oversight

Balance-Of-Payments Benefits Achieved by the Department of Agriculture Through an Increased Agricultural Barter Program

Published by the Government Accountability Office on 1971-02-12.

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

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                                      74Q5f                   -g

                REPORT TO THE CONGRESS                    ’




                Balance-Of-Payments Benefits
                khieved’ky   The      -
                Department Of Agriculture
                Through An Increased
                Agricultural Barter Program   B- 163536




                BY THE COMPTROLLER GENERAL
                OF THE UNITED STATES
                      COMPTROLLER     GENERAL        OF      THE   UNITED   STATES
                                    WASHINGTON,       D.C.     20548




        B-163536




        To the President   of the Senate and the
      c Speaker  of the House of Representatives

                 This is our report    on the balance-of-payments                        benefits
                                                                                                      J-q.CL*
 /I     achieved     by the Department     of Agriculture    through                   an increased
Jo      agricultural     barter program.

               Our review  was made pursuant   to the Budget and Account-
        ing Act, 1921 (31 U,S.C, 53), and the Accounting   and Auditing Act
        of 1950 (31 u.s.c.  67).

              Copies of this report               are being sent to the Director,     Office
        of Management   and Budget,               and to the Secretary  of Agriculture.




                                                                       Comptroller     General
                                                                       of the United   States
    I
    I
    I
    I
    I
    I
    I
    I
        COMPTROLLERGENERAL'S
    I   REPORTTO THE CONGRESS                           BALANCE-OF-PAYMENTS BENEFITSACHIEVED BY
    I                                                   THE DEPARTMENTOF AGRICULTURE THROUGH AN
    I
    I                                                   INCREASED AGRICULTURAL BARTER PROGRAM
    I                                                   B-163536
    I
    I
    I
    I
    I   DIGEST
        ------
    I
    I
    I
    I   WHYTHE REVIEW WASMADE
    I
    I
    I         The barter program, administered   by the Department of Agriculture      under
    I         the Commodity Credit Corporation   Charter Act and the Agricultural      Trade
    I
    I
              Development and Assistance   Act and other statutes,   has varied purposes
    I         including  the increase of exports of American agricultural      commodities
    I         and the reduction   of the adverse impact of foreign   procurement   on the
    I
    I         balance of payments.
    I
    I
    I
              Under the program, agricultural   commodities are used in place of dol-
              lars to acquire goods and services needed in U.S. overseas operations.
              Dollars  that would be spent abroad for this purpose are kept in the
              United States.
    I
    I
              During a prior    review of this program, the General Accounting               Office
              (GAO) identified     nearly $700 million       worth of Government expenditures
              abroad as qualifying       for payment from barter        transactions     annually    com-
              pared with $260 million        worth actually     bartered.      GAO believed    that a
              relaxation    of existing     barter constraints      would increase American agri-
    I         cultural   exports and thereby benefit         our balance-of-payments        position.
    I
I
I             From that review,          GAO concluded that the Department             should adopt a pol-
I             icy of letting        market conditions         determine     the size of the barter pro-
I             gram rather than attempt to hold the size below a theoretical                            or ad-
I
I             ministrative       limit,       The thrust     of GAO's report was that the Department
I             should accept a higher percentage                of bids even if that meant some in-
I
I             crease in the barter            premiums paid.        The purpose of this review was to
I             determine whether th~,.~~~i,~~~~~~~ti~.~~ res~.i~.t-i~,s--,had.~bee,r!           relaxed         so
                                                                                                 .-".".".W.-Iu.".II.~.~~~,
I
I
              ampF%?-z'Tncrease
                         ",J__d%>e,l*I*c%--
                                         ..u*T- - .in+ag.ricuLtural       exports  through   the     barter
I             pro r-3.m. GAO's examination             was limited      to contracts    awardedunder           AID
I
I
              an
              --zF DOD funding arrangements.                (See p. 22.)
I
I
I
I       FINDINGS AND CONCLUSIONS
I
I
I             The Department has taken certain     actions  to increase agricultural    ex-
I             ports through the barter program thereby benefiting       our balance-of-
I
I
              payments position.    These actions   include increasing   the size of the
I             barter  program by increasing    the barter premium that the Department      is
I
I
I
I
        Tear Sheet
I
I
I
I
                                                         E
i
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I
                                                                                             I
                                                                                             I
    willing   to pay, including   additional   free market stocks to the list       of       ;
    commodities   eligible for barter, and revising the destination       list    to         I
    which the commodities     may be exported.     These actions have resulted      in       I
    an increased   barter program.                                                           I
                                                                                             I

    During fiscal   year 1970, barter     contracts   awarded under funding arrange-i
    ments amounted to $4'29 million,      compared with $181 million     for fiscal   I
    year 1969.    The contracts  signed    during fiscal    year 1970 are the high-   /
    est amount for any period in the       history  of the program.     (See p. 20.)  ,
                                                                                      I
                                                                                             I
                                                                                             I
RECOMMENDATIONS
             OR SUGGESTIONS                                                                  I
                                                                                             I
    The actions   taken by the Department,     in GAO's opinion,   are satisfactory          i
    and eliminate    the need for additional     actions or studies at this time,            I



AGENCYACTIONSAND UNRESOLVED
                          ISSUES                                                             I
                                                                                             I
    Department officials  agreed, in general,  with      the contents    of this re-     ;
    port and had no major comments or suggestions.          (See app.   V, p. 31.)       ,


MATTERSFOR CONSIDERATION
                       BY THE CONGRESS
    GAO believes  that this report   has congressional     significance  because         i
    of the size of the barter   export accomplishments      achieved over the past       ;
    year and a half.                                                                     I
                                                                                         I




                                                                                         I
                          Contents
                                                             Page

DIGEST                                                         1

CHAPTER
  1        INTRODUCTION                                        3

  2        NATUREAND MECMICS         OF THE BARTERPROGRAM      4

  3        DYNAMICSAFFECTING THE OVERALL LEVEL OF THE
             BARTERPROGRAM                                     7
               Competitive   position  of U.S. contractors
                 as a result of the barter program            10
               Regulation   of the barter program level
                 through premium payments allowed             13

  4        AGENCYACTIONS TAKEN SINCE ISSUANCEOF PRIOR
             REPORT                                           15

               Increasing    the size of the program by
                  increasing    the barter premium            17
               Adding free market stocks to list of
                  eligible   barter commodities               18
               Revising the destination     restriction
                  list to which commodities may be ex-
                  ported                                      19
               Effects of the actions taken                   20
               Conclusion                                     20
               Comments by USDA                               21

  5        SCOPEOF REVIEW                                     22
APPENDIX
       I   Barter program contracts     negotiated  by De-
             partment of Agriculture     Fiscal years 1967
             through 1970                                     25

  II       Solicitations  for DOD and AID funding ar-
             rangements, bids received,  contracts
             awarded, and bids rejected,  fiscal   years
             1968 through 1970                                26
APPENDIX                                                     Page

  III       Dollar value of agricultural     commodities
              exported under the barter     program during
              fiscal  years 1967 through    1970              29

   IV       Summarization of the Department of Agri-
              culture's  system which is to minimize the
              likelihood  that barter transactions  dis-
              place commercial sales                          30

        V   Letter dated December 14, 1970, from the
              Acting General Sales Manager, Export
              Marketing Service, Department of Agricul-
              ture, to the Director,  International Divi-
              sion, General Accounting Office.                31

   VI       Principal   officials having responsibility
               for matters discussed in this report           32

                            ABBREVIATIONS

AID         Agency for International   Development
ccc         Commodity Credit Corporation
DOD         Department of Defense
GAO         General Accounting Office
IGA         International  Grains Arrangement
USDA        United States Department of Agriculture
COMPTR-OLLER
           GENERAL'S
REPORTTO THE CONGRESS                    BALANCE-OF-PAYMENTS BENEFITS ACHIEVED BY
                                         THE DEPARTMENTOF AGRICULTURE  THROUGH AN
                                         INCREASED AGRICULTURAL BARTER PROGRAM
                                         B-l 63536

DIGEST
------

WHYTHE REVIEW WASMADE
     The barter   program, administered   by the Department of Agriculture     under
     the Commodity Credit Corporation     Charter Act and the Agricultural     Trade
     Development and Assistance     Act and other statutes,  has varied purposes
     including  the increase of exports of American agricultural       commodities
     and the reduction    of the adverse impact of foreign   procurement   on the
     balance of payments.

