oversight

Issues Surrounding the Management of Agricultural Exports

Published by the Government Accountability Office on 1977-05-02.

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

                          DCCUMENT RESUME
 01883 -   A1252234]

 Issues Surrounding the MNnagement of Agricultural Exports.
 ID-76-87; B-176943. ay 2, 1977. 2 vols. (v.1, 127 pp.; v.2, 115
 Pp.).
 Report to the Congress; by Elmer B. Staats, Comptroller General.
Issue Area: Food: Federal Invclvement i U.S. Agricultural
    Commercial Export Sales (1714).
Contact: International Div.
Budget Function: Agriculture (350).
Organizaticn Concerned: Department of Agriculture; Council of
    Economic Advisers.
Congressional Relevance: Congress.
Authority: Agricultural Act of 1970, as amended; Agriculture and
    Consumer Protection Act of 1973, sec. 812 (P.L. 93-86; 7
    U.S.C. 612c-3 (Supp. IV)). Export Administration Act of
    1969, as amended (50 U.S.C. App. 2401-2413; 50 U.S.C. App.
    2403(F) (Supp. IV)). B-114824 (1974). B-178753 (1974).
    B-159652 (1974). B-146770 (1975). B-133160 (1975).

          Interviews, questionnaires, nd literature reviews were
 utilized in an attempt to describe and evaluate: 1)
 circumstances surrounding 1974 and 1975 grain purchase by the
 Soviet Union; (2) Agricu]ture's maaagement of its export
 reporting system; (3) Agriculture's forecasting of foreign
 supply and demand; and (4) executive branch agricultural export
 policy and related issues. Findings/Conclusions: Fundamental
 improvements are needed in the   ation's food export machinery.
 The Department of Agriculture's export reporting system needs to
 provide accurate and timely data on exports--a necessary input
 Lf the effects on dcmestic supply and price arc to be minimized.
Current elements of export policy eed to be more complete and
cohesive and need tc provide the flexibility necessary to meet
both domestic and international objectives and changing food
supply and demand situations. Export policy implementation needs
more coordination, cohesion, and better timing.
Recommendations: The Congress should enact legislation providing
for an improved export reporting system that will function as an
effective early-warning system. Congress should also establish a
food export policy that protects the interests of both producers
and consutmers, while simultaneously providing an effective
policy mechanism for surplus and shortage market conditions.
That policy should also clarify the Government's position on
grain sales to nonmarket economies, including the desirability
of such mechanisms as long-term agreements and
government-to-government negotiations. The question of a
national grain reserve, the role of multinational grain
exporters in U.S. marketing, and the role that could be played
in grain exporting by U.S. grain cooperatives should also be
considered by the Ccongress. (Author/SC)
         REPORT TO THE CONGRESS

"C" "     BY THE COMPTROLLER GENERAL
  %,-_?OF    THE UNITED STA TES




       Issues Surrounding
       The Management
       Of Agricultural Exports
       Volume I
       Agriculture's export reporting system needs
       to provide more accurate and timely   export
       sales data. U.S. food policy needs more co-
       hesion and flexibility to meet domestic and
       international objectives and changing food
       supply/demand conditions.
      By legislation the Congress should
      an improved export reporting providesystem to
                                                   for
      function as an effective early warning   system
      and should direct that a food export policy   be
      established that protects the interests of U.S.
      producers and consumers. That policy should
      also clarify the Government's position on
      grain sales to non-market economies.




      ID-76-87
                                                         MAY 2,   977
               COMPTRO.LLr    GENRAL OF THE UNITEDsrATES
                             WASHINTON D.C. U




B-176943




To the President of the Senate and the
Speaker of the House of'RepresenCatives

     We have reviewed executive branch management of Russian
grain sales, agricultural export reporting, and related export
policy issues. Interim staff briefings were provided to in-
terested Members of Congress. We testified bfore the Per-
manent Subcommittee on Investigations of the Snate Committee
on Government Operations on August 1, 1975. O June 24, 1976,
we testified before the Subcommittee on Foreigii Agricultural
Policy and the Subcommittee on Agricultural Production, Mark-
eting and Stabilization of Prices of the Committee on Agricul-
ture and Forestry, United States Senate. The testimony de-
scribed the tentative findings of GAO's review of executive
branch management of Russian grain sales, agricultural export
reporting, and related export policy issues.

     Our review was made pursuant to the Budget and Account-
ing Act, 1921 (31 U.S.C. 3), and the Accounting and Auditing
Act of 1950 (31 U.S.C. 67).

     We are sending copies of this report to the Director,
Office of Management and Budget; the Secretary of Agriculture;
and the Chairman, Council of Eco   ic AdvisQrs    v




                                  Comptroller General
                                  of the United States
COMPTROLLER GENERAL'S                      ISSUES SURROUNDING THE
REPORT TO THE CO1GRESS                     MANAGEMENT OF AGRICULTURAL
                                           EXPORTS
                                           Department of Agriculture
             D I G E S T
             GAO has conducted a series of reviews of
             tile agricultural export situation since
             1972, when Russia's massive grain urchases
             and worldwide changes in food supply helped
             to focus national attention on the challenge
             of allocating the Nation's food resources
             to meet domestic and international objec-
             tives.

             GAO's current review focused on a key
             element of food resource allocation--food
             export policy--and on executive branch
             management of Russian grain sales, ex-
             port rcporting, and related export policy
             issues (See pp. 1-6.)

             GAO found fundamental improvements are
             needed in the Nation's food export policy
             machinery:
             -- Agriculture's export reporting system
                needs to provide accurate and timely
                data on exports--a necessary input to
                aid policymakers in exercising measures
                to mitigate the effects which large,
                lump-sum purchases have on domestic
                supply and price.   (See ch. 4.)
             -- Current elements of expert policy need
                to be more complete and cohesive, ad
                need to provide the flexibility necessary
                to meet both domestic and nternational
                objectives and changing food supply and
                demand situations.   (See ch. 6.)
             -- Policy implementation needs more coordi-
                nation, cohesion, and better timing.
                (See ch. 6.)
             Agricultural Exporting Reporting
             Although an export reporting system has
             been in operation since 1973, the system
cyaoe '.    Upon removal, the report   i                    ID-76-87
     over should be noted hereon.
does not provide reliable prospective
sales data early enough to allow U.S.
policymakers to make timely ecisions.
The Department of Agriculture requires
that export sales data be reported, but such
data is often dramatically changed before
shipments are made and reported too late
to provide an early warning indicator.
(See ch. 4.) To improve the system, GAO
recommends that the Secretary of Agricul-
ture require;

-- Exporters to explain contract changes
   to the Government. This may redice
   modifications substantially and
   thereby increase data reliability.

-- Exporters to advise the Government
   of their intent to negotiate con-
   tracts at the earliest possible time.
   This would help satisfy the ear_y warn-
   ing need.

--Additional information on contracts
  to include classification of foreign
  buyers, disclosure of pricing terms,
  exact destinations and other provi--
  sions. This information would greatly
  improve export data reliability.   (See
  p. 114.)
U.S. Forecasting ofForeign Supply
and Demand
Efforts in this area--particularly for the
Soviet Union and other non-market economies--
should be further upgraded and improved.
Better market intelligence and analysis
coupled witF greater intraagency and inter-
agency commun.ication and coordination is
necessary and desirable.   (See ch. 5.)
The Executive Branch could benefit from
considering some of the forecasting
methodologies used by major multinational
exporters, the Central Intelligence Agency,
and the United Nations Food and Agricul-
ture Organization.


                      ii
Substantial improvement is dependent on
the Government's progress in eliciting
forward estimates from the Soviet Union,
as provided by the 1973 U.S.-U.S.S.R.
Agricultural Cooperation Agreement.

GAO therefore rcommends that the Secre-
tary of Agriculture evaluate Soviet cow-
pliance with the 1973 agreement to deter-
mine how it has benefitted the United
States and the Soviet Union, whether it
is effective, and how to irsure Soviet
compliance with its forward estimate
provision.  (See p. 115.)
Agriculture Export Policy
While advocating a hands-off approach to
agricultural export policy, Government has
intervened extensively on an ad hoc basis
in the U.S. agricultural market. The GAO
recommends that Government response be
formulated within an agricultural policy
framework with criteria designed to satisfy
specific output objectives but with the
flexibility to change when conditions change.
Who should get what, when and why are the
critical questions such a framework should
address. This would allow consideration of
a number of different policy actions which
would be appropriate under different con-
ditions. (See pp. 115-116.)
Implementing Policy

With 26 Federal agencies involved in agricul-
tural policymaking and desite a 1976 reorgan-
ization in U.S. policymaking structure, there
is still uncertainty regarding how and when
major policy options should be implemented.
In addition to improved data reliability and
an integr' ed agricultural policy, a new
mechani     * effectuate policy action is
worth c    Jeration. (See ch. 6.)
GAO believes that a national agricultural
policymaking system should include these
essential elements:

-- An early warning system for export sales.
   (See p. 114.)
Tar   Fat   hm   ~iii
 --A flexible policy framework that satisfies
   specific objectives.  (See pp. 110, 115-116.)
 -- A structure and procedure for implementing
    policy action.  (See p. 110.)
 -- Contingency planning to meet domestic
    and foreign economic policy objectives
    and national security needs. (See
    pp. 115-116.)
 Handling o   Russian Grain Sales
The Executive Branch has taken numerous
actions over the past three years to im-
prove its information gathering, data
analysis, and decisionmaking processes.
But weaknesses in these areas, cited in
GAO's 1973 Russian wheat report and its
1974 soybean and commodity shortages
reports, persist. Domestic and inter-
national disruptions associated with the
1973 soybean embargo and Russia's 1974
and 1975 grain purchases demonstrate a
lack of substantial change in the Execu-
tive Branch's agricultural export policy.
(See pp. 105-106.)
 Removal of the 1975 temporary embargo on
 U.S. grain expcrts to the Soviet Union
 coincided with a 5-year purchasing agree-
ment with the Soviets. Durin- 1976--
 the agreement's first year of operation--
 the Soviets purchased in an orderly manner
about 6 million tons of U,S. wheat and
corn (the minimum required under the
agreement). Because of significant in-
creases in.Soviet 1976 grain production,
the Soviets had no need to import large
quantities of U.S. grain. Therefor - , the
agreement's maximum limits were not tested.
But the agreement's existence did esult
in minimum Soviet purchases which tcherwise
might not have been made.   (See p. 07.)
Prior to negotiating the 1975 agreement
with the Soviets, the Government inter-
vened in the grain exporting market with-
out warning and in the wake of strong
official statements that such action

                     iv
          would be unnecessary. While the agreement
          has added some stabilie- to the purchasing
          relationship betweea the two nations, its
          effectiveness remains uncertain until
          tested under   variety of circumstances.
          (See p. 105.)
          In view of the   certainty associated with
          the 1975 agreement and in light of its
          significance, GAO recommends that the
          Secretary of Agriculture:
          -- Evaluate the effectiveness of the agree-
             ment, determining costs and benefits to
             producers, processors, consumers, ex-
             porters, and the Soviet Union.
          -- Submit an annual report to Congress
             evaluating the agreement's effective-
             ness.
          -- Require that all future long-term grain
             purchasing agreements between the U.S.
             Government and other governments be
             fully reviewed by relevant Executive
             Branch agencies and be subjected to
             some form of congressional consultation.

          -- Require that all future short-supply
             export control decisions be subjected
             to some form of congressional consulta-
             tion before being finalized.  (See
             p. 116.)

          Matters for Consideration
          bythe ongress
          In its consideration of and deliberations
          over thz forthcoming Agricultural Act of
          1977, GAO recommends that Congress enact
          legislation providing for an improved
          export reporting system that will func-
          tion as an effective early warning system.
          GAO has submitted to Congress proposed
          legislative language providing for needed
          improvements to the export reporting sys-
          tem. (See vol. II, app. F.)

          The GAO also rucommends that Congress
          establish a food export policy that pro-
          tects the interests of both producers
TL !;W
     rv
and consumers, while simultaneously pro-
viding an effective policy mechanism
for surplus and shortage market condi-
tions. That policy should also clarify
the Government's position on grain sales
to non-market economies, including the
desirability of such mechanisms as long-
term agreements arad governlent-to-
government negotiations.
Other issues for Congressional considera-
tion include: the question of a national
grain reserve (see pp. 100-101); the role
of multinational grain exporters in U.S.
marketing, and the degree of concentration
in this area (see p. 104); and the role
that could be played in grain exporting
by U.S. grain cooperatives (see p. 104).

Agency Comments and GAO Evaluation
Agriculture in its January 19, 1977,
official esponse acknowledged the
accuracy of factual material presented
in GAO's report. However, it disagreed
with the general thrust of the report's
conclusions, recommendations, and matters
for consideration of the Congress.
Agriculture contended that its policy
over the past 4 years has been effective
and that GAO's recommendations would
unnecessarily involve government in
agriculture, resulting in a reduction
of U.S. grain exports.
GAO maintains that a balanced agricultural
policy involving the governmein  in a
supportive role is essential to avoid
recurrences of crises similar to those
resulting from past Russian grain sales
and export embargoes.  It is also necessary
if the U.S. is to preserve its market-
oriented agricultural policy and provide
for some form of market stabl ity in the
event of extreme shortages and surpluses.
(See pp. 110-114.)




                    vi
                           Volume I
                        Contents

                                                    Page
DIGEST                                                i
CHAPTER

   1      INTRODUCTION                               1
              GAO Studies, 1973-1975                 2
              Purpose of GAO Review                  4
              Scope of Review                        6
   2      GOVERNMENT'S HANDLING OF 1974 GRAIN
            SALES TO RUSSIA                          7
               Situation, Summer, 1974               7
               September Developments                9
               Decision on Prior Approval,
                 September 19                       10
              Contacts with Exporters,
                 September 25                       10
              U.S.-Soviet Government Contacts       11
              Economic Policy Board Set Up          12
              Reports of Soviet Interest,
                 September 30, October 1            12
              Continental's Corn Sale to Soviet
                 Government                         12
              Cook Industries, Inc,, Negotiations   13
              Decision to Defer Soviet Contracts    13
              White House Meeting with Exporters    14
              Monitoring and Approval of Export
                 Sales                              14
              Guidelines                            15
              Approval Criteria                     15
              Renegotiation of the Soviet
                 Purchases                          16
              Development of New U.S. Offer         17
              U.S.-U.S.S.R. Grain Date Exchange     18
              Country Target Levels                 18
              GAO Assessment of 1974 Decision-
                naking Process                      19
              GAO Assessment of 1974 Implemen-
                 tation                             19
              GAO Assessment of Data Collec'ion     20
                                                      Page
CHAPTEiA

   3       HANDLING OF 1975 SOVIET GRAIN SALES         22
                Introduction                           22
                Government's Discovery of
                  Purchase Plans                       23
                Early Warning System                   23
               U.S. Contacts with Exporters            24
               Contacts Between U.S.-U.S.S.R.
                  Governments                         24
               U.S. Estimates of Soviet Grain
                  Production and Demand               24
               Contingency Plans-Impact Analyses      25
               Price and Other Impacts of Sales       25
               Summary of Events, 1975 Grain Sales    26
               Suspension of Grain Sales co Poland    29
               U.S.-U.S.S.R Long-Term Grain
                  Purchasing Agreement of 1975        30
               Legality of the Long-Term Agreement    32
               GAO's Legal Analysis of Agreement
                  and Voluntary Controls              33
               Summary of Government Response to
                  1975 Grain Sale Crisis              34
               Developments in 1976                   35
  4        AGRICULTURAL EXPORT REPORTING SYSTEM       37
               Evolution of Export Reporting System   37
               Commerce's Export Reporting System     39
               Mandatory Export Data Reporting
                 System, Responsibility Given to
                 Agriculture                          40
               Use of Export Reporting System         41
               Shifts in Organizational Responsi-
                 bility Within the Agriculture De-
                 partment                             42
               Voluntary Prior Approval System
                September, 1974 - March, 1975         43
              1975 "Prior Approval" SysLem            45
              Export Reporting System WeaKnesses      46
              Internal Evaluations and Audits         48
              Overview of GAO's Exporter Survey       56
              GAO Analysis of Export Reporting
                System's Price Impact                 57
              Proposed GAO Amendment to 1973
                Agriculture Act                       58
                                                      Paqe

CHAPTER

   5      AGRICULTURE'S FORECASTING OF FOREIGN
            SUPPLY AND DEMAND                          61
              Export Forecasts and the Soviet Union    61
              Soviet Forward Estimates                 62
              Effect of Long-Term Purchasing
                Agreement                             63
              Agriculture's Forecasting System        63
              Statistical Reporting Service           64
              System Flowcharts                       65
              Interagency Groups in Agriculture
                Department                            65
              Outlook and Situation Board             67
              USSR and PRC Task Forces                67
              Interagency Commodity Estimates
                Committees                            68
              Foreign Agricultural Service            68
              Attache Reporting                       68
              Types of Attache Reports                70
              Foreign Commodity Analysis              70
              Analysis/Forecasting Methodology        72
              Officials' Views of Forecasting
                Operations                            73
              Dissemination of information            74
              Economic Research Service               76
              Intra-Agency Cooperation                79
              Problems of Coordination                81
              Improvements, Continued Weaknesses      82
              Other Forecasting Organizations         84
              Food and Agriculture Organization
                of the United Nations                 85
              Major Grain Exporting Companies         86
  6       U.S. AGRICULTURAL EXPORT POLICY             88
              Flexibility                             88
              Foreign Policy Aspects of Food
                Exports                               92
              1975 Long-Term Grain Purchasing
                Agreement                             93
              Constraints on ree Market Agricul-
                tural Transactions                    94
              Concentration in U.S. Grain
                Exporting                             95
                                                     Page

CHAPTER

     6         Government Decisionmaing               96
               Views of FPcent Policy                 -6
               Impacts of Recent Policies             99
               Possible Modifications of Present
                 Policy                              100
               National Grain Reserve                100
               Other Optional Modifications          101
               Exporters' Views of Optional
                 Modifications                       102
               Summary                               103
     7     CONCLUSIONS, AGENCY COMMENTS AND OUR
             EVALUATION, RECOMMENDATIONS, MATTERS
             FOR CONSIDERATION OF CONGRESS           105
               General Conclusions                   105
               Specific Conclusions                  105
               1974 Russian Grain Sales              106
               1975 Russian Grain Purchases          107
               Agricultural Export Reporting
                 System                              107
               Agricultural Forecasting              109
               Agricultural Export Policy            '10
               Agency Comments and Our Evaluation    110
               Agency Comments                       110
               Our Evaluation                        112
               Recommendations                       114
               Matters for Consideration by the
                 Congress                            116
APPENDIX


     I     Bibliography                              118
  II       Letter dated January 19, 1977, from
             Richard E. Bell, Assistant Secretary,
             International Affairs and Commodity
             Programs, Department of Agriculture     121
II         Principal Officials Responsible for
             Administratior of Activities
             Discussed in this Report                125
                         CHAPTER 1

                        INTRODUCTION
     Policy choices involved in massive grain sales to Russia
nave been of continuing Governmental concern since the first
of these purchases took tne Nation by surprise in 1972. Tn-
tense national debate has centered on the impact of these
and subsequent purchases in 1974 and 1975.

