Review in Europe To See Whether Cost and Balance-of-Payments Benefits Could Be Realized by Increasing the Use of U.S. Agricultural Commodities

Published by the Government Accountability Office on 1971-07-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                      WA§l4INGTOM,   D.C.


            B-172539                                                    JUL 2 2 19

            Dear Mr. Secretary:

                   The General Accounting Office (GAO) is performing a Bv.iew in
            Europe to see whether cost end balance-of-payments        benefits could be
            realized by increasing the use of U.S. agricultural        commodities in
            lieu of offshore procurements to satisfy military        requirements in
                   Our European Branch has informed us that the European Exchange
            System (EES), which is part of the Army and the Air Force Exchange
            Service and a non-appropriated    fund activity    in Europe, uses approxi-
            mately 820,000 pounds of coconut oil to produce about 2.2 million
            gsllonsiof   imitation ice cream annually,      The purchase of this coconut
            oil, a net import item, adversely affects our Nation*s balance-of-
            payments position by about $200,000 annually.

                  In view of the increasing inventory of surplus butter (presently
            in excess of 100 million    pounds), we inquired of EES if unsalted
            butter might be substituted    in place of coconut oil.   We are advised
            that butter is the desired commodity in the manufacture of ice cream
            but that coconut oil was substituted     because of price considerations.
            The amount of unsalted butter needed to replace the coconut oil is
            about 1,360,000 pounds per year,      In order to be competitive  with
            coconut oil, the unsalted butter will have to be offered at 16 cents
            per pound, f.o.b. New Jersey.
                  While we recognize that the price E&S would be willing  to pay
            for unsalted butter is considerably less than the support costs
            incurred by the Department, it seems to us that this is still   more
            advantageous then maintaining  a substantial supply of surplus butter,
            which imposes budgetary costs for storage and handling.

                  We understand that the Department recently initiated  a program
            to make butter for export sales available on en announced price basis,
            which will bring greater returns then the 16 cents that EES is willing
            to pay. Nevertheless,    we believe that the EES offer is worthy of
            further exploration   so long as the more advantageous sales programs
            do not deplete the,supply of surplus butter.


              Department of Defense officials advise us that additional care
        must be exercised in the shipment, handling and storage of butter as
        comparedwith coconut oil.    Werecognize that although EFS is tilling
        to pay 16 cents per pound for unsalted butter (f.o.b. New Jersey),
        the Department of Defense may ask for a lower price in view of the
        need for refrigerated shipment and storage as well as for closer
        managementof stocks to keep butter from turning rancid. Despite the
        additional cost considerations, we estimate budgetary benefits to the
        Depertment of Agriculture of about $200,000 annually for EES*s poten-
        tial use of unsalted butter even at a 14 cents per pound price. A
        subsidiary benefit to the Nation's balance-of-payments position would
        also be realized.
              In view of the economic benefits possible, we suggest that the
        Department of Agriculture explore the possibilities  of making unsalted
        butter available to the EESfor use in the preparation of ice cream.
        We understand that similar situations exist in other parts of the
        world, both in military and exchange activities.    We therefore suggest
        that the Department of Agriculture query the Department of Defense and
        the military exchange services to determine additional potential for
        use of unsalted butter in place of coconut oil in the manufacture of
        ice cream.
             We would appreciate receiving the Department~s views and advice
        as to any action taken or contemplated.
             Copies of this letter are being sent today to the Subcommittee
        on Foreign Operations and Government Information, the House Committee      1 : 1; "
I       on GovernmentOperations, the Secretary of Defense, the Office of
        Managementand Budget, end the Headquarters Army and Air Force
                                           Sincerely yours,

        The Honorable
        The Secretary of Agriculture
             Attention:   Assistant Secretary Clarence D. Palmby