     Under the program, agricultural    commodities are used in place of do1-
     lars to acquire goods and services    needed in U.S. overseas operations.
     Dollars  that would be spent abroad for this purpose are kept in the
     United States.

     During a prior     review of this program, the General Accounting           Office
     (GAO) identified      nearly $700 million       worth of Government expenditures
     abroad as qualifying        for payment from barter       transactions  annually     com-
     pared with $260 million         worth actually     bartered. GAObelieved that a
     relaxation    of existing      barter constraints     would increase American agri-
     cultural   exports    and thereby benefit       our balance-of-payments    position.

     From that review,       GAO concluded that the Department            should adopt a pol-
     icy of letting      market conditions     determine       the size of the barter    pro-
     gram rather    than attempt to hold the size below a theoretical                or ad-
     ministrative     limit.    The thrust    of GAO's report was that the Department
     should accept a higher percentage           of bids even if that meant some in-
     crease in the barter premiums paid.             The purpose of this review was to
     determine whether the administrative            restrictions       had been relaxed so
     as to permit an increase        in agricultural        exports   through the barter
     program.     GAO's examination      was limited      to contracts     awarded under AID
     and DODfunding arrangements.            (See p. 22.)


FINDINGS AND CONCLUSIONS
     The Department     has taken certain     actions  to increase      agricultural    ex-
     ports through the barter program thereby benefiting              our balance-of-
     payments position.       Thes-e actions   include increasing       the size of the
     barter  program by increasing        the barter premium that       the Department  is




                                          1
    willing   to pay, including    additional     free market stocks to the list        of
    commodities   eligible   for barter,      and revising  the destination    list   to
    which the commodities     may be exported.        These actions   have resulted     in
    an increased   barter   program.

    During fiscal   year 1970, barter        contracts  awarded under funding arrange-
    ments amounted to $429 million,          compared with $181 million    for fiscal
    year 1969.    The contracts signed        during fiscal   year 1970 are the high-
    est amount for any period in the          history  of the program.    (See pa 20.)


RECOhWENDATIONS
             OR SUGGESTIONS
    The actions   taken by the Department,        in GAO's opinion,    are satisfactory
    and eliminate    the need for additional        actions or studies    at this time.


AGENCYACTIONSAND UNRESOLVED
                          ISSUES
    Department officials  agreed, in general,  with         the contents    of this re-
    port and had no major comments or suggestions.             (See app.   V, pa 31.)


MATTERSFOR CONSIDERATION
                       BY THE CONGRESS
    GAO believes  that this report has congressional          significance   because
    of the size of the barter export accomplishments            achieved over the past
    year and a half.




                                         2
                             CHAPTER1

                            INTRODUCTION

       The General Accounting Office has reviewed the proce-
dures and policies   being followed by the Department of Agri-
culture   in managing its program for bartering  agricultural
commodities abroad.
       Our purpose was to learn whether revisions   had been
made in the management of the program since issuance of the
GAO report on management of the program entitled     "Opportu-
nity to Improve United States Balance of Payments Through
An Increased Agricultural    Barter Program" (B-163536, May
1968).
        The 1968 report discussed operations      of the program
through June 1967 and concluded that the program was being
operated at a level well under its potential         because of re-
strictive    bid evaluation  procedures being followed by the
Department of Agriculture.       It recommended a study to ex-
plore the best ways and means of maximizing benefits          from
the program and made some specific       suggestions which, GAO
believed,    the Cabinet Committee on Balance of Payments
should take into account.

      The scope of review    is shown on page 22.

       Principal   officials  having responsibility     for the ad-
ministration     of the matters discussed in this     report are
listed    in Appendix V.
                              CHAPTEK-2

                       NATUREAND MECHANICS

                       OF THE BARTERPROGRAM
                                     --
       The barter program is carried out under the authority
contained in the Commodity Credit Corporation    (CCC> Charter
Act and the Agricultural    Trade Development and Assistance
Act of 1954, as amended.
      Major goals    of the program are to

      --increase  exports of U.S. agricultural      commodities,
      --realize  balance-of-payments    advantages,   and
      --help in achieving international     policy goals.

       Between 1955 and 1962, the barter program was primarily
used as a means of paying for foreign raw materials          needed
in strategic     stockpiles.     It was a way of paying for these
materials    with surplus agricultural     products rather than
dollars.     Today, however, few transactiotis     involving  stra-
tegic materials      take place.

        Starting     in 1963, the program took a new turn.  Since
that time, the idea was to use proceeds from bartered agri-
cultural      commodities to help pay overseas costs of the U.S.
military      establishment   and to finance commodities under the
U.S. foreign aid program.

      Appendix I presents details  on contracts negotiated,           by
type, from fiscal  year 1967 through fiscal year 1970.

        Barter transactions      are carried out through contracts
between CCC and private        U.S. companies.     Under the terms of
the contracts,       CCC either makes agricultural     commodities
available      to the contractors     for export or compensates the
contractors      for the value of the commodities exported from
private     stocks.    The contractors     in turn are required to
either    (1) use proceeds from the sales to buy materials         for
delivery     to the Government agencies or ('2) provide funds
directly   to the Government agencies for their use in making
the procurements abroad.     These agencies then pay CCC for
the agricultural   commodities,  and dollars  that would other-
wise be spent abroad are kept in the United States.
      Most barter transactions     provide funds directly     to Gov-
ernment agencies for their use in making offshore         procure-
ments.   As shown in our earlier      report, well over half the
barter contracts    in fiscal  years 1967 were of this type.
This pattern continued in fiscal       years 1968 through 1970.
During that period,    about 90 percent of the barter transac-
tions were of the type which provided funds directly          to the
government agency to be used, in lieu of dollars,         for off-
shore procurements.

      For the most   part, these offshore procurements are made
by the Department    of Defense (DOD). The Agency for Interna-
tional Development     (AID) also participates.  The following
table illustrates    the extent to which each of these agencies
have participated    in the barter-funding-type  arrangements.

                                                    Total
                                                    --
                                       (millions)

         Fiscal   year 1968    $37.6    $149.5      $187.1
             0      " 1969      17.9     163.9       181.8
             11     " 1970        -      439.3       439.3

     A barter-funding        transaction starts,  for example, when
a DOD installation       abroad advises the Department of Agricul-
ture that it plans to acquire abroad supplies and services
of a specified     dollar    amount over a designated period,  such
as a fiscal    year.     DOD is required to assure USDA that dol-
lars will be expended abroad in the absence of barter funds.

      After advising the overseas installation     that the
planned procurements are of a type susceptible       to barter-
funding arrangements,   USDA publicly   invites offers of the
lowest barter cost (premium) for which a U.S. firm will agree
to export agricultural    commodities and to make an equivalent
amount of funds available    to the overseas installation.



                                   5
       After evaluating    bids, USDA then awards contracts  on
the basis of the lowest proposed barter premium. As pre-
viously mentioned, USDA agrees to either provide the neces-
sary agricultural     commodities from surplus stocks or relm-
burse the contractor     if the commodities are acquired from
private     stocks.  USDA agrees also to pay the barter contrac-
tor the premium specified       in its bid. The premium is stated
in terms of a percentage of the funds provided by the barter
contractor.

