119 

98 

148 

115 

155 

other  osreata 

367 

480 

434 

520 

241 

199 

222 

172 

231 

rice 

37 

96 

118 

70 

25 

21 

49 

38 

5i 

ToWOraht 

3.148 

4.562 

4,143 

3.339 

2,117 

1749 

1.678 

1301 

1.750 

i,i79 

1.551 

1.674 

1.795 

1,771 

1463 

1,805 

1399 

1,882 

cCveo« 

172 

139 

62 

81 

86 

71 

94 

73 

98 

oilseeds 

1 

1 

0 

0 

0 

0 

0 

0 

0 

fresh  MM  &y»gs. 

85 

95 

117 

183 

171 

141 

181 

140 

188 

pnssdfhiH&vegs. 

17 

22 

32 

36 

36 

30 

34 

26 

35 

vine  products 

70 

69 

99 

117 

98 

81 

90 

70 

94 

tobacco 

79 

81 

74 

42 

.J^ 

50 

27 

21 

28 

Tow  Hart.  Products 

1.603 

1.958 

2.058 

2,256 

2,223 

1836 

2.230 

1729 

2.326 

buttetAxjtleroil 

564 

757 

395 

504 

297 

245 

481 

373 

502 

sum  milk  powder 

259 

154 

307 

226 

149 

123 

350 

271 

364 

660 

661 

726 

730 

729 

602 

600 

465 

625 

other  milk  produces 

974 

1.217 

1.208 

1,221 

1,213 

1002 

1,075 

833 

1,120 

TobtDirinrPnxkKl. 

2.458 

2.789 

2.636 

2,682 

2,388 

1972 

2,505 

1942 

2.612 

beet^eal 

1.413 

1.590 

1.708 

2,006 

1,332 

1100 

1,743 

1351 

1,817 

pigmeel 

222 

247 

167 

227 

199 

164 

126 

98 

132 

eggs 

42 

44 

42 

48 

35 

29 

26 

20 

27 

pooltnrmeat 

185 

166 

206 

293 

196 

162 

147 

114 

153 

TotiJIitait  Products 

1,862 

2.047 

2.123 

2,573 

1,762 

1.455 

2,042 

1,583 

2.129 

grain(distillod  spirits) 

54 

91 

73 

50 

46 

38 

58 

45 

61 

597 

782 

824 

S74 

725 

S99 

904 

701 

942 

fish 

0 

0 

2 

1 

0 

0 

0 

0 

0 

wineakntKig/ 

896 

0 

0 

0 

0 

0 

0 

ToWSubMtos 

9.721 

12.230 

-11.859 

11,723 

9.261 

7.649 

9.418 

7,301 

9,819 

Note.  The  dollar-danomlnalod  columm  lor  1995  reflecf  (he  dollar  to  ECU  exchange  fates  as  of  20  Msrch  1995  and  5  May  1995. 

Totals  may  nol  add  lit  tome  cases  due  te  rounding.    Totals  do  not  Indude  export  suteJdies  used  for  food  ak3. 

1/ 1  ECU  =  f  1.273.  budget  year  1990  (10/16/89-10/15/90) 

2/ 1  ECU  =  i1 240.  budget  year  1991  (10/16/90-10/15/91) 

3/ 1  ECU  =  t1J83.  budget  year  1992  (10/16/91-10/15/92) 

4/ 1  ECU  =  11.1723.  budget  year  1993  (10/1/92-900/93) 

S/ 1  ECU  =  tUIOe.  budget  yeai  1994  (10/1/93-9/30/94) 

6/ 1  ECU  =  $1.29.  budget  year  (10/1/94-9/30/95)  Rale  estimate  lor  budget  year  average  asol20  Uaich  1995  Figure  is  preliminary. 

7/ 1  ECU  =  t1. 345.  Rale  as  of  5  May  1995.  Figure  is  preliminary 

Source:  OlMalJoumol  of  the  EC  (OJL24.  1/29/90.  OJL26.  20/92.  0JU1.  20/93:1X034.  2/7/94.  OJL362.  1201/94.011369.  1201/94) 

revised  11May199S 


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104 


LONG-TERM 

AGRICULTURAL  TRADE 

STRATEGY 


FY  1996 


U.S.  Department  of  Agriculture 


105 


USDA  International  Agricultural  Trade  Mission 


Open,  expand,  and  maintain  global  market  opportunities  through 
international  trade,  cooperation,  and  sustainable  development  activities  which 
secure  the  long-term  economic  vitality  and  global  competitiveness  of 
America's  rural  communities  and  related  food  and  agricultural  enterprises. 


USDA  Export  Goal  2000 

Assist  American  Agriculture  to  increase  the  value  of  farm,  food,  fish,  and 
forestry  exports  50  percent  over  1994  levels  by  the  year  2000. 


Agricultural  Trade  Strategy 
FY  1996 


106 


LATS  OUTLI^fE 


I.       INTRODUCTION:  The  Global  Trade  and  Competitive  Environment 

►  Strategic  Shift:   From  Surplus  Disposal  to  Market  Demand  Responsiveness 
Historical  Context 

►  After  the  Uruguay  Round:   New  Global  Trade  Environment 

►  Global  Competitive  Environment 


n.     GLOBAL  TRADE  STRATEGY 


Mission 

Export  Goal  2000 


ra.    STRATEGY  DRIVERS 

STRA  TEGJC  OUTREA  CH  AND  MARKET  INTELUGENCE 

-  Increase  Domestic  Awareness  of  Export  Opportunities 

►  Raise  Domestic  Awareness  of  Global  Consumer  Quality  and  Safety  Expectations 

►  Fully  Activate  Strategic  Intelligence  Network  Linking  Constituencies  to  Markets 

►  Strategically  Link  Domestic  Outreach  Initiatives  with  Overseas  Market  Development 

MARKET  DEVELOPMENT  AND  PROMOTION 

Strengthen  Overseas  Market  Channel  Outreach  and  Strategic  Alliances 

Recognize  Market  Life  Cycles:  Emerging,  Growth,  Maintenance 

Emphasize  Market  Segments  with  High  Return  to  Mission 

Enter  Early:  Establish  Competitive  Advantages 

Shift  Consumer  Preference  with  Brand  Power,  Easing  Entry  for  Smaller  Enterprises 

Exploit  Emerging  Demand  for  Private  Label  Products 

Leverage  Burgeoning  Consumer  Demand  to  Gain  Market  Access 

Exploit  Market  Access  Gains  with  Timely  Market  Development  Initiatives 


'  Revised  as  of  10/25/95 


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MARKET  ACCESS 

Monitor,  Negotiate,  and  Assist  Full  Implementation  of  Trade  Agreements 

Intensify  Pressure  for  Science-Based  Sanitary  and  Phytosanitary  Standards 

Aggressively  Open  and  Expand  Markets  tiirough  Trade  Negotiations 

Expand  Regional  Trade  Agreements 

Monitor  and  Address  Competitive  Impact  of  State  Trading 

Coordinate  Trade  Policies,  including  Import  Policies,  with  Other  Strategic  Objectives 

PRICE/CREDIT  AND  RISK  ASSISTANCE 

Emphasize  Market  Expansion 

Emphasize  Private  Sector  versus  Govemment-to-Goverament  Participation 

Maximize  GATT  Permissible  Export  Assistance 

Increase  Price/Risk  Assistance  Programmatic  Flexibility 

Target  High  Growth  Emerging  Markets 

Seek  to  Expand  Assistance  for  High- Value  Products 

Coordinate  Price/Credit  and  Risk  Assistance  with  Market  Access  Objectives 

LONG-  TERM  DEVELOPMENT 

Build  Sustainable  Export  Maricets:  Technical  Assistance  and  Economic  Development 

Monitor  and  Assess  International  Food  Security 

Focus  on  &nerging  Markets 

Leverage  the  Trade/Investment  Nexus  through  International  Financial  Institutions 

Guide  and  Support  Research  Priorities 

Coordinate  Long-term  Development  with  Market  Access  Objectives 


rV.    COUNTRY  MARKET  STRATEGY  ANALYSIS 

COUNTRY  MARKET  STRATEGY  RECONCOJATION  PROCESS 


Country  Market  Segmentation 

Country  Team  Approach  to  Market  Strategy  Analysis 


V.  CONCLUSION:    UNIFIED  STRATEGIC  MANAGEMENT 

►  The  National  Performance  Review  and  the  Government  Performance  and  Results  Act 
Trade  Promotion  Coordinating  Committee  (TPCC) 

►  Global  Competitiveness  of  American  Agriculture:  Role  of  the  Farm  Bill 


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ADDE^fDUM:   STRATEGIC  PROFILES 

A.  OUTLOOK  FOR  U.S.  AGRICULTURAL  EXPORTS  TO  THE  21ST  CENTURY 

B.  COUNTRY  MARKET  HIGHLIGHTS' :   THE  PACIFIC  RIM 

C.  COMMODITY  SPECIFIC  COUNTRY  MARKET  ANALYSIS 

-  Forest  Products  Example:   Combined 

►  Horticultural  and  Tropical  Products  Example:   Apples 

D.  COMMODTTY  CATEGORY  ANALYSIS 

►  Consumer  Foods  Example  :    The  Frozen  Foods  Market 

►  Bulk  Commodity  Example:   The  China  Market 

E.  CROSS-COMMODITY  ANALYSIS 

-  Grain  and  Meal  Shipments  in  the  Form  of  Meat 


'As  provided  by  Title  VI  of  the  1990  Food,  Agriculture,  Conservation,  and  Trade  Act,  portions  of 
Addendum  section  B  have  been  designated  as  "market  sensitive",  hence  confidential  within  the  meaning  of 
the  staftjte.  The  designation  of  market  sensitivity  is  limited  to  this  section,  and  the  market  sensitive 
portions  are  included  in  the  version  of  the  LATS  submitted,  for  review  as  appropriate,  to  Congressional 
Intelligence  Committees.  The  statute  states  that  the  'Secretary  may  designate  pans  of  the  report .  .  .  as 
confidential  and  [that]  such  parts  shall  not  be  released  to  the  general  public,  if-  a)  the  Secretary 
determines  that  the  release  of  such  information  would  disadvantage  the  United  States  with  respea  to  its 
competitors  in  specific  foreign  markets;  or  b)  the  Secretary  determines  that  such  information  is  confidential 
business  information.  " 


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INTRODUCTION:  The  Global  Trade  and  Competitive  Environment 


The  recently  concluded  Uruguay  Round  of  multilateral  trade  negotiations  ushers  in  an  era  of 
unprecedented  long-term  maricet  potential,  with  new  and  burgeoning  consumer  demand  worldwide 
for  our  food  and  agricultural  exports.  USDA  maintains  a  dynamic  Long-term  Agricultural  Trade 
Strategy  (LATS)  designed  to  assist  rural  communities  and  related  food  and  agricultural  enterprises 
to  exploit  profitably  rapidly  changing  global  market  forces,  free  from  unfair  risks. 

Strategic  Shift:  From  Surplus  Disposal  to  Market  Demand  Responsiveness 

The  Administration's  commitment  to  the  Uruguay  Round  and  its  trade-liberalizing  effects  offer 
great  promise  for  future  export  success.  The  large,  government- held  commodity  stocks,  so 
characteristic  of  the  past,  have  disappeared  in  recent  years  as  export  demand  has  risen.  In 
response,  USDA's  export  strategy  has  shifted  from  a  surplus-management  focus  to  a  market- 
oriented,  demand-driven  approach.  Global  consumer  demand  drives  the  strategy,  as  market 
demand  pulls  through  the  entire  agribusiness  commodity  system,  ultimately  manifested  in  public 
and  private  production  decisions.  Shifts  in  demand  at  the  consumer  level  drive  demand  for  all 
types  of  agricultural  products  ranging  from  raw  bulk  and  semifmished  inputs  to  high-value  food 
and  fiber  products.  The  productivity,  diversity  and  competitiveness  of  the  U.S.  food  and 
agricultural  private  sector  give  the  United  States  its  global  comparative  advantage. 


Historical  CorUext 

Since  its  founding  in  1862,  USDA  has  been  at  the  side  of  U.S.  fanners,  assisting  in  their 
contributions  to  the  nation's  economic  develqiment.  Numerous  congressional  actions  have  proven 
instrumental  in  making  U.S.  agriculture  the  most  productive  and  competitive  in  the  world. 
Resulting  USDA  programs  have  enabled  the  United  States  to  feed  not  only  itself  but  also  countries 
around  the  globe.  USDA's  current  export  strategy  is  a  continuation  of  that  tradition,  helping  U.S. 
agriculture  to  compete  successfully  in  the  increasingly  dynamic  global  competitive  environment 
towards  the  21st  century. 