     Together with many other supply and demand variables,
tne grain sales have been a factor in the unstable agri-
cultural market situation of the past 3 years, a period
characterized until recently by tight supplies and high
prices, and by continuing general market uncertainty. How
significant a factor the sales have be-i has proved dif-
ficult to assess.
     Consumers have been quick to blame rising food prices
on the foreign sales. Farmers, on the other hand, have
welcomed the new market, and have reacted sharply to
Government intervention. Three maritime unions, with
other union backing, temporarily refused to ship U.S. grain
to the Soviet Union.

     The fact that tne sales have improved the U.S. balance
of trade Lituation must be weighed against the depletion of
U.S. and world grain stocks and the decreased availability
of commodities for concessional food and feedgrain exports
to developing countries.
     One certain effect of the sales has been to force
recognition of the interrelationship between domestic and
international economic policy, and to elevate agriculture
to a nigh priority in formulating and executing foreign
economic policy.

     A central question is what kind of role the Executive
Branch should choose in dealing with grain exports. Since
1972, Government intervention--through either voluntary or
mandatory snort-supply export controls--has strained its
free-market approach to grain export policy and raised
the question whether established guidelines for future
intervention should be assessed.

     Government efforts to stabilize grain marketing,
through formal and informal long-term grain purchasing
agreements with other countries have not met with


                              1
universal acceptance. Farmers, as noted, have ttacked
them sharply as unwarranted interference in the free
market.

GAO STUDIES, 1973-1975

     During the continuing controversy over grain export
policy, the Congress has called on the GAO to make several
investigations.

      The results of the first study were published in July
1973:   "Russian Wheat Sales and Weaknesses in Agriculture's
Management of Wheat Export Subsidy Program, (B-176943)."
GAO concluded that (1) there were no guidelines for
managing grain sales to non-market economies; (2) no
accurate, timely, reliable and complete export data to assist
decisionmakers; and (3) no systems for assessing the impact
of exports on the economy.
     To develop a responsive governmental system for
managing grain sales to non-market economies in the future,
it was recommended that:

     -- Agriculture establish rules and procedures for
        transactions involving unusual purchases by state
        trading monoplies. The unequal bargaining power
        that exists when a single, fully informed buyer
        (such as the Russian state trading agency) confronts
        several partially informed sellers calls for greater
        government-industry cooperation.
     -- As part of the above, Agriculture establish an
        export reporting system in cooperation with private
        exporters so that the Government is informed of
        impending large sales to non-market economies.
     -- Agencies be required to develop definitive ground
        rules so that expected benefits from exports can
        be appropriately weighed aga4 nst their impact on
        various segments of the economy.
     In March 1974, GAO issued a report, the "Impact of
Soybean Exports on Domestic Supplies and Prices, (B-178753),"
reiterating the need for   reporting system that provides
for accurate, timely, and reliable export data. The report
emphasized that such a system must provide the Agriculture
Department with the information to make responsive, export-
related decisions and to carry out those decisions promptly


                              2
to help insure an adequate domestic supply at reasonable
prices. The report also suggested that the Agriculture
Department adopt a more flexible export policy so that
                                                       the
Government would be able to respond early to unanticipated
supply and demand conditions.

      Our April 1974 report, "U.S. Actions Needed To Ccpe
 with Commodity Shortages, (-114824)," also cited a variety
 of informational, analytical and decisionmaking weaknesses.
 The recommendations in that report included making improve-
 ments in:   (1) coordination and responsiveness of the
 commodity decisionmaking process; (2) implementation,
 reporting, and evaluation of short-supply export controls;
 (3) capabilities, procedures, and report products of agency
 commodity monitor ng, analysis, and forecasting  groups; and
 (4) data gathering, analytical capabilities, and policy
coordination for l)ng-range economic policy planning
                                                        efforts.
      As an outgrowth of our 1973 review of Russian wheat
sales and the Wheat Export Subsidy Program, we further
amined the role of the agricultural attache and issued ex-
                                                          a
report on April 11, 1975, titled, "The Agricultural Attache
Role Overseas: What He Does and How He Can Be More
Effective EIor The United States," (ID-75-40).   In that
port we commented on the attaches' information gatheringre-
and reporting responsibilities, focusing particularly
their operating role in the Soviet Union, Eastern bloc on
countries and the People's Republic of China. We found
that attaches had limited effectiveness in developing,
gathering and analyzing foreign market information. We
recommended that Agriculture upgrade the quality of
attache reporting both in market and non-market economies.

     In a separate Congressional review of Russian grain
transactions, the Permanent Subcommittee on Investigations
of the Senate Committee on Government Operations, issued
a report in July 1974 concluding:
     "*   *   *the government and specifically the Department
    of Agriculture (during the 1972 Russian grain sales)
    had no means to inform itself in an accurate and timely
    fashion as to the quantity of grain sales to foreign
    buyers which could assist in an assessment of such
    sales, domestic supplies and domestic prices* * *.
    Specifically, the Subcommittee finds that the Agri-
    culture Department failed to initiate even a rudi-
    mentary reporting sytem for grain exports."



                                 3
     In an effort to provide the executive branch with
constructive alternatives for dealing with future grain
sales to the Soviet Union, the Subcommittee recommended:
(1) GAO review Agriculture's export reporting system--
which was established as a result of an act of Congress
in September 1973--to determine that its information is
accurate, complete and timely; and (2) interagency coor-
dination and oversight of large grain sales be initiated
to reconcile conflicting goals of U.S. foreign, agricultural,
transportation, economic and social policies at the outset
of trade negotiations.

     As a result of significant unanticipated purchases of
U.S. grain by the Soviet Union in 1974 and 1975, the Sub-
committee convened hearings in October 1974 and again in
July and August of 1975 to reexamine the government's
management of grain sales to the Soviet Union.  In each
case the Subcommittee found that the substance of the
recommendations had been only partially implemented.

Purpose of GAO Review

     Our review was made in response to the Subcommittee's
1974 recommendations and also in response to the request
of several Members of Congress to review Agriculture's
implementation of GAO's 1973 Russian Wheat Repnrt recom-
mendations and the circumstances surrounding the 1974
and 1975 Russian purchases of U.S. grain.

     Since starting our review we have briefed several
Members and committees of Congress on arious aspects of
Russian grain sales. On August 1, 1975, we testified
before the Permanent Subcommittee on Investigations of
the Committee on Government Operations of the United
Sates Senate to describe the status of our on-going
efforts.

     On March 3, 1976, we issued a separate follow-up re-
port concerrning our 1973 Russian Wheat Sale Report recom-
mendations on the Wheat Export Subsidy Program, titled,
"Agriculture's Implementation of GAO's Wheat Export
Subsidy Recommendations and Related Matters, (B-176943)."
We reported that:

     -- Agriculture had not evaluated the former subsidy
        program.




                              4
     -- Agriculture officials contended that there was no
        need to systematically evaluate the former subsidy
        program (which was suspended in September 1972) nor
        to subsequently develop a new, standby program
        because they believed the tight wheat supply and
        high demand situation existing since 1972 would
        continue, precluding the need to reestablish export
        subsidy.

     -- Agriculture's policy provides no adequate policy
        alternatives for'disposing of surplus wheat.
     -- Current Federal investigations of U.S. grain
        inspection practices raised the question of re-
        covering Federal subsidy payments on grain
        exports.
     Based on our findings and continuing concern for more
effective programs, we recommended that the Secretary of
Agriculture (1) conduct an evaluation of the former
subsidy program, and (2) nitiate appropriate action to
insure that any future program will be effective and ef-
ficient. We also suggested to Congress that it might wish
to reexamine the entire subject of agricultural export
subsidies and to determine whether legislation should be
considered as a means for insuring a more effective and
efficient subsidy program, should one become necessary in
the future.
     On June 24, 197G, we testified before the Subcommittee
on Foreign Agricultural Plicy and the Subcommittee on
Agricultural Production, Marketing and Stabilization of
Prices of the Committee on Agriculture and Forestry,
United States Senate. The testimony described the tentative
findings of GAO's review of executive branch management of
Russian grain sales, agricultural export reporting, and
related export policy issues.

     Our current report is a detailed and in-depth extension
of that testimony. The report attempts to describe and
evaluate: (1) circumstances surrounding 1974 and 1975
grain purchases by the Soviet Union; (2) Agriculture's
management of its export reporting system; (3) Agriculture's
forecasting of foreign supply and demand; and (4) executive
branch agricultural export policy and related issue..

     As part of this project, we developed and sent a
questionnaire to approximately 300 exporters of U.S. grain


                              5
(the entire U.S. export market) requesting information on
various aspects of grain export policy.  (See pp. 56, 57,
Chap. 4 and Volume II, Appendix G.) We also provided
legislative language to amend Section 812 of the Agricultural
Act of 1970 as added by the Agriculture Act of 1973 (P.L.
93-86), which strengthens Agriculture's Export Reporting
System rgulations.   (See Vol. II, Appeneix F.)
SCOPE OF REvIEW

     During the cou.se f our review of Russian grain sales,
export reporting and    t!ted export policy issues, we inter-
viewed numerous pb}.     oiicy experts, agricultural policy
specialists, agricu-. dal economists, agricultural commodity
analysts and other representatives of the agricultural
sector. The officials we contacted are associated with or
employed by the following organizations:

                       PRIVATE SECTOR
All Exporters of U.S. grain             Farmer Cooperatives
  (Approx. 300)                         Agricultural Economists
Grain Exporter Associations             Commodity Traders
Agricultural Trade Associations         Private Commodity Fore-
                                          casting Organizations
                       U.S. GOVERNMENT
White House                             Agriculture Department
Council of Economic Advisers            State Department
Economic Policy Board                   Labor Department
National Security Council               Treasury Department
Council on International Economic       Federal Trade Commission
  Policy                                Relevant congressional
Special Representative for Trade          entities
  Negotiations                          Federal Maritime
Central Intelligence Agency               Commission
Commodity Futures Trading               Commerce Department
  Commission                            Food and Agriculture
                                          Organization of the
                                          United Nations
     The study also covered various executive branch docu-
ments and files and, on occasion, some documents and publica-
tions of the private sector. We also contacted knowledgeable
congressional staff members and reviewed relevant congressional
hearings and reports. Interviews, questionnaires, and reviews
of written material were extensive.


                              6
                          CHAPTER 2

     GOVERNMENT'S HANDLING OF 1974 GRAIN SALES TO RUSSIA

SITUATION, SUMMER, 1974
     As evidence of a potential tight supply situation for
wheat, corn, and soybeans emerged in June 1974, the President
established a Cabinet-level Committee on Food, appointing
his Counsellor for Economic Policy as Chairman. The Com-
mittee was formed to review Government activities signifi-
cantly affecting food costs and prices and to provide coordi-
nation for the Nation's policy relating to (1) domestic and
international food supplies and (2) food costs and prices,
The Committee's functions were transferred to the Economic
Policy Board (EPB) in October 1974.
     On June 21, 1974, the Chairman of the Committee estab-
lished a working group--the Deputies Group--composed of
representatives from member organizations and chaired by
representatives from the Council of Economic Advisers.
The Deputies Group began meeting on a biweekly basis
shortly after the President's Committee was established.
From early August the Group focused on (1) the U.S. crop
shortfall and its implications for export policy, (2)
Public Law 480 1/ policy and (3) domestic food prices.
     Beginning in mid-August meetings were stepped up to
a weekly schedule to keep abreast of the domestic crop
situation. Information was presented on export commitments
from the Agriculture Department's export reporting system,
export shipments, domestic and foreign production, food
aid commitments, and domestic consumption.
     Analysis conducted by the Deputies Group in August,
September and October reflected a rapid increase of pro-
jected corn and wheat exports and a dramatic decrease in
projected domestic carryover levels. The following
table provides a detailed breakdown of the deteriorating
market condition.




l/Provides for U.S. agricultural exports on a concessional
  basis to foreign nations.


                              7
             Supply and     Demand for Maor U.S. Crops
                           .. 974:75-(note-                   -
                           (milion        busnels)
                                                             wheat
                                      9 / 15 /74---I/13L
                              8/11/74Supply:
 Supply:                                                                     4       10/27/74
      Beginning stocks               249          249                  249               249
      Production                   1,840        1,792                1,781             ;,781
      Imports                          1            1                    1                 1
            Total supply              -                                      r         a7
 Demand:
      Domestic                      808                815             813
 Exports:                                                                                    738
      Cumulative exports          117                  228             311                   352
      Undelivered sales           339                  389             434                   465
           Total exports          456--                                7T                      7
           Total demand        1,242               ,                 I,55             T75
 Carryover                        826               610                473                   476

                                                             Corn
Supply:
      Beginning stocks           428              428                 428
      Production                                                                        481
                               4,966            4,995               4,718             4,718
      Imports                      1                1                   1                 1
           Total supply                         5,17                                  ____
Demand:
     eeed                      3,830           3,859                3,607
     Food, ind. and seea                                                              3,535
                                 455             455                  455                 455
           Total domestic      4,85            4,3I4
Exports:                                                                              3,99
                                                                                         -
                                                                                       -
     Cumulative exports             -              -                   24                  50
     Undelivered sales              608        1,055                1,096             1,125
            Total exports      - 6                     -6           1T,120            TI
            Total demand       4,8 9I          5                     TM
Carryover                                                                             ,--
                                                                                      5,165
                                 502                   55             35
                                                   Soybeans
Supply:                                                   -
      beginning stocKs           160              160         172
      Production                                                                        172
                              1,314            1,316        1,262                     1,262
            Total supply       1-.             T71
Demand:                                                         4                       1
                              --
      Crusning.s                    805            805                805
     Seed, feed, and                                                                         805
        residual                  84                   86              84               84
            Total domestic     ---                                    --         -   - s 99
Exports:                                       -
     Cumulative exports         -                   13                 43                 61
     Undelivered sales          449                595                614                614
            Total exports       449            -- m               ~--'
                                                                    -  7
            Ti-al demand      1338             1,546
Carryover                                                                            T43U
                                                                    -11              - T
a/Prepared by GAO from information provided by the
                                                   Department of
  Agriculture.




                                           8
     As the domestic carryover situation continued to
deteriorate, policy decisions were made to avoid imposing
export controls and to begin consultations with major U.S.
trading partners to share the adjustment burden required by
the U.S. crop shortfall. First discussions were conducted
in late August by the Secretary of Agriculture and repre-
sentatives from the Council on International Economic Policy
(CIEP) with Japan, the European Community, and the Soviet
Ambassador in Washington. The U.S. representatives inquired
about Soviet intentions to purchase U.S. grains, but
the Soviet Ambassador said he had no instructions.
SEPTEMBER DEVELOPMENTS

     Responses from Western trading partners were generally
favorable and informative. An indepth review was made by
the Deputies Group in early September and an option paper
was prepared for the Food Committee. The Committee decided
in mid-September to continue the strategy designed to avoid
export controls by facilitating market adjustments and main-
taining close consultations with U.S. trading partners.
     The Deputies Group repeatedly expressed concern about
the reliability of the export demand data reported by the
Agriculture Department. Generally, it was felt that this
data presented an exaggerated demand picture  in view of
other indications of reduced export demand for U.S. grains
and continuing stable prices.

     The export reporting system was changed on September
12, 1974, to require that previously unreported export
sales be reported within 24 hours whenever the quantity of
a sale or sales to any destination during any calendar day
equals or exceeds 100,000 metric tons.  Reports were re-
quired for exports of wheat, corn, grain, sorghum, soybeans,
and soybean meal to permit the Government to deal with any
exceptional orders.

      In the meantime, the Deputies Group's September assess-
ment efforts were also being plagu-A oy varying reports of
the 1974 Soviet grain crop. In early September, the
Agriculture Department estimated it would be 210 million
tons.   It also reported that the 1973 crop had permitted
the Soviet Union o increase stocks by an estimated 11
million tons. The Department estimated that Soviet feed-
grain imports would be only about a fifth as large as the
5 million tons imported in 1973-74 and that the Soviets
would purchase only 50,000 tons of U.S. corn.


                              9
      However, other information available to
                                                the Deputies
 Group indicated reduced Soviet production
                                            and
 greater demand for U.S. grains. On September possibly
 cultural attache in Moscow confirmed his        20 the agri-
 estimates that Soviet production would    earlier  (June 1974)
                                        range from 195 to
 205 million tons.

      The Deputies Group also had to consider
 the Soviets had been a major                 the fact that
                              buyer of U.S. corn over the
 previous three years, with imports averaging
 tons per year.                               3.5 million

 DECISION ON PRIOR APPROVAL, SEPTEMBER 19
      The Food Committee recognized that the
 to
                                              major threat
     ts mid-September strategy, aside from
 setbacks, was possible purchases by the    further U.S. crop
                                          Soviet Union, the
 People's Republic of China (PRC) and the
                                           Persian Gulf oil-
 exporting countries.

     Consequently, on September 19, 1974, the
decided to have the Secretary of Agriculture   Committee
major exporting companies to inform them      contact the
expected prior pproval on exceptional    that  the Government
countries.                             sales to these

     The Committee also decided a formal approach
made to the Soviet Union to clarify               snould be
                                    the U.S, crop situation
and to obtain advance knowledge of Soviet
                                          import needs if pur-
chases were expected. The Departments
                                       of State and Agri-
culture were designated to carry out this
                                          directive.
CONTACTS WITH EXPORTERS, SEPTEMBER 25
     The September 19 directives of the Food
                                              Committee were
implemented by the Secretary of Agriculture's
sations with major grain exporters and         phone conver-
formal, approach to the Soviet Union.  by another,  more

      The Secretary called Cook Industries,
September 25, 1974, and inquirrd about        Inc., on
were possibly going to buy. He learned   what  the Soviets
                                          that
expected the Russians to purchase 2 million Cook officials
                                               tons of U.S.
corn, as well as 4 to 6 million tons of
world market to support their developing  corn  from the
cattle-feeding programs. The Secretary     broiler  and
pany to notify him immediately if it soldrequested the com-
amount of grain.                            a significant
                   "Significant" was defined as over 1 million


                              10
tons. The Secretary did not request the company to obtain
clearance before finalizing any sale. Tha day he also
called Continental Grain Co., as well as the other major
exporters, and asked Continental to inform him before
concluding any sale.