      One restriction     placed upon barter transactions     is
stated in section 303 of Public Law 85-931 (U.S.C. 1962)
which directs     the Secretary of Agriculture    to take reason-
able precautions      to safeguard usual marketings    (i.e.,   usual
levels of commercial sales) of the United States and to en-
sure that barters or exchanges do not unduly disrupt world
prices for agricultural       commodities or replace cash sales
for dollars.

       It probably is not possible to establish   any system
which will guarantee absolutely    that barter exports will not
displace any commercial exports.      This was a conclusion  of
the Cabinet Committee on Balance of Payments after a 1964
study of barter activities   and the conclusion   holds true to-
day.

       It is possible,  however, to take measures which effec-
tively   minimize the likelihood   that barter transactions    dis-
place commercial sales and the Department of Agriculture        has
established    a rather elaborate  system for so doing.     The sys-
tem is summarized in more detail      in Appendix IV.

       Considering   the requirement   of the law and the system
established     by USDA, there can be little   doubt that barter
sales are largely      additional  to other commercial sales of
U.S. agricultural     commodities.

       The benefits  to be derived from the additional    commer-
cial sales, however, are not without certain      drawbacks.
Some of the benefits    and drawbacks are discussed in greater
detail   in a subsequent section of this report.
               DYNAMICSAFFECTING THE QVERALL

                 LEVEL OF THE BARTERPROGRAM

     Much confusion about the barter program arises because
the term "barter"  does not accurately    describe its nature.
The term implies that agricultural     commodities are swapped
for goods and services.   Actually   most of the commodities
are sold abroad and sales proceeds are remitted to the U.S.
Government for use in reducing dollar expenditures     abroad.

     The only real difference      between a barter transaction
and an outright    commercial sale is that the barter "contrac-
tors are allowed discounts     (premium payments) averaging be-
tween 2 and 3 percent to make it worth their while to enter
into the transactions.      The barter contractors  are private
U.S. firms which deal directly      with foreign buyers.    They
cm, if necessary,      pass on part or all of the discounts     to
the foreign buyers and capture sales that they otherwise
might not have been able to make.
     The advantages of barter     transactions   are obvious   and
may be summarized as follows:
     --To the extent that a barter sale does not displace
        sales that otherwise would be made2 American exports
        of agricultural  commodities are increased.

     --The increase in agricultural       exports helps the inter-
        national  balance-of-payments     position of the United
        States.   The proceeds from barter exports reduce dol-
        lar expenditures    of-the Department of Defense and the
        Agency for International      Development abroad.

     --U.S. balance-of-payments      advantages are achieved at
        less cost than other Government programs.      The addi-
        tional premium costs associated with barter transac-
        tions are a fraction    of the premium costs associated
        with "Buy America" programs.

      --Overall,   the United States achieves budgetary savings
         when surplus agricultural   commodities are exported

                                 7
       under the barter program.     The Department of Agricul-
       ture makes the commodities available     to barter con-
       tractors   who sell them abroad and remit the proceeds
       to U.S. Government agencies, such as the Department
       of Defense and the Agency for International      Develop-
       ment. These agencies pay their expenses abroad with
       the sales proceeds and pay the Department of Agricul-
       ture with an equivalent    amount of dollars.    Thus, ap-
       propriated   funds which would have been paid to
       sources outside the Government are transferred      from
       one Government agency to another and no overall       bud-
       getary cost is incurred.     (As noted below, the Depart-
       ment of Agriculture    does have to absorb an additional
       cost in the form * of a barter premium.)
     --The barter program helps expand agricultural            markets
        on a selective      basis.    It can be an effective    device
        for increasing     American exports to countries       which
        historically     have bought little     or no American agri-
        cultural     commodities on commercial terms.        It can act
        as a transitional       device for shifting   from foreign
        currency programs and long-term dollar sales programs
        (under title     I, Public Law 480) to commercial sales.
        It can be used to build up trade relationships           be-
        tween foreign importers and American exporters.

      These advantages are sound arguments for a large barter
program; however, there are associated    disadvantages  which
are less obvious but which must be taken into consideration
in managing the program.   The disadvantages    may be summa-
rized as follows:

     --The discount allowed to barter contractors    is little
        more than a form of export subsidy.    Like any export
        subsidy, the danger exists that other countries     may
        retaliate,  that less subsidized American commercial
        exports may be displaced,   and that world market
        prices may be lowered.

     --It is difficult    to measure the impact of barter trans-
         actions on commercial exports and world market
        prices.   It probably is not possible   to establish  any
         system which will guarantee absolutely   that barter ex-
        ports will not displace any commercial exports.
--If the barter transaction         replaces a commercial ex-
    port 9 the  cost  to  the United    States will be increased
    to the extent of the barter premium but there will be
    no balance-of-payment     gain.




                           9
COMPETITIVE POSITION OF U.S. CONTRACTORS
AS A RESULT OF THE DARTERPROGRAM

      To the extent that the barter premiums are passed on
to the foreign buyer in the form of reduced prices,      the
barter program undoubtedly   permits the U.S. contractor     to
be more competitive   in the world market.

       Depending upon the world market price and the amount
of the premium awarded by USDA, barter contractors          may be
able to sell the commodities at less than the world market
price.     Under such circumstances     it appears that U.S. ex-
ports would continue to increase until          the market became
saturated,    or until other exporting      nations complained or
took some form of retaliatory       action.     Such was the case of
U.S. wheat being exported under the barter program,

      At the end of fiscal   year 1967, the maximum barter pre-
mium being awarded by USDA was about 2 percent.      Since that
time, however, the premium has increased and was at about
the 2,5-percent    level at the end of December 1969. During
our review, we noted that, in December 1969, USDA initiated
action to limit the premium on wheat to around 1 percent.
USDA personnel stated that this action was ta'ken because of
complaints   by other wheat-exporting  nations,

        The United States is a member of the International
Grains Arrangement (IGA).        Other IGA members, also major
wheat exporters,      complained  that U.S. exporters were under-
cutting world market price for wheat.        Rather than have the
complaining members take some form of retaliatory         action,
USDA limited     the premium which would be awarded for wheat
exports.     USDA   personnel stated that they had evaluated the
situation    and had concluded that the action taken would
still    permit U.S. exporters    to be competitive  in the world
market.
       The action taken by USDA did not apply to barter con-
tracts   in existence at that time.    Therefore,     in some in-
stances, wheat may still    be exported under contracts      which
provided for the higher premium.      Because of this, and the
fact that the limitation   was just recently      set, the effect
of the action on barter exports of wheat could not be deter-
mined at the time of our review.
        Assuming that the premiums awarded by USDA are suffi-
ciently    high, the barter program no doubt helps the U.S.
exporters     in their attempts to compete for the world market.
This apparently      prompted the complaints   by the ICA members.
In our opinion,      however, the position   of the U.S. exporters,
as a result     of the barter program, is no better than that
of foreign exporters.        Certain foreign exporters  enjoy priv-
ileged positions      in some markets because of bilateral    trade
agreements which exist with other nations.         U.S. exporters
are effectively      excluded from competing for these markets.

       Foreign exporters     also receive assistance    in the form
of export subsidies.        An example of this is the subsidy paid
to grain-exporting       members of the European Community.      The
amount of the subsidy is roughly equal to the difference
between the domestic price in the European Community export-
ing country and the price at which the grain can be sold in
third-country      markets.   The following  details   of the Euro-
pean Community export subsidy were explained         in a USDA pub-
licationl     dated October 1969.

       Export subsidy rates vary not only by type of grain but
also by destination   of the shipment.   Following is an exam-
ple of how the export subsidy per metric ton of barley is
calculated.