The  Food  Security  Act  of  1985  was  designed  to  address  domestic  and  international  marketing 
conditions  that  were  adversely  affecting  U.S.  farm  product  exports  and  the  U.S.  farm  economy. 
Competitor  export  subsidies,  particularly  those  of  the  European  Union  (EU),  displaced  and 
reduced  U.S.  agricultural  ejqxjrts.  U.S.  exports  peaked  in  1980  and  1981 ,  then  declined  to  levels 
of  the  early  1970's,  reaching  a  low  point  of  $25  billion  in  1985. 

U.S.  Government  stocks  of  grains  and  other  commodities  reached  record  high  levels  and  land 
values  declined.  The  rural  economy  was  undergoing  severe  economic  stress  and  the  Food  Security 
Act  of  1985  aimed  at  correcting  the  situation  by  adopting  more  export-oriented  policies.    The 


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strategy  was  to  make  U.S.  agriculture  more  competitive  by  reducing  support  prices,  by  working 
down  record  government  stocks  through  acreage  reduction  programs,  and  through  actions  to 
counter  unfair  foreign  trade  practices.  In  the  short  run,  this  reduced  government  storage  costs, 
rekindled  the  rural  economy,  and  enhanced  the  competitiveness  of  U.S.  agricultural  exports.  In 
the  longer  term,  the  strategy  was  to  use  the  tools  authorized  by  the  Food  Security  Act  of  1985  to 
bring  subsidizing  competitors  to  the  negotiating  table  in  the  Uruguay  Round. 


After  the  Uruguay  Round:  New  Global  Trade  Environment 

The  previously  described  trade  strategy  was  successful  in  accomplishing  its  objectives. 
Commodity  Credit  Corporation  (CCC)  commodity  stocks  were  reduced;  subsidizing  competitors 
were  brought  to  the  negotiating  table;  and  the  Uruguay  Round  Agreements  were  achieved  in  1994. 
Since  1985,  the  niral  economic  situation  reversed,  international  competitiveness  of  U.S. 
agriculture  improved,  and  the  overall  U.S.  market  share  of  agricultural  trade  increased  steadily. 
There  were  other  major  changes  in  the  trading  environment  over  the  same  period.  These  include 
negotiation  of  the  NAFTA  and  the  increasing  privatization  of  international  agricultural  trade.  The 
latter  is  an  especially  important  factor  affecting  our  trade  relations  with  countries  of  Eastern 
Europe,  and  increasingly  of  the  former  Soviet  Union. 

Until  recently,  trading  relationships  with  these  countries  tended  to  be  on  a  govermnent-to- 
govemment  basis.  The  U.S.  Government  entered  into  grain  agreements  and  similar  trading 
arrangements  with  centralized  governmental  trading  entities  of  these  countries.  A  key  element  of 
these  previous  trading  relationships  was  the  ability  to  deal  with  a  single  purchasing  agent.  That 
simplified  the  task  of  assuring  that  certain  minimum  amounts  of  U.S.  farm  products  would  move 
into  international  markets. 

In  contrast,  with  the  privatization  of  these  markets,  it  is  now  necessary  to  gear  USDA's  efforts 
in  these  markets  toward  assisting  the  private  sector  in  more  traditional  marketing  efforts  with 
overseas  buyers.  This  trend  to  decentralized  marketing  is  unlikely  to  change  in  the  foreseeable 
future  and  is  taken  into  account  in  USDA's  trade  strategy,  LATS. 

Other  key  changes  in  the  trading  environment  include  the  continued  shift  in  trade  toward 
consumer-oriented  and  high-value  products  and  rapid  growth  in  Asia/Pacific  Rim  markets.  The 
shift  in  trade  toward  consumer-oriented  and  high-value  products  results  both  from  rising  incomes 
and  limitations  in  overseas  production  and  processing  capacity.  Capacity  limitations  result  in  part 
from  increasing  populations  and  limited  land  availabilities  and  are  taken  into  account  in  the  LATS. 

When  increased  budgetary  constraints  are  also  considered,  it  becomes  clear  that  the  current  trade 
environment  is  very  different  from  the  situation  as  recently  as  10  years  ago,  as  summarized  in  the 
following  table: 


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Ill 


MAJtlLET  CHARACTERISTIC 

FREV10V$  ENVIRONMENT 

NEW  ENVIRONMENT 

Suu  Tnding 

Oven 

Pemnenl 

GrowTh  DeMmuiunu 

Supply-dnvtn     Produd  Puih 

Demind-dnven    Cotmimer  Pull 

Jipan.  Europe.  Ruiiii 

Jipin.  Aiie/Pecific  Rjm 

Moderate 

Extreme 

T«d.  Ar~m.nu 

Pre-Unigu.y  Round:  FT  A/NAFTA. 
Mulliliunl  Negoliilions 

PonUtuguey  Round:  FT  A/NAFTA, 
taplemenuiion,  Acce«.on.  Bil.Ier.1 
Negouauoni,  Regioniliution 

US   GovemmenlSlocki 

Urge 

Very  Sm.ll 

The  future  of  American  Agriculture  will  be  increasingly  dependent  on  developments  in  the 
Asia/Pacific  Rim.  The  fastest  growing  economies  are  in  this  part  of  the  world.  This  is  the 
fundamental  reason  USDA  will  increasingly  focus  its  export  assistance  efforts  increasingly  in  the 
Asia/Pacific  Rim.  Increases  in  U.S.  agricultural  exports  are  sustainable  over  the  longer  term  due 
in  part  to  the  growth  of  other  emerging  markets  worldwide,  especially  in  Latin  America. 

Export  expansion  will  also  be  spurred  by  the  increasing  divenity  and  high  quality  of  U.S. 
products.  High-value  products  will  continue  to  comprise  a  large  and  growing  share  of  world 
agricultural  trade  and  today  comprises  over  two-thirds  of  total  world  agricultural  trade,  up  from 
54  percent  in  1985.  This  share  is  expected  to  climb  to  75  percent  by  the  year  2000.  Aided  by 
an  aggressive  export  promotion  program  and  favorable  exchange  rates,  U.S.  market  share  of 
global  high- value  products  trade  has  increased  from  10  percent  in  1985  to  16  percent  today.  The 
outlook  is  for  further  gains  to  the  year  2000  and  beyond. 

The  Uruguay  Round  Agreements  will  be  particularly  important  in  spurring  exports  of  U.S.  high- 
value  products  as  they  reduce  tariffs,  remove  nontariff  barriers,  arid  cut  export  subsidies  on  a 
number  of  products,  helping  to  increase  U.S.  exports. 

Likewise,  the  requirement  in  the  Uruguay  Round  Agreements  that  sanitary  and  phytosanitary 
(SPS)  measures  be  based  on  sound  scientific  principles  will  help  to  assure  that  barriers  to  high- 
value  trade  are  not  erected  under  the  guise  of  protecting  animal,  plant,  or  human  health.  SPS 
measures  will  be  a  key  implementation  focus. 

Increases  in  world  income  and  economic  growth  will  promote  an  expanded  demand  for  U.S. 
agricultural  products.    Experience  has  shown  that  the  Tirst  thing  that  consumers  in  developing 


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countries  do  when  their  incomes  grow  is  to  improve  their  diets.  Consumers  will  demand  a  wide 
array  of  fruit,  vegetable,  and  other  specialty  and  high-value  products. 

Finally,  the  outlook  for  U.S.  bulk  agricultural  exports  also  is  very  favorable.  There  is  growing 
demand,  less  competition  from  traditional  competitors,  and  import  liberalization  in  the  wake  of 
the  Uruguay  Round  negotiations  and  the  NAFTA.  Economic  growth  in  China  is  stimulating 
demand  for  bulk  products,  and  its  reduced  role  as  a  competitor  with  the  United  States  in  other 
Pacific  Rim  markets  is  creating  opportunities  for  U.S.  exports. 


Global  Competitive  Environment 

With  improving  trade  access  and  fewer  restrictions,  the  competition  will  inevitably  intensify. 
Subsidizing  exporters  will  continue  to  use  export  subsidies  at  Uruguay  Round-disciplined  levels 
and  will  conduct  "green  box"  activities  such  as  credit  and  credit  guarantee  programs  and  non-price 
export  promotion  programs.  The  United  States  also  must  compete  against  the  monopolistic 
marketing  boards  of  Australia,  Canada,  and  New  Zealand. 

U.S.  export  subsidy  programs  give  U.S.  producers  the  ability  to  counter  the  export  subsidies  of 
the  EU  and  the  discriminatory  pricing  power  of  the  maik^ing  boards  of  Australia,  Canada,  and 
New  Zealand.  Credit  guarantees  allow  U.S.  exporters  to  compete  with  sales  terms  offered  by 
Australia,  Canada,  and  the  member  states  of  the  EU.  USDA's  market  development  programs 
assist  U.S.  producers  and  firms  to  promote  their  products  in  world  markets. 

The  EU  is  the  chief  subsidizer  of  agricultural  exports.  The  EU  supports  its  domestic  pnxlucers 
at  high  internal  prices  while  subsidizing  agricultural  export  prices  to  compete  in  world  markets. 
EU  export  subsidies  in  1995  are  ejqjected  to  top  $9  billion,  $1.3  billion  of  which  is  estimated  for 
grains  alone.  The  EU  will  spend  nearly  as  much  to  subsidize  its  wine  exports  this  year— $93 
million-as  USDA  will  spend  on  the  entire  Market  Promotion  Program  (MPP).  Several  other 
countries  such  as  the  Czech  and  Slovak  Republics,  Hungary,  and  Sweden  also  subsidize  their 
exports  in  years  of  bountiful  harvests. 

As  discussed,  many  competitors  such  as  Australia,  Canada,  and  New  Zealand  market  their 
agricultural  products  through  marketing  monopolies  (marketing  boards).  Mariceting  boards 
practice  discriminatory  pricing,  allowing  them  to  undercut  prices  in  some  competitive  markets. 
Marketing  boards  participate  in  a  range  of  activities,  from  sales  to  promotion  to  joint  ventures. 
For  example,  the  AustraUan  Wheat  Board  invested  in  a  flour  mill  in  Shenzhen,  China,  and  helped 
to  fmance  a  flour  mill  to  be  built  by  the  government  of  Vietnam. 

Credit  is  a  key  instrument  of  competition  in  world  agricultural  trade.  Most  major  agricultural 
exporters  offer  some  sort  of  export  credit  program.  The  French  Compagnie  Fran^aise  des 
Assurances  pour  le  Commerce  Exterieur  (COFACE)  provides  a  wide  range  of  fmancing  services. 


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including  export  credit  guarantees,  for  a  variety  of  agricultural  products  and  manufactured  goods. 
For  agricultural  products,  COFACE  provides  credit  insurance  for  marketing  campaigns,  short- 
term  credit  and  trade  financing,  and  longer  term  loans  for  grains.  The  Australian  and  Canadian 
Wheat  Boards  provide  direct  credits  to  importers. 

Most  agricultural  ejqwrting  nations  such  as  Australia,  Canada,  the  European  countries,  and  New 
Zealand  heavily  promote  their  agricultural  and  food  products  throughout  the  world.  In  many 
countries,  such  as  France  and  the  Netherlands,  marketing  organizations  are  financed  by 
governments  and  by  assessments  on  agricultural  production  and  marketing.  Producer  and  industry 
assessments  are  mandated  by  law.  The  national  and  regional  governments  of  Italy  and  Spain 
finance  market  development  costs  for  their  chief  agricultural  products.  The  government  of 
Australia  continues  to  increase  its  funding  of  agricultural  product  promotions  through  its  Export 
Market  Development  Grants.   Australia  is  targeting  expansion  in  Asia. 

The  improved  trade  outlook  will  lead  to  new  opportunities,  not  guarantees,  for  U.S.  exporters. 
Competitor  governments  will  continue  to  support  their  agricultural  sectors,  and  a  few  countries 
have  proposed  increased  funding  for  "green  box"  activities. 

Eighteen  major  exporting  countries  other  than  the  United  States  spent  an  estimated  $660  million 
for  non-price  promotion  acdvides,  activities  similar  to  those  under  MPP  and  the  Foreign  Market 
Development  Program  (FMD)  in  1994,  with  direct  government  allocations  for  promotions 
comprising  30%.  In  its  1996  budget,  the  Canadian  government  announced  a  new  program  of  up 
to  $732  million  in  additional  credit  guarantees  for  agricultural  products,  including  $513  million 
for  wheat  and  barley  through  the  Canadian  Wheat  Board.  RecenUy,  Danish  hog  producers  and 
processors  sought  increased  EU  support  for  market  development  activities  in  high-value,  tiiird- 
country  markets  (J^>an  and  the  United  States)  as  compensation  for  Uruguay  Round  reductions  in 
export  subsidies.  Even  less  traditional  exporters  are  becoming  more  aggressive.  For  example, 
Chile  plans  to  increase  its  funding  for  export  market  promotion  to  approximately  $21  million  in 
1995  from  $3  million  in  1993. 

