While FAIR May Modestly Increase U.S. Exports, International Factors Are More Important

Agricultural experts predict that FAIR’s domestic policy reforms will likely help expand U.S. agricultural exports, though minimally. Agricultural Exports

The extent to which FAIR’s domestic policy reforms may modestly increase exports is dependent on the degree to which farmers—who were previously constrained by pre-FAIR policies that restricted acreage and planting decisions—add additional land to production and use FAIR’s planting flexibility to respond to international and domestic market conditions. This growth is expected to be largely due to (1) increased demand in East and Southeast Asian nations and in other regions and (2) market opening brought about by Uruguay Round agreements and associated reforms of other nations’ agricultural programs. In addition to Uruguay Round and bilateral trade liberalization (such as the U.S.-Japan beef and citrus agreement), unilateral policy changes have also significantly liberalized the world trading environment. To address this issue, we reviewed the evidence regarding the extent to which the programs benefit the overall U.S. economy, benefit the U.S. agricultural sector and specific U.S. commodities, counter competitor nations’ agricultural export programs, and promote U.S. trade negotiating objectives. Program performance under past conditions may not always be helpful in predicting future program contributions. Nevertheless, we identified applicable economic research and principles as well as expert opinion that provide an indication of the future contributions of these programs in the four key areas previously outlined. Limited Evidence Exists That U.S. We found that because of the lack of transparency in other competitor nations’ export assistance efforts, it is difficult to verify how effectively U.S. export programs counter these foreign practices. While FAIR’s domestic policy reforms removed a primary benefit associated with most U.S. export assistance programs—the exporting of surplus stocks generated by domestic price supports—program proponents state that U.S. agricultural export assistance programs continue to have relevance because they benefit the overall U.S. economy, benefit the agriculture sector and/or specific commodities, counter competitor nations’ agricultural export assistance programs, provide leverage to support U.S. trade negotiating objectives. Matter for Congressional Consideration

Given the mixed evidence concerning the continued relevance of U.S. agricultural export assistance programs, their decreased funding levels, and the trend toward increased liberalization of global agricultural trade from which the U.S. agricultural sector is likely to benefit with or without further government support, the Congress may wish to reassess the continued viability and/or focus of the programs the next time these programs are reviewed. The Federal Agriculture Improvement and Reform (FAIR) Act of 1996 did not reauthorize the SOAP and COAP programs.
Why GAO Did This Study

Pursuant to a congressional request, GAO assessed: (1) the way in which the 1996 Federal Agriculture Improvement and Reform Act (FAIR) will likely affect U.S. agricultural exports; and (2) the continued relevance of U.S. agricultural export assistance programs.

What GAO Found

GAO noted that: (1) agricultural experts generally expect that FAIR's domestic policy reforms will modestly contribute to increased U.S. agricultural exports; (2) the extent to which FAIR's domestic reforms increase exports is dependent on the degree to which farmers add additional land to production and use FAIR's planting flexibility to respond to international and domestic market conditions; (3) much of the forecasted growth in U.S. agricultural exports is expected to come from: (a) the anticipated rise in income levels in East and Southeast Asian nations and other regions; and (b) the liberalization of agricultural markets brought about by the 1994 Uruguay Round trade agreements, which brought agriculture under multilateral disciplines for the first time, and by unilateral policy changes of other nations; (4) FAIR's domestic policy reforms remove a primary benefit associated with most U.S. export assistance programs--the exporting of surplus stocks generated by domestic price supports; (5) nevertheless, program proponents maintain that U.S. agricultural export assistance programs have continued relevance because they benefit the overall U.S. economy, benefit the U.S. agricultural sector, counter competitor nations' agricultural export programs, and promote U.S. trade negotiating objectives; (6) program performance under past conditions may not always be helpful in predicting future program relevance because of changing conditions in the global trading environment, such as Uruguay Round trade liberalization, or the potential for commodity supply and price volatility; and (7) nevertheless, using applicable economic research and expert opinion, GAO's review provides an indication of these programs' future contribution in four key areas: (a) with regard to the U.S. economy, no conclusive evidence exists that these programs have measurably expanded aggregate employment and output or reduced the trade and budget deficits; (b) concerning the U.S. agricultural sector, while U.S. agricultural export assistance programs may provide some income and employment benefits to the sector, there is limited evidence of these benefits; (c) regarding competitor nations' programs, the lack of transparency in these nations' agricultural export assistance efforts makes it difficult to conclusively determine how effectively U.S. export programs counter these foreign practices; and (d) concerning U.S. trade negotiating objectives, there are widely divergent views about the amount of leverage these programs provided in the past.