U.S.-SOVIET GOVERNMENT CONTACTS
     A cable to the U.S. Embassy in Moscow on September 25
instructed the Embassy to explain to the Soviet Government:
        -- the tight supply/demand situation for U.S. grains
           and the need for information on Soviet intentions
           to purchase U.S. grains,

        -- that other countries had provided the United States
           with such information and that the request was
           instructed by Washington, and

        -- that since the U.S. market was tight, the Government
           was not sure that it could service large requests.
Thus it wished to know to the degree of possible Soviet
purchase intentions.

        The Soviet Deputy Minister of Foreign Trade responded
that:

        -- the Soviet Union did expect to purchase some grains
           in the United States but its requirements would be
           considerably below previous purchases;
        -- the Soviet Union did not wish these quantities to
           be burdensome to the United States and would like to
           know the U.S. view of what a reasonable amount would
           be;
        -- since Soviet crop data was not in, specific Soviet
           requirements were as yet unknown, but would be
           conveyed to the U.S. when the Soviet trading agency
           contacted U.S. grain exporters.

     The Soviet Ambassador informed the Secretary of
Agriculture the same day that the Soviet Union would wish
to purchase modest quantities of U.S. grain and that it
wished to have a statement of the U.S. position. The
Secretary told him that the U.S. market remained tight with
the recent frost and that it would be preferable to delay


                                 11
 any purchases in the market until after the Government
                                                        had
 a clearer crop report and knew the real situation.
 told the Ambassador that as a tentative estimate    He also
                                                  he believed
 that modest quantities, perhaps on the order of one
                                                     million
 tons of wheaL, could be accommodated   sometime later in   the
 year.

     Not utlci after the Soviet Union's purchases were
                                                        held
up in early Octcber did the U.S. Government adequately
address the problem of responding to Soviet questions
                                                       about
acceptable levels of feedgrain purchases for the
                                                  remainder
of the crop year.  There was some discussion of this issue
before the September 25 cable to Moscow, but no
                                                 quantity
was agreed upon.  The reasoning may have been that specifying
a quantity would be the equivalent of a purchase
                                                  guarantee.
ECONOMIC POLICY BOARD SET UP

     On September 30, 1974, the President issued Executive
Order 11808, which established the President's Economic
Policy Board (EPB).   The Board was composed
Cabinet and White House officials, with the of  various
                                             Secretary of
the Treasury as Chairman and the Assistant to the
for Economic Affairs as Executive Director.        President
                                              EPB advised
the President on all aspects of national and international
economic policy; oversaw the formulation, coordination,
and implementation of all U.S. economic policy; and
                                                     served
as the focal point for economic policymaking.

REPORTS OF SOVIET INTEREST, SEPTEMBER 30,
OCTOBER

      In response to the Secretary's SepL..bAr 15 request,
Continental Grain Company informed the Agriculture
                                                    Depart-
ment on September 30 that there appeared to be a
                                                  strong
possibility that the Soviet Union was interested
                                                  in re-
ceivina offers of U.S. grain during the next seven
                                                    to ten
days.   On October 1, Continental told USDA hat it had
again advised Soviet representatives that the U.S.
                                                    grain
situation was tight and that USDA officials opposed
                                                     large
sales.

CONTINENTAL'S CORN SALE TO SOVIET GOVERNMENT

     when the Soviet representative asked what quantities
the company was prepared to offer, Continental Grain
Company proposed to the Agriculture Department that
                                                     it
confine its offer to 1 million tons of corn.  The Secretary


                               12
of Agriculture areed to approve this sale, but it is
unclear whether his approval covered only Continental's
proposed sale or whether i: was meant to cover total U.S.
sales to te Soviet Union. In any case, the Secretary told
Continental officials on October 3 that he could not approve
a Soviet Did that day for an additional two million tons of
wheat. Later that day, Continental Grain Company informed
U.S. Government officials that the terms and conditions for
the sale of one million tons of corn had been finalized
and filed the required formal notification of the sale with
the Agriculture Department.

     Since this sale was at variance with established policy
(to get other countries to follow the U.S. action to reduce
consumption of feedgrains and share some of the adjustment
necessitated by the shortfall in U.S. crop production), the
Deputies Group, meeting that day, decided to contact the
Secretary of State and the National Security Council.
State's representative to the Deputies Group also prepared
a memorandum on the Russian grain purchase for the Secretary
which included recommendations to contact the Soviet Union.

     The Deputies Group met again on the morning of October
4 and prepared an options paper for consideration by the
Economic Policy Board's Executive Committee on Continental
Grain Company's finalized corn sale and proposed wheat sale.
COOK INDUSTRIES, INC. NEGOTIATIONS

     Cook Industries, Inc., concluded its negotiations with
the Russians at 11:45 a.m. on October 4, for the sale of
1,300,000 tons of corn and 900,000 tons of wheat. The
company called the Agriculture Department about 1:30 p.m. and
was told that the Department had to notify the White House
immediately. While representatives of the Deputies Group
were waiting at the White House for a scheduled meeting with
the Economic Policy Board's Executive Committee, they were
informed of Cook's sale to the Soviet Union. The Deputies
Group representatives then informed the Executive Committee
of the situation.

     Contact was made with the other major U.S. exporters,
who advised that additional Soviet purchases of corn and
wheat in the range of six to eight million tons were expected.
DECISION TO DEFER SOVIET CONTRACTS

     Subsequent Executive Comrittee discussions initially
focused on the use of licensing and export controls. A

                              13
Deputies Group representative argued that across-the-board
export controls were unnecessary but that Soviet purchases
should be held up. Following consultations with the
Secretaries of Treasury and State, the President agreed.

     After the discussion, the Secretary of State
Soviet Ambassador to the United States and iiformedcalled the
                                                     him of
the U.S. Government's decision.  He told the Ambassador that
the magnitude of these contracts was more than the American
market could stand at that time.  The Ambassadcr still
thought they were modest quantities and no resolution was
reached.  The Secretary of State told the Ambassador that
the Secretary of tne Treasury would discuss the question of
grain sales with Soviet officials while in Moscow the
following week.

WHITE HOUSE MEETING WITH EXPORTERS

     Ccntinental Grain Company and COOK Industries, Inc.,
officials were invited to a White House meeting on October 5.

     A statement released by the White  ouse Press Secretary
on this meeeting stressed the President's expression of
strong concern and the grain companies' responsiveness to
this concern. The statement also reported that the two
companies were arranging to cancel these contracts, and that
Government-to-Government discussions would be undertaken with
Soviet officials during the Secretary of Treasury's trip to
Moscow.

     On October 7, an official letter was sent to the two
grain companies (reportedly at their request) by the Secretary
of Treasury (as Chairman of the Economic Policy Board)
stating the President's strong concern over the potential
impact of such exports when the United States had experienced
a disappointing harvest of feedgrains.  The letter also stated
that the contracts were not in the national interest at that
time and that the compani s should not implement them.
Further, the letter formally and officially confirmed the
Government's request that the companies not ship the grain.

MONITORING AND APPROVAL OF EXPORT SALES

     As a result of the decision to hold up the Russian
purchases, an ad-hoc export sales approval group was es-
tablished in early October at the Secretary's suggestion
and with the President's approval.  Initially, the group
consisted of representatives from the Council of Economic


                              14
Advisers, the Office of the Special Representative for Trade
Negotiationn, the National Security Council, and the
Departments of State and Agriculture; Treasury was subsequent-
ly added. The group was originally chaired by CEA, but was
subsequently transferred to USDA.
GUIDELINES

     On October 8, 1974, the Agriculture Depar':ment announced
new guidelines for the voluntary prior approval system for
large export contracts. Exporters of wheat, corn, grain,
sorghums, soybeans, and soybean oil cake and meal were
requested to obtain USDA approval prior to making:
     1.   export sales which would either:

          a.   exceed 50,000 tons of any one commodity in one
               day for shipment to any one country of destin-
               ation, or

          b.   cause the cumulative quantity of sales of any
               one commodity made to any one country of
               destination during any one week (Monday through
               Sunday) to exceed 100,000 tons; and/or

     2.   any change to a known country of destination from a
          country of destination (including unknown destina-
          tions) previously reported to USDA in Form C.E.
          06-0098 cover     ing     export sales if the
          change(s) for any one commodity exceeding 50,000
          tons in any one day accumulates to exceed 100,000
          tons during any one week (Monday through Sunday).
     It was also requested that neither offers nor sales made
under Title I, Public Law 480 neec   e reported under this
voluntary system.  It was further  requested    that exporters
make tneir offers under a tender issued   by  a  foreign buyer
(usually a foreign government) subject   to  USDA  approval.   How-
ever, exporters were informed that  USDA  would   not knowingly
approve offers or sales made under a tender that lacked such
a condition.
APPROVAL CRITERIA

     The ad hoc approval group developed criteria for
approving large sales. Guidelines for prior approval issued
by USDA on October 9, 1974, stated:



                                15
      "In determining which proposed sales
                                             will be given
      prior approval and which will not,
                                          the Department will
      consider the total annual requirements
      involved and the extent to which         of the country
                                       those
      already covered. Factors, in addition requirements are
      availability, will include the level     to the U.S.
                                            of the foreign
      country's 1974-75 crop; its stocks
                                          on hand; existing
      purchase contracts calling for future
      jected consumption; and the pattern     delivery; pro-
                                           of imports during
      recent years."
 RENEGOTIATION OF THE SOVIET PURCHASES
      Aftet the October 5 meeting at the
                                          White House, the
 Deputies Group prepared an options
                                    paper
 grain could be exported to the Soviet     on how much U.S.
 submitted to the Executive Committee Union. The paper was
 Policy Board and was discussed with of the Economic
                                     the President, who gave
 the Secretary of the Treasury instructions
 sions in Moscow.                            for his discus-

     The options included questions of
quantity and composition of the purchases.timing and the
question was whether to defer Soviet           The timing
the October crop report or until       purchases  until after
quantity and composition question after January 1, 1975. The
Soviet purchases of 5,000 tons of was whether to (1) permit
                                    corn, Agriculture's
original estimate of Soviet demand,
purchases of one million tons of      (2) permit Soviet
                                 corn
of wheat, the current USDA proposal, and 1.5 million tons
purchases under existing contracts     or (3) permit Soviet
                                    and obtain agree nt that
no   ditional sales would be made.
      The Deputies Group concluded that
 could approve a Soviet purchase            the United States
                                 of 500,000 tons of corn and
 1,000,000 tons of wheat for immediate
possibility of up to 500,000 tons         export, with the
later--but only if more             of  corn   and more wheat
availabilities and importinformation   about Soviet crop
                           requirements was forthcoming.
Also, it was to be made clear to
that they should not offer to buy the Soviet representatives
the levels approved for immediate additional amounts beyond
                                   export without prior
consultation between he two Governments.
clusions were reached on the domestic           Other con-
need for a public statement, Commodity   price   impact, the
financing, and contract problems           Credit  Corporation
involved.                         for   the  grain  companies



                               16
     The Group's recommendations were essentially adopted
and provided the instructions for the Secretary of the
Treasury. The Secretary met with the Soviet Minister of
Foreign Trade on October 14 and 15 and discussed outstanding
problems of U.S.-Soviet trade, including the question of
Soviet grain purchases. The Minister pressed for an increase
in the quantities offered and the Secretary presssed for an
exchange of information as agreed upon in the 1973 agreement
on agricultural cooperation. The Soviet representatives
had originally contracted for 2.3 million tons of corn, and
900,000 tons of wheat, but reduced their request to 1.5
million tons of corn. The United States offered a compromise
of wheat for corn, as follows:  1.2 million tons of wheat,
1 million tons of corn, and 1 million tons from other
exporting countries or deferred U.S. delivery until the new
crop year. No agreements were reached during these talks.
DEVELOPMENT OF NEW U.S. OFFER

     In a subsequent discussion with the President, the
Secretaries of Treasury and State recommended an increase
in the quantities originally approved for export to the
Soviet Union. The President agreed to an increase from the
originally approved 500,000 tons of corn to one million tons
and from one million tons of wheat to 1.2 million tons and
the remainder for delivery from other exporting countries.
It appears that this decision was made partly out of concern
for existing contracts and partly for foreign policy reasons.
     The Soviet Union agreed to accept this U.S. offer, and
details were announced in Treasury's October 19 press
release. The agreement provided that the Soviet Union would
make the ecessary purchase arrangements with U.S. export
firms and would make no further purchases in the U.S. market
during the 1974-75 crop year. Further, the Soviet Union
agreed to work toward the development of a grain exchange
system between the two Governments.
     Part of this agreement was modified in February 1975,
when the Soviet Union requested the grain companies to
substitute 200,000 tons of old crop wheat for new crop corn,
for delivery starting in October 1975. Their request was
made in two separate, 100,000-ton transactions. The grain
companies submitted both requests for U.S. Government
approval. The Grain Monitoring Group approved the first
100,000-ton request without delay and made the situation
known to the Secretaries of the Treasury and Agriculture.



                                17
     Approval for the second 100,000-ton request was delayed
until after Government-to-Government discussions in Moscow
during the meeting of the Exports Group under the Long Term
Cooperation Agreement. After receiving information that
Soviet desires were based upon commercial grounds, the
second request was approved. Also, a problem with the
quality of some U.S.-origin corn shipments resulted in non-
U.S.-origin corn replacing part of the one million tons
originally approved for sale to the Soviet Union. This
U.S.-Soviet agreement on grain purchases applied only to
the 1974-75 crop year.
U.S.-U.S.S.R. GRAIN DATA EXCHANGE

     The Government's problems in anticipating and re-
sponding to Russian grain purchases in 1974 would have been
simplified by an adequate data exchange program (as agreed
upon in the 1973 Agricultural Cooperation Agreement). U.S.
dissatisfaction with the workings of this exchange were
discussed during the Moscow meetings of October 1974 and
and Washington of December 1974, and in other meetings in
February and April 1975.  (For further discussion, see
chapter 5.)
COUNTRY TARGET LEVELS

     The Executive Committee of EPB directed the Grain
Monitoring Group in December 1974 to establish country
target levels of estimated U.S. exports for the 1974-75
crop year. Once these target levels were established, they
were not to be changed without the Group's approval.
These target levels served as the basis for the Group's
discussion and approval of export sales of U.S. grains.

     The approval system (which was operative from October
1974 throigh March 1975*) was basically a check against
anticipated or estimated exports by country developed by
Agriculture's Foreign Agricultural and Economic Research
Services. In essence, the system tracked exports against
Agriculture's estimates of demdnd. Weaknesses in this
data base are discussed in GAO's a .sessmenton pages 43-45.


  Declines in U.S. consumption of feedgrains permitted
  elimination on March 6, 1975, of the system of prior
  U.S. Government approval for large export orders for
  wheat, feedgrains, and soybeans.


                              18
GAO ASSESSMENT OF 1974
DECISIONMAKING PROCESS
     The executive branch showed certain improvements in deal-
ing with the 1974 grain sales to Russia. The decisionmaking
process was more formalized than it had been in 1972, and
was less crisis-oriented. There was a more deliberate
process for weighing options and for devising responses to
'he developing shortage situation. This process led to the
requests for self-imposed limits on both importers and ex-
porters and for the deferment of existing contracts, and
eventually to the temporary voluntary prior approval sys-
tem.
     On the other hand, the Government demonstrated a
continued reluctance to intervene in the market with firm
policy guidelines until faced with major isruptions, such
as the 1974 Soviet grain purchases. As a result, its
response to the crisis created problems similar to those
of 1972 (general uncertainty about future Government moves
and their possible effects on the market).

     The decisionmaking process was also hampered by inter-
aqency discord. Disagreement over the composition of the
ad hoc monitoring group, for example, led to the three
shifts in the chairing of this group. There was similar
friction over the makeup of the team sent to the U.S.
discussions with European Community oficials on feedgrain
exports. Another point of disagreement involved changes
in authority to approve or not to approve export sales.

GAO ASSESSMENT OF
T1974 IMPLEMETATION

     In the view of the GAO, a fundamental difficulty in
implementation stemmed from the lack of any compliance
program. This led to problems including simple but signi-
ficant failures of communication and inadequate control of
shipments.
     Although the decision was made to inform grain companies
that prior Government approval was expected on exceptional
sales to the Soviet Union, Cook Industries, Inc., was not
so informed before its sale had been made.




                             19
      The monitoring system for agricultural exports did
 provide any control of diversions and/or transhipments. not
 Members of the Deputies Group were concerned about the
 practical value of compliance checks, since there was
                                                        a
 voluntary approval system and no mandatory licensing
 requirements under the Export Administration Act or
                                                      similar
 authority.

     As a result, it is unclear whether, and the extent to
which,there may have been diversions and/or transhipments.
There were rumors, but no evidence, of such transactions.
The CIA checked for transhipments, but its investigations
applied only to sales after the prior approval system
put into effect.                                        was
                   There seems to have been no evidence
as of December 1974 of any diversions to Cuba or to
Eastern Europe.  The Agriculture Department was asked to
talk with West German officials about this question
                                                     because
of the large number of sales destined for delivery to
Rotterdam and Hamburg.

     Another implementation problem involved U.S. feedgrain
and soybean meal exports to the European Community.
                                                     A
November 1974 report to the Economic Policy board stated
that U.S. sales to the Community were exceeding the
                                                    quantity
that had been earlier agreed could be safely exported.
Since this situation was considered a political issue,
an informal compromise was worked out and it was agreed
to reexamine the situation in March 1975.

GAO ASSESSMENT OF
DATA COLLECTION

      The data base for decisionmaking had improved since
1972.   Export information developed by the Agriculture
Department's newly established export reporting system
was used in coordination with information of export
                                                     ship-
ments, domestic consumption, food aid requirements,
                                                     domestic
production, and probable foreign production and demand.

     The usefulness of the data base was, however, impaired
by two serious weaknesses.

     One major weakness had to do with the Ariculture
Department's estimates of consumption within individual
foreign countries of destination.   (See ch. 5.)  The
absence of accurate estimates and the effort spent in
obtaining them created confusion about whether a problem
did, in fact, exist, and delayed the Government's
                                                   eventual
response once the situation had been clarified.

                              20
      A second problem was the lack of confidence
reliability of the Agriculture Department's        in the
export demand.                               figures  on
                 (For reasons,
the Deputies Group were agreed see ch. 4.) Members of
                                that there were inaccura-
cies in the system but did not agree
tion or even on whether it could b    on corrective ac-
                                     done.
much discussion of possible improvements, In spite of
taKen except to consult with U.S. trading no steps were
                                           partners in an
effort to get better information.