The  LATS  takes  into  account  competitors'  initiatives  such  as  these.  If  these  initiatives  are 
effectively  and  aggressively  countered,  U.S.  exports  will  be  enhanced  to  tiie  benefit  of  the  farm 
and  rural  economy. 


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n.     GLOBAL  TRADE  STRATEGY 


Mission 


USDA's  international  agricultural  trade  mission  is  to  open,  expand,  and  maintain  global  market 
opportunities  through  international  trade,  cooperation,  and  sustainable  development  activities 
which  secure  the  long-term  economic  vitality  and  global  competitiveness  of  America's  rural 
communities  and  related  food  and  agricultural  enteiprises. 

Ejqmrt  Goal  2000 

USDA  is  fulfilling  its  mission  by  assisting  American  Agriculture  to  increase  the  value  of  farm, 
food,  fish,  and  fonjstry  exports  50  percent  over  1994  levels  by  the  year  2000.  To  meet  this  goal, 
USDA  conducts  a  demand-driven  export  strategy,  deploying  five  policy  instruments  ("drivers") 
to  execute  strategy  while  integrating  commodity  and  country  market  priorities  for  aUocating  scarce 
export  assistance  resources.  The  strategy  drivers  are: 

Strategic  Outreach  and  Market  Intelligence 
Market  Development  and  Promotion 
Market  Access 

Price/Credit  and  Risk  Assistance 
Long-term  Development 

In  pursuing  its  mission  and  goal,  USDA  is  uniquely  positioned  to  assist  in  improving  the  economic 
well-being  of  U.S.  rural  and  agricultural  communities.  USDA's  role  is  to  ensure  that  rural 
communities  and  related  food  and  agricultural  enteiprises  reap  the  benefits  of  the  nation's  fiiU 
export  potential  while  assisting  American  Agriculture  to  conserve  its  natural  resources  and 
comparative  advantages  for  posterity  and  long-term  prosperity. 

Market  access  issues  affect  the  entire  agricultural  community  and  can  only  be  resolved  through 
govemment-to-govemment  negotiations.  USDA's  export  maiket  intelligence,  market  promotion, 
risk  mitigation,  and  outreach  functions  provide  scale  economy  and  efficiency  benefits  to  the 
private  sector,  reflecting  an  economic  pooling  of  resources  to  meet  increasingly  formidable  global 
competition.  USDA  can  provide  a  consistent,  long-term  trade  perspective  with  respect  to  these 
market  access  issues.  USDA's  mission  and  role  ensure  the  long-term  economic  growth  and 
stability  of  the  U.S.  agricultural  sector,  particularly  benefitting  the  rural  community  and  related 
smaller  and  mid-sized  food  and  agricultural  enteiprises. 


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m.    STRATEGY  DRIVERS 


STRATEGIC  OUTREACH  AND  MARKET  INTELLIGENCE 

Driven  in  large  measure  by  Asia/Pacific  Rim  prospects  and  buttressed  by  the  success  of  recent 
multilateral  negotiations,  the  unrelenting  and  burgeoning  growth  of  global  consumer  demand  for 
high  value  products  -  high  quality,  high  margin  --  bodes  well  for  both  high-value  and  commodity 
exports.  Yet,  today,  one  of  the  biggest  trade  obstacles  for  U.S.  food  and  farm  exports  is  the  lack 
of  timely  awareness  of  export  opportunities. 

Many  U.S.  fanns  and  companies  are  satisfied  with  the  domestic  market,  have  an  exaggerated 
perception  of  export  "hassles",  or  remain  unaware  of  emerging  overseas  market  growth 
opportunities.  This  domestic  condition  allows  competitor  nations  to  establish  early  entry 
advantages  overseas,  prohibitively  raising  costs  to  late  entrants.  Oligopolistic  competitor  nations 
with  a  private  sector  characterized  by  a  few  large  firms  exercise  significant  advantages  in  their 
ability  to  quickly  disseminate  new  market  information  and  to  rapidly  respond  to  critical  moments 
of  new  growth  opportunities  globally.  In  contrast,  the  more  decentralized,  less  oligopolistic 
structure  of  the  U.S.  business  sector,  as  a  whole,  results  in  a  greater  lag  time  between  the 
emergence  of  new  market  opportunities  overseas  and  awareness  domestically.  This  competitive 
challenge  leaves,  untapped,  significant  potential  among  iiuiovative,  high-value  smaller  and 
medium-sized  U.S.  agricultural  producers  and  related  enterprises. 

USDA  will  address  this  important  limitation  on  U.S.  competitiveness  through  initiatives  focusing 
on  strengthening  domestic  and  overseas  outreach  and  market  intelligence. 


►       Increase  Domestic  Awareness  of  Export  Opportunities 

USDA  will  increase  domestic  awareness  of  export  opportunities  through  outreach  activities, 
strategically  leveraging  and  activating  public  outreach  capabilities  among:  1)  USDA's  program 
participants;  2)  other  U.S.  private-sector  associations  and  other  centers  of  influence,  including 
those  positioned  to  address  the  needs  of  export-ready  and  new-to-export  smaller  and  medium-sized 
farms,  coqjeratives,  and  related  enterprises;  and  3)  USDA's  nationwide  network  of  agricultural 
public-sector  cooperation  and  public/private  partnerships. 

•       Educate  and  Energize 

USDA  will  facilitate  export  readiness  and  help  link  both  export  ready  and  new-to- 
export  firms  to  market  entry  opportunities,  including  iiuiovative  high-value 
differentiated  producers,  processors,  and  cooperatives.  USDA  will  first  work  to 
energize  the  U.S.  food  and  fiber  sectors  to  adopt  an  export  mindset  through  esublished 


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networks,  such  as  current- USDA  pnognun  participants,  state/ regional  groups,  and  state 
dqjartments  of  agriculture.  It  will  then  begin  to  reach  out  to  new,  untapped  networks. 
This  requires  systematic  contact  through  industry  liaisons,  a  presence  at 
annual/regional  meetings,  trade  teams,  and  involvement  at  food  shows. 

Expand  the  Export  Network 

Expanding  the  expon  network  among  traditional  customers  and  adding  new  players  is 
critical.  Traditional  customers  include  program  participants,  such  as  cooperators,  state 
departments  of  agriculture,  and  state/regional  groups.  Potential  new  players  include 
grower  and  processor  cooperatives,  food  industry  associations,  and  universities. 

Develop  a  Domestic  Export  Presence 

USDA  will  place  personnel  in  key  areas  of  the  country  to  provide  hands-on 
information  and  expertise.  USDA's  domestic  state  offices,  linked  with  community- 
based  program  activities,  will  facilitate  regional  coverage. 


►       Raise  Domestic  Awareness  of  Global  Consumer  Quality  and  Safety  Expectations 

Rapidly  increasing  sophistication  of  consumer  buying  behavior  worldwide  results  in  commensurate 
elevation  of  expectations  for  a  reliable,  high  quality  and  safe  supply  of  agriculturaJ  products. 
Competitors  often  reserve  the  highest  quality  product  for  high-growth  export  markets.  USDA  will 
work  with  its  strategic  partners  nationwide  to  alert  new-to-market  and  export-ready  agricultural 
enterprises  to  quality  and  safety  expectations  underlying  burgeoning  global  consumer  demand. 


►        Fully  Activate  Strategic  Intelligence  Network  Unking  Constituencies  to  Markets 

Accordingly,  USDA's  global  strategic  intelligence  network  alerts  the  U.S.  private  sector  to  export 
opportunities  and  market  expectations,  identifying  trade  and  marketing  barriers,  and  gathering 
information  on  U.S.  competitors.  This  network  provides  an  early  warning  to  the  private  sector, 
linking  domestic  constituencies  to  export  market  opportunities.  This  capability  is  critical  for  the 
United  States  to  compete  effectively  in  the  global  marketplace,  particularly  for  smaller  and 
medium-sized  enterprises.  USDA  is  in  the  best  position  to  deliver  market  intelligence  to  the  entire 
U.S.  agricultural  sector  in  order  to  develop  sustainable  export  sales. 


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Strengthen  Overseas  Market  Intelligence  on  Competitors 

Market  intelligence  regarding  competitor  export  programs,  practices,  and  products  has 
become  increasingly  important  in  a  post-Uruguay  Round  global  competitive 
environment.  Such  competitor  intelligence  is  critical  in  keeping  U.S.  farmers, 
producers,  and  processors  competitive  in  a  dynamic  trading  envirorunent.  USDA's 
overseas  presence,  including  diplomatic  posts,  trade  offices,  and  the  USDA  network 
of  public/private  partnerships  ("cooperators")  is  the  principal  source  of  such  market 
intelligence  about  competitor  activities. 

Generate  and  Coordinate  Strategic  Analyses  through  Public /Private  Partnerships 

USDA  will  help  to  identify  the  best  post-Uruguay  Round  market  opportunities  for  U.S. 
farms  and  agribusiness  exporters,  assess  threats  from  export  competition,  and  manage 
the  optimal  allocation  of  USDA  program  and  human  resources.  USDA  is  focusing 
increased  interest  in  strategic  plarming  tools  widely  used  by  the  private  sector,  such  as 
portfolio,  growth-share,  industry/competitor,  and  agribusiness  commodity  systems 
analyses.  USDA  will  refine  its  analyses,  leveraging  resources  within  its  network  of 
business  and  academic  public/private  partnerships,  for  purposes  of  providing 
constituencies  with  timely,  effective  strategic  market  intelligence  and  operations. 

Increase  Effectiveness  of  Strategic  Communications  via  Multimedia  Technologies 

USDA  will  form  a  proactive  outreach  team  and  tap  into  the  latest  communication 
technologies  to  spread  the  export  message.  This  involves  information  dissemination 
through  an  "export  ORXJrtunities"  computer-based  information  network  leveraging  the 
"global  information  superhighway",  USDA  county  office  newsletters,  and  media 
targets,  such  as  industry  journals,  national/ local  press,  and  the  USDA  radio/television 
network. 


►       Strategically  Link  Domestic  Outreach  Initiatives  with  Overseas  Market  Development 

In  order  to  provide  American  Agriculture  with  the  best  and  most  timely  market  intelligence  in 
times  of  rapid  and  dramatic  strategic  change,  USDA  will  integrate  domestic  outreach  initiatives 
with  overseas  market  development  activities,  leveraging  information  technologies  and  USDA's 
overseas  network  of  human  and  institutional  resources. 


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MARKET  DEVELOPMENT  AND  PROMOTION 

-       Strengthen  Overseas  Market  Channel  OiUreach  and  Strategic  Alliances 

•  Penetrate  New  Consumer  Market  Channels 

New  overseas  marketing  channels  are  r^idly  developing  to  service  the  unprecedented 
global  consumer  demand  for  food  products.  Western-style  restaurants,  hotels, 
supermarkets,  and  new  super-retailers  overseas  are  critical  entry  points  for  the 
introduction  and  spread  of  tastes  and  preferences  for  U.S.  food  products  to  foreign 
consumers.  Successful  penetration  of  these  new  channels  requires  that  new-to-export 
and  export-ready  U.S.  producers  adapt  to  local  tastes  and  preferences,  including 
increasingly  demanding  consumer  expectations  for  product  quality,  food  safety,  and 
distinctive  packaging.  USDA  will  cultivate  these  and  other  new  consumer  channels 
through  which  U.S.  food  and  agricultural  products  can  be  marketed. 

•  Cultivate  Strategic  Alliances  with  New  Distributors  and  Other  Intermediaries 

American  Agriculture  must  reach  out  to  new  distributor  channels,  emerging  in 
connection  with  burgeoning  global  consumer  demand,  particularly  in  the  Asia/Pacific 
Rim.  USDA's  overseas  distributor  development  will  include  cultivating  and 
maintaining  close  relationships  with  emerging  new  players  within  local  markets, 
iiKluding  fast-growing  super-retailers,  which  are  bypassing  and  flattening  traditional 
distribution  channel  hierarchies  by  importing  products  directly  from  U.S.  producers. 
USDA  will  also  assist  U.S.  agriculture  to  strengthen  relationships  with  traditional  local 
wholesalers,  agents,  and  other  import  intermediaries.  USDA  will  pay  particular 
attention  to  serving  the  needs  of  export-ready  and  new-to-export  smaller  and  medium- 
sized  cooperatives  and  agribusiness  enterprises  within  and  related  to  America's  rural 
communities. 