                                              South
           Destination                       America             Japan

Price f.o.b.          Rouen                  $ 94.50            $ 94.50
Freight                                         9.50              13.00
Miscellaneous             charges               1.00               1.00
        Price    c.i.f.                       105.00             108.50
Price     of competing         barley          61.50              60.50
        Export     subsidy     needed        $ 43.50            $ 48.00


1"The European Community's Common Agricultural         Policy     - Im-
 plication  for U.S. Trade,"


                                        11
        The extent to which the European Community is willing
to subsidize grain to move it onto the world market is illus-
trated by the sales of French wheat to Communist China in
February and March 1968. The prevailing          price for soft wheat
at that time was $109.70 a metric ton, f.o.b.          French port.
The export subsidy rate announced by the European Community
Commission for wheat destined for Communist China was
$52.90 a metric ton.      The French then received permission
from the Commission to grant a special subsidy of $11 and a
freight    subsidy of $2 a metric ton on offers totaling
600,000 metric tons.      Therefore,    the total subsidy on this
sale was $65.90 a metric ton, or 60 percent of the f.o.b.
price, and the wheat arrived       in Communist China at $43.80 a
metric ton.      If the Chinese purchase the entire amount, the
total expense to the European Agricultural          Guidance and
Guarantee Fund will amount to $39.5 million.           Although such
extremely low prices for wheat would now be inconsistent
with the International      Grains arrangement price range, the
European Community may still       apply as large a subsidy as
necessary to export feed grains.

       From this illustration       of export subsidies    paid to
foreign exporters,      it can readily    be seen that U.S. export-
ers face stiff   competition      in their attempt to export, for
example, feed grains.         We believe,   therefore,  that, rather
than placing U.S. exporters         in a more favorable   position,
the barter program merely helps them to compete more effec-
tively   for markets.




                                  12
REGULATIONOF THE BARTERPROGRiMl2XEL THROUGH
PREXIUMPAYMENTSALL~

        One of the tools available  to USDA In regulating   the
size of the barter program is the amount of premiums it is
willing    to pay to move any given amount of con-modfties.
The higher the premium, the higher the amount of commodities
that can be exported.

       During the period fiscal        year 1967 through fiscal       year
1969, USDA limited        the dollar amount of barter exports to a
predetermined     level.      Contracts were awarded to the low
bidders (premium) ‘so as to export a predetermined             quantity
and the remainder of the bids were rejected.              The desired
level,    about $180 million,       was reached for each of the fis-
cal.years    1967 through 1969. The desired level of barter
exports was reached without much difficulty             in fiscal  years
1967 and 1968, and over half the bids (dollar             amount) were
rejected.      The desired level was reached again in fiscal
year 1969; however, the bidder response was not so great as
in prior years.       Consequently,       only about 15 percent of the
bids were rejected.          Since fiscal     year 1969, USDA has ex-
panded the program.         As shoti below9 fiscal      year 1970 has
exceeded the level for prior years by more than 133 percent
and only slightly        over 2 percent of all bids were rejected.
(See p. 170f this' report.)
                        AID and DOD Punding      Arrangements
                  Contracts awarded                  Bids re-jetted
                 Dollar                          Dollar
                 Amount        Average           Amount           Average
                (note a>       Premium          (note a.>         Premium

IT.1967          $177.8b          2.146%         $179.6           2.273%
FY 1968           183.3           2.047           226.5           2.073
FY 1969           181.1           2.470            31.8           2.678
FY 1970           429.0           2.417            10.2           2.550
%llions.
b
    An additional $6.7 million   in funding arrangements         awards
    was made by AID; the total amount awarded in fiscal           year
    1967 amounted to $184.5 million.


                                   13
       As indicated  on the preceding page, the average pre-
mium bid accepted decreased to near the 2.4-percent     level
in fiscal    year 1970. This decrease from the fiscal  year
1969 level, however, is the result of the l-percent    pre-
mium level placed on wheat by USDA. (See p.10 of this re-
port.)

      When the "wheat only" contracts       awarded during fiscal
year 1970 at the l-percent      premium limit were excluded from
the above tabulation,      the average premium for contracts
awarded remained near the 2.5-percent        level of fiscal    year
1969. The average premium rejected was higher than the ac-
ceptable level of 2.5 percent.        During fiscal  year 1970,
USDA accepted all but a few premium bids under the 2.5-
percent acceptable     level.   In some cases where the premium
bid was just above 2.5 percent, USDA has negotiated          with
the contractors    to reduce the bid to an amount just below
the acceptable   level--say    2.495 percent.

      By accepting nearly all the bids received,        USDA has
expanded the barter program and increased commercial ex-
ports of agricultural      commodities.   To do this, USDA has
increased the premium it was willing        to accept at the time
of our 1968 report.      Although this perhaps has resulted      in
somewhat greater barter costs to CCC, it has also resulted
in a benefit   to our balance-of-payments      position  by avoid-
ing offshore   expenditure    of dollars  for goods and services.




                                 14
    .


                                  CHAPTER4

        AGENCYACTIONS TAKEN SINCE ISSUANCE OF PRIOR REPORT

           In our earlier     report,     we concluded that USDA should
    adopt a policy of letting          market conditions    determine the
    size of the barter prcgram rather than attempt to hold the
    size below a theoretical          level or administrative     limit.   The
    thrust of our report was that USDA should accept a higher
    percentage of bids even if this meant some increase in the
    barter premiums paid.         A draft of that report,soliciting
    the agency's comments, was furnished USDA in February 1968.
    Immediately prior to that time, the market was such that
    the contractors'      bids were much greater than the limit          set
.
    by USDA, and about half of the bids received were being re-
    jected.    Contractors'      bids fell off sharply in the last half
    of fiscal   year 1968-- apparently        because of the market situa-
    tion for the various commodities.

          The chart, as shown on the following      page, illustrates,
    by quarters,   the extent to which USDA has accepted and re-
    jected bids for the period fiscal    year 1966 through fiscal
    year 1970. As can be seen by the illustration,        during the
    last half of fiscal    year 1968 and fiscal    year 1969, the bid-
    der response was not too great and fewer bids had to be re-
    jected to maintain the predetermined      level of barter exports.

         Subsequent to issuance of our earlier        report,  USDA has
    taken certain  actions designed to expand the barter program.
    These actions include (1) increasing       the size of the pro-
    gram, by increasing   the barter premium it is willing        to pay,
    (2) adding additional    private   stock to the list of commodi-
    ties eligible  for barter,     and (3) revising   the destination
    list to which bartered commodities may be exported.
                                        _ _._
                                        .-__  .....
                                          .....
                                          :::::__
                                                _~-
                 BIDS RECEIVED                      &ND COHTRACTS    AWARDED IN RESPONSE                                               TO SOLICITATIONS




                                           ......
                                                      FOR FUNDING-TYPE   BARTER EXPORTS




                                        __---__
                                            .
                                            -.
                                          ..... .--_
                                                -_
                                                 .‘-
Millions                                                                                                                                                               Millions




                                          :::::
                                           .:::::
     of                                                                                                                                                                    of




                                                -
                                                ....
Dollsts                                                                                                                                                                DDIICXS




                                           ......
                                          .........
                                          .....
                                BIDS    ACCEPTED,          CONTRACTS        AWARDED




                                          .~
                                          :::::
                                           .:::::
                                          )‘.??
                                           .:::) -
                                            .-*.*s
                                          ~-~“i!
          _--                             _ _ ___ _        ._      _ ..l_     -.---.         -..-   . _ _--.-   -.__.            _“_..^_..     _I_    ---_-.-.--.--m
                                BIDS    REJECTED


  I6




  11




  1;      - _-_ ..-_ ._




                                          --




    a




                                                                                                                                                -
           1st     2nd    3rd     4th                                                                           1st     2nd    3rd       4th
                 QUARTERS                           QUARTERS                           QUARTERS                       QUARTERS                       QUARTERS

                   FY    1966                         FY    1967                        FY   i9bS                       FY    1969                     FY      1970
INCREASING THE SIZE OF THE PROGRAMBY
INCREASINGTHE BARTERPREMIUM

      Throughout fiscal years 1968 and 1969, USDA continued
to limit the barter program to a predetermined      level.     As
shown in a preceding section of this reports the amount of
contract   awards was limited to about $180 million     for each
of the fiscal years 1967 through 1969. These limitations,
however, have been relaxed.      During fiscal year 1970, USDA
awarded barter contracts     amounting to about $429 million--
over twice the amount awarded during fiscal year 1969.
       Prior to fiscal      year 1970, USDA limited   the program by
rejecting    bids.     As previously    mentioned, in some years over
half   of the bids received (dollar        amount> were rejected.
During fiscal      year 1970, however, USDA accepted about
$429 million     or 98 percent of a total of about $439 million
in barter contract       bids received.