     The Economic Policy Board
cc recting inaccuracies in the expressed  concern about
                               sytem, especially figures
for exports to the European Community.
representative met with Community        An Agriculture
                                  officials
to get cooperation on the deletion of        but failed
                                       inflated figures from
the reporting system.

     The ad hoc approval group used additional
other sources to modify Agriculture's           data from
                                       export figures.
The group attempted, through this means,
                                          to avoid unusual
transactions, stockpiling, and other
                                      abnormal trends.




                             21
                             CHAPTIER 3

                HANDLING OF 1975 SOVIET GRAIN SALES
 I'TRODUCTION

     The Soviet Union's purchase of approximately
tons of U.S. grains in 1975 was in some            16.5 million
                                         ways similar to its
1972 and 1974 purchases and accentuated
policy and implementation weaknesses.    many of the previous
was again surprised by the size and     The executive branch
                                    makeup of the purchases--
despite the existence of an export reporting
communication with U.S. grain exporters,      system, better
lations with the Soviet Union.            and improved re-

      There were, however, several notable
                                             differences in
 tne 1975 purchases; especially as compared
 situation:                                   to the 1972
             (1) Soviet purchases were not facilitated
Government credits, but were made strictly                by U.S.
 (', an export reporting system was           on a cash basis;
outcome of the 1972 sales; (3) the operative, largely as an
1973 had been signed by the Soviet Agricultural    Agreement of
                                    Union and the United
States (committing oth parties to
cultural information); (4) tne salesexchanging valuaole agri-
cutive branch agencies, whereas, in    involved several exe-
                                     1972 the Department
of Agriculture was the primary agency
Government export subsidies were paid involved; (5) no U.S.
wheat prices were two to three times    to export firms; (6)
                                      higher than in 1972;
and (7) at the time of the sales, there
what total U.S. supply would be, since was more doubt of
                                         production was
uncertain and stocks were one-third
                                     as high in 1972.
     To better understand the circumstances
Soviet reemergence in the U.S. grain         surrounding
nigh level Agriculture, State, and   market,  we asked
such key questions as:             white House  ofLicials

     -- When and how did the U.S. Government
                                             first receive
        any indication of Soviet buying intentions?
    -- How effective, as an early warning
                                           system, had the
       agricultural export reporting system
                                             proved to be?
    -- Had there been any formal or informal
       between grain exporters and the U.S. communications
       If so, with what results?             Government?




                              22
     -- Had there been any furmal or informal communications
        between the U.S. and the U.S.S.R. Governments?
        If so, with what results?
     -- What was the nature of U.S. Government involvement
        in the grain sales?
     -- How accurate were U.S. Government estimates of Soviet
        grain purchases in 1975?

     -- how accurate were U.S. Government forecasts of Soviet
        crop production?
     -- Had the U.S. Government developed any contingency
        plans in the event the Soviet purchases exceeded
        estimates and precipitated a potential short-supply/
        high price situation? Had the U.S. Government, in
        anticipation of such a development, completed impact
        analyses reflecting the differing effects of varying
        sizes of purchases on the domestic economy?

     -- What were the price and other impacts of the sales?
     -- Was there any interagency monitoring of the current
        sales?
GOVERNMENT'S DISCOVERY OF
PURCHASE PLANS

     We found that the Government had not received advanced
notice of the nature and extent of Soviet buying intentions.
U.S. officials learned through a published news story (Journal
of Commerce, July 7) that Soviet representatives were ar-
ranging for shipments of rain from Canadian and U.S. ports.
     Before then there had been only one or two clues to the
Soviet crop situation: U.S. Air Force reports of deterior-
ating weather conditions in Russia, and rumors that the Soviet
Government was selling considerable amounts of gold in the
world market for hard currency.
EARLY WARNING SYSTEM

     With the ending in March 1975 of the Prior Approval
System, the only potential mechanism for alerting the
Government to extraordinary sales was the agricultural export
reporting system. This system failed to provide any advance



                             23
 notice. Voluntary submission of Government-requested
 from major grain companies did not constitute         data
 warning system.                               a formal early

      Government officials contended that tne
                                              system was not
 designed to reflect Soviet--or any foreign--buying
 L il after a written contract had been             intentions
                                         entered into and re-
 ported to the Dep tment of Agriculture.

      The fact remains, however, that in 1975,
 1974, there was no formal system to provide    as in 1972 and
                                              decisionmakers
 with accurate, timely and complete information.
 there was the same uncertainty and confusion      As a result,
                                               as had been the
 case with earlier sales.
 U.S. CONTACTS WITH EXPORTERS

      We found that the Agriculture Department
informal communications                        had established
                         with multinational grain exporters
several months before the impending grain
                                           sales were publi-
cized. These informal contacts also failed
warning clues to Soviet intentions.          to provide any

CONTACTS BETWEEN U.S.-U.S.S.R.
GOVERNMENTS
     Throughout the summer of 1975, there
cussions between U.S. and Soviet officials,were informal dis-
and Moscow. But despite repeated U.S.        botn in Washington
                                        requests
about the probable extent of Soviet purchases, for nformation
agreements to provide such data under            and despite
                                       the 1973 Agricultural
Cooperation Agreement, no satisfactory
                                        answers were obtained
until August. At that time Soviet officials
the first time preliminary production data    provided for
                                            on area zones with
a breakdown by types of grain.

U.S. ESTIMATES OF SOVIET GRA;-N
PRODUCTION AND DEMAI

      western agricultural specialists in Moscow
counting poor weather reports, predicted          in May, dis-
Soviet Union. The first offical U.S.      a bumper  crop for the
crop yield, published in June, called estimate   of the Soviet
                                       for 200 million tons.
An earlier USDA preseason projection of
                                         210 million tons
was based on a "normal" weather assumption.
                                              After the Soviet
crop data was provided, subsequent estimates
downward on several occasions, with the       were revised
                                         last (December 9,
1975) being set at 137 million tons.


                             24
     The initial U.S. forecasts of Soviet grain demand, based
on informal discussions with U.S. rain exporters and with
Soviet embassy officials, anticipated Soviet purchases of U.S.
grain of approximately 5 million tons.
     It snould be noted that forecasting grain supply and de-
mand is always complicated by the difficulties of predicting
weather condiCions at critical periods. The Soviet Union's
needs for extraordinarily lan;e quantities of U.S. grain
in 1975 can be traced primarily to the drought in the spring
and summer of 1975.
     The U.S. response to the sales was also shaped to some
extent by uncertainty about how the weather would affect the
size of the available U.S. crop.

     Chapter 5 provides a detailed discussion of the problems
of forecasting grain demand.

CONTINGENCY PLANS-IMPACT ANALYSES
     We found that neither contingency plans nor impact
analyses ad been developed prior to July 1975. Therefore,
when it became clear that the Soviet Government would be
buying unspecified larger-than-anticipated quantities, the
executive branch was not prepared to determine quickly what
acceptable level: of exports would be.

PRICE AND OTHER IMPACTS OF SALES
     Th.? effect of the sales on U.S. food prices is by far
the hmost controversial issue in the U.S.-U.S.S.R. grain trade.
The 1972 sales were a factor in the highest food price in-
creases since 1947.   It should be noted, however, that in
that year total U.S. grain exports to other countries, es-
pecially Japan and Western Europe, were considerably niigher
than the shipments to the U.S.S.R., and must bear a propor-
tional share of the responsibility for the food price in-
creases.
     Nevertheless, the news of the mid-July 1975 sales pro-
voked a wave of protests based on fears--which proved to be
exaggerated--that they would have the same domestic infla-
tionary repercussions as those in 1972.

     Due to the volatility of the commodities market, the mere
announcement of Soviet entrance tends to send commodity prices
up. For example, the cash price of wheat in Kansas City rose


                             25
 from $.08   to $3.96 per bushel from July 1 to
 Co-.1 in Cnicag- jumped from $2.78 to $3.14 per July 29, 1975.
 nigher cost of corn, the basic livestock feed,   bushel.  The
                                                  helped to keep
 the price of fattened cattle from dropping as much
 been anticipated.                                    as had

      The chairman of
 before a congressionalthe Federal Reserve Board in testimony
                         committee on September 4,
 that U.S. grain sales to the Soviet Union in      1975, said
                                               1975 might lead
 to a rise in food prices on the order of 2 or
                                                2-1/2 percent
 in 1976.

      A study by Agriculture's Economic Research Service,
 in late July 1975 estimat d that a sale of approximately
 10 million tons would meat a 1 to 1-1/2 percent
                                                 increase,
 about $3-4 billion in additional food costs for
                                                 consumers.
     A similar study, prepared for the use of the
Economic Committee in Congress, making a projectionJoint
                                                     based on
a 10-million ton ale, projected the resulting
food prices at 1.0%. The study projected a rise rise in retail
                                                  in farm
prices of feedgrains and wheat of 10-12 percent
                                                 and a rise in
realized net farm income of 10 percent. The income
                                                     gain was
expected to go mainly to crop producers, while
producers might face possible losses.           livestock

     Actually, food prices rose only slightly
wonths. That slight rise may be attributable in subsequent
                                              to an improved
supply situation reflecting generally high levels
                                                  of world
production.
     The sales also may have had an imFct n foreign
                                                       policy.
Although executive branch officials generally considered
the sales to be a separate issue from overall U.S.
with the Soviet Union, one official claimed that    relations
fluenced the Soviet Union not to interfere with   the sale in-
                                                 the U.S.-
engineered 1975 Sinai Agreement.

SUMMARY OF EVENTS, 1975 GRAIN SALES

     The following is a brief narrative summary of events.
For a more detailed chronology, see Vol. II, Appendix
                                                        n.
     Only a week after the first sale of 2 million tons
announced on July 16, the International Longshoreman's    was
Association (ILA) voted to refuse to load American
Canadian grain on ships destined for Russia. They and
cated that the ban would be lifted if "the interestsindi-
                                                      of the
American people were adequately protected."

                              26
     The next day the Under Secretary of Agriculture asked
exporters to notify the Department before making major grain
sales to the Soviet Union.

     Two other maritime unions--the Seafarer's Association
and the Maritime Engineers Benevolent Association--a'so
voted to refuse to load grain unless assured the sales
would not substantially raise food prices.

     The unions were also openly dissatisfied with the
Soviet Government's reluctance to agree to a new set of
shipping rates more favorable to American shipping.
(See Vol. IT, Appendix K)

     There was a brief work stoppage on August 7, followed by
another on August 18, at which point a temporary Federal Court
injunction on behalf of the shippers was issued.

     There was strong criticism of the boycott from the admin-
istration and from farm organizations.  The boycott had the
complete support of the A.F.L.-C.I.O., which took the position
that the U.S. was facing the prospect of massive grain sales
to the Soviet Union with no assurance that national interests
would be properly safegaurded.

     The A.F.L.-C.I.O. pressed for full disclosure of the ex-
tent of the prospective sales, a policy to protect American
companies from unfair competition with state-owned monopolies,
an offensive policy to deal with commodity cartels such as
the OPEC rations, and an investigation of the extent to which
American corporations ae participating in and supporting such
cartels.

     On August 11 the Secretary of Agriculture called on ex-
porters to withhold further sales to the Soviet Union until
U.S. crop production figures were known.

     The announcement pleased labor, consumer groups, and
various members of Congress who nad urged government action
out of concern about food prices and the availability of
U.S. commodities.

     Farm spokesman expressed strong disapproval, based partly
on the fear of extensive government intervention should sini-
lar situations arise in the future.  Farmers were also afraid
that the suspension would force traditional buyers to seek
other sources ot supply, and that once sales resumed, farm
prices would e lowered.


                             27
     Various veiwpoints on grain export policy were expressed
at hearings July 31 and August 1, 1975, before the Senate
Committee on Government Operations, Permanent Subcommittee
on Investigations. The Assistant Secretary of Agriculture
for International Affairs and Commod .ty Programs said that
"American farmers must export in order to maintain the incen-
tives to generate *** high levels of roduction ***. Any
potential impact on prices must be balanced against the need
for farmers to receive full returns***."

     Arguing for a tempc-ary sales limitation, pending crop
developments, John A. Schnittker, former Under Secretary of
Agriculture, cited the risk of serious food price inflation.
He went on to say:  "*** while export sales should be care-
fully managed to preserve relatively stable food prices,
farm price support ought to be raised substantially to pro-
tect farmers."

     A number of critical decisions were made on September 9
and 10. After a meeting between AFL-CIO President George
Meany and the President, it was announced that the President
would explore the possibility of a long-term grain purchasing
agreement with Soviet Union. At the same time the President
extended until i]-October 1975 the moratorium on sales. As
of that date, the Soviet Union had purchased 10.2 million
tons of grain.

     In response to the President's announcement, the AFL-
CIO announced the lifting of the boycott.

     The next day, without a public announcement, the State
Department requested through the Polish Embassy that Poland
halt grain buying in the U.S. (See below, pp. 29 and 30.)
News stories of the suspension did not begin to surface until
September 22.

     Also on September 10, the Under Secretary of state for
Economic Affairs left for Moscow to begin negotiations on the
long-term grain trade agreement.

     The President also announced the creation of a special
board to consider related questions of agricultural exports
and domestic food prices.

     Agriculture had been the Government agency primarily
involved in the sales during July 1975. However, the Economic
Policy Board and the Deputies Group had begun meeting



                             28
regularly in mid-July to discuss the grain sales, and it was
the Board which made the decision to order suspension of the
sales in mid-August. The decision was reluctantly agreed to
and announced by the Secretary of Agriculture, a Board member.
     Another Board member, the Secretary of Labor, was the
primary negotiator between the AFL-CIO and the Government con-
cerning the llgshoremans boycott, revised shipping rates, and
the long-term agreement.
     The new unit created on September 10 was the Economic
Policy Board/National Security Council Food Committee.  It
was expected to develop negotiating strategy for the grain
sales and to monitor those negotiations.
     It should be noted that the new Food Committee involved
little change in membership. Nine of the ten members of the
Food Committee were also members of the 14-member Economic
Policy Board. One important difference was that new group was
chaired jointly by the Secretaries of State and the Treasury.
This enabled the State Department to initiate and carry out
the grain embargo on Poland, over the objections of the Secre-
tary of Agriculture.
SUSPENSION OF GRAIN SALES TO POLAND

     The official explanation of the suspension of grain
sales to Poland was that the suspension was necessary until
the size of the U.S. corn crop became clear. There has been
speculation, however, that the decision to suspend grain sales
to Poland was taken primarily to put pressure on the Soviet
Union to cooperate in negotiating the long-term purchasing
agreement.
     The suspension met with some criticism because of the
secrecy under which it was imposed and because of its possible
conflict with U.S. international treaty obligations. Foreign
Agricultural Service officials said that this type of suspen-
sion was arbitrary and contrary to:    (1) U.S. initiatives to
expand its trade  relationship  with the Polish Government, and
(2) the General  Agreement of  Tariffs and Trade (GATT), of
which Poland is a member.

     The latter agreement is multilateral and therefore the
United States is bound to abide by set criteria covering em-
bargoes stemming from short supply situations.



                             29
     On October 10 the President announced he was lifting the
suspension on sales because the Agriculture Department's
October 1 crop estimates showed record harvests for wheat and
corn. The Under Secretary of State for Economic Affairs had
announced on September 16 that the Soviet Government had
agreed in principle to a long-term grain trade agreement, and
the text of the U.S.-Soviet agreement on shipping rates of
$16 a ton was released three days later.
U.S.-U.S.S.R. LONG-TERM GRAIN
PURCHASING   AGREEMENT-OF   975

     The long-term grain purchasing agreement between the
United States and Russia was signed on October 20, 1975, to
take effect on October 1, 1976. This agreement committed the
Soviet Union to purchase a minimum of 6 million tons of wheat
and corn annually through 1981, and allows the Russians to
purchase an additional 2 million tons annually without Gov-
ernment consultation, plus additional amounts with consulta-
tion. The United States may reduce the quantity to be sold
in any one crop year if the estimated total U.S. grain supply
is less than 225 million tons. Shipments are to be in accord
with the U.S.-Soviet Maritime Agreement.

     Executive branch officials justified signing the agree-
ment on the grounds that it regularizes Soviet purchases and
minimizes associated disruptions. Officials also argued that
the agreement:

     -- assures U.S. farmers a market in Russia for 6-million
        tons of wheat cnd corn a year for the next 5 years;
     -- provides additional assured demand which will assist
        farmers in making planting decisions;
    -- protects U.S. livestock producers and consumers and
       other foreign customers from large Russian purchases
       of U.S. grain without prior consultation;
    -- provides the United States with $4 billion to $5
       billion in potential foreign exchange earnings (at
       prevailing prices) over the next 5 years;
    -- assures that sales under the agreement will take
       place at the prevailing market price through tradi-
       tional exporter channels;




                                  30
     -- reduces price fluctuations in United States and world
        markets by smoothing out Soviet purchases oL U.S. grain,
        and thus protects American farmers, consumers, and live-
        stock producers as well as foreign customers;

     -- stimulates not only agriculture but such related enter-
        prises as farm machinery and ocean transport; and

     -- strengthens cooperation between the two countries by
        stabilizing the important grain trade between them.
        4

     Farmer representatives have been highly critical of the
agreement, which they view as another government export con-
trol that will restrict exports and markets and depress
prices. One spokesman accused the administration of yielding
to unjustified pressure from consumer groups and the maritime
unions, and interfering unnecessarily in the grain market.

     Other critics of the agreement, including consumers and
congressmen, contend that it has created additional uncer-
tainty rather than resolving the disruptions associated with
massive grain purchases. Various criticisms leveled at the
agreement include:

    -- limits the President's authority to impose short--supply
       export controls on corn and wheat.
    -- fails to include substitutable commodities, such as
       soybeans and soybean meal.

    -- fails to clearly cite the authority for such an agree-
       ment.
    -- was negotiated and signed without the advice and con-
       sent of the Congress.
    -- is unenforceable because grain is a fungible commodity
       distributed by multinational corporations whose market
       activities are not regulated by the agreement.
    -- fails to provide for Soviet disclosure of forward
       estimates and stocks as promised in the 1973 Joint
       Agricultural Cooperation Agreement.

    -- fails to protect U.S. domestic consumer interests by
       not restraining the volume of Soviet sales in the event
       such sales create unacceptably high levels of infla-
       tionary food prices domestically.