•  Target  Key  Centers  of  Influence 

Market  channel  outreach  will  also  focus  on  key  centers  of  influence  to  generate 
awareness  and  accq)tance  of  U.S.  food  products.  These  groups  will  include  emerging 
super-retailers,  leading  enterprises,  foreign  trade  associations,  consumer  advocacy 
groups,  mass  media,  popular/cultural  leaders,  and  trade  publications/events,  among 
other  key  market  forces  with  the  potential  to  shift  consumer  preferences  and  primary 
demand  for  U.S.  food  products. 


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►       Recognize  Market  Life  Cycles:  Emerging,  Growth,  Maintenance 

Program  development  and  resource  allocation  decisionmaking  will  recognize  the  need  to  cultivate 
emerging  markets  with  long-term  growth  potential  while  investing  in  existing  growth  markets  and 
protecting  mature  markets.  Strategic  analysis  will  assist  in  prioritizing  resource  allocations  to 
reflect  long-term  contributions  generated  by  each  segment  of  the  USDA  mission  relative  to 
resource  requirements. 


►       Emphasize  Market  Segments  wUh  High  Return  to  Mission 

USDA  is  committed  to  identifying  market  segments  with  high  return  to  its  mission  of  securing  the 
economic  vitality  and  long-term  global  competitiveness  of  America's  rural  communities  and 
related  food  and  agricultural  enterprises.  This  is  not  limited  to  countries  but  also  includes  large, 
highly  intense  market  oppoitunities  in  segments  of  countries  that  may  be  underpenetrated  relative 
to  the  potential  value  that  can  be  returned  to  the  U.S.  economy. 


►       Enter  Eariy:  Establish  Competitive  Advantages 

Another  component  of  the  market  development  and  promotion  strategy  is  an  early  entry  approach 
in  which  USDA's  market  promotion  programs  assist  in  lowering  the  risk  of  market  entry  for  U.S. 
firms  by  mitigating  their  export  marketing  costs.  The  recent  convergence  of  burgeoning  consumer 
demand  and  trade  negotiation  successes  create  a  window  of  opportunity  for  the  early  entrant. 
Failure  to  respond  to  early  entry  opportunities  will  concede  U.S.  market  share  to  global 
competitors.  Benefits  of  being  the  early  entrant  include: 

•  accelerating  the  development  of  a  sustainable  export  market; 

•  deterring  third-country  competition  by  raising  entry  costs  for  competitors;  and 

•  giving  U.S.  companies  a  competitive  advantage  within  the  maiicet. 

Through  its  overseas  presence  and  services,  USDA  seeks  to  mitigate  the  negative  impact  of  high 
marketing  costs  in  strong  currency  markets,  particularly  for  high-value  exports  and  for  the  benefit 
of  smaller  and  medium-sized  agricultural  enterprises  and  cooperatives  seeking  to  gain  early  entry 
advantages. 

USDA  seeks  to  assist  domestic  constituencies  to  get  ahead  of  the  competition  and  firmly  establish 
distribution  for  U.S.  foods  in  key  growth  and  emerging  markets.  Distributor  development 
strategies  will  be  implemented  for  groups  of  products  that  have  particularly  high  potential  in 
specific  markets. 


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►        Shift  Consumer  Preference  with  Brand  Power,  Easing  Entry  for  Smaller  Enterprises 

Sustained  consumer  demand  is  built  on  qualitative  product  differentiation  through  brand-style 
marketing.  Branded  products  are  an  inherent  strength  of  the  U.S.  food  sector.  Therefore,  brand 
recognition  and  market  power  of  established  U.S.  food  companies  are  often  deployed  initially  to 
penetrate  new  market  segments,  generating  primary  demand  for  U.S.  products.  Once  a  market 
for  U.S.  food  pnxlucts  is  established,  initial  participants  in  USDA's  export  promotion  programs 
are  graduated,  and  resources  shift  towards  smaller  and  medium-sized  U.S.  companies  now 
positioned  for  further  market  development. 


►       Exploit  Emerging  Demand  for  Private  Label  Products 

Growing  foreign  demand  for  private  label  products,  notably  in  European  and  Asia/Pacific  Rim 
markets  (especially  Japan),  is  a  window  of  opportunity  for  smaller  and  medium-sized  U.S. 
enteiprises  to  gain  market  entry.  It  is  a  natural  fit  for  many  U.S.  firms  without  an  international 
marketing  and  distribution  capability  to  supply  processed  products  to  foreign  retailers  and 
distributors  who  already  have  their  own  established  distribution  and  marketing  channels  but  who 
lack  a  production  capability.  Market  entry  afforded  by  a  private  label  market  penetration  strategy 
yields  market  experience,  leading  to  the  ultimate  estabUshment  of  direct  brand  presence. 


►       Leverage  Burgeoning  Consumer  Demand  to  Gain  Market  Access 

Branded  and  generic  promotions  encourage  international  consumers  to  develop  preferences  for 
U.S.  food  products.  Greater  strategic  opportunities  to  reach  consumers  through  market 
development  activities  have  resulted  from  and  support  recent  maricet  access  negotiations.  For 
example,  the  consumer  power  of  the  Japanese  housewife  is  widely  credited  for  pressuring  the 
J^)anese  government  into  opening  the  Japanese  rice  market  to  imports. 


•-       Exploit  Market  Access  Gains  with  Timely  Market  Development  Initiatives 

The  convergence  of  consumer  demand  and  trade  negotiation  successes  creates  immediate  and 
unprecedented  windows  of  opportunity.  However,  these  windows  are  available  to  U.S.  and 
competing  forces  alike,  presenting  the  specOt  of  "tackling  for  the  opposition. "  USDA  will  assist 
American  Agriculture  to  adroitly  exploit  negotiated  market  access  gains  with  strategicaUy  targeted 
commitment  of  maiket  development  efforts. 


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MARKET  ACCESS 


-       Monitor,  Negotiate,  and  Assist  Full  Implementation  of  Trade  Agreements 

The  recent  completion  of  the  Uruguay  Round  negotiations  marks  the  conclusion  of  an  historic 
market  access  agreement,  but  this  is  merely  the  beginning  of  its  implementation.  USDA  is 
committed  to  making  the  Uruguay  Round  Agreements  work.  For  the  U.S.  agricultural  sector  to 
realize  the  potential  benefits  of  the  Uruguay  Round,  it  is  critical  that  USDA  track  the 
implementation  of  each  trading  partner's  obligations.  In  a  post-Uruguay  Round  environment, 
implementation  and  enforcement  activities  for  trade  agreements  wilJ  be  more  labor-intensive  than 
obtaining  the  agreements,  requiring  case  by  case  investigations.  The  LATS  calls  for  securing 
the  fruits  of  hard-won  trade  policy  victories,  in  the  face  of  aggressive  export  expansion  efforts  by 
competitors.  Now  is  not  the  time  to  reduce  unilaterally  USDA's  capacity  to  address  this 
competitive  challenge. 


►       Intensify  Pressure  for  Science-based  Sanitary  and  Phytosanitary  Standards 

In  the  face  of  Uruguay  Round  successes  in  addressing  issues  such  as  de  facto  import  bans  and 
discretionary  import  licensing,  some  countries  are  turning  to  pseudoscientific  and  other  unfair  SPS 
measures  to  restrict  market  access.  American  Agriculture  continues  to  lose  export  opportunities 
because  of  these  barriers,  and  USDA  must  put  itself  in  a  position  to  respond  to  them  quickly  and 
effectively.   Estimates  of  the  value  of  SPS  barriers  range  as  high  as  nearly  $2  billion  annually. 

Earlier  this  year,  the  Secretary  formed  an  interagency  action  team  within  USDA  whose  mission 
is  to  identify  and  re^mnd  to  trade-distorting  SPS  regulations  employed  by  countries  seeking  unfair 
trade  advantages.  USDA's  ability  to  remove  other  countries'  trade-restricting  SPS  measures  is 
critical  if  U.S.  agriculture  is  to  reap  tiie  full  benefit  of  the  concessions  negotiated  in  the  Uruguay 
Round.  Recognizing  the  increasing  woridwide  consumer  sensitivity  to  quality  and  food-safety 
issues,  USDA  has  centered  its  SPS  activities  and  initiatives  in  four  general  areas: 

•       Increasing  Awareness  of  Uruguay  Round  SPS  Obligations 

Many  countries  are  not  yet  aware  of  their  obligations  in  this  area.  Before  countries  can 
fully  implement  their  commitments  under  the  Agreement  on  the  Application  of 
Sanitary  and  Phytosanitary  Measures,  it  is  critical  that  they  understand  these 
commitments.  USDA  will  intensify  pressure  on  its  trading  partners  for  transparent 
SPS  requirements,  confirming  that  the  rules  apply  equally  to  domestic  and  foreign 
suppliers.  The  SPS  Agreement  tries  to  facilitate  transparency  by  requiring  countries 
to  notify  the  Worid  Trade  Organization  (WTO)  of  any  proposed  rule  that  might  affect 


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trade.  This  will  require  increased  resources  and  close  cooperation  between  the  U.S. 
regulatory  bodies  to  assure  that  the  rules  being  proposed  are  based  on  sound  science. 

Supponfor  International  Standard-setting  Bodies 

Three  international  standard-setting  bodies  have  increased  in  importance  as  a  result  of 
the  Uruguay  Round.  The  Codex  Alimentaius  (CODEX),  the  International 
Organization  of  ^izootics  (OIE),  and  the  International  Plant  Protection  Convention 
(IPPC)  were  cited  in  the  SPS  Agreement  as  the  official  reference  bodies  for 
international  standards.  USDA  supports  CODEX,  OEE,  and  IPPC  with  direct  funding 
and  through  active  participation  in  meetings  and  forums  organized  by  these  bodies. 
USDA  has  been  a  strong  and  vocal  supporter  of  the  WTO  and  the  international 
standard-setting  bodies. 

Technical  Assistance 

USDA  has  a  long  history  of  providing  technical  assistance  and  training  in  animal  and 
plant  health  and  food  safety.  A  wide  range  of  programs  for  foreign  visitors  offered  by 
USDA  brings  countless  regulatory  officials  and  private-sector  participants  brought  to 
the  United  States  to  learn  more  about  the  U.S.  food  safety  regime. 

Bilateral  Technical  Trade  Talks 

USDA  currently  conducts  armual  bilateral  technical  trade  talks  with  four  emerging 
market  economies:  Mexico,  South  Korea,  Taiwan,  and  China.  These  talks  are 
essential  for  clarifying  SPS  trade-related  issues  and  resolving  them  outside  the  context 
of  the  WTO  wherever  possible. 


•-       Aggressively  Open  and  Expand  Markets  through  International  Trade  Negotiations 

Bilateral  and  multilateral  negotiations  are  crucial  in  USDA's  efforts  to  expand  opportunities  for 
U.S.  agriculture  in  a  post-Uruguay  Round  competitive  environment.  WTO  accessions  will 
provide  an  important  opportunity  to  obtain  and  protect  access  to  numerous  emerging  markets, 
including  China,  Taiwan,  and  Russia. 


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►  Expand  Regional  Trade  Agreements 

The  expansion  of  regional  trade  agreements  presents  opportunities  to  expand  trade  liberalization 
beyond  the  Uruguay  Round  on  a  regional  basis.  The  possible  expansion  of  NAFTA  to  include 
Chile  and  other  Western  Hemisphere  countries  is  a  prime  example.  In  the  Summit  of  the 
Americas,  the  leaders  of  34  countries  in  the  Western  Hemisphere  committed  to  complete  a  Free 
Trade  Area  of  the  Americas  (FTAA)  by  2005.  USDA  will  monitor  potentially  exclusionary 
trading  blocks,  such  as  Mercado  del  Sur  (MERCOSUR),  the  Andean  Pact,  the  Caribbean 
Community  Common  Market  (CARICOM),  and  the  Central  American  Common  Market  (CACM). 

In  the  Pacific  Rim,  the  Asian  Pacific  Economic  Council  (APEC)  presents  many  opportunities  for 
facilitating  trade  by  improving  regional  coordination  in  the  areas  of  standards,  regulatory 
transparency,  technical  exchange,  and  information  dissemination  to  the  private  sector.  APEC  also 
offers  the  possibility  of  full-scale  trade  negotiations  at  some  date  in  the  future  as  APEC  moves 
toward  the  goal  of  free  trade  in  the  region  by  the  years  2010  and  2020. 


►  Monitor  and  Address  Competitive  Impact  of  State  Trading 

State  trading  continues  to  be  a  major  barrier  to  free  trade  through  monopoly  import  and  export 
licenses  administered  by  foreign  government-controlled  organizations.  USDA  will  monitor  the 
state  trading  activities  of  competitor  governments  and  address  ways  to  reduce  their  impact  on  U.S. 
competitiveness. 