       As noted in our earlier   report,   the amount of barter
premium paid during fiscal     year 1967, averaged about 2.1 per-
cent.    Throughout most of fiscal    year 1968 the premium rate
remained almost constantly     in the 1.8-to 2-percent range.
In the second half of fiscal     year 1968, the quantity   of bids
received fell off sharply and, within a few months, the pre-
mium rate rose to 2.49 percent.       During fiscal  years 1969
and 1970, the premium rate averaged about 2.43 percent.
       In commenting on the decline in the number of bids re-
ceived and awarded, USDA officials      stated that there had
been two major causes for the decline.        First,  the export
market had declined for U.S. grains,       especially  wheat, be-
cause of exceedingly   good crop years in most importing       coun-
tries.    Second, just prior to February 1968, U.S. contrac-
tors had large outstanding   obligations     to meet under exist-
ing barter contracts.

        Starting     in February 1968, the outstanding     obligations
declined,      indicating    that the contractors    were exporting
these commodities.         A USDA official    advanced the theory that
this caused the foreign markets to become saturated              thus re-
sulting     in a reduced export market for U.S. agricultural



                                    17
commodities.   Under such circumstances,  many contractors
would not submit bids and others would obligate     themselves
only for a higher premium.    The higher premium was needed so
that the contractor  could offer a more competitive    price.

ADDING
--     FREE MARKET STOCKSTO LIST OF
ELIGIBLE BARTERCOMMODITIES
       Commodities eligible  for export under the barter pro-
gram consist of CCC-owned commodities and private        stock com-
modities.   In the case of private    stock commodities,     the
barter contractor   may already hold stocks of the desired
commodity or may acquire them in the commercial market.

       Private stock commodities eligible    during fiscal      year
1967 were corn, grain sorghum, wheat and wheat flour,           cotton-
seed and soybean oil, and tobacco.       These commodities      have
continued to be available   since 1967.

     Additional    private  stock commodities have since been
made eligible   for export.     These commodities and the dates
they were made eligible     are as follows:

                   Commodity

        Oats                                      Mar.   1968
        Cotton                                    Apr.   1968
        Barley                                    July   1968
        Rice                                      Jan.   1969
        Inedible    tallow   and grease           May    1969

        Of the private    stock commodities added to the list as
eligible     for barter export, only rice and inedible       tallow
and grease have shown any noticeable        increase.    As shown in
appendix III,     barter exports of oats and barley have been
minimal; and barter exports of cotton decreased after being
added as a private      stock commodity eligible     for export.    A
USDA official     stated that there had been various reasons
for the decline of cotton exports during fiscal          year 1969.
He stated that our cotton crops had been good, but the yield
was less than anticipated.        This forced the prices up and
did not enhance our export prospects.          Another reason for
the decline     was the lengthy dock workers strike  at gulf
ports,   from   which most cotton is shipped.   As shown in ap-
pendix III,     however, barter exports of cotton have shown a
substantial     increase during fiscal  year 1970.

REVISING THE DESTINATION RESTRICTION LIST TO
WHICH COMMODITIESMAY BE EXPORTED

      Appendix IV points out that countries   to which bartered
commodities may be exported are designated    as countries   to
which barter exports may be made only after "additionality"
has been determined by the USDA, countries    to which there
are no barter export restrictions,  or countries   to which no
barter exports are allowed.

      The destination      restriction      list,   l%ommodity - Country
Designations    for Exportation        of Agricultural      Commodities,"
has had four revisions        during the past 6 years.           These revi-
sions took place in August 1964, March 1965, June 1967, and
July 1969. Since the July 1969 revision                there have been
three interim changes as follows:               (1) during the period
from June 19, 1969, through December 31, 1969, private
stocks of wheat and wheat flour were made eligible                  for ex-
port to Argentina without an '"additionality'              determination"
by USDA, (2) as of September 17, 1969, tobacco was made eli-
gible for export to Austria,           Denmark, Ireland,       and Norway
without an additionality         determination      by USDA, and (3) dur-
ing the period November 25, 1969, through June 30, 1970,
feed grains were made eligible           for export to Spain under
barter contracts     involving      reimbursable     procurements of U.S.
Government agencies without prior approval of individual                   ex-
port proposals.

       With regard to exports of cotton,         the July 1969 revision
modified existing       restriction   by (1) making all countries,
to which barter cotton exports were previously              prohibited,
eligible     to receive bartered cotton and (2) allowing barter
contractors     to export cotton to all countries         without an
additionality      determination    by USDA. The only requirement
of the contractors       was to inform USDA of their intention            to
ship to certain      countries.     The revision    recognized     the
sharp drop in U.S. cotton exports and was intended'to                 stimu-
late U.S. cotton sales abroad, thereby improving our balance-
of-payments position.

                                      19
EFFECTS OF THE ACTIONS TAKEN

       The graphic illustration     presented earlier in this
chapter shows that barter exports have increased sharply
during fiscal    year 1970 when compared with the exports of
the preceding years.       In this regard, a USDA press release
dated February 17, 1970, noted that the barter contracts
signed during the first       half of fiscal year 1970 was the
highest amount for any 6-month period in the history        of the
agricultural    export program.

       On the basis of our analysis,   we believe that the in-
creased premium USDAwas willing      to pay represented  the main
factor resulting    in an expanded barter program which is a
benefit   to our balance-of-payments   position.

CONCLUSION

        In our earlier  report, we recommended that a study be
undertaken to explore the best ways and means of maximizing
benefits    from the barter program.    We concluded that the
Cabinet Committee on Balance of Payments would be the most
logical    body to undertake the study.

        Our follow-up     review, however, shows that USDA has
taken certain      actions,     since the issuance of our earlier
report,    to increase agricultural         exports through the barter
program thereby benefiting           our balance-of-payments   position.
These actions include (1) increasing             the size of the barter
program by increasing         the barter premium, (2) adding free
market stocks to the list of commodities eligible             for barter,
and (3) revising       the destination      list to which the commodi-
ties may be exported.

     These actions have resulted   in increased barter exports.
The contracts  signed during fiscal year 1970 are the highest
in dollar amounts for any period in the history   of the bar-
ter program.

       The actions taken by USDA, in our opinion,    are satis-
factory and eliminate   the need for additional   actions or
studies at this time.



                                   20
COMMENTS
       BY USDA

      Copies of our draft report were sent to USDA. Its re-
ply agreed, in general, with the contents of our draft re-
port.    USDA stated that the draft report reflected    a good
understanding    of the barter program and a thoughtful   anal-
ysis of its effects    on the U.S. balance of payment.    (See
app. V, p, 31,)

     The Department   had no major comments or suggestions   on
the draft report.




                                21
                             CHAPTER5

                          SCOPEOF REVIEW

      Our review    was directed   toward obtaining  data on bar-
ter activities     since the time of our last review and to de-
termine whether     administrative   restrictions,  existing at
that time, have     been relaxed to permit an increase in ex-
ports under the     barter program.

      Our review was carried out at USDA headquarters         in
Washington, D.C., and included (1)        discussions  with respon-
sible officials     and examination of documents concerning
current policy on administrative       restrictions   on the barter
program, (2) examination of agency records containing           data
on solicitations,      contract awards, and barter exports,
(3) discussions     in Washington with private export firms
regarding     their response to USDA solicitations     for barter
contracts.

     Our examination was limited       to contracts   awarded under
aID and DOD funding arrangements.