                             31
     -- fails to comment on the potential for shipments of
        subsidized grain in the event market conditions change
        during the term of the agreement.
     -- represents increasing government intervention in the
        market, gives the Soviets privileged market status,
        and establishes a precedent for government-to-govern-
        ment, long-term grain purchasing contracts that may
        cause other major importers of U.S. grain to seek
        such agreements and privileged market status.
     Despite considerable discussion about linking an agree-
ment on Soviet oil sales to the U.S. grain agreement, no such
accord has been finalized. Negotiations on a long-term agree-
ment for Soviet oil exports to the U.S. are continuing.
(See Vol. II, Appendix I, for text of the Agreement.)

Legality of the Long-Term Agreemert

     The decision to send negotiators to Moscow was apparently
made before the legal jusitification of a grain agreement was
determined. The State Department did not complete its legal
analysis until several weeks after the agreement was signed.

    According to this analysis:

    -- The legal basis for this executive agreement is the
       President's authority under Article II of the Con-
       stitution to negotiate and conclude appropriate agree-
       ments with foreign governments.
    -- It is consistent with the Agricultural Marketing Act
       of 1946, the Export Administration Act of 1969, as
       amended, the General Agreement on Tariffs and Trade
       and all other relevant U.S. statutes.
    -- The agreement is legally binding on the governments
       involved, but upon no individual under U.S. domestic
       laws.
    -- The U.S. Government will not interfere with any private
       commercial transaction made under the agreement and
       will, in fact, facilitate such transactions.
    -- The President, however, does retain the authority
       to impose export controls under the Export Adminis-
       tration Act, if such controlv become necessary.



                             32
GAO'S LEGAL ANALYSIS OF AGREEMENT
AND VOLUNTARY CONTROLS
     Following the grain agreement and the Government's
voluntary export restraints in 1975, the Congress expressed
concern over their legality. Consequently, we prepared a
legal analysis of the Government's actions in these two
instances. (The complete analysis appears in Vol. II,
Appendix J.)  From our analysis we concluded that:
     -- The President has authority under the constitution
        to negotiate international agreements affecting for-
        eign commerce, notwithstanding the constitutional
        responsibility of the Congress "to regulate Commerce
        with foreign nations."

     -- The suspension of sales to the Soviet Union was
        based on voluntary action by exporters at the request
        of the executive branch. Since the suspension was not
        legally binding, it was a lawful exercise of executive
        branch authority.

     --The President has independent constitutional authority
       to enter into such an executive agreement as the
       long-term Soviet grain purchasing agreement which af-
       fects foreiqn commerce and such action on his part
       is not precluded by the Export Administration Act.
       However, the U.S. Government does retain its statutory
       authority under the Export Administration Act to im-
       pose export controls should Soviet purchases be of the
       nature to necessitate such actions.

     -- The President's authority to institute legally
        binding and enforceable export controls is derived
        from and dependent upon the authority delegated to
        him by the Congress in the Export Administration Act.

     The National Association of Wheat Growers has considered
taking legal action against the executive branch because of
the Agreement and the grain sales moritorium that preceded
it. The Association believes that by establishing terms on
which grain commerce between the two countries is to be con-
ducted, the agreement regulates commerce, which the President
cannot do without congressional consent. The Association
rejects the argument that the agreement does not involve regu-
lation of commerce in that it does not create restraints on
commerce under domestic law.



                             33
       The State Department has acknowledged that whatever
 President's inherent authority to affect commerce          the
 foreign relations powers may be, that authority    under  his
                                                  may be pre-
 empted by legislation--which, according to State,
 occurred in this case. The Association believes, has not
                                                    however,
 that the President's authority has been preempted
                                                    by the
 Export Administration Act, which governs the regulation
 U.S. exports.                                             of

     The Association holds that the prior approval
implemented in 1974 and the 1975 sales moritorium system
sistent with the Export Administration Act. The are incon-
                                                 Act provides
that nothing in the Act or in the rules and regulations
thereunder should be construed to require authority
                                                    or permis-
sion to export, except where required by the President
the provisions of the Act.                              under

     The Association may also take legal action
eral grain exporters. It contends the exporters against sev-
violated the Sherman (Antitrust) Act when they    may have
                                                voluntarily
agreed to cease exports of grain during the 1974
                                                  and 1975
moratorium--the implication being that the exporters
not have agreed to stop their exports unless all      would
                                                  agreed.
SUMMARY OF GOVERNMENT RESPONSE
TO 1975 GRAIN SALE CRISIS
     The 1975 grain sales to Russia, in exceptionally
quantities, caught the Government offguard and without large
adequate data base, background studies, or policy       an
                                                  guidelines.
     Because of this lack of preparation, uncertainty
total U.S. grain production, and unreliable estimates over
Soviet production prospects, the Governmert had       of
its responses.                                  to improvise

     The July 24 request for prior
sale contracts created an informal notification of major grain
                                   prior approval system.
The latter requests for suspensions of sales to
Poland fllowed.                                 Russia and to

     In taking these steps, the Government was forced
modify its reiterated commitment to a free market     to
                                                  economy
with minimum government intervention, in order to
potential domestic and international disruptions. minimize




                             34
     Significant segments of society--farmers, labor, con-
sumers, and legislators--were at odds over the handling of
the grain sales, specifically, and over grain export policy,
generally. Labor leadership and boycotting unions exerted
powerful influence over negotiated shipping rates and the
long-term grain purchasing agreement with the Soviet Union.
This agreement and the one signed with Poland were hailed
in some quarters, criticized sharply in others.

     GAO's assessment of the Government's 1974 and 1975
experiences with the grain sales, as they bear on agricul-
tural export policy, is set forth in Chapter 6.

DEVELOPMENTS IN 1976

     On March 5, 1976 the President again reorganized food
policy groups. The Economic Policy Board/National Security
Council Food Committee was consolidated with the International
Food Review Group (established in November 1974, primarily to
coordinate follow up to the World Food Conference).

     The new consolidated unit was the Agricultural Policy
Committee, chaired by the Secretary of Agriculture. The
other memiers included: Secretaries of State, Treasury, and
Commerce; Presidential Assistants for Economic Affairs, Domes-
tic Affairs, National Security Affairs, and Consumer Affairs;
Chairman of the Council of Economic Advisers; Director of
the Office of Management and Budget, and the Executive
Director of the Council on International Economic Policy.

     The appointment of the Secretary of Agriculture to the
chairmanship of the new Committee appeared to return Agri-
culture to the position of primary maker of food policy.
This position had been eroded by the events of July, August,
and September 1975.
     The Agricultural Policy Committee was formed to con-
solidate agricultural policymaking into one group reporting
directly to and advising the President on the formulation,
coordination and implementation of all agricultural policy,
including both domestic and international issues.

     The Deputies Group became the Agricultural Policy Working
Group, and provided staff assistance by monitoring agricul-
tural developments and preparing issue papers and other
analyses.




                             35
      No major foreign agricultural
during 1976 to test the operational policy crises erupted
                                     capabilities of the Agri-
culture Policy Committee. According to White
officials, the Committee met rarely and then House staff
                                              only for cere-
monial reasons. These officials stated that
Committee's existence, the Economic Policy    despite the
                                            Board
President reviewed and decided major agricultural of the
                                                    policy
matters throughout 1976. The Economic Policy
tinually received analyses of major policy     Board  con-
                                            issues from
the staff level Agricultural Policy Working
                                             Group.
     The complexity of food policy is illustrated
fact that two executive branch groups and          by the
                                          several subgroups,
composed of representatives from as many as
agencies, have dealt with food policy. The 26 government
units and the shifts in recent years attest creation of new
                                            to
of developing effective food policy mechanisms. the difficulties
     During 1976, the first year of operation of
term purchasing agreement, the Soviet Union        the long-
orderly manner about 6 million tons of U.S.  purchased  in an
This was approximately the minimum amount    wheat and corn.
                                          required under the
agreement. Because of significant increases
                                              in Soviet and
world grain supplies and the continuing high
production, no unusual circumstances emerged  level  of U.S.
                                              in 1976 to test
the agreement's endurance.




                            36
                          CHAPTER 4

           AGRICULTURAL EXPORT REPORTING SYSTEM

Evolution of Export Reporting System

     For approximately three decades prior to the 1972 Russian
Sales, the U.S. had virtually continuous agricultural sur-
pluses. Except for brief intervals, bountiful surplus enabled
the U.S. to satisfy domestic and foreign demands and retain
large quantities as a domestic buffer stock. Government
policy focused on problems of over-supply and low farm prices,
and ways to expand exports. There was rarely a need to keep
close track of exports, and no system existed to do so.
     Agriculture's Interagency Commodity Estimate Committees
then and now develop projections for total crop production,
domestic use, exportation, and arryover. Crop and marketing
year estimates are revised periodically to reflect various
changes in supply and demand. Before 1972, errors in esti-
mates of foreign demand caused little concern in the Govern-
ment because surpluses always existed to satisfy increases
in demand not reflected in estimates.
     Another means of assessing export levels prior to 1972
was by reviewing export shipment data compiled by the Census
Bureau and the Agricultural Marketing Service. However,
data provided b these two agencies has never been current.
Because a 1 tc .- month time lag usually exists in the publi-
cation of this information, it is of little use to decision-
makers faced %w.h assessing current crises. It is, of course,
useful in analyzing historical records and trends.
     Some agricultural export data also has been available
as a result of past and current government concessional ex-
port programs. Between 1949 and 1967, the Wheat Export Sub-
sidy program provided urrent export sales information, as
did corn, feedgrains, ice and tobacco subsidy programs which
are either being phased out or are terminated. According
to Agriculture, data on export sales activity under P.L. 480
and the CC Sales Program has also been available for the
past 20 years.
     Although all of the above programs provided export sales
information, their primary purpose was not data collection.
As a conisequence, such information was generally not utilized




                             37
 as a means of monitoring the export
                                     market, but used almost
 solely to verify qualification to participate
 export programs.                              in one of the

       The only other means of developing export
 prior to 1972 was Agriculture's market             information
                                          intelligence
 ties, primarily reports from the Agricultural           activi-
 conversations with grain exporters and           attaches  and
 ture has for many years based its export importers.    Agricul-
 informal communication with these groups estimates on its
export data. Agriculture officials          and on historical
export estimates were based primarily informed   us that USDA
                                        on such factors as for-
eign production prospects, likely consumption
                                                  requirements,
existing reserve stocks, and prospective
available for export in exporting countries.quantities of grain
only rough approximation of export                These yielded
                                     demand.
analytical model has existed for developing    N   specific
                                               more refined data.
      The Foreign Agricultural Service's
tor for Commercial Export Programs         Assistant Administra-
when he wrote in 1975.               summed  up the situation

           "It is really
      Sales Reports provednot surprising that the Export
                            difficult to interpret.
      Until recently no such data existed.
     of public cr official interest           Pe-icds
     of commodities have been highly ininfrequent--
                                         export sales
     ususally restricted to wartime or rare
                                               peace-
     time intervals of short commodity supplies,
     and no systematic effort was made to
                                            monitor them.
     Commodity analysts are now confronted
     statistical tool. They need time to with a new
                                            test
     Reliability under various market conditionsits
     well as to explore its possibilities           as
     casting help.                          as  a fore-

          Export sales data has been available
     accidentially--and spasmodically--in       only
                                          the
     usually as a byproduct of one or another  past,
     the export assistance programs for        of
                                        agricultural
     commodities*   *
      Immediately following the 1972 grain
creased inside and outside government      sales, pressure in-
                                       for the development of
an export reporting system to provide
                                       current, accurate and
reliable export information. Agriculture
opposed to it. They believed that          officials were
                                    the 1972 sales were highly
unusual and that situations requiring
                                       current export data


                             38
occurred too infrequently to justify the costs of adminis-
tering such a program.
     It was the mounting concern over strong foreign
demand for U.S. soybeans in the Spring of 1973 that led Agri-
culture to announce its intention to establish a voluntary
export reporting system. However, the increasingly critical
soybean supply condition preempted such a voluntary system.
COMMERCE'S EXPORT REPORTING SYSTEM
     On June 13, 1973, the President authorized Commerce to
establish a temporary mandatory export reporting system.
Under the Export Administration Act of 1969, Agriculture
assisted in developing the system, under which exporters
were required to report sales contracted for shipment in
the coming crop year for soybeans, cottonseed, and their
products.
     A variety of problems plagued the system while it was
administered by Commerce. For example, Commerce's export
reports differed consistently with Agriculture's interagency
export estimates. Commerce's export reports reflected soy-
bean and soybean meal export sales considerably in excess of
levels projected by Agriculture's interagency estimates com-
mittee.
     Making an accurate assessment was crucial to decision-
making. For example, if Commerce's xport reports were cor-
rect, most of the Nation's soybean crop for 1973-74 had been
committed for export by July 1973. The Secretary of Commerce
based his judgment on these figures, rather than on Agri-
culture's estimates, when he decided on June 21, 1973, to
impose export controls on soybean and cottonseed exports and
the related products. These controls were not lifted until
October 1, 1973.

     Some Agriculture officials claimed that Commerce's
statistics were unrealistically inflated because foreign
importers were overbuying in anticipation of having their
contracts cut by export controls. These officials also con-
tended that grain exporters were registering grain for ex-
port which would eventually be resold to the domestic market.
However, in an August 1973 meeting involving Commerce, Agri-
culture, and the grain trade, exporters insisted that all
export sales reported were bonafide contracts that would be
fulfilled.


                             39
     The failure of Commerce and Agriculture to reconcile
their differences over the accuracy of reported exports
                                                         was
due, in p. t, to an interagency conflict that emerged over
the question of which agency was ultimately responsible
                                                         for
interpreting export information gathered by the Office of
Export Administration. Agriculture contended that it was
responsible because of its extensive experience in grain
export marketing. Commerce maintained that it was respon-
sible because of its short-supply authority under the Export
Administration Act of 1969 and the Presidential directive
                                                           of
June 13, 1973, ordering it to establish an agricultural
port reporting system.                                   ex-

Mandatory Exort Data Reporting System,
Responsibility Given to   Agriculture
     The problems with accuracy of reported export data
remained unresolved and the debate over expected export
amounts continued into the Fall of 1973. In August 1973,
the Agricultural Act of 1970 was amended to authorize the
establishment of a mandatory export reporting system in
the Department of Agriculture.

     In Congressional hearings before its passage, Agricul-
ture officials reiterated opposition to mandatory export re-
porting, but began in October to develop a system to comply
with the new law. The new system d1i  not become fully opera-
tive until November 1973.

      Under the Act, all exporters of wheat and wheat flour,
feed grains, oil seeds, cotton and related commodity pro-
ducts (as well as other commodities designated in need of
export reporting by the Secretary of Agriculture) are
quired to provide Agriculture wth weekly export sales re-
Information supplied by exporters includes:             data.
                                              (a) type class
and quantity of the commodity sought to be exported, (b)
the marketing year of shipment, and (c) destination, if
known.

     All exporters of agricultural commodities produced in the
United States are also required, upcn request of the Secretary
of Agriculture, to immediately report to the Department
ditional export sales related information. The Secretaryany ad-
also empowered with the authority to modify weekly export is
reporting to monthly export reporting if he determines
the domestic supply of a commodity is "substantially inthat
excess" of the quantity needed to satisfy domestic utilization
and foreign demand. Such a determination would also have
                                                          to

                              40
be made with the understanding that requiring exports to be
reported on a weekly basis would "unduly hamper export sales."
     Individual exporter sales data is processed as confi-
dential information by Agriculture and aggregated before
release for public information in the Weekly Export Sales
Report. Failure knowingly to report export sales data as
required by the Act is a crime punishable by a fine of not
more than $25,000 or imprisonment of not more than 1 year,
or both.
     Agriculture publishes its Export Sales Reporting
regulations in compliance with the rule-making procedures
of the Administrative Precedures Act. Under this authority
it also issues instructions and reporting forms to exporters
for filing export reports.

     Specific types of export data supplied by exporters to
Agriculture include:  new sales, buy-backs or cancellations,
purchases from foreign sellers, changes (marketihg year,
destinations, etc.), export shipments against contracts, and
net outstanding sales (unshipped balances) at the end of the
reporting period, usually weekly.

     The Department also periodically requests exporters to
furnish contract information to be used as a basis for double-
checking summary export reports, for conductinr field reviews
of exporter adherence to export reporting system regulations,
and for developing important data to evaluate the effective-
ness of the export reporting system.
     Approximately 22 professional and support staff operating
within an annual budget of $520,000 1/ administer the Export
Reporting ystnm.

Use of Export Reporting System
     According to Agriculture's General Sales Manager's Office
(GSMO), the Department uses export sales information compiled
under section 812 of the Agricultural Act of 1970, as added
by the Agriculture Act of 1973, in the following way.


1/The budget for the coming fiscal year is expected to remain
  unchanged. Prior to the current fiscal year the system
  operated under a budget of $511,000 in FY 76 and $463,000
  in FY 75. Source: Mr. Thomas McDonald, Budget Officer of
  the General Sales Manager's office.

                             41
     "Each week the Department published data re-
     ceived in compilation form along with analy-
     tical comment designed to highlight impor ant
     market activity and to relate the data to
     the worldwide supply and demand situation.
     Thus, export sales data has become integrated
     ,ith the worldwide market intelligence sys-
     tem operating through agricultural attaches
     and the Washingtcn staff of analysts and
     export program officials. ***"

Shifts in Organizational Responsibilit
Within the=AgricuturaI   epartment
     At various periods during the export reporting system's
3-year existence within Agriculture, three different internal
units have been given the responsibility for administering
the system. The Statistical Reporting Service operated it
from September 1973 through September 1974. The Foreign
Agricultural Service took over from October 1974 until March
1976. Since March 1976, the newly created Office of General
Sales Manager has nad responsibility for the system, along
with various Government financed agricultural export programs.

     From the inception of the system, the Statistical Re-
porting Service experienced difficulties. Weekly export
reports continually varied, reflecting export volumes that
exceeded departmental estimates. The statisticians who
operated the system were unable to provide the necessary
analysis of exporters' data, and were unable to manage the
system in a a manner consistent with the Congress' legisla-
tive intent.

     As the U.S. corn and wheat situation deteriorated in
August and September 1974 amid rumors of impending Soviet
purchases, the Foreign Agricultural Service--which was al-
ready performing some analysis of export data--was assigned
full responsibility for the export reporting system. The
Secretary of Agriculture's October 1974 memorandum trans-
ferring responsibility cited the unit's analytical experience
as a key factor in the operational shift. It had become in-
creasingly clear throughout late 1973 and 1974 that mere data




                            42
collection and publication were insufficient, given the
complex and ever-changing character of export sales data.