►  Coordinate  Trade  Policies,  including  Import  Policies,  with  Other  Strategic  Objectives 

USDA  will  coordinate  its  market  access  program  priorities  with  other  trade  program  priorities  to 
maximize  the  effectiveness  of  international  trade  policy  activities.  Demand  analysis  wUl  be  an 
important  tool  for  maximizing  the  effectiveness  of  market  access  negotiations.  Coordination  of 
trade  policies  includes  the  development  of  objective  technical  standards  affecting  trade,  taking  into 
account  import  policies  or  other  domestic  obligations,  such  as  the  protection  of  U.S.  public, 
animal,  and  plant  health. 


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PRICE/CREDIT  AND  RISK  ASSISTANCE 


Emphasize  Market  Expansion 


The  strategy  for  use  of  export  assistance  programs  including  the  Export  Enhancement  Program 
(EEP),  and  the  Dairy  Export  Incentive  Program  (DEEP)  will  be  adjusted  to  reflect  the  post- 
Uruguay  Round  trading  environment.  Their  use  as  export  tools  was  shaped  largely  by  the  past 
trading  environment  and  focused  on  markets  with  an  EU  presence.  These  markets,  however,  are 
not  uniformly  the  ones  with  the  best  overall  potential  for  U.S.  export  expansion.  The  export 
price/credit  strategy  considers  shifting  emphasis  away  from  these  markets  and  toward  those  with 
the  best  expansion  potential. 


►  Emphasize  Private  Seaor  versus  Govemment-to-Govemment  Participation 

USDA's  export  credit  guarantee  programs  will  focus  on  meeting  the  expanded  initiatives  of 
competitors  in  the  post-Uruguay  Round  environment.  In  addition,  the  strategy  calls  for  a  shift 
away  from  govemment-to-govemment  transactions  in  favor  of  private  sector  participation.  These 
credit  guarantees  increase  the  availability  of  credit  at  lower  interest  rates  because  the  Commodity 
Credit  Corporation  assumes  most  of  the  risk  of  nonpayment. 


»  Maximize  GA  TT  Permissible  Export  Assistance 

Under  the  Uruguay  Round  Agreement  on  Agriculture,  the  United  States  must  reduce  export 
subsidies  by  21  percent  in  volume  and  36  percent  in  value  compared  to  the  1986-90  base  period. 
By  2001,  export  subsidies  will  be  limited  to  $594  million.  USDA's  strategy  will  be  consistent 
with  these  commitments  to  the  fullest  extent  permissible  under  the  General  Agreement  on  Tariffs 
and  Trade  (GATT).  In  addition.  Congress  has  authorized  the  use  of  EEP  both  to  encourage  the 
commercial  sale  of  U.S.  agricultural  commodities  in  world  markets  at  competitive  prices  as  well 
as  to  discourage  unfair  trade  practices. 


►  Increase  Price/Credit  and  Risk  Assistance  Programmatic  Flexibility 

In  order  to  make  price/credit  and  risk  assistance  programs  more  responsive  to  changes  in  world 
market  conditions,  USDA  will  explore  options  to  increase  its  flexibility  in  operations  and 
procedures.   This  will  increase  the  programs'  efficiency  and  effectiveness. 

Consistent  with  Uruguay  Round  value  and  volume  reduction  commitments,  USDA  will  seek  to: 


USDA  Long-Urm  Agricuhural  Trade  Strategy 
FY  1996 


125 


increase  the  cost-effectiveness  of  export  subsidy  programs  by  encouraging  the  lowest 

possible  subsidies  to  achieve  the  maximum  level  of  subsidized  volume; 

increase  the  exporter's  flexibility  to  respond  to  changing  market  conditions; 

reduce  administrative  complexity  and  cost; 

provide  safeguards  against  fraud  and  exports  of  non-U. S.  products;  and 

be  consistent  with  U.S.  trade  policy  goals. 


►  Target  High  Growth  Emerging  Markets 

Export  credit  guarantees  could  do  more  to  increase  agricultural  exporu  by  targeting  higher  credit 
risk  emerging  mailcets.  For  some  countries,  economic  and  political  reforms  result  in  potentially 
high  market  growth,  but  the  countries  may  still  present  higher  short-term  credit  risk,  albeit 
balanced  with  an  acceptable  long-term  risk  outlook.  USDA's  export  credit  guarantee  programs 
will  be  made  more  effective  for  market  promotion  by  assisting  in  the  provision  of  credit  for 
potential  high-growth  emerging  markets  with  acceptable  risks  for  medium-term  repayment. 
Greater  programming  flexibility  to  tai]get  export  credit  guarantees  to  such  emerging  markets  could 
also  be  achieved  by  authority  to  consider  the  longer  term  economic  growth  and  development 
potential  of  a  country  when  evaluating  creditworthiness  in  making  credit  allocations.  Economic 
policy  reforms  in  developing  countries  that  promote  market-oriented  and  long-term  economic 
development  indicate  the  potential  for  future  growth  and  maricet  development.  These  reforms 
would  be  carried  out  in  conjunction  with  international  financial  institutions  such  as  the 
International  Monetary  Fund  and  Worid  Bank. 


*■         Seek  to  Ejqtand  Assistance  for  High-Value  Products 

Export  credit  guarantee  programs  will  be  more  effective  in  promoting  sales  of  U.S.  high-value 
and  value-added  products  if  products  with  limited  non-U. S.  content  could  be  covered  under  the 
programs.  At  present,  in  nearly  all  instances,  only  products  with  100  percent  U.S.  content  are 
eligible  for  guarantee  coverage.  Therefore,  many  high-value  products  with  only  minimal 
non-U. S.  components,  such  is  imported  sugar  and  spices,  arc  ordinarily  not  eligible.  Many  of 
the  export  opportunities  in  the  current  trading  environment  are  in  the  consumer-oriented  and  high- 
value  product  area.  Given  that  such  producu,  including  processed  foods,  contain  non-U. S. -origin 
content  as  part  of  the  final  product,  the  origin  restriction  impedes  the  ability  to  take  advantage  of 
export  opportunities  and  the  achievement  of  USDA  export  expansion  goals. 


►  Coordinate  Price/Credit  and  Risk  Assistance  with  Market  Access  Objectives 

USDA  will  coordinate  its  price/credit  and  risk  assistance  program  priorities  with  its  market  access 
priorities  to  maximize  the  effectiveness  of  international  trade  policy  activities. 


USDA  Long-term  Agricultural  Trade  Strategy 
FY  1996 


90-898  0-95 


126 


LONG-TERM  DEVELOPMENT 


-  BuUd  Sustainable  Export  Markets:  Technical  Assistance  and  Economic  Development 

The  linkage  between  sustainable  development  and  trade  is  based  upon  the  premise  that  U.S.  efforts 
to  share  technical  expertise  with  developing  countries  will  provide  the  tools  to  help  build  stable 
and  more  prosperous  economies  which  ultimately  will  stimulate  overseas  demand  for  U.S.  farm 
products.  As  less  developed  nations  surmount  the  barriers  of  hunger  and  poverty,  they  develop 
a  positive  identification  with  U.S.  institutions,  products,  and  services.  When  agricultural 
production  and  incomes  increase,  diets  and  nutrition  improve.  Rising  incomes  permit  developing 
countries  to  increase  their  food  imports  to  help  meet  their  growing  demands  for  more  and  different 
foods.  Experience  has  shown  that  countries  evolving  from  low  to  middle  income  status  have 
become  the  largest  growth  markets  for  U.S.  agricultural  exports. 

USDA  participates  with  international  organizations  in  global  efforts  on  environmental  and 
economic  sustainability,  genetic  resource  protection  and  development,  and  technology  diffusion, 
including  pest  and  disease  control.  USDA  will  apply  expertise  derived  from  its  longstanding 
commitment  to  enhancing  the  nutritional  status  of  U.S.  communities,  toward  enhancing  nutrition 
standards  in  developing  countries  and  emerging  markets,  thereby  cultivating  the  long-term 
potential  of  U.S.  agricultural  exports.  USDA's  food  aid  and  technical  assistance  programming 
will  follow  in  sequence  with  nutrition  activities  as  developing  markets  mature  and  demand 
elevates. 


►  Monitor  and  Assess  International  Food  Security 

USDA  will  monitor  and  assess  international  food  security  in  relation  to  global  food  aid  needs. 
The  majority  of  USDA's  foreign  food  assistance  is  currently  provided  through  the  P.L.  480 
program.  Food  aid  needs  could  double  over  the  next  decade,  even  with  reasonably  optimistic 
assumptions  about  recipient  countries'  ability  to  produce  their  own  food  or  to  have  the  fmancial 
capacity  to  commerciaUy  import  food.  USDA  is  examining  several  possible  scenarios  of  the 
projected  increasing  gap  between  food  aid  needs  and  availabilities  caused  primarily  by  the  rapid 
growth  in  food  aid  needs  and  secondarily  by  constrained  food  aid  budgets  in  donor  countries. 
USDA  will  approach  rising  food  aid  needs  with  the  goal  that  the  least  developed  among  recipient 
countries  can  graduate  from  grant  aid  to  concessional  aid,  ultimately  taking  their  place  as  full 
partners  in  the  marketplace. 


USDA  Long-term  Agricultural  Trade  Strategy 
FY  1996 


127 


►  Focus  on  Emerging  Markets 

The  Food,  Agriculture,  Conservation,  and  Trade  Act  of  1990,  as  amended,  provides  for  the 
implementation  of  programs  to  develop,  maintain,  or  expand  markets  for  United  States 
agricultural  exports  by  developing  and  enhancing  agricultural  systems  in  emerging  democracies 
through  the  administration  of  an  "Emerging  Democracies  Program. "  USDA  is  considering  a  shift 
in  its  focus  to  "Emerging  Markets." 

USDA  seeks  new  and  innovative  ways  to  integrate  the  emerging  markets  program  with  other 
USDA  initiatives.  For  example,  the  Cochran  Fellowship  Program  could  be  more  closely  linked 
to  USDA's  trade  strategy  efforts  by  including  emerging  markets  among  the  countries  eligible  to 
participate. 


►  Leverage  the  Trade/Investment  Nexus  through  International  Financial  Institutions 

USDA  seeks  to  strengthen  linkages  with  international  financial  institutions  and  international 
organizations  to  assist  U.S.  and  foreign  agricultural  businesses  in  developing  mutually  beneficial 
trade  and  investment  relationships.  A  pilot  program  for  USDA  employees  is  being  implemented 
to  facilitate  such  partnerships  and  to  provide  USDA  employees  with  opportunities  to  gain  requisite 
experience. 


►  Guide  and  Support  Research  Priorities 

USDA  will  guide  and  support  research  priorities  which  promote  the  long-term  growth  and 
comprtitiveness  of  U.S.  agricultural  exports.  USDA  will  take  a  leading  role  in  expanding  markets 
for  value-added  U.S.  exports  through  research  on  commodity  transformation  and  quality 
enhancement  by  means  of  novel  bioprocessing  systems,  value-added  "green"  technologies,  and 
sustainable  agricultural  and  forestry  practices.  Research,  technology  development,  and 
commercialization  to  ensure  biodiversity  and  also  to  expand  the  product  portfolio  of  domestic  U.S. 
agriculture  is  critical  to  maintaining  the  long-term  competitive  strength  of  the  U.S.  agricultural 
sector  globally. 

USDA  will  maintain  and  build  U.S.  strengths  in  high-technology  areas  through  international 
strategic  alliances  designed  to  accelerate  U.S.  technology  developments.  USDA  will  track 
emerging  technology  developments  worldwide  through  technology  surveillance  and  use  these 
technologies  to  supplement  U.S.  developments. 


To  increase  the  competitiveness  of  U.S.  agriculture  further,  USDA  will  support  basic  research  in 
order  to  continue  to  expand  the  knowledge  base  available  to  the  U.S.  food  and  agriculture  sector 


USDA  LoDg-tenn  Agricultural  Trade  Strategy 
FY  1996 


128 


as  a  foundation  for  applied  research  and  science-based  policy  decisions.  The  next  generation  of 
scientists  will  be  trained  to  use  and  further  expand  this  knowledge  base.  USDA  will  also  increase 
U.S.  competitiveness  through  the  development  of  systems  that: 

•  reduce  the  cost  of  production  and/or  increase  yields; 

•  reduce  the  risk  of  crop  failures  to  improve  reliability  of  supply;  and 

•  improve  the  quality  and  value  of  the  end-use  product  as  necessary  to  meet  the  ever 
changing,  more  informed,  and  sophisticated  expectations  of  foreign  customers. 