                                 22
APPENDIXES




23
                                                                              APPENDIX I


                         BARTER PROGRAMCONTRACTS NEGOTIATED

                            BY DEPARTMENTOF AGRICULTURE

                    (FISCAL YEAR 1967 TI-IROUGH FISCAL YEAR 1970)




                                         Offshore        procurement
                                Funding
                            arrangements                   Direct       Supplier
Fiscal       Stockpile         (note a)                    barter         type
 year        material       AID         DOD               (note b)      (note c>       Total

                                                   (millions)

    1967        $8.8       $ 6.9      $181.6              .$33.9          $28.4       $259.6
    1968                    37.6       149.5                 35.8          61.6        284.7
    1969                    17.9       163.9                 24.1          66.4        272.3
    1970                               443.2                 15.6          27.8        486.6

aAmounts listed    under funding arrangements    include               items that were
 subsequently   withdrawn   and/or canceled and differ                 in that respect
 from the amounts actually      awarded.   (See app. II.)

b
    Under direct     barter    the U.S. barter      contractor    agrees to procure off-
    shore and deliver       a specific      commodity needed by the U.S. Government
    in a designated      country,     rather than just furnish        funds as under the
    funding arrangements.         The contractor       is furnished     the agricultural
    commodities    for export equal to the unit price quoted by him for de-
    livery   of the needed procurement.           The premium paid by CCC is in-
    cluded in this unit price bid by the contractor.

'Supplier-type        barter  contracts      are   similar    to the funding-type      con-
  tracts     in that the barter      contractors       respond to solicitations        with
  a premium they would be willing             to   accept.      The supplier-type     con-
  tracts,      however, are usually       for a    specific     service   or supplies
  needed by DOD at a specific           foreign      designation.       The U.S. barter
  contractor      deals directly     with the      foreign     supplier   rather  than fur-
  nishing      DOD with the needed funds.




                                               25
APPENDIX II
               Page 1
                                                            St~LfCITATIC!IStOR Don xI:D                       AID

                                         FLXDIK            LWJ.‘v-ZEt4TS        , EIDS       KFXI‘IVED,             COKIItKTS

                                                              A'r'AVnS~Wl,    A'iD   blDS RF^K'I~Il
                                                                       FISCAL YL4R 1968




                                           ---                  Ccntracts      awarded
                                                                       ~-Fa-*--ll~                                                       Bids z-elected
                                                                                                                                                   .-__I_
       Bid       Amomt                                                                                                                      Barter
   SOliCi-       in bid        Total                                         pW?4UPl                 Dollar                                 preelhI!n                 Dollar
   tation         SOlfCi-     of bids        Auomt                    percmtege                      barter                               percenta;e                  barter
     dnte        cati        received       htr  a)                          renge                   preniw               -Ainount               ranp.e               premium
                                                                             (in thousands of dollars)
   7- 7-67                                 s       7,500             1.89      to    1.98        $      144.7           $ 26.000         1.98 to 2.15             s     534.1
   7-14-67         15;000      41;ooo            15,000              1.93      to    1.977              293.4               26;OO0       1.977 to 2.20                  540.1
   7-25-67         10,000      26,ODO            10.000              1.90      to    2.033              198.9              16,000        2.033     to     2.20          336.3
   8- 7-67         10,GOO      22,000            10,000              1.98      to    2.08               202.7              12,000        2.08      to     2.20          255.2
   &la-b7            3,500     10,000             3,500              1.94      to    1.985                69.0               6,500       1.99      to 2.10              133.6
  8-30-67          10,000      19,750            lG,OOO              1.9DB     to    2.027              195.6                9,750       2.027     to 2.20              205.5
  g-14-67          10,000        4.750            2,500              1.98      to    2.06                 50.8               2,250       2.141     to     2.171          48.5
  9-?9- 67           7,500       3,000              s                                                     m                  3,000       2.069    2.19
                                                                                                                                                   to                    63.6
 10-25-67            7,500     30,250             7,500              1.875     to    1.945              144.1              22,750        1.945 to 2.14                 450.8
 ll-     b-b7      12,000      13,250             6,750              1.90      to    2.01               131.2                   6.500    2.052     to     2.16         136.9
 11-16-67            5,500     20,000             5,500              1.85      to    1.895              103.5              14,500        1.902     to     2.05         281.0
 12-    1-67         7.500     35,000             7,500              1.77      to    1.829              135.9              27,500        1.829     to     1.976        515.6
 12-    8-67       10,om       20,750            10.000              1.70      to    1.94               181.6              10,750        1.949     to     2.38         226.9
 12-18-67          10,030      14.250            10.000              1.735     to    1.98               187.8                4,250       1.98      to     2.15           86.5
 17-29-67           5,GGO        9.750            5,000              1.84      t0    1.975               96.9                4,750       1.975     to     2.05           95.6
 12-29-67            3,500       8,500            3,500              1.84      to    1.915               65.8                5,000       1.915     to     1.96           96.8
  l- b-68           6,000        5,350            5,350              1.95      to    2.05               106.4
  1-17-68          lO.CCO       1,500             1,000              1.999     to    2.10                  20.6                   -500   2.18                           10.9
  l-31-68          10,GrJO     15,000            10,000              2.035     tci   2.15                 208.8                 5,000    2.18      to 2.19             109.1
   -2-1-i-68       10,WXl      17,750            10,000              1.925     to    2.15                 209.7                 7,750    2.15      to 2.45             177.1
   2-23-68         10.000       1,000              -                                                       -                    1,000    2.19                           21.9
   3- b-68         10,000        2,000            2,000              1.995                                39.9                   -
   3-20-m          12,000      11,750             6.750              2.07      to    2.33               151.5                   5,000    2.48                          124.0
   4- 5-68           9,000       4.500            1,500              1.98      to    2.29                 33.5                  3,000    2.49                            74.7
   4-19-68         12,OGO      lb.000            12,COO              2.29      to    2.43                 283.7                 4.000    2.49      to     2.54         100.6
   5- 1-68           4,370      5,800             4,370              2.30      to    2.425              104.2                   1,430    2,425     to     2.49           35.3
   5-10-68         10,000       4,000             3,000              2.4%                                 73.2                  1,000    2.49                            24.9
   5-22-68         10,000       6,750             6,500                                                 158.1                      250   2.47                              6.2
   5-31-68         10,000       3,000             3,000                                                   73.2
   b-34-68         12,@00       3,700             3,600                                                   88.4                     100   2.60                            -2.6
  b-27-68        ,&@




                                                                                       26
                                                                                                                     APPENDIX II
                                                                                                                         Page 2