     The Foreign Agricultural Service had already set up its
own daily export reporting system in September, 1974 to:   (a)
supplement the mandatory weekly export reporting system; (b)
provide more timely export data; (c) ensure closer monitoring
of export sales; and (d) function as an "early-warning system"
for Executive Branch decisionmakers.
     Although initially conceived as a temporary monitoring
action, the daily export reporting system has remained in
effect since inception. The quantity qualification for daily
reporting of various agricultural commodities was revised up-
ward from 50,000 tons to 100,000 tons as the U.S. supply
situation improved over the past year and a half.  Unlike the
weekly export reporting system, where exporters submit only
written export reports to Agriculture, the daily system re-
quires exporters to telephone export information for sales
in excess of certain prescribed quantities. They are then
required to submit written verification of their oral report
to the Department within 24 hours. The daily export reporting
system's importance has varied since its establishment. When
supplies appear tight and foreign demand is high, its signifi-
cance, as a decision-making tool, mounts.

Voluntary Prior Approval System
September, 1974 - March, 1975
     The Foreign Agricultural Service also directed the vol-
untary prior approval system for export sales which was set
up in September 1974, to monitor the Soviet purchases. Until
terminated in March 1975, this system functioned as part of
Agriculture's overall export sales monitoring activites. At
its inception exporters were requested to seek Agriculture's
approval for sales of 50,000 tons or more to a single destin-
ation in any one day or 100,000 tons or more to a single
destination in one week. Although the system did not require
that exporters seek approval of export sales on a mandatory
basis, it was clear to all observers that failure to parti-
cipate would ultimately have resulted in mandatory export
controls througn implementation of the Export Administration
Act of 1969, as amended.

     In a 1975 letter to the Chairman of the Senate Agricul-
ture and Forestry Committee, the Secretary of Agriculture
presented executive branch rationale for establishing the
prior approval system:


                             43
      "*   * (In view of the extremely tight wheat and
     corn market situation that existed in September
     1974) We had three choices: (1) stand firmly on
     the principle of completely free access to export
     markets and risk the strong possibility of legisla-
     tively imposed mandatory (export controls); (2)
     make a short supply determination on the assumption
     that the Act would be extended in the same form;
     or (3) devise a less drastic way for resolving
     the dilemma.
     We chose the third alternative and the voluntary
     prior approval program was the instrument for
     implementing it. At the same time it seemed a
     logical and feasible solution, supported generally
     by farmers, the grain trade, the public and the
     Congress * * *

     * * * the voluntary approval program did not em-
     bargo or control export trade. During the period
     of its operation (Oct. 1974 - March 1975), we ap-
     proved over 14 million tons of exports sales of
     grain and oilseeds. The program applied only to
     large sales and did not affect cargo quantities.
     At most, the program constituted a loose form
     of restraint and its principal effect was to cause
     some overly eager foreign buyers to pace their
     purchases. Except for the U.S.S.R. purchases, the
     program did not interfere with contracts already
     made; it did not harm our diplomatic relations
     with foreign countries; it did not damage our
     reputation as a dependable supplier of agricul-
     tural commodities in world markets. These would
     have been the inevitable consequences of the
     other alternatives available to s."
     The prior approval system's operation generated con-
troversy.  It was criticized by farmers, farm organizations
and congressional representatives from corn aid wheat-pro-
ducing States on grounds that it represented unnecessry
government involvement in the market and that its existence
adversely affected market prices. Prices dropped approxi-
mately 35 - 40 percent during the 5 months of its operation.

     Although it was not clear at the time, the sharp drop
in prices probably resulted from a number of other factors.
One Agriculture official wrote later:



                             44
           "Looking back now, it is apparent that the
     easing in the supply/demand situation was the re-
     sult of a number of economic factors unrelated to
     the voluntary approval system. World-wide reces-
     sion, balance of payments problems in many import-
     ing countries, consumer cut-backs in response to
     hiigh market prices, reductions in grain and feed
     use in the U.S. and elsewhere all combined to
     bring about adjustments in supply and demand."

     Advocates of the voluntary prior approval system were
principally executive branch officials, commodity exporters
and congressional representatives concerned about sustaining
and expanding agricultural export markets.

     According to Agriculture officials, the voluntary prior
approval system accomplished its principal goal--the pre-
cluding of mandatory export controls which would have either
completely cut U.S. agricult. r.l exports or partially but
significantly restricted such exports. The system enabled
the Department to be notified of large transactions before
being finalized. It also ermitted Agriculture the oppor-
tunity to initiate discussions with foreign buyers to develop
mutually acceptable alternative plans for satisfying their
import requirements.
     This type of communi, abion resulted in deferrihg some
sales and staggering rchers into the following marketing
year. The system also had a psychological effect on the
market and, according to some officials, tended to restrain
speculative export transactions and sales entered into as a
hedge against the potential imposition of mandatory export
controls.

1975 "Prior Appoval"   System
     In mid-1975, the Agriculture Department introduced a
modified informal version of the 1974 prior approval system.
On July 24, 1975, grain export firms were asked to notify
the Department before negotiating major grain sales to the
Soviet Union. This ad hoc system remained in effect until
August 11, 1975, when the Secretary of Agriculture asked
grain exporters to withhold further sales to the Soviets
until U.S. crop production levels became concrete.  This
temporary system was voluntary and, again, was designed to
avoid the imposition of mandatory export controls (although
such controls on exports to the Soviet Union and Poland did
follow). The system placed the responsibility for compliance


                                45
on grain exporting company officials. No formal compliance
system was established by Agriculture to determine whether all
exporters were adhering to the Secretary's request.

     This temporary system extended an even more informal
notification system that had been in existence for several
months. Since late 1974 exporters had been requested by
Agriculture to Keep the Department informed of major con-
tracting activity with the Soviet Union either through the
U.S. Embassy in Moscow, the Department of -Agriculture in
Washington, or other appropriate sources.
ExportReporting System Weaknesses

      The Export Reporting System was inm led after being
transferred to the Foreign Agricultural      vice in 1974 through
the establishment of the daily system and the temporary im-
position of the prior approval system.    But the system's ef-
fectiveness and usefulness remain somewhat uncertain. This
is partly due to the fact that export contracts are frequently
modified before shipments actually take place. The actual
quantities shipped may be less than originally contracted for,
delivery of the commodity may be deferred to he next mar-
Keting year, another commodity may be substituted for the
commodity originally contracted for, the destination may be
changed, or purchases from foreign sellers may be used to
fulfill export sales contracts.

     We determined several causes for decreases in export
contract quantities after contracts were reported to Agri-
culture. These causes included:

    -- original quantities contracted for may be based on
       estimates of maximum needs rather than probable needs;
    -- original quantities contracted for may be based on
       anticipation of the imposition of U.S. Government
       export controls;
    -- there may be hedging to protect exporters cash or
       futures market position;
    -- with a drop in price of commodity, it is more advan-
       -ageous for a buyer to cancel or modify the original
       contract;
    -- a foreign buyer's inability to pay or take delivery
       or a seller's inability to deliver; and


                             46
     --poor quality grain.
     The above demonstrates that the reporting system--
established to provide accurate, timely, and reliable export
data--actually provides data that is continuously su ,,ct to
change. For this reason it is not functioning as the e rly
warning system originally envisioned by Congress.

     The Acting General Sales Manager addressed the issue in
an August 1974 memorandum to the Foreign Agricultural Service
Administrator:

     "It seems inevitable that any system of monitoring
     export sales will reflect inflated sales totals when
     there is fear of scarcity. Foreign buyers seek to
     protect their ultimate requirements and sellers are
     anxious to get as much business as possible recorded
     in case controls are imposed * * *.   The problem is
     to interpret the motivation of the buyer--to decide
     whether he bought for direct consumption or for later
     re-sale--and there is no easy way to do this.

     Our short experience with the monitoring system sug-
     gests that we have created something of a monster--
     a system which automatically inflates export sales
     in times of threatened scarcity and which doubt-
     lessly will have a reverse effect in times of sur-
     plus when low sale totals will encourage buyers to
     abstain in anticipation of still lower prices. Un-
     fortunately, I am afraid this is inherent in the
     human psychology that contributes to the making of
     markets.  It is a problem that I hope will lessen
     as we become more familiar and experienced in the
     use of this new information factor.   ntil then, I
     am afraid I have no better suggestion than to pro-
     ceed as we did last year--to use every opportunity
     to explain our interpretation of the reports and
     our evaluation of the supply situation."

     Because the issue of contract decreases has impacted
significantly on the export market and on the credibility
of the reporting system, Agriculture and other executive
branch officials have considered the possibility of modifying
reporting system regulations by requiring exporters to sub-
mit written explanations for contract decreases and/or to
penalize exporters who cancel for purely speculative or
manipulative reasons.  It is possible that such action could



                             47
minimize the amount of unnecessary or speculative contract
changes and thus enhance the system's informational reli-
ability and decisionmaking quality.

     After some consideration, Agriculture officials decided
that the above action would result in giving the reporting
system an unnecessary regulatory orientation which could ad-
versely affect the flow of exports.  Managers of the system
have reiterated that their primary responsibility is to pro-
vide export sales information without impeding the flow of
exports.  Therefore, they have no interest in requiring ex-
porters to justify contract changes for fear that more re-
liable information would result in restricted export flows.
They also remain unwilling to temporarily modify the system
on an experimental basis.

     The issue is particularly important during short-supply
situations, when the Department's traditional orientation to-
ward export promotion may color its assessment of export con-
trols of a quasi-regulatory nature.  The export promotion
orientation may also interfere with the effective administra-
tion of a short-supply monitoring function.

      In our interviews with Agriculture and other executive
branch forecasting groups, we found that for forecasting pur-
poses, the export data provided by Agriculture's export re-
porting system had not been particularly useful.   Responsible
officials in these agencies said that because the export data
provided b the system is constantly changing--either de-
creasing or increasing--it does not provide a reliable repre-
sentation of foreign demand by which forecasters can make
accurate short-term forecasts for the relevant crop year.

Internal Evaluations
and Audits

     Each of the three groups responsible for administering
the export data reporting system has been concerned with up-
grading the data collection, and has found it difficult to
accomplish.

     During its tenure, Commerce tried to improve the quality
of its reports by auditing the firms which were providing the
information and through a comprehensive management evaluation
of the entire short-supply program.  This evaluation, completed
just before Agriculture assumed responsibility, revealed a var-
iety of data base and management weaknesses.



                             48
     Until 1976, Agriculture had initiated analyses of par-
ticular problems, such as contract changes, but no formal eval-
uation program. This may have been due to the system's limited
budget, although some government officials attributed it to an
inclination to avoid any modifications that might limit the
flow of exports.
     The adminstrators have tried to operate the system
effectively and efficiently, and attempts have been made to
improve the quality of the data.

     Shortly after becoming responsible for the operation
of the export reporting system, the Foreign Agricultural Ser-
vice initiated field reviews in an effort to improve effective-
ness. Teams of two to four staff members periodically visited
reporting exporters to verify data furnished the Department and
to instruct exporters in the proper procedures for submitting
export sales data. Department officials particLpating in field
reviews have also attempted to evaluate some o-ntract data as
well as develop a better understanding of the exp, ':t market
and export sales contracting in particular. Altk. ugh field
reviews have been superficial and periodic they have provided
the export reporting system's managers a means of improving
operations short of a thorough program evaluati,.) and detailed
internal audit.
     Recognizing that continuous contract changes are a nor-
mal manifestation of traditional agricultural trade prac-
tices, Government officials have attempted to improve their
ability to interpret contract changes in an effort to eval-
uate more effectively export data provided them. Their ef-
forts have focused on contract modifications involving des-
tination changes (known vs. unknown), pricing terms (flex-
ible "basis" vs. fixed), relationship of seller to buyer,
definition of an acceptable and reportable export sale, re-
selling of export contracts, and comparison of export sales
data to data received by the Bureau of Census and the
Agricultural Marketing Service.
     In 1976 the Department for the first time established
a program evaluation post to assess the system's operation.
A study of contract cancellations due to pricing terms con-
ducted by the system's program evaluation specialist con-
cluded that for the period beginning April 13, 1975, and
ending August 31, 1975:
     1.   More than 50 percent of corn basis-type contracts
          resulted in cancellations, while approximately 20
          percent of corn fixed-price contracts were can-
          celled.

                             49
      2,   Approximately 75 percent of soybean cake and meal
           basis-type contracts were cancelled while about
           half this commodity's fixed-price sales were can-
           celled.

      3.   Overstatement of export sales reports is not
                                                        lim-
           ited to basis-type contracts as originally believed.

      4.   During periods of declining prices there is a
           greater frequency of contract cancellations of
           both a basis- nd fixed-price nature with the
           rate of cancellation particularly higher among
           basis-price contracts.

     5.    Both basis-price and fixed-price contracts should
           be reported to the Department to provide a better
           picture of total export sales, even tnough there
           are times when the sales position is overstated.

     Although the above evaluation and its conclusions
well as other analytical efforts have                   as
                                      contributed to under-
standing the significance of export sales data,
                                                the ever-
changing nature of export sales contract data
                                              continues to
make the reporting system an unreliable early-warning
                                                       system.
     Since October 1974, the following disclaimer has
appeared on the cover of the Department's weekly
                                                 U.S. Export
Sales Report:

           "Outstanding export ales as reported by pri-
     vate exporters and compiled with other data in
     this release give a snapshot view of the current
     contracting scene.   At any given tine in the course
     of a marKeting year outstanding sales do no:
     a consistent relationship to eventual export bear
                                                   ship-
     ments.   A meaningful export projection is not ob-
     tainable by the simple device of adding outstanding
     sales to exports to date.   The latter data, alone,
     may provide a more reliable measure of current
                                                     ex-
     port activity than may be derived from a year-to-
     year comparison of outstanding sales."

     In view of the continuing controversy associated
the general unreliability of the export sales         with
                                              data, Agri-
culture's Office of Audit initiated an audit of
                                                the system
in the Summer of 1975,

     The audit--on which a report was being developed
                                                        in
September 1976--had the following objectives:


                              50
     -- to determine if the existing export sales reporting
        system is providing assurance that all export sales
        are being properly reported.
     --to ascertain the validity and accuracy of the individ-
       ual exporter's reports submitted, and determine what
       influence such transactions as cancellations, sales
       between affiliates, etc., have on these reports.

     --to determine how export sales data is being used (1)
       by Agriculture officials; (2) by individuals and com-
       panies rn the mailing list; and (3) by other Government
       agenci s.
     -- to evaluate the security for protecting the confiden-
        tiality of export sales data.

     -- to evaluate the Export Sales Division's field review
        system and procedures with a view towards determining
        whether the field reviews are a audit function that
        should be handled by the Office of Audit.

     In its January 1977 report the Office of Audit mad,?
the following major conclusions concerning the export
porting system's management and operation:

     1.   "Foreign buyers tend to view the export sales
          reporting system as a type of export control or at
          least a mechanism that will 'rigqg-' export
          controls; as a result there is ar   centive to
          overcontract to assure adequate supplies in case
          contracts are cut as during the 1973 soybean em-
          bargo. Several European grain companies estab-
          lished subsidiaries in the U.S. primarily to report
          commitments through the export reporting system
          to protect against possible export controls.

     2.   There is a need to revise the Export Sales Re-
          porting Regulations to provide that a verbal trans-
          action supported by a trade or sales document
          (which according to trade practice will lead to a
          written agreement) be reported at the earliest
          possible opportunity. Basically, the Export Sales
          Reporting Regulations now define a reportable sales
          transaction as one that represents a ritten agree-
          ment between the buyer and the seller. However,
          the Office of Audit noted, according to trade
          practice, a sale occurs when verbal agreement is
          reached between the buyer and seller.  The written
          agreement may sometimes follow the verbal sale
          by several weeks. In practice, verbal agreements
          were being reported.

                              51
 3.    The Department should change the designated weekly
        sporting period (currently Monday through Sunday)
        o reduce the elapsed time to the weekl- report
       Publication date (Thursday, 3 p.m.)  This could en-
       hance the accuracy of the data reported ***.
 4.   Several exporters visited (by OA) were not main-
      taining complete records in accordance with the
      Export Sales Reporting Regulations. The exporters
      were unable to provide sales contracts because their
      U.S. offices only purchased and arranged shipment
      of commodities. As a result, (OA) was unable to
      trace the applicable sales contract to the reported
      transactions for verifying the accuracy of submitted
      reports.  (The OA was rble to review shipping
      documents and verify sipments.)
5.    Several Department officials, as well as other
      Government agencies, felt cancellation occurred most
      frequently between U.S. exporters and their
      affiliates.  (OA's) review disclosed that can-
      cellations occurred almost as frequently with non-
      affiliates as with affiliates.
6.    Current policies and procedures for evaluating and
      analyzing the export sales reporting data need to
      be broadened both in terms of improving the data
      base and evaluating the Irnner in which the export
      reporting information might be integrated into
      the.FAS and the ERS forecasting information
      system. Presently, export sales data is only beint
      utilized on as-needed basis by FAS Foreign
      Commodity Analysis. ERS only gains access to the
      data through a copy of the U.S. Export Sales
      Publication at the time of its official release.
      The Export Sales Division's ADP system does not
      have built in capability for cataloging, storing,
      retrieving and analyzing export data.
7.    The Export Sales Division has not performed field
      reviews in a manner that best accomplishes the ob-
      jectives of such reviews. Although (OA) generally
      found the data accurate, (OA) noted field reviews
      were not always responsive in assuring that ex-
      porters thoroughly understood reporting regula-
      tions, nor have they provided a basis for up-
      dating the regulations.

8.    The Department needs to change its procedures for
      releasing export sales reporting information.


                          52
          Several exporters, on a regular basis, telephon-
          ically request and receive export sales infor-
          mation each Thursday at 3:00 p.m. EST, which is
          the time set for official release of the weekly
          publication.  This could provide an advantage as
          against those not aware of the oppurtunity (who
          receive the written report sales 2 to 4 days later
          through the mail)."

     The Office of Aud't proposed the following recommen-
dations to the Secretary of Agriculture to correct the above
deficiencies in the export reporting system:

     1.   "Establishment of a task force co-chaired by
          the Director of Agricultural Economics and As-
          sistant Secretary for International Affairs
          and Commodity Program, with OGSM, FAS, ERS,
          ASCS, and other members as deemed necessary,
          or desigate a USDA coordinator, to evaluate
          data accumulated through the export sales re-
          porting system with the objective of utiliza-
          tion and integration into the FAS and ERS
          forecasting information system."

     The Office of Audit also suggested that the Task Force
or coordinator should consider the following:

     "--Refine and further develop the ADP system for
        cataloging, storing, retrieving, and analyzing
        the data and provide capability of online hook-
        up for FAS and ERS forecasters to gain access
        to the raw aggregate data at the time of its
        official release.