►  Coordinate  Long-term  Development  with  Market  Access  Objectives 

USDA  will  coordinate  its  long-term  development  program  priorities  with  its  market  access 
priorities. 


USDA  Long-Urm  AgricuhuraJ  Trade  Strategy 
FY  1996 


129 


rV.       COUNTRY  MARKET  STRATEGY  ANALYSIS 


COUNTRY  MARKET  STRATEGY  RECONCILIATION  PROCESS 

Priority  growth  markets  for  U.S.  agricultural  exports  are  cited  below  for  purposes  of  guiding 
dqjartment  operations,  which  tend  to  focus  on  agricultural  commodity  systems.  USDA  recognizes 
the  increasing  influence  of  global  consumer  markets  in  driving  international  market  demand  for 
all  U.S.  agribusiness  commodity  exports.  This  development  places  a  commensurate  priority  on 
the  assessment  of  global  geographic  market  factors,  on  a  country  market-oriented,  cross- 
commodity  basis  to  be  reconciled  against  traditional  product-focused  analyses.  USDA  uses  a 
reconciliation  process  to  resolve  potentially  conflicting  resource  allocation  priorities  between 
country  market  and  commodity  market  strategies.  Quantitative  and  qualitative  analyses  assist  in 
reconciling  global  geographic  market  priorities  with  commodity  market  priorities,  moderated  by 
risk  considerations.  The  portfolio  of  country  priorities  is  currently  under  review  and  will  continue 
to  be  analyzed  in  the  strategy  reconciliation. 


►  Country  Market  Segmentation 

USDA  has  identified  country  markets  in  the  Asia  Pacific,  NAFTA  and  emerging  market  regions 
as  currently  having  the  greatest  growth  and  development  potential  for  U.S.  agricultural  exports. 
USDA  will  focus  its  trade  and  market  development  resources  on  these  regions.  The  following 
countries  currently  represent  more  than  80  percent  of  U.S.  agricultural,  fish,  and  forest  product 
exports  globally. 

•  Leading  Growth  Markets 


Japan 

Thailand 

United  Kingdom 

China 

Philippines 

Italy 

Hong  Kong 

Australia 

Former  Soviet  Union 

Taiwan 

Canada 

Saudi  Arabia 

South  Korea 

Mexico 

Egypt 

Singapore 

Brazil 

Algeria 

Indonesia 

Germany 

Turkey 

Malaysia 

France 

Emerging  Growth  Markets 

Southern  Africa 

Vietnam 

India 

Central  America 

USDA  Long-Urm  AgricuhuraJ  Trade  Strategy 
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130 


Opemtionaliung  Strategy:  A  Country  Team  Approach 

•  Country,  Commodity,  and  Cross-Functional  Management  Integration 

The  USDA  has  developed  a  country  team  approach  to  deal  efficiently  with  country 
and  regional  issues.  This  approach  institutionalizes  country-based  issues 
management,  integrating  USDA-wide  analyses  and  experience  which  contribute 
towards  an  ongoing,  dynamic  trade  strategy.  Country  Teams  will  also  enhance 
strategic  communications  between  USDA  resources  and  expertise  overseas  and  in 
Washington,  better  supporting  resource  allocation  decisionmaking. 

Applying  the  LATS,  the  Country  Team  approach  will  facilitate  strategic 
communications  throughout  the  USDA  network,  reconciling  country  market 
analyses  with  traditional  commodity  systems  analyses.  This  approach  provides  a 
basis  for  integrating  strategic  decisionmaking  across  program  areas  and  among 
conunodity  grxjups.  Through  this  process,  USDA  is  refining  its  global  agribusiness 
commodity  systems  approach  to  strategy  analyses,  focusing  on  international 
consumer  demand  as  the  engine  driving  the  value  chain  linking  agricultural 
production  with  target  markets. 

•  Country  Market  and  Competitive  Analysis  Tools 

Widely  accepted  international  strategic  business  and  competitive  analysis  tools, 
derived  from  the  private  sector,  have  been  adapted  towards  developing  and 
updating  USDA's  international  agricultural  trade  strategy.  USDA  will  apply  these 
analytical  tools  through  the  Country  Teams,  supported  by  a  Strategic  Operations 
analytical  unit.  The  attached  graphs  and  country  maiket  analyses  illustrate 
applications  of  these  tools:  multivariate  portfolio,  growth-share  matrix,  and 
industry /competitive  analyses. 

Multivariate  portfolio  analysis  helps  to  evaluate  export  markets  and  to  suggest 
resource  allocation  decision  parameters  within  which  to  consider  the  applicability 
of  the  strategy  drivers  outlined  above.  The  following  graphs  compare  the  top  20 
markets  for  U.S.  agricultural  exports  by  juxtaposing  market  attractiveness  through 
the  year  2000  (suggested  by  quantitative  forecasts  of  import  demand  adjusted  by 
trade  policy  prognoses)  against  the  present  competitiveness  of  U.S.  agriculture 
(measured  by  current  relative  maiket  share).  As  country  market  rankings  and 
strategy  implications  vary  by  commodity,  the  portfolio  analysis  is  being  conducted 
on  both  global  and  commodity-specific  bases. 


USDA  Long-term  Agricultunil  Trade  Strategy 
FY  1996 


131 


Complementing  the  portfolio  analysis,  growth-share  matrix  analysis  lends  itself  to 
evaJuating  the  relative  competitive  position  of  U.S.  agriculture  in  specific  country 
and  commodity  markets.  In  addition  to  informing  the  portolio  analysis  with  regard 
to  competitive  considerations,  the  growth-share  analysis  lends  insight  into 
commodity  reporting  requirements  suggested  by  assessments  of  competitive  threat. 

Industry  and  competitive  analyses  formalize  field-derived,  local  strategic 
information  regarding  factors  of  competition  and  competitive  behavior,  suggesting 
strategic  options.  USDA  overseas  offices  will  contribute  towards  industry  and 
competitive  analyses  as  active  members  of  the  Country  Teams. 


USDA  Long-term  Agricuhural  Trade  Strategy 
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132 


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BUILD  SELECTIVELY 

•  specialize  around  limited 
strengths 

•  seeks  ways  to  overcome 
weaknesses 

•  withdraw  If  Indications  of 

•  sustainable  growth  are 
lacking 

LIMITED  EXPANSION 
OR  HARVEST 

•  look  for  ways  to  expand 
without  high  risk 

•  or,  minimize  investment 
and  rationalize  operations 

DIVEST  AND  REFOCUS 

•  reallocate  resources 

•  cut  fixed  costs 

•  focus  on  longer-term 
priorities,  or 

•  refocus  on  competitor 
Intelligence  and  reporting 

INVEST  TO  BUILD 

•  challenge  for  leadership 

•  build  selectively  on 
strengths 

•  reinforce  vulnerable  areas 

SELECTIVELY  MANAGE 
FOR  EARNINGS 

•  protect  existing  programs 

•  concentrate  Investments  in 
segments  where  yield  is 
good  and  risk  is  relatively 
low 

MANAGE  FOR  EARNINGS 

•  protect  position  in 
segments  with  greatest 
yield/  exports 

•  upgrade  product  line 

•  minimize  investment 

PROTECT  POSITION 

•  invest  to  grow  at  maximum 
digestible  rate 

•  concentrate  effort  on 
maintaining  strength 

BUILD  SELECTIVELY 

•  invest  heavily  in  most 
attractive  segments 

•  build  up  ability  to  counter 
competition 

•  emphasize  yield  to  mission 

PROTECT  AND  REFOCUS 

•  concentrate  on  attractive 
segments 

•  defend  strengths 

•  manage  current  market 

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V.   CONCLUSION:    UNIFIED  STRATEGIC  MANAGEMENT 


Export  growth  is  vital  to  U.S.  agriculture's  future,  and  a  sound  export  strategy  is  critical  to 
securing  the  nation's  competitiveness  in  the  global  marketplace.  USDA  has  responded  with  a 
dynamic,  not  static,  agricultural  trade  strategy  designed  to  adjust  flexibly  to  a  rapidly  changing 
international  trade  environment.  This  kind  of  effort  requires  a  coordinated,  USDA-wide,  and 
constantly  updated  strategic  management  process. 

The  USDA  international  trade  strategy  draws  upon  contributions  from  all  agencies  of  USDA  that 
have  a  potential  role  to  play  in  assisting  in  U.S.  export  growth.   It  helps  to  set  priorities  and  focus 


The  international  trade  strategy  management  process  is  not  designed  to  pick  winners  and  losers, 
or  to  direct  the  private  sector  in  its  export  endeavors.  Instead,  it  is  meant  to  provide  cost-effective 
assistance  in  partnership  with  the  private  sector  in  a  period  of  increasingly  tight  resources. 
Accordingly,  USDA's  international  trade  strategy  management  process  integrates  and  unifies 
various  strategic  management  initiatives,  under  the  bipartisan  direction  of  the  Administration  and 
Congress,  including: 

•  the  National  Performance  Review, 

•  the  Government  Performance  and  Results  Act, 

•  the  Trade  Promotion  Coordinating  Committee,  and 
the  Farm  Bill. 


The  National  Performance  Review  and  the  Government  Performance  and  Results  Act 

Under  Vice  President  Gore's  National  Performance  Review  and  the  Government  Performance  and 
Results  Act,  USDA  is  focusing  our  efforts  to  achieve  the  mission,  goal,  and  objectives,  outlined 
in  this  strategy  presentation.  All  USDA  agencies  are  in  the  process  of  developing  performance 
standards  to  measure  and  account  for  progress  on  specific  programs,  including  all  of  USDA  export 
and  trade-related  activities.  This  initiative  recognizes  that  the  programs  and  activities  that  were 
successful  yesterday  may  not  be  so  tomorrow.  USDA  recognizes  that  fact  and  is  committed  to 
responding  to  the  changing  needs  of  America's  agricultural  community. 


USDA  Long-term  Agricultural  Trade  Strategy 
FY  1996 


142 


Trade  Promotion  Coordinating  Committee  (TPCC) 

USDA  is  committed  to  strengthening  multi-agency  mechanisms,  incentives,  and  decisionmaking 
that  will  better  focus  government  talents  and  programs  on  maintaining  and  increasing  exports. 
To  this  end,  USDA  is  an  active  participant  in  the  Administration's  government-wide  Trade 
Promotion  Cooidinating  Committee  (TPCC).  In  formulating  USDA's  overall  strategy  to  increase 
U.S.  agricultural  exports,  it  is  essential  that  its  efforts  be  coordinated  with  those  of  the  many  other 
agencies  involved  in  the  TPCC. 


Global  Competitiveness  of  American  Agriculture:  Role  of  the  Farm  Bill 

The  export  successes  unfolding  today  are  the  first  harvest  of  years  of  bipartisan,  patient  and 
determined  efforts  at  trade  liberalization  and  strong  U.S.  market  development  activities  overseas. 
The  1985  farm  bill  was  the  most  export-oriented  farm  legislation  in  history  and  the  Food, 
Agriculture,  Conservation,  and  Trade  Act  of  1990  followed  along  the  same  guidelines.  It  is 
encouraging  that  this  great  boost  in  U.S.  agricultural  exports  comes  as  Congress  begins  to  fashion 
a  new  farm  bill. 

The  expanded  opportunities  opened  up  by  the  Uruguay  Round  Agreements  and  NAFTA  also  bring 
a  whole  new  set  of  challenges.  These  new  market  opportunities  are  also  available  to  other 
producers  throughout  the  world,  and  the  United  States'  competitors  are  gearing  up  to  take 
advantage  of  the  growing  global  trade.  This  is  not  the  time  to  withdraw  support  for  U.S. 
agricultural  exports. 

U.S.  agriculture  must  meet  this  comprtition  head  on.  Otherwise,  the  United  States  will  relinquish 
hard-won  market  opportunities,  as  the  nation's  competitors  aggressively  expand  their  export 
efforts  and  retool  their  programs  for  the  new  global  trade  environment. 

U.S.  agriculture's  competitors  are  not  standing  still.  Longstanding  competitors  like  the  EU  and 
Canada  are  using  maricet  promotion  and  credit  programs  as  well  as  monopoly  marketing  boards 
to  compete  aggressively  for  international  markets.  As  discussed,  the  EU  spent  nearly  as  much  to 
subsidize  its  wine  exports  in  fiscal  year  1995  --  $93  million  -  as  USDA  spends  on  the  entire 
MPP.  In  its  1996  budget,  Canada  announced  a  new  program  for  up  to  $732  million  in  additional 
credit  guarantees  for  agricultural  products,  including  $513  million  for  wheat  and  barley  through 
the  Canadian  Wheat  Board.  Even  less  traditional  exporters  are  becoming  more  aggressive.  For 
example,  Chile  plans  to  increase  its  funding  for  export  market  promotion  to  approximately  $21 
million  in  1995  from  $3  million  in  1993. 