                                                 SOLICITATIONSFOR DODAN3 AID




                                                  Corh_n_cts ewrded                                       Bids    relccted
    Bid      Amount                                     BArL@r                                                   B.arter
 solici-     in bfd         Total                       PlCI2fGUl              Dollar                            pt~l!li~        Dollar
 tation      solicf-       of bids     Amount         percentage               barter                      percentage            barter
  date       ration       received    (note a)              I.*                @WI --           Amount            EnnRe          premium
                                                            (in thousands      of    dollars)
 7-l O-68    s 12,000     $ 3,200 $ 3.200            2.45         to   2.495   $     79.8      -
  7-25-60      12,000        9,500    8.500          2.449        to   2.495        210.0   $ 1.000       2.56                   S   ;5.6
  8- 7-68      15.000       15.250   12.750          2.45         to   2.49         314.2                 2.50      to   2.54        63;3
  8-19-68      io;ooo       -4;tloo  -4;eoo          2.473        to   2.48         119.0                                            w
                                                                                                                                     w
  S-30-68      12,000            500      500        2.48                            12.4
  9-10-68      12,000        9.700    9,700          2.47         to 2.496          241.5                                            .
  9-l?- 68      1,000          -                                                                                                     s
  9-20- t8     10,000        3,500    3,500          2.49         to 2.50            07.4                                            w
lo- l-68        1,000          -                                                                                                     m
lo- l-68       10,000         6,000   4.000          2.49                            69.6         2,000   2.54                       50.8
IO-11-b8       10,000       11.500   10,000          y;           to 2.492          249.1         1.500   2.50      to   2.60        38.2
10-14-68        1,000         2,000    1,000                                         24.9         1.000   2.494                      24.9
10-16-68       10.000        3,000     3,000         2148         to 2.495           74.6          -         -
10-29-68        7,000        9,000     7,000         2.481                          173.7         2,000   2.495     to   2.50         ;0.0
11-14-68       10,ocQ       11,5(10  10.000          2.635        to   2.466        244.4         1.500   2.468     to   2.495        37.3
11-M-68         2.800        4,050     2.800         2.35                            65.8         1,250   2.49      to 2.495          31.2
11-22-m        17,600         4,000   4,000          2.39         to   2.44          94.6                                             .a
1% 4-68        13,600        3,500       3,500       2.495                           87.3                                             w
12-17-68       10,100        4,000       4,000       2.482                           99.3
12-18-68        5.000        5,000       1,200       2.49                            29.9                 2.75      to 2.95          109.7
12-19-68       10.000       11,500       4.000       2.49                            99.6                 2.75      to 2.95          217.3
 1- 3-69        6.100        i ,800      3.600       2.494        to 2.495           44.9                                             m
 1-16-69          7,000      2,000       2,000       2.465                           49.3                                             m
 l-30-69          5,000      3,000       3,000       2.49                            74.7                                             -
 2-11-69          4,300      4,150       4,150       2.39         to   2.500        102.9                                             s
 2-26-69          5.000      4,000       4,000       2.401        to   2.48          97.0                                             -
 2-26-69       10,000        3,500       3,500       2.467        td   2.49          86.4                                             m
 3-11-69        6,500       10,700       6,500       2.462        to   2.47         160.1         3,700   2.48      to 2.51           92.2
 3-20-69       15,000        6,250       6,250       2.44         to   2.495        155.5
 4- 3-69       10,000        3,500       3,500       2.485        to   2.495         87.1
 4-14-69       10,000        1,000       1,000       2.500                           25.0
 4-25-69       10,000        3,100       3.100       2.45         to   2.495         77.1           -
 5- 8-69       10,000       12,000      12,000       2.48         to   2.49         298.2           -
 5-16-69       12,000        3,720       3,720       2.299        to   2.495         92.2
 S-28-69        8,000       15.600      13,600       2.43         to   2.48         335.6         2,000   2.55
 5-28-69        3,000        3,600       3,600       2.43         to   2.49          89.1          -
 6-10-69       12,000        8,200       8,200       2.30         to   2.485        200.5          m
 6-26-59       10,000        5,760       3,760       2.309        to   2.49          91.6         2,000    2.94

total
   FY 1969   $W           $2&&6&g                                                               S&750




                                                                         27
APPENDIX II
    Page 3
                                                                                  SOLlCIiArlCN                FOR        DOa UD AID
                                                               FUNDING ABfir'A!I:Fw'ZL?TS,BIDS RECEIVU), CONTRACTS
                                                                                         AWARDE3, MD BIUS REJECTED
                                                                                               FISCAL             PM       1970




                                                                                               Contracts awarded                                                         Bids >e]ected
            Btd-            Amount                                                                   Barrti-                                                                -xEtfr
         WliCI-             in bid                      Total                                        premium                            Dollar                                p~~~iU~                  Dollar
         1ati0n             SOllCi-                    of Lids             Pmaunr                 percentage                            barter                             percentage                  barter
          date              tat1on                  p-cc-                 (-0                                 -                         premium            Amount                 B                    premium

                                                                                                        (in thousands               of dallarsr---------
                        s ;y$                      s        11.800        5 11.80')                  2.24          to     2.490     S      280.4             -
                                                                                                     2.488         to     2.49
                                  10:030                     1,800
                                                                300               1,600
  :I:;::;
  7-29-69
                                  15.OOO
                                  -1;soo
                                                             1.100
                                                                                     300
                                                                                  1,100
                                                                                  1.800
                                                                                                     2.488
                                                                                                     2.413         tc. 2.486
                                                             l;EJO                                   2.500
  a-13-69                         10,000                     6,330                6,300              2.475         to     2.498
  E-27-69                         10,DOO                    28,220              28.2;;               2.473         to     2.493
  8-277c9                          3,200                     1,020                                   2.49                                                                 2.99                     s
  9- 5-69                         12.000                    23,160              22.68')              2.458         to     2.488
   q-16-69                        15,000                      9,143              b;7&0               2.459         to     2.443
   9-2b-69                        15,033                    16,500              16.600               2.47          to     2.496                                                                                 2.5
 lo- 3-69                         15,000                    10,920              10,923               2.47          to     2.498            270.3
 10-10-69                         10,000                      9.350              9,150               2.40          to     2.498            226.3                          2.52                             -:.;
 10-17-69                         15,o'Jo                     9.300              9.700               2.35          to     2.49             228.8                          2.6                                     .
 10-24-69                         10,000                      5,700               5.700              2.489         to     2.500            112.0
 10-31-69                         15.030                      1,500                   300            2.487                                    7.5                         2.564                            i0.e
 ll- 7-69                         10,000                      9,465               9,445              2.47          to     2.490            235.3
 11-14-69                         lO.GO3                    12,100              11.950                2.40         to     2.49             297.5                          2.524                            -3.8
  11-21-69                        12,000                    21.900              18.900                2.40         to     2.49             469.3
 11-28-69                         10,000                    17,350              1y'e;                2.444         to     2.48            421.2
 12-12-b9d                        12,000                      3,280                                    .96         to       .996            32.4
 12-19-69                         15,000                    25.950              2;:;;;               2.30          to     2.49             637.3
    l- b-70d                      10.000                      2,000                                    .989                                 19.8
  l-     b-70                     15.000                      4,120               4:120              2.40          to     2.492            102.5
                                    5.5OD                        924                 9 24             2.465        to     2.477              22.8
  :: ;I’:                         10,030                      2,200               2.200               2.49         to     2.494              54.9
  l-23-50                         15,GSO                      4,317               4.317               2.479        LO     2.49             107.3                                                           -
  l-23-70                          4.000
   2- 3-70                          6,030                   G.341                 81541              2.45          to     2.b70            iO9.8                          2.49        LO 2.495             94.8
  2- b-?Od                          6,090                     3,400               3.400                .98         to       .995             33.5
                                  10,000                    10,900              10,900,              2.46          ta     2.475            268.9
  :I1;:::                         15,ouo                    10,885              lo,ea5               2.47          to     2.48             269.8                                                           -
  Z-23-70                         10,000                    16.~30              16,400               2.44          to     2.40             404.2                                                           -
  2-27-73'                          3.000                    4.300                4,000                .987        to       .998             39.6                                                          -
  3- b-70                         15,000                     7.934                7.904              2.47          to     2.48             195.5                                                           -
  3-13-70                         15,000                     4,6DO                3,b!JO             2.47                                    88.9                         2.495                            25.0
  3-13-70d                          5,030                     3,403               3.400                .98         to       .998             33.5
  4- l-70                         15,000                    18,535              18,535               2.46          to     2.49             460.1                                                           -
  o-10-70                         10,000                     9,368                9,368              2.419         to     2.484             231.6                                                          -
  4-22-70                         10,000                    29,910              29.910               2.40          to     2.40             732.3
  5- l-70                         15,050                    12,500              12.500               2.45          to     2.49             309.7                                                           -
  5-11-70                         10. Ml0                   14.204              14.204               2.46          to     2.49
  5-18-70                         15.000                      3.804               3.374              2.477         to     2.49             '2:                            2.75                             is.8
                                  10,030                      8,310               8.310              2.47          to     2.49             205:8                                                           -
  5-25-70
                                  15,000                    10,100              10.100               2.46          LO     2.49             251.0
                                  10,~OO                      9,300               9.300              2.47          to     2.49             230.7                                                           -
                                  15po                      11,320              11,320               2.48          LO     2.495            282.1                                                       A

 Iota1       FY 1970                               5=%,577                S418>92                ~vrrape
                                                                                                 ..--A-
                                                                                                 ___                    - -_
                                                                                                                          x.417     S10,366.2
                                                                                                                                     :A-             $10,170
                                                                                                                                                      ----               bwrage
                                                                                                                                                                         -=            - 2.550     S-252
                                                                                                                                                                                                    --


                                                   51                                                                               $18,595.6        $268.650                                      $5-t-.-2-
                                                                                                                                                                                                          741         i
                                                    .A-065 J 407
                                                             --           5793 &?
                                                                           --                                                        _-               -


 l ,.lth.,qh auarded in the fiscal  year                               as shorn.            actual      erport            of sorr.e commdities             may     have taken place        in the subse-
   gueo: fiscal year.   (See app. III.)
 BAG additional        conttact             for    5300,000            was awarded            but later                 canceled.