     -- Reemphasize to reporting entities that the e-
        pressed policy of the Executive Branch of Govern-
        ment, including USDA, is to 'not' impose sanc-
        tions on exports and that if export controls
        are ever needed, reported export contracts will
        not be used as a basis for allocations. This
        would possibly deter foreign buyers from inflat-
        ing their import expectations to assure them-
        selves adequate supplies in the event of the
        introduction of export controls.

     --Require all reporting exporters to submit a
       written statement concerning: (1) their export
       operations; and (2) their affiliation with
       domestic and/or foreign corporations.  Ex-
       porters should be classified or grouped accord-
       ing to their methods of operation, i.e., likeli-
       ness of performance or non-performance based

                             53
           on current market conditions, or exporters
           who are only reporting for protection against
           possible export controls.

         -- Provide data users with interpretive analysis
            of what the export sales reporting system
                                                      is,
            what it measures, and what represents in rela-
            tion to foreign demand for U.S. agricultural
            products. This could eliminate much of the
            fear over export controls when the reporting
            system indicates a short supply situation de-
            veloping.
      -- Take a poll of export sales data users, within
         and outside the Government, on suggestions
                                                     for
         needed additional information that could be
         utilized in improving analyses and forecasting
         needs. Where practicable, expand  the existing
         data base to require additional data, e.g.,
         delivery period of shipment and the price
                                                    and/or
         pricing mechanism of the contract. The data
         requirements should be constantly evaluated
         to minimize the collection of extraneous
         data."
     The Office of Audit suggested to the Office
Sales Manager that it consider the following     of General
                                             recommendations:
     1.    "Revise tne export sales reporting regulations
           to provire that a verbal transaction supported
           by a trader or sales document (which according
           to trade practice will lead to a written agree-
           ment) be reported at the earliest possible
           opportunity.
    2.     Study (in conjunction with the task force or
                                                        co-
           ordinator) ways of changing the weekly report.
           Also develop ai ADP system with sufficient
                                                      built-
           in edits, and improving the field data coliection
           system ***.

    3.    Require all reporting exporters to maintain
          tneir U.S. offices trader documents and/or in
          written sales contracts with support documenta-
          tion for every transaction reported to USDA,
          in accordance with established regulations.
    4.    Perform field reviews on an as-needed basis
                                                      to
          assure that exp -ters thoroughly understand
                                                      and

                               54
           follow export reporting requirements,
          on those exporters that would have      concentrating
                                              the
           impact on the composite weekly export greatest
                                                  figures ***.
       5. Designate an Export Sales Division
          with an alternate to handle policy staff member
          interpretation inquiries from the and regulation
                                             trade. This
          could eliminate some of the confusion
          porter level over policy and regulationat the ex-
                                                    inter-
          pretations.
       6.   Strengthen the release of information
                                                  procedures
            and channels by:
            -- Establishing, documenting, and
                                              following guide-
               lines which set forth the criteria
               which official information is to   or basis on
                                                be released by
               ESD employees.
           -- Eliminating the practice of releasing
              sales information oer the telephone export
              on or after its official release       immediately
                                                unless ESD is
              prepared and willing to provide
                                               the
              all (about 850) people on the mailingservice to
                                                      list.
      7. Release the reported daily sales
         public at the earliest possible    information to the
                                           time  after Depart-
         ment officials have been notified,
                                              e.g., a pess re-
         lease."
      Office of Audit officials discussed
 and recommendations with appropriate         their conclusions
 atives and the Assistant Secretary      Departmental   represent-
                                       of Agriculture for Inter-
 national Affairs and Commodity Programs.
 retary generally agreed with the              The Assistant Sec-
 study group to evaluate the export recommendation   to appoint a
 and integration into forecasting      sales data for utilization
                                    information systems.
 supported the recommendation to improve                     He
Division's export reporting ADP             the Export Sales
                                  system.
general agreement with other recommendations  He also expressed
OA report. However, he did state                  appearing in the
commendation on releasing daily      that  concerning  the rec-
had been released when possible sales data such information
agreement. It was also noted in with individual exporter's
had with the Assistant Secretary the discussion OA officials
questions concerning the release "that there may be legal
                                   of daily sales information."
Officials of the Foreign Agricultural
General Sales Manager and Economic        Service, Office of
                                      Research Service were in


                               55
general agreement with the majority of the Office of Audit's
recommendations.

OVERVIEW OF GAO'S
EXPORTER SURVEY
      As part of our examination of the export reporting
system, we surveyed agricultural commodity exporters to get
their opinions on the export reporting system's management
and administration and their attitudes on U.S. Government
involvement in the agricultural export sector. A copy of
our exporter questionnaire and a detailed analysis of
exporter responses appear in Vol. II, Appendix G of this
report. From information we requested on organization,
sales, and contract procedures, we also hoped to develop
a general description of the agricultural export industry
as a whole. The 195 exporters who participated in the sur-
vey were found to represent, in terms of sales and exports,
almost all of the U.S. agricultural export industry.

     The firms surveyed encompass a wide range of enter-
prises, from businesses doing a few thousand dollars in
exports to multinational, billion-dollar corporations.
Almost 30 of the firms claimed 1974 sales in excess of $100
million.  Seven of the firms accounted for more than 60
percent of total 1974 sales.
     Exporters expressed a generally positive attituce
toward the Export Sales Reporting System.   For example, they
acknowledged the Government's need to monitor export sales
and did not find weekly sales reporting to be burdensome.
They accorded the Reporting System a moderate degree of
success in achieving its objective of providing accurate,
timely, and reliable export statistics, and they rated
Agriculture's weekly reports as generally useful. When
asked to rank 10 forms by order of preference, that U.S.
involvement in export markets might take, the exporters chose
a reporting system similar to the present one over all other
(and more extensive) forms of Goverrnment invoivement.

      The exporters' view of Government reporting, however,
may well be more tolerant than enthusiastic, for they gen-
erally opposed more stringent controls. For example, more
firms opposed than supported the public disclosure of the
terms of export sales contracts, even if information were agg-
regated to protect individual exporter identities. They
oppose having to submit written explanations for contract
decreases and oppose even more the penalties f    unjusti-
fiable decreases.

                             56
     Exporters were generally dissatisfied with past Gov-
ernment actions which lead to contract cancellations or re-
negotiations. They were generally satisfied with the vol-
untary Prior Approval System--a mild, pre-contractual review
of large volume export sales. If Prior Approval were re-
established, however, exporters would prefer it to be temp-
orary and voluntary, rather than permanent and mandatory.
     The exporters gave us detailed information about con-
tract decreases, cancellations, modifications, and delivery
deferrals. Approximately 20 percent of the quantities
contracted for export in 1973-74 were eventually cancelled
or deferred. Reasons cited for decreases included contract-
ing for maximum rather than probable needs, overcontracting
in anticipation of export controls, hedging to protect mar-
ket positions, and disadvantageous price changes. More
often than not, the decreases were attributed to actions
of buyers rather than of sellers.
     Further analysis of 1973-74 contract information re-
veald that basis contracts (those with no specifically
stipulated price) were much more frequently decreased than
were fixed-price contracts and that contracts with unknown
destinations were more often decreased than those with known
destinations. About half of the 1973-74 decreases were
against contracts made by exporters with their own affil-
iates.  Exporters believed that contracts showing exact des-
tinations had better chances of being fulfilled than did
those showing pricing terms.
GAO ANALYSIS OF EXPORT
REPORTING SYSTEM'S PRICE IMPACT

     The influence of Agriculture's weekly export reporting
system on agricultural commodity prices has been debated.
Some frmers contend that it has depressed grain prices and
cite the dropoff in prices since late 1974.
     Consumers, on the other hand, are increasingly con-
cerned about the effect of grain prices on the general rise
of food prices. Since the export reporting system was
established in part to assure "consumers of plentiful
supplies * * * at reasonable prices," the question of its
possible price impact seems appropriate.
     Using regression analysis, we studied the relation-
ship between weekly agricultural prices and weekly data

                             57
 published in the export reports. The analysis identified
 a moderate relationship between changes in
 export commitment and weekly cash prices of the weekly
                                              corn and soy-
 beans but none for wheat and soybean meal. Because of
 these inconsistent results, inferences could not be drawn
 concerning the system's price impact.

     Next we analyzed the reporting system's possible
impact on price variability. We developed indices of
                                                      price
variability for agricultural commodities based on month-to-
month price changes in the 22-month period before reporting
began and in the 21-month period since. After making
adjustment for unusual market activity in 1973, we found
no great change in price variability since the reporting
system was established.

     The major determinants of agricultural commodity
are worldwide and domestic supply and demand factors. prices
                                                        After
acknowledging this, we asked exporters if the weekly
lication                                              pub-
           ; export data in the U.S. Export Sales report has
any addi    nal influence on commodity prices. Sixty
percent o the exporters responding felt the reports (60)
influence commodity prices to some extent, while 25 percent
believe they have little or no price influe ce at all.

     Exporters were also asked what effect
system has had on their firm's export sales the reporting
                                             of agricul-
tural commodities during the past year. An overwhelming
majority (93 percent) claimed that ESRS had not affected
their export sales volumes. Given this result, it may
be that the advantage some exporters feel foreign buyerswell
are getting is in the form of lower prices for commodities
purchased from the United States.
     A detailed GAO analysis of the export reporting system's
price impact is contained in vol. II, appendix C.

PROPOSED GAO AMENDMENT TO
1973 AGRICULTURE ACT

     At the request of the Senate Agriculture and Forestry
Committee, we repared legislative language to amend
                                                       the
Agriculture and Consumer Protection Act of 1973 for con-
gressional consideration. This proposed amendment is
intended to make more and better export information avail-
able to the Secretary of Agriculture and to    ovide
mechanism to facilitate more timely decisionmnaking. a
                                                       The
proposed amendment accompanied with explanations appears
in Vol. II, appendix F of this report.

                             58
     The principal features of GAO's proposed language to
amend the 1973 Agriculture Act follow:

    A.   Exporters would be required to furnish Agriculture
         with weekly reports regarding any commitment,
         contract, or other agreement for export sales
         entered into, modified in any manner, or terminated
         during the weekly reporting period. In addition,
         exporters would be required to notify the Secretary
         of Agriculture, within 15 days of their commencement,
         of any contracts with foreign commercial or govern-
         mental importers which might result in exports
         of wheat and flour, feed grains, oilseeds, soybeans,
         soybean meal or other agricultural commcities
         so designated by the Secretary.

    B.   The Secretary would determine at the start of each
         marketing year whether a short-supply situation
         exists or will exist for each commodity on which
         exporters' reports are filed. The Secretary, util-
         izing information from executive branch sources as
         well as exporters' reports, would periodically
         review these commodity situations and modify his
         determination as appropriate. Whenever a short-
         supply situation is determined, the Secretary
         would report such determination to the Congress.
         Unless either House, within 30 legislative days,
         provides a resolution to the contrary, exportation
         of the short-supply commodity would be subject to
         regulation by the Secretary of Commerce under the
         Export Administration Act of 1969.

    C.   The Secretary--utilizing the full resources of the
         Department--would make a semiannual report to the
         President and the Congress on:

         -- The impact on the economy and world trade of
            of shortages or increased prices for commodities
            subject to these reporting requirements,
         -- The worldwide supply of such commodities, and

         -- Actions being taken by other nations in response
            to such shortages or increased prices.
    D.   The Comptroller General would monitor and evaluate
         the activities under this amendment, including all
         reporting activities. Essentially, the GAO would:


                             59
-- Review and evaluate the procedures followed by the
   Secretary of Agriculture in gathering, analyzing,
   and interpreting statistics, data, and information
   related to the supply of agricultural commodities;
-- Evaluate particular projects or programs;

-- Gain access to any documents, data or records of
   persons or facilities engaged in any phase of
   exporting agriculturae. commodities; and
-- Provide appropriate reports to the Congress.




                    60
                          CHAPTER 5

  AGRICULTURE'S FORECASTING OF FOREIGN SUPPLY AND DEMAND
EXPORT FORECASTS AND THE SOVIET UNION

     Chapter 4 described the development of an improved
export data reporting system, to minimize disr[tptions caused
by large, unexpected purchases of U.S. commodities by foreign
buyers. For the same reasons, higher priority is being
given to accurate forecasting of foreign production and
demand.

     A 1975 report by the Office of Technology Assessment
on agriculture, food, and nutrition information systems
expressed concern over the increasing importance of the
Soviet forecast problem. The report attributed most of the
instability in world supplies in past decades to the Soviet
Union's variation in crop yields and changes in national
policy.
     An internal agriculture study (being finalized in
1976) on the problem of forecasting accuracy concluded that:
          "Examination of forecasts for U.S. wheat prices
     and utilization in 1972-73 suggests that most of the
     forecast errors were directly attributed to export
     market factors. More precise and timely knowledge
     about possible Russian purchases and estimated world
     grain supplies outside the U.S. would have improved
     forecasting accuracy for domestic usage and prices
     in the wheat economy."

     In recent Congressional testimony, the Soviet Union's
importance in world grain markets was accentuated when an
agricultural specialist made the following point:
     "The Soviet Union is the world's largest producer of
     wheat.  It normally produces about one-quarter of the
     world's annual wheat crop, and about one-fifth of the
     world's nnual production of wheat and coarse grains.
     It has also accounted for about 80 percent of the
     annual fluctuations in world trade in wheat during the
     past decade* * *."
     The Office of Technology Assessment concluded that
despite recent improvements in information systems relating
to world agriculture, they have not kept pace with needs for

                             61
current information and short-term analysis caused by the
short supply situation. According to the report, necessary
improvements depend on the leading food exporting nations
persuading the centrally planned countries, particularly the
Soviet Union and the People's Republic of China, to prepare
estimates of their exports and imports.

SOVIET FORWARD ESTIMATES

     The exchange of this kind of data was one of the prin-
ciples and aims of the 1973 agricultural cooperation agree-
ment between the U.S. and the Soviet Union, but Soviet com-
pliance has been disappointing.

     The difficulties in implementation and compliance that
have caused problems for U.S. forecasting primarily concern
article II, paragraph I, which requires:

     "Regular exchange of relevant information, including
     forward estimates, on production, consumption, demand
     and trade of major agricultural commodities."

     Without forward estimates, data provided under the
agreement has primarily historical interest for researchers.
It is not useful in Agriculture's preparation of worldwide
production estimates and Soviet production-supply estimates.

     The United States has repeatedly asked the Soviet Union
to fulfill the forward estimates provision of the June 19, 1973
agreement. The United States has maintained that forward
estimates of crop production and foreign trade data are an
integral part of the June 19 agreement. The Soviet delegates
have responded that no "official" forward estimates are avail-
able and that such data could not be released until published
by the Central Statistical Administration on November 1 of
each year--after the end of crop year when it is of little
planning use to the U.S.

     Agriculture officials contend that providing of forward
estimates alone will not resolve problems associated with
forecasting of Soviet supply and demand. While variations
in Soviet production are a major factor, the magnitude of
such variations by no means serves to indicate the exact
magnitude of grain imports. The volume of Soviet imports is
also importantly influenced by physical restraints (e.g.,
port capacity, internal transport capacity), availability of
reserve stocks, feed consumption requirements, availability
of foreign exchange, etc., only if full details concerning
these other factors were available would it be possible to
make a fully accurate translation of Soviet crop forecasts
into a forecast of Soviet imports.

                             62
     As noted in the previous chapter, the Soviet Union's
continued failure to provide forward estimates thwarted U.S.
efforts in 1975 to make accurate estimates of Soviet grain
import demand. A period of 7 months saw production fore-
casts go down over 70 million tons, from a near-record high
to a 10-year low. By the end of the crop year, the Soviet
Union released data showing they had produced approximately
one-third less than U.S. and Soviet agricultural economists
had forecasted earlier that year.

EFFECT OF LONG-TERM
PURCHASING AGREEMENT

     Soviet and some executive branch officials have said
that the 1975 long-term purchasing agreement obviates the
need to furnish the U.S. with information other than that
already being supplied under the 1973 agreement. U.S.
officials, especially in the Agriculture Department, dis-
agree. They say U.S. forecasters will continue to need for-
ward estimates from the Soviet Union.
AGRICULTURE'S FORECASTING SYSTEM

     The availability of more complete foreign data is only
one side of the equation of U.S. forecasting. The other side
is the effectiveness of the Agriculture Department's fore-
casting system itself. Although it is generally acknowledged
to be the best forecasting system in the world, increasing
attention is being given to ways and means of improving it.

     GAO has previously reported on the causes and effects
of the 1972 and 1973 poor forecast record.l/ We more recently
reported on the history of the 1974 fecast record and ex-
amined its causes and effects. 2/ The review reported here
addressed Agriculture's current short-term forecasting



1/ Russian Wheat Sales and Weaknesses in Agriculture's Man-
   agement of Wheat Export Subsidy Program (B-176943,
   07/09/73) and U.S. Actions Needed to Cope with Commodity
   Shortages, (B-114824, 4/29/74).
2/ What the Department of Agriculture Has Done and Needs to
   do to Improve Agricultural Commodity Forecasting and
   Reports. (B-114824, 8/27/75)


                             63
operations, with particular emphasis on 1975 crop year
forecasts, and includes our evaluation of those operations.

     Our review focused primarily on the two Agriculture
agencies most directly involved in foreign crop intelligence
and short-term forecasting areas:

     1.     Foreign Agricultural Service - foreign crop intel-
            ligence and the analysis with resultant current ex-
            port forecasts; and
     2.     Economic Research Service - foreign and domestic
            crop analysis with current forecasts of domestic
            demand, foreign supply and demand, and all long-
            term (one year or more) projections.
Detailed discussion of the operations of these two services
begins on p. 68.

Statistical Repor'-in   Service
     An integral part of U.S. forecasting activities is
accurate estimating of the domestic supplies that will be
available for export. The data on the domestic agricultural
economy is collected by the Statistical Reporting Service,
established in 1961.

     The service carries out its crop and livestock estimates
through 44 tate offices serving the 50 States, operated
through cooperative arrangements with various State agencies
as doing Federal/State services.

     The Crop Reporting Board (chaired by the Deputy Ad-
ministrator of the Service) meets monthly in Washington to
compile and analyze reports submitted by the State offices.

     Because GAO's current study focused on foreign fore-
casting, readers interested in a more detailed discussion of
the Service's operations are referred to GAO's 1975 study,
What the Department of Agriculture Has Done and Needs to Do
to Improve Agricultural Forecasting and Reports (B-114I84,
8/27/75).