USDA's  marketing  programs  can  help  position  producers  to  excel  as  strong  independent 
participants  in  the  global  marketplace.  Market  development  and  promotion  efforts  to  assist  the 
private  sector  in  its  export  activities,  such  as  the  MPP  and  the  FMD  Program,  remain  important 


USDA  Long-Unn  Agriculturai  Trade  Strategy 
FV19% 


143 


in  the  post-Uniguay  Round  trading  environment.  The  Administration  is  committed  to  making 
these  programs  more  effective  in  promoting  U.S.  agricultural  exports. 

The  Uruguay  Round  Agreements  offers  unprecedented  new  opportunities  for  U.S.  agriculture,  and 
market  development  and  promotion  programs  can  help  the  fami  sector  take  advantage  of  these 
opportunities.  The  United  States  must  not  unilaterally  eliminate  export  assistance  to  U.S. 
agriculture  at  a  time  when  the  competition  is  increasing  its  investments  in  these  areas.  By 
identifying  new  customers  for  producers  and  facilitating  efforts  to  meet  the  needs  of  those 
customers,  we  also  strengthen  rural  economies. 

Reductions  in  market  development  and  market  promotion  resources  would  force  hard  decisions 
in  the  choice  of  markets  and  commodities  towards  which  to  focus  export  expansion  efforts.  Such 
reductions  have  been  ongoing  for  the  past  several  yean.  The  United  States  risks  retrenching 
agricultural  market  promotion  and  export  assistance  endeavors  at  a  time  when  the  competition  is 
increasing  its  efforts  and  funding  for  comparable  programs.  In  an  extreme  budgeury  scenario, 
American  Agriculture  would  face  significant  disadvantages  posed  by  increasingly  aggressive, 
promotion-sensitive  and  government-supported  global  competition  approaching  the  21st  century. 
Now  is  not  the  time  for  unilateral  disarmament. 

USDA  will  continue  to  work  closely  with  the  Congress  to  assure  that  everyone  is  fully  aware  of 
the  implications  of  such  retrenchment.  Reduced  export  assistance  resources  could  be  detrimental 
not  only  to  U.S.  agricultural  pitxhicers  and  the  agricultural  economy  but  also  to  the  U.S.  economy 
and  employment  as  a  whole.  With  exports  expected  to  represent  a  growing  share  of  farm  and 
rural  income,  the  agricultural  industry's  future  will  hinge  on  our  successes  in  the  emerging 
international  marketplace. 

U.S.  agriculture's  increasing  successes  in  the  international  marketplace  to  date  reflect  a  decade 
of  bipartisan  efforts  to  put  American  agriculture  on  a  level  playing  field  in  the  international 
marketplace.  Recent  free-trade  agreements  are  landmark  accomplishments.  The  continuing 
profitability,  viability,  and  future  of  American  agriculture  depends  on  the  ability  to  be  competitive 
in  the  world  market.  In  the  face  of  unprecedented  opportunities  and  challenges,  continuing 
collaboration  between  the  Administration  and  Congress  towards  a  bold,  comprehensive  export 
strategy  will  ensure  America's  leadership  in  the  global  food  and  agricultural  markets  of  the  future. 


USDA  Long-term  Agricuhural  Trade  Strategy 
FY  1996 


144 


ACKNOWXEDGEMENTS 


Dan  Gliclcman 
Richard  Rominger 
Paul  Drazek 
Keith  Collins 


Secretary.  U.S.  Department  of  Agriculture 
Deputy  Secretary 
Special  Assistant  lo  the  Secretary 
Chjef  Eco 


Contributing  Mission  Areas 

Eugene  Moos 
Ellen  Haas 
JiULong 
James  Lyons 
P.  Scott  Shearer 
Karl  Stauber 
Michael  R.  Taylor 
Wardell  Townsend.  Jr. 
Shirley  Watkins 


Under  Secretary  for  Farm  and  Foreign  Agricultural  Services.  Lead 
Under  Secretary  for  Food,  Nutrition  and  Consumer  Services 
Under  Secretary  for  Rural  Economic  and  Community  Development 
Under  Secretary  for  Natural  Resources  and  Environment 
Assistant  Secretary  for  Congressional  Relations.  Acting 
Under  Secretary  for  Research.  Education  and  Economics 
Under  Secretary  for  Food  Safety,  Acting 
Assistant  Secretary  for  Administration 
Under  Secretary  for  Marketing  and  Regulatory  Programs.  Acting 


Executive  Management 


August  Schumacher,  Jr 
LATS  96  Director 


Administrator,  Foreign  Agricultural  Service  (FAS) 


Terrence  Barber 


FAS  Strategic  Operations 


LATS  96  Team 


Barry  Abromovage 
Karen  Ackerman 
Dale  Cougot 
WendeU  Dennis 
Mike  Dwyer 
Karen  Halliburton 
Robert  Knapp 
John  NutJall 
Patrick  O'Brien 
David  Rosenbloom 
Robert  Tse 
John  Winski 
Paula  Lane 
Anne  Player 
Lisa  Washington 
Other  Members 


Chief  Compliance  Officer,  FAS  Strategic  Operations 

Economist,  Economic  Research  Service  (ERS) 

Economist,  FAS  Strategic  Operations 

Economist,  FAS  Strategic  Operations 

Economist,  FAS  Strategic  Operations 

Economist,  FAS  Strategic  Operations,  Project  Coordinator 

Economist,  FAS  Strategic  Operations 

Economist,  FAS  Strategic  Operations 

Director,  ERS  Commercial  Agriculture  Division 

Economist,  FAS  Strategic  Operations 

Economist.  FAS  Strategic  Operations 

Executive  Secretary,  Agricultural  Policy  Advisory  Committee 

Program  Speciahst,  FAS  Strategic  Operations 

Program  Specialist,  FAS  Strategic  Operations 

Secretary,  FAS  Strategic  Operations 

Management  and  Staff  of  the  Foreign  Agricultural  Service 


145 


Olhtr  Special  Contribulions  and  Consultations 
AdvisgQ  Mid  CoMvilMiivt  Bodies 

USDA  Agricultural  Pobcy  Advisory  Committee  for  Tr«de 
USDA  Agricultural  Technical  Advisor>  Committees  for  Trade 
Office  of  the  Uiuted  Stales  Trade  Representative 

Fftnn  MKJ  Fortien  Agntulwrnl  ScnKt 

James  Schroeder  Deputy  Uixler  Secretary 

Dallas  Smith  Deputy  Under  Secretary 

Gene  Vickers  Confidential  Assistant 

Thomas  Lederer  Special  Assistant 

Grant  Buntrock  Acting  Administrator,  Consolidated  Farm  Service  Agency 

Timothy  Galvin  Assistant  Administrator.  Foreign  Agricultural  Service 

Christopher  Goldthwait  General  Sales  Manager 

Food.  Nutrition,  and  Consumer  Services 

Shirley  Watkins  Deputy  Under  Secretary,  former 

Food  Safety 

Richard  Mikiu  Food  Safety  Inspection  Service  (FSIS) 

Joan  Mondschein  FSIS 

Marketing  and  Repulalorv  Programs 

Lon  Halamiya  Administrator.  Agricultural  Marketing  Service 

Lonnie  King  Acting  Administrator.  Animal  and  Plant  Health  Inspection  Service  (APHIS) 

John  Greifer  APHIS 

Dan  Sbeesley  APHIS 

James  Baker  Acting  Administrator.  Grain  Inspection  Packers  and  Stockyard  Administration 

John  Pitchford  Grain  Inspection  Packers  and  Stockyard  Administration  (GDPSA) 

Natural  Resources  and  F.nvironment 

Paul  Johnson  Administrator.  Namral  Resource  Conservation  Service 

Jack  Thomas  Chief.  Forestry  Service 

Val  Mezainis  Deputy  Chief,  International  Forestry,  Forestry  Service 

Research.  Education,  and  Economics 

Floyd  Horn  Deputy  Under  Secretary 

William  Carlson  Acting  Administrator.  Cooperative  Stale  Research  Education  and  Extension  Servit 

James  Cook  Cooperative  State  Research  Education  and  Extension  Service  (CREES) 

Earl  Teeter  CREES 

John  Dunmore  Acting  Administrator,  Economic  Research  Service  (ERS) 

Patrick  OBrien  ERS 

Murrell  K.  Darwin  Acting  Administrator,  Agricultural  Research  Service 

Ruxton  Villet  Agricultural  Research  Service 

Rural  Economic  and  Community  DevelopmgDt 

Michael  Dunn  Acting  Deputy  Under  Secretary 

Dayton  Watkins  Acting  Administrator,  Rural  Business  and  Cooperative  Development  Service 


146 

ADDENDUM:   STRATEGIC  PROFILES 

A.  OUTLOOK  FOR  U.S.  AGRICULTURAL  EXPORTS  TO  THE  21ST  CENTURY 

B.  COUNTRY  MARKET  HIGHLIGHTS':    THE  PACIFIC  RIM 

►  JAPAN 

►  CHINA 

►  SOUTH  KOREA 

►  INDONESIA 
f  VIETNAM 

C.  COMMODITY  SPECIFIC  COUNTRY  MARKET  ANALYSIS 

►  FOREST  PRODUCTS  EXAMPLE:    COMBINED 

►  HORTICULTURAL  AND  TROPICAL  PRODUCTS  EXAMPLE:    APPLES 

D.  COMMODITY  CATEGORY  ANALYSIS 

CONSUMER  FOODS  EXAMPLE  :     THE  FROZEN  FOODS  MARKET 

►  BULK  COMMODITY  EXAMPLE:    THE  CHINA  MARKET 

E.  CROSS-COMMODITY  ANALYSIS 

►  GRAIN  AND  MEAL  SHIPMENTS  IN  THE  FORM  OF  MEAT 


'      As  provided  by  TiUe  VI  of  the  1990  Food,  Agriculture,  Conservation,  and  Trade  Act, 
portions  of  Addendum  section  B  have  been  designated  as  "market  sensitive",  hence  confidential 
within  the  meaning  of  the  statute.   The  designation  of  market  sensitivity  is  limited  to  this  secuon,  and 
the  market  sensitive  portions  are  included  in  the  version  of  the  LATS  submitted,  for  review  as 
appropriate,  to  Congressional  Intelligence  Committees.   The  statute  states  that  the  'Secretary  may 
designate  parts  of  the  report .  .  .  as  confidential  and  [that]  such  parts  shall  not  be  released  to  the 
general  public,  if-  a)  the  Secretary  determines  that  the  release  of  such  information  would 
disadvantage  the  United  States  with  respect  to  its  competitors  in  specific  foreign  markets;  or  b)  the 
Secretary  determines  that  such  information  is  confidential  business  information. ' 


147 


OUTLOOK  FOR  U.S.  AGRICULTURAL  EXPORTS  TO  THE  21ST  CENTURY 


148 


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COUNTRY  MARKET  HIGHUGHTS:    THE  PACIHC  RIM 

JAPAN 

CHINA 

SOUTH  KOREA 

INDONESIA 

VIETNAM 


166 


COUNTRY  MARKET  HIGHUGHTS:    THE  PACIFIC  RIM 

USDA's  strategic  approach  to  the  Pacific  Rim  exemplifies  a  sequential  entry  strategy  and  serves 
to  illustrate  the  relationship  between  emerging  and  growth  markets,  some  of  which  are 
graphically  highlighted. 

The  Pacific  Rim  can  be  divided  along  geographical  lines  into  two  sectors:  North  Asia  and 
Southeast  Asia.  North  Asia  consists  of  Japan,  South  Korea,  China,  Hong  Kong,  Taiwan,  and 
Eastern  Siberia.  Southeast  Asia  consists  of  Singapore,  Indonesia,  Malaysia,  Thailand,  the 
Philippines,  Vietnam,  Australia,  and  New  Zealand.  This  market  segmentation  of  the  region 
lends  itself  to  the  application  of  a  market  development  strategy. 

Japan  is  the  largest  market  for  U.S.  agricultural  exports  and  is  expected  to  be  the  leading  market 
for  new  U.S.  export  sales  through  the  year  2000.  It  is  also  the  most  advanced  market  in  terms 
of  the  level  of  consumer  and  retailing  sophistication.  During  the  last  several  decades,  Hong 
Kong,  Taiwan,  South  Korea,  and  Singapore  have  emerged  as  the  second  tier  of  developing 
markets  in  the  Pacific  Rim.  Commonly  known  as  the  four  Asian  tigers,  these  countries 
experienced  similar  economic  growth  and  industrial  "take-offs"  during  the  late  1970s  and  early 
1980s. 