 P his sollcitntlon           w.15 for            xhcnt       only.       The tarter             premium ~8s about 1 percent                         for         wheat BS compared with          2.5 Per-
  cent for other         comodlties.




                                                                                                                        28
                                                                                                                                             APPENDIX III


                                                 OOILAR VALUE OF AGRICL?.TURAL                              COMMODITIES

                                                       EXPORTED UNDER 'IKE bARTER PROGRAM

                                                  DURJNG FISCAL                  YEARS 1967 THROUGB 1970

                                                                 (in    thousands             of dollars)


                                Fiscal        year        1967          Fiscal         year 19G8             Fiscal         year -- 1969          Fiscal         year 1970
                                                     Percent                              Percent                              Percent                              Percent
                                                            of                                   Of                                 of                                   of
      Commodity                 Amount                --total           Amount                total          Amount
                                                                                                             --                 -total           Amount
                                                                                                                                                 --                  total

Wheat                          $114,927                 38.9           $139,327                46.1         $ 84,765             31.8            $ 89,351             19.1

Corn                             14,569                   4.9            27,158                  9.0          37,644             14.1              50,429             10.7

Tobacco                          84,609                 28.6             75,324                24.9           91,524             34.3             140,002             29.9

Cotton                           44,469                 15.0             42,144                13.9           30,078             11.3              78,967             16.8

Soybean      oil                 20,404                   6.9              7,573                 2.5            6,681                2.5           36,932           - 7.9

Cottonseed          oil            5,584                  1.9              3,523                 1.2            6,832                2.6             7,439             1.6

Grain     sorghum                  7,210                  2.4              3,094                 1.0           2,923                 1.1             6,659             1.4

Wheat flour                        3,875                  1.3              3,926                 1.3                  782              .3                   50     (note        a>

Oats     (note      b)              !?A                   NA                     125      (note        a>             113      (note        a)             222     (note        a>

Barley      (note         b)        NA                    NA               NA                    NA             1,744                  .6            1,206                 .3

Rice     (note      b)              NA                    NA               NA                    NA             1,942                  .7          10,551              2.3

Inedible   tallow
   and grease
   (note b)                         NA                    NA               NA                     NA            1,841                  .7          46,788             10.0

                                                                       $302,.194                            $266,873                             $468.592

aLess     than      one tenth            of    1 percent.
b
    These commodities              were        made eligible               from        free       market     sources         under         the   barter      program         on
    the dates shown:

             Commodity                         Month

         Oats                             Mar.       1968
         Cotton                           Apr.       1968
         Barley                           July       1968
         Rice                             Jan.       1969
         Inedible   tallow
            and grease                    May        1969

Source :         Office        of the         Assistant            Sales Manager,
                 Barter        Export         Marketing            Sewice:    USDA




                                                                                         29
APPENDIX IV

     SUMMARIZATIONOF THE DEPARTMENTOF AGRICULTURE'S

        SYSTEMWHICH IS TO MINIMIZE THE LIKELIHOOD

    THAT BARTERTRANSACTIONSDISPLACE COMMERCIALSALES

     In a    publication  entitled "The Barter Export Program,"
USDA noted    that it had been necessary to devise a system
that would    provide reasonable assurance that barter exports
would not    displace cash sales that would otherwise be made.

     The system, adopted to channel barter exports to mar-
kets where they will accomplish the program's objective,
works as follows:

     An analysis    is made of international     trade in each
     agricultural     commodity that is eligible      for barter ex-
     port.     Taken into account are each potential       importing
     country's    external financial   position,    its history    of
     cash imports from the United States of the commodity
     under study, its probable import of the commodity from
     the United States in the near future,         and its pattern of
     exports of the commodity if it is a major producer.

     The designation   is "x" (no barter exports allowed) for
     certain major U.S. markets where there is little    or no
     likelihood   that barter exports would increase total
     sales.

     The designation    is "A" (barter exports permitted only
     after case-by-case    review) if it appears that U.S. ex-
     ports can be increased or maintained      through barter,
     but there is a history     of substantial   cash sales.   An
     "A" designation    is automatic if the country is a sub-
     stantial  exporter of the commodity.

     The designation   is "B" (no barter export restrictions)
     when the country is in a fair to poor external      finan-
     cial position   or has not been a substantial  cash market
     for the commodity and can not be expected to become one
     in the near future.




                                30
                                                                    APPENDIX V


                    UNITED   STATES DEPARTMENT    OF AGRICULTURE
                                EXPORT MARKEBIHG SERVICE
                                  WASHINGTON,   D. C. 20250




                                                              DEC 14 1970

  Mr. Oye V. Stovall
  Director,  International    Division
  Attention:    Mr. G. F. Stromvall
                Associate  Director
  U.S. General Accounting     Office

  Dear Mr.      Stovall:

  The   Assistant  Secretary      for International      Affairs     and
  Commodity Programs has asked me to respond to your
  letter   of October    29, 1970, forwarding         a draft    audit
  report   on the barter     export    program.      We have carefully
  reviewed   the draft    report,     and appreciate     its favorable
  comments on barter      export     accomplishments     over the past
  year and a half.

  The draft      report   reflects      a good understanding      of the
  barter    program and a thoughtful            analysis  of its effect
  on the U.S. balance          of payments.       We have no major
  comments or suggestions             on it.    However, we are enclos-
  ing for your consideration             a list   of minor comments on
  certain     statistical      and editorial      aspects   of the report,
  including      program data that has been updated            since your
  audit    was performed.          [See GAO note.1
  Sincerely,




  Enclosure

GAO note:       The minor comments are not included                in this re-
                port.     GAO considered the comments             and made ap-
                propriate    changes.
                                        31
APPENDIX VI


                         PRINCIPAL    OFFICIALS

              HAVING RESPONSIBILITY       FOR THE MATTERS

                     DISCUSSED IN THIS REPORT


                                                     Tenure    of office
                                                     From                   To

SECRETARY OF AGRICULTURE:
     Clifford  M. Hardin                      Jan.      1969      Present
     Orville  L. Freeman                      Jan.      1961      Jan.    1969

ADMINISTRATOR, FOREIGN AGRICUL-
  TURAL SERVICE, USDA (note a):
      Raymond A. Ioanes                       A2r.      1962       Present

GENERAL SALES MANAGER, EXPORT
  MARKETING SERVICE, USDA
  (note a>:
      Clifford G. Pulvermacher                Apr.      1969      Present

ASSISTANT SALES MANAGER, BARTER
  EXPORT MARKETING SERVICE, USDA
  (note   a>:
       Thomas R. Rawlings                     Apr.      1961      Present

aIn April    1969, responsibility         for the barter       program        was
 shifted   from the Foreign       Agricultural    Service        to the       Export
 Marketing    Service.




                                                                  U.S.   GAO Wash.,   D.C.


                                     32