The  third  tier  of  developing  markets  is  located  in  Southeast  Asia.  These  are  the  ASEAN 
countries  of  Indonesia,  Malaysia,  Thailand,  and  the  Philippines,  whose  economies  have  been 
rapidly  growing  in  the  last  decade.  Long  in  the  shadow  of  more  established  trade  with  other 
Pacific  Rim  countries,  these  markets  are  only  now  beginning  to  be  seriously  recognized  for  their 
near-term  opportunities.  Vietnam's  adaptation  of  successful  economic  policies  of  its  Asian 
neighbors  is  making  it  the  next  market  opportunity  in  the  region  over  the  longer-term. 

The  China  market  is  the  hardest  to  predict  of  all  Pacific  Rim  markets.  While  its  sheer  size  has 
made  it  an  important  player  in  the  global  marketplace  for  the  last  20  years,  economic  reforms 
in  the  last  decade  are  generating  the  country's  true  market  potential. 


USDA  Lons-tenn  Agricultural  Trade  Strategy 
FY  1996 


167 


COVNTRY  MARKET  HIGHUGHTS 
JAPAN 


168 


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215 


Changes  Favoring  the  Expansion  of  U.S.  Meat  Exports 

Countries  may  choose  to  import  the  inputs  such  as  feed  grains  to  produce  high-value  foods 
(such  as  meat),  or  they  can  import  high-value  foods  directly.    In  a  market  economy,  the 
consumer  end  product  will  be  obtained  at  the  lowest  cost.    Since  the  mid  1980s,  economic, 
trade  liberalization,  and  technology  developments  have  favored  the  export  of  meat  relative  to 
feed  grains. 

Long  distance  shipments  of  chilled  meat  have  become  feasible  through  technological 
developments,  such  as  the  reduction  of  microbial  contamination  in  slaughter  houses  and  the 
development  of  vacuum  packing  and  refrigerated  shipping  containers  used  in  the  processing 
and  transportation  of  chilled  meat.   These  developments  also  reduced  the  cost  of  shipping 
meat  and  poultry  relative  to  shipping  feed  grains.    Dr.  Etermot  Hayes  of  Iowa  State 
University  estimates  the  transportation  cost  of  shipping  boxed  pork  to  Japan  is  now  about 
equal  to  the  transportation  cost  of  its  feed  grain  equivalent.    No  comparable  technological 
change  has  lowered  the  cost  of  shipping  bulk  grains. 

Widespread  trade  liberalization  is  the  second  development  favoring  the  overseas  shipment  of 
meat.   The  Beef-Citrus  Agreement  with  Japan  and  a  similar  liberalization  with  South  Korea 
opened  the  two  markets  for  U.S.  meat  exports  and  lowered  the  cost  of  U.S.  meat  through 
lower  tariffs.   Similarly,  trade  liberalization  occurred  in  other  new  markets  such  as  Mexico. 
The  trend  toward  more  open  trade  is  expected  to  continue  in  the  other  growing  economies  of 
Asia  and  Latin  America,  especially  as  the  political  influence  of  the  consumption-oriented 
urban  middle  class  continues  to  grow.   The  recent  political  changes  in  Japan  are  an  example 
of  the  rising  influence  of  prosperous,  urban  middle-class  consumers. 

The  Third  Reason  FaToring  Meat  Shipments  is  Economic  in  Nature 

Sustained  rapid  economic  growth  in  Asia,  and  more  recently  in  Mexico,  is  creating  a 
growing  middle  class  with  rising  income.   Rising  per  capita  income  throughout  Asia  is 
resulting  in  diets  changing  from  grain-based  staples  such  as  rice  to  substantially  greater 
consumption  of  meat,  fresh  fruit,  and  vegetables.   This  rising  consumer  demand  for  meat 
could  be  met  through  the  development  of  domestic  meat  production.   However,  limits  to  the 
intensive  use  of  land  and  rising  environmental  costs  are  major  constraints  to  boosting 
domestic  meat  production  in  many  densely  populated  countries.   In  contrast,  economic 
factors  favoring  greater  U.S.  exports  of  meat  are:  (1)  the  huge  scale  economies  of  the  U.S. 
meat  industry;  and  (2)  technological  developments  that  make  long  distance  shipment  of 
chilled  meat  feasible  and  cost  competitive  with  a  meat  importing  country's  domestic  meat 
production.   These  developments  encourage  increased  indirect  exports  of  grain  in  the  form  of 
meat  rather  than  direct  exports  of  feed  grain  to  produce  meat  in  meat  deficit  countries. 

Continued  Growth  of  U.S.  Meat  Exports  Expected 

Greater  meat  consumption  abroad  and  the  shift  toward  the  indirect  export  of  U.S.  feed  grains 
in  the  form  of  meat  are  expected  to  continue..  Continued  rising  U.S.  meat  exports  and  flat 
direct  exports  of  coarse  grains  and  oilseed  meal  could  mean  that  the  coarse  grain  equivalent 


216 


of  meat  exports  share  of  total  coarse  grain  exports  will  rise  more  than  50  percent  to  a  14- 
percent  share  of  total  coarse  grain  exports.   Similarly,  the  percentage  of  the  oilseed  meal 
equivalent  of  meat  exports  could  rise  more  than  40  percent  to  a  24-percent  share  of  total 
oilseed  meal  exports  by  the  end  of  this  century. 

The  Cargill  study  calculated  the  com  and  soybean  meal  equivalent  of  meat,  poultry,  and 
dairy  product  exports.    It  concluded  that  the  indirect  export  of  grain  and  meal  grew  faster 
than  direct  exports.    According  to  Cargill,  the  com  and  soybean  meal  equivalent  of  meat, 
poultry,  and  dairy  product  share  of  com  and  soybean  meal  exports  grew  from  16  to  20 
percent  for  com,  and  from  32  to  36  percent  for  soybean  meal  between  1985  and  1991. 

Benefits  of  High-Value  Exports:  200,000  More  Rural  Jobs 

The  shift  toward  greater  exports  of  high-value  foods  such  as  meat  instead  of  feed  grain  has 
major  beneficial  implications  for  the  U.S.  rural  economy.   First,  expanding  exports  of  red 
meat  and  poultry  expands  domestic  demand  for  feed  grain  and  oilseed  meal.   Second,  the 
income  multiplier  effect  from  high-value  exports  is  greater  than  from  bulk  commodity 
exports  (2.88  versus  1.86).   This  means  dollar-for-dollar,  high-value  exports  generate  more 
jobs  than  exports  of  bulk  commodities. 

Based  on  the  different  multiplier  effects,  E>r.  Hayes  concludes  that  if  the  U.S.  exported  meat 
instead  of  the  feed  grains  used  to  produce  meat  in  foreign  markets,  U.S.  agricultural 
employment  would  increase  by  approximately  50  percent.   According  to  the  Cargill  study, 
U.S.  meat  exports  already  generate  approximately  200,000  jobs.   This  represents  10.5 
percent  of  all  jobs  in  the  meat,  poultry,  and  dairy  industries.   Finally,  Cargill  estimates  the 
continued  growth  of  U.S.  meat  exports  will  create  20-30  thousand  new  jobs  each  year. 
Because  the  meat  and  poultry  processing  industry  is  located  in  rural  areas  throughout  the 
United  States,  these  additional  jobs  have  a  major  positive  impact  on  U.S.  rural  communities. 

In  summary,  "expanding  meat,  poultry,  and  dairy  product  exports  increases  exports  of  grain 
and  oilseed  ...  meal,  but  in  a  different  form.   They  are  embodied  in  the  livestock  and  poultry 
products  that  are  exported."  [Cargill  Study:  April  1993  p,  FV  12]   Indirect  exports  of  coarse 
grain  in  the  form  of  meat  and  poultry  expandol  from  a  two  percent  share  of  total  coarse 
grain  in  the  1970s  to  9  percent  in  1992,  and  are  projected  to  reach  14  percent  by  the  end  of 
this  century. 

Indirect  exports  of  oilseed  meal  make  up  an  even  greater  proportion  of  total  oilseed  meal 
exports  rising  from  3  to  8  percent  in  the  1970s  to  17  percent  in  1992.   They  are  expected  to 
reach  24  percent  by  the  end  of  this  century. 

United  States  agricultural  exports  are  changing  in  form  from  bulk  grain  and  meal 
commodities  to  high-value  foods  such  as  meat  and  poultry.   Or  as  E>r.  Hayes  states,  "[beef, 
poultry,  and]  hogs  can  be  viewed  as  opportunities  for  repackaging  com  [and  meal]  as  meat." 
These  repackaged  coarse  grains  and  meal  form  a  growing  segment  of  total  U.S.  grain  and 
meal  exports. 


217 


GRAIN  AND  MEAL  SHIPMENTS  IN  THE  FORM  OF  MEAT 


U.S.  exports  of  grain  and  meal  shipped  in  the  form  of  beef,  pork  and  poultry  meat  continue 
to  grow,  reaching  more  than  10  percent  of  total  direct  and  indirect  grain  and  meal  exports  in 
1992.    Recent  analyses  by  FAS  and  the  agribusiness  community  conclude  that  indirect  sales 
are  the  fastest  growing  segment  of  bulk  commodity  exports  and  will  become  even  more 
important  through  the  end  of  this  century.    This  article  investigates  the  reasons  behind  this 
changing  composition  of  the  U.S.  grain  and  meal  trade. 


Indirect  U.S.  grain  and  meal  exports  in  the  fonn  of  beef,  pork  and  chicken  account  for  a 
rising  share  of  total  (direct  and  indirect)  grain  and  meal  exports.    Since  1985,  exports  of 
coarse  grains  in  the  form  of  meat  tripled  their  share  of  total  coarse  grain  exports,  rising  to  9 
percent  in  1992.    Exports  of  oilseed  meal  in  the  form  of  meat  is  even  larger,  accoimting  for 
17  percent  of  total  meal  exports  last  year.    Rising  indirect  exports  of  coarse  grains  and  meal 
could  reach  14  and  24  percent  of  total  shipments,  respectively,  by  1998.   Recent  analyses  by 
FAS,  Cargill  Inc.,  and  Dr.  Dermot  Hayes  of  Iowa  State  University  indicate  indirect 
shipments  are  the  fastest  growing  segment  of  bulk  commodity  exports  and  that  the  failure  to 
include  these  sales  increasingly  underestimates  the  total  value  of  grain  and  meal  exports.' 

The  rise  of  grain  exports  in  the  form  of  meat  reflects  revolutionary  changes  in  the  profile  of 
U.S.  agricultural  exports.   For  nearly  a  decade,  the  composition  of  U.S.  agricultural  exports 
has  been  shifting  toward  high-value  consumer  foods.   The  consumer  food  segment  of  U.S. 
overseas  shipments  is  growing  faster  than  either  bulk  or  intermediate  exports,  such  as  coarse 
grains  and  oilseed  meal.    In  1992  consumer  foods  accounted  for  32  percent  of  all  U.S. 
agricultural  exports-up  from  12  percent  in  1980.   Since  1985,  consumer  food  exporu  grew 
an  average  of  16  percent  each  year.    In  1993,  the  value  of  consumer  food  exports  is  expected 
to  set  another  record  for  the  seventh  consecutive  year.   Based  on  current  trends,  consumer 
food  exports  should  continue  to  account  for  most  of  the  growth  in  U.S.  agricultural  exports 
and  could  be  equal  to  bulk  exports  in  value  by  the  end  of  this  decade. 

This  shift  toward  high-value  exports  has  important  implications  for  U.S.  agricultural  exports 
and  its  rural  economy.   High-value  exports  such  as  meat  are  not  increasing  at  the  expense  of 
feed  grains  and  meal.   Instead,  this  development  means  the  composition  of  U.S.  agricultural 
exports  is  changing  from  bulk  grain  inputs  used  to  produce  high-value  foods  to  the  direct 
export  of  high-value  foods  such  as  meat  and  poultry. 


'For  purposes  of  this  analysis  the  grain  equivalent  of  meat  exports  was  determined  by 
using  the  following  conversion  ratios:  Coarse  grain  (Beef:  4.43  lbs  of  grain  for  1  lb  of  beeO 
(pork:  4.8)  (chicken:  1.89);  OUseed  meal  (Beef:  0.965  lbs  of  oUseed  meal  for  1  lbs  of  beeO 
(pork:  0.987)  (chicken:  0.812).  Sources  for  these  ratios  are  the  Economic  Research  Service 
of  USD  A,  Texas  Cattle  Feeders  Association,  and  the  agricultural  economics  departments  of 
Purdue  and  Oklahoma  State  universities. 


218 


CROSS-COMMODITY  ANALYSIS 
GRAIN  AND  MEAL  SHIPMENTS  IN  THE  FORM  OF  MEAT 


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