      In addition to the above agencies, Agriculture also has
a number of interagency groups that combine specific elements
of these agencies' forecasts to arrive at the Department's
official comprehensive forecasts of the domestic agricultural
sector. These include, for each crop, total supply by


                               64
source, total utilization (demand) both foreign and domestic,
and end-of-year carryover. These groups, as applicable, were
also included in our review.

     We also surveyed other groups, private and governmental,
which maintain similar operations. This allowed us to compare
the analytical capability of these groups with Agriculture's,
and to explore possible avenues of additional cooperation be-
tween them and the Department as a means of enhancing its
forecast capability.

System Flowcharts

      To assist the reader in comprehending the extensiveness
and complexity of the Department's crop intelligence and
short-term forecasting systemsr flowcharts of the systems,
from data input to publications output, are presented
throi.ghout this chapter. The first chart shows the system
that results in information for public documentation.

Interagency Groups in
Agriculture Department

     Within the Department are several forecasting groups
made up of persons having expertise in specific commodities
and/or geographic areas from those Agriculture agencies
directly involved in forecasting or farm programs.
    These forecasting groups are as follows:

     1.   The Outlook and Situation Board, chaired by the
          Economic Research Service.

     2.   Task Forces on U.S.S.R. and People's Republic of
          China (PRC) established at the request of the Sec-
          retary of Agriculture in his memos of February 21,
          1973, and September 13, 1973.
     3.   The Interagency Commodity Estimates Committees,
          chaired by the Agricultural Stabilization and Con-
          servation Service.




                              65
                           43                   3




I                                                           --




          ~~~Ke~                                                 a       f



           m~~~~~~~~~~~~~~~!s




a~




                                8~~~~~~                              5




                       4      ~~~
                           ~~~~~          f-i-i~~~~~"·
     *~     ~          Zs!                          El'.'

                                I ~         6
Outlook and Situation Board

     The Outlook and Situation Board is responsible for the
technical review and approval of all economic situation and
outlook reports prepared within Agricultural Economics or by
other agencies of the Department. The Board consists of
specialists drawn from the Economic Research Service and
other Agricultural agencies, and the membership varies for the
different reports reviewed.   Board approval of a situation
and/or outlook report constitutes clearance by the Department
as to its technical accuracy.
USSR and P.R.C. TasK Forces

     The Task Forces' purpose is to make a collective judge-
ment on USSR and P.R.C. crop statistics: production, carry-
over, import demand, export trade, etc. They were formed
because of the need to pull together aailable expertise on
these two countries so as to derive the best possible st--
imates of crop statistics nd to resolve any differences in
the estimates derived by the individual representative agen-
cies that make up these groups.

     Representative. to the Task Force come from the Foreign
Agricultural Service, the Office of the General Sales Man-
ager, the Economic Research Service, Agricultural Sabiliza-
tion and Conservation Service, and the Agricultural Marketing
Service. The USSR Task Force is primarily irterested in
grains, while the P.R.C. Task Force covers _ains, cotton,
and rice,
     Both Task Forces arrive at their forecasts primarily
through subjective evaluation of various types of information.
These sources of information include press reports (the USSR
group depends heavily on the Soviet press), information frcm
the Air Force Air Weather Service, embassy reports, agri-
cultural delegation reports, travelers' rports, CIA nfor-
mation, Radio Liberty and sources within t ? Department of
Commerce. Official Soviet publications art used whenever
available. The People's Republic of China publishes ne ag-
ricultural data except for total production.   To date,    s
imports of U.S. g:ain have been modest, totaling only 8
million tons of wheat and corn between 1972 and 1975, al-
though it should be recognized that imports from major con
peting grain exporting countries can have a direct effect on
U.S. markets.)




                              67
In'eragency Commodity Estimates Committees

     Interagency Commodity Estimates Committees exist
for each price-supported agricultura. commodity (and others
as needed) in response to a "continuLng need for estimates
and projections of basic data reqge  .lg supply, utilization,
prices, and program effects to be used on a Department-wide
basis for program planning and budgeting purposes and for
evaluation and administering present or proposed programs."
     Committees for price-supported commodities are charged
with the responsibility to appraise and review basic data and
make estimates of projected supply, utilization, and prices
for commodities. When new programs are under consideration,
the Committees attempt to estimate a number of effects,in-
cluding exports and availabilitie- for export.
FCREIGN AGRICULTURAL SERVICE

     The primary source for Agriculture's information on
foreign spply and demand is intelligence reported by the
Foreign Agricultural Service's agricultural attaches.  There
are 63 attaches assigned to foreign offices who issue re-
ports on 110 countries. The attaches function as an integral
part of the in-country Embassy team headed by the Ambassador,
but under the general direction of the Foreign Agricultural
Service in Washington. The Washington group is headed by the
Service's AdministLator under the Assistant Secretary for
Ir   ,iational Affairs and Commodity Programs.

     The Service is involved in efforts to improve its over-
seas training and expand its staffing. It has increased its
Mcscow staff, recently placed a representative at the U.S.
mission in PeKing and an attache at the U.S. Embassy in
Cairo. The Service plans, during fiscal year 1977, to es-
tablish attache position3 in the Arabian Peninsula, East Ger-
many, Kiev and at the U.S. Trade Center in Moscow.

Attache Reporting

     In their host countries, attaches are involved in such
activitic as: gathering crop production/consumption/demand
information, administering Food for Peace programs under P.L.
480, developing export markets and identifying new trade
opportunities. They also play a diplomatic role as members
of the Embassies' mission to assist in maintaining contacts
with government officials of the host country.


                               68
     The individual attache s ability to gather data on
agricultural commodities is dependent on the flexibility
allowed him by the host country to carry out these duties.
For example, travel restrictions imposed by the Soviet Gov-
ernment hinder the attache in that country from making first-
hand observations of Soviet crop production. The attache is
officially restricted from traveling to some parts of the
USSR, except with special permission, and reportedly has
been often unofficially hindered through cancelled flights,
closed roads, or similar difficulties characteristic of a
closed system. Theoretically, Soviet attaches in this coun-
try face the same kind of restrictions, but are actually less
restricted due to our more open system. 'o negotiations to
improve attache travel in the USSR are currently being held,
but the U.S. makes a constant effort to improve the sit-
uation.
     Because of the travel restrictions, the U.S.S.R. Attache
must rely heavily on agricultural statistics that appear in
the Soviet daily press or official figures published by the
Soviet government for the information needed in his reports
submitted to Washington. The oviets publish annual and 5-
year goals, and have felt these were sufficient to fulfill
their obligation to supply the T.S. with agricultural   infor-
mation. Hwever, thirty teams of agricultural experts were
exchanged between the U.S. and the U.S.S.R. in 1976. These
teams studied a wide range of subjects in the fields of ag-
ricultural research, technology and economics.

     As a result of travel restrictions or other diffi-
culties, and the limited available data, the attache in the
U.S.S.R. has submitted the 19 minimum required number of re-
ports each year, compared with an average of 74 reports a
year each for France, West Germany, and the United Kingdom.

     In countries which fail to provide reliable current es-
timates, the judgement of the individual attache can be a
significant factor. A consultant's report, prepared for the
Office of Technology Assessment in 1975, pointed out that
attaches "in general are influenced by what they perceive to
be their mission and the length of time they are posted in a
country."

     According to the report, "Few Attaches per eive the
collection of agricultural statistics and the dvelopment
of supply-demand estimates to be their primary mission, *   a·"




                             69
      Other points made in the report: that
 seldom selected for their analytic ability, attaches are
                                              but usually for
 their ability to represent U.S. agriculture;
                                               and that rel-
 ative short tours of duty are a distinct
                                          disadvantage with re-
 spect to developing reliable estimates.

      The report indicated that attache reporting
                                                    could be im-
 proved through more adequate coverage of
                                          several important
 agricultural countries, and through stationing
                                                  data spec-
 ialists who had no other duties and who "were
                                                a
 organization whose sole mission was to operate part of an
                                                  a world ag-
 ricultural information system."

 TYPES OF ATTACHE REPORTS

     Attaches submit two types of reports; (1)
                                                scheduled,
required reports, and (2) "alert" reports,
                                           which are used to
report fast-breaking items in the host country's
tural situation that have an immediate effect     agricul-
                                               on U.S. ag-
ricultural commodities with respect to demand,
                                                world prices,
and/or consumption.

     Required attache reports consist of numerical
tered on a statistical format devised by           data en-
                                         the Service's For-
eign Commodity Analysis group.  Attache analysis of the data
is not considered essential because data
                                         analysis is
primarily the responsiblity of the Service's
                                             commodity
analysts in Washington.

Forein   Commodity Analysis
     The data supplied by the Attaches a),- oher
                                                  sources is
analyzed by the Foreign Commodity Anelysis
                                             roup of the
Foreign Agricultural Service.  This group is comprised of 7
divisions working on the analysis of foreign
data for 7 specific commodities or groups     supply/demand
                                           of commodities.
Or review was limited to the Group's management,
                                                   the Grain
a,d Feed Division, and the Dairy, Poultry,
                                            and Livestock
Division.

      The Group has responsibility for short-term
yea--) forecasting of foreign supply/demand/exports(current
ric- tural commodities.                              of ag-
                          It completes projections of the rest
crop season so as to provide input into policy
                                                decisions for
that season.   In addition, export forecasts, based on foreign
crop and consumption projections, have been
                                             produced
ulaly for    rain for a 5-year period each since aroundreg-
These forecasts are                                      1970.
                      eviews. once or twice a year.


                              70
     The Group uses various forms of models as one technique
for forecasting global and regional levels of grain yields.
It also relies on trend analysis to provide quantitative in-
put into the analysis process. If necessary, qualitative
factors such as the degree of mechanization, the amount of
arable land, and weather are also subjectively included in
the analysis.
     The 1975 OTA consultant's report concluded that better
analytical capability was needed because:
          "As we have learned in current years, trend anal-
          yses fail to provide reliable results. More de-
          tailed analyses of the factors that determine pro-
          duction and consumption are required to improve the
          reliability of Agriculture's] world estimates."
     Officials told us that most of the Group's problems are
in the grains area. Personnel are presently trying to in-
tegrate feedgrains use into grains analysis and admit that
they have been slow in defining the interrelationship be-
tween the livestock and grain sectors.
     The Dairy, Poultry, and Livestock Division has insti-
tuted new reporting instructions for quarterly dairy and
poultry reports for 40 country automatic-data-processing data
bases for the years 1964-74 by the end of fiscal year 1976.
By the same time, they planned to expand the existing live-
stock data base (1960-73) and make a major revision of live-
stock reporting instructions to a standard quarterly report-
ing schedule, for use in developing a short-term forecasting
methodology of feed demand based on dairy cattle and poultry
production.

      Division analysts have also increased the frequency of
reports from annual/semi-annual to quarterly submissions by
attaches, accompanied by a current f recast devised by the
attacche.

     The data base for coarse grains and wheat for short-
term forecasting purposes has been developed and operational
for almost 2 years. This commodity area is the respon3i-
bility of the Grain and Feed Division. It was the first div-
ision to initiate quarterly reporting instructions for grains
to be su mitted by attaches, and its analysis/forecasting
capability is the model for the other divisions in the Group.
This division is also filling the gap in the feedgrain demand



                             71
sector of analysis until such time as the Dairy, Poultry, and
Livestock Division completes its livestock data base.

      Grain and Feed believes that it has tuned-in its oper-
ations to meet its priorities. Major emphasis in its ana-
lytical work is directed to monitoring current crop prospects
ctnd changes in individual foreign countries, and keeping a-
breast of the trade-flow impact of changes in foreign crop
production.
     Tn response to a major upward shift in eedgrain demands
2 years ago, the Division set up a unit to specifically
'.&dle the expanding work in this area.
     The Grain and Feed Division obtains its data base in-
formation from Agricultural attache reports, published stat-
istical sources, periodicals, cooperator reports, Reuters
news service and personal contacts by Division personnel.

     In addition to its wheat and coarse grains data, Grain
and Feed also collects and updates monthly trade-flow data
by country of actual grain movements by origin to destination.
The third part of the Division's data base is a record of
grain transactions to data of forward contracts (what will
move) for future grain shipments that ave been purchased by
buyers. This data is then subjected to judgmental decision-
making (by Division prsonnel and Attaches) to determine what
portion of forward contracts is indicative of actual demand
and what portion is "buying now" to avoid future price rises.
Analysis/Forecasting Methodology

     Analysis and forecasting in the Grain and eed Division
is essentially trend analysis subsequently adjusted by qual-
itative (professional judgment) considerations as Attache-
reported intelligence becomes available. These trends are
needed to fL,-.st crop yields, production, and con.sumption;
then any anticipated stocks changes are arrived at through
subjective evaluation to finally determine import and export
forecasts and appropriate revisions.
      Matrix analysis is used to arrive at these forecasts
wherein total grain must equal tota' demand.

     Division analysts use sector analysis in making their
forecasts--combining major roups of countries into aggregate
trends as opposed to country by country analysis. While the
Division performs the sector analysis for commodities, it


                             72
works closely with the Economic Research Service's Foreign
Demand and Competition Division, which provides individual
country analysis of commodity supply/demand factors,

     The quality of information of foreign supply, demand and
buying intentions is often not high, being frequently based on
subjective analysis of data gathered from various sources.
This is especially true of the reports from closed societies
such as the Soviet Union and the People's Republic of China.
Of course, it would be unreasonable to expect statistically
accurate estimates of foreign supply, demand and buying inten-
tions, in such limited data ituations.

Officials' Views of
Forecasting Operations
     Grain and Feed Division officials informed us that the At-
taches were their primary source of export information. They
also told us that U.S. weekly export sales data is used mainly
as a means of keeping informed of any unusual situation that
might cause problems in the domestic market. More specifi-
cally, export sales reports are used as a general indicator of
country demand and activity on a weekly basis, based on that
importing country's production, demand, nd stocks position
(which analysts claim they know with a reasonable degree of
accuracy for most countries).    Export sales figures are not
fully integrated into their forecasts, because the analysts
maintain they are usually overstated, for both exports and
outstanding sales contracts. One reason for this could be
foreign buyers' overbuying to protec- themselves from possible
future U.S. export controls. FAS officials informed us that
export sales figures are taken into account as the marketing
year progresses, in determining whether preseason estimates
of U.S. exports to specific countries sould be adopted. In
some instances such adjustments are triggered by new export
sales data. This is especially true for such countries as
the USSR, the PRC and certain other countries--especia. ly in
Eastern Europe and North Africa--for which data on current
crop developments are less readily available.

     Division personnel point out that the fundamental bar-
rier to improving their forecasting is the lack of an adequate
data base and the inabiliity to accurately forecast the impact
of weather on grain production. Given this limitation,
officials believe that they are doing the best job possible
with the available information. These officials noted     t
the quality of foreign crop production information may depend
more on national olicies (of foreign governments) than on
any other factor.


                             73
     Foreign Commodity Analysis officials stated that the big-
gest unknown in their production forecasts is weather, al-
though they are trying to account for it in some measure.

     Th2 principal source of weather data used by Agricul-
ture's analysts of Soviet crop production is the Air Force
Environmental Technical Applications Center. The Center com-
puterizes and processes raw weather data and provides average
information on 27 USSR regio,is on precipitation, tempera-
ture, and calculated soil moistrue. Data are summarized and
made available each 10 days, and cumulative monthly and sea-
sonal averages are also provided.

     Agriculture's analysts evaluat- this and other weather
data to estimate regional weather indexes of grain crops.
Statistical models are used, but the indexes--which are
largely judgmental--are multiplied by trend yields to obtain
overall Soviet production.

     Fiscal year 1976 brought into full operation the Large
Area Crop Inventory Experiment(LACIE), a joint project of the
Agriculture Department, the National Aeronautics and Space
Administration and the National Oceanic and Atmospheric Admin-
istration. This experiment combines Agriculture's expertise
in international economic and statistical disciplines with the
use of satellites and meteorological and climatological data.
Grain and Feed Division personnel stated that the Experiment
will help by providing earlier warnings of crop failures due
to adverse weather. Analysts will then be able to use this
information to supplement and evaluate reports from Attaches.
Initial tests of the Experiment were positive.

     Officials said that another problem affecting work
quality is the Foreign Agricultural Service's rotation policy,
which moves professional personnel throughout the various
organizational units. This tends to disupt the continuity
of commodity analysis operations as well as the development
of more sophisticated forecast methodology and the degree
of competence of commodity analysts. Officials cited various
possible remedies to the problem, but pointed out that some
form o.- rotation is needed in order to give analysts an
appreciation of field reporting and attaches' problems.

Dissemination of information

     The Fore gn Agricultural Service publishes some of its
statistics, forecasts, and narrative analysis n publications
for public dissemination, but more frequently its publications
are for internal use only.

                               74
     For external use, the Service publishes the World Grain
Situtation in the Foreign Agriculture Circular on a bi-monthly
basis.
     Recently, in recognition of the need for more complete
and accurate reporting and analysis of foreign crops, the Ser-
vice has taken steps to improve this report. According to the
Administrator, it is unique in the world as a summary of pro-
duction, trade, utilization, and stocks information from all
major producing and importing countries.
     The World Grain Situation report, along with the U.S.
Export Sales report published weekly by the Office of the
General Sales Manager, adds a new dimension to available infoL-
mation on current supply and marketing, and expands it to in-
clude additional production and price information. The U.S.
Export Sales report now includes a narrative interpretation de-
signed to make the tabular material more useful to farmers,
marketing people, and others.

     It also publishes a monthly  orld Agricultural Production
and Trade Statistical Report. A weekly news release service
was instituted in June 1975 for reporting to the public cur-
rent developments in the foreign agricultural situations
that affect American agriculture. The Service hopes to expand
it into a daily news release system.
     Internally, Service personnel make regular briefings on
foreign agriculture for Department officials. The Service al-
so prepares (in collaboration with the Economic Research
Service) a monthly internal document, Digest of World Agri-
culture, that includes a World Grain Situation and world
weather and crop summary. A flowchart on the following page
depicts the system for internal management information.




                             75
           INTERNAL USDA DISSEMINATION FUNCTIONS




                                         INCLUDES
                    ALL DATA                CRB
                                          REPORTS



                     FAS - FCA              INCLUDES ALL
                   ERS - NEAD,          FAS & ERS FUNCTIONS
                     FDC, CED              (ANALYTICAL)
                    ANALYSIS -           NOTED FOR PUBLIC
                   NARRATIVE &             DISSEMINATION
                      TABULAR                 FUNCTIONS




                WEEKLY &MONTHLY
                  IN'TRNAL USDA
                    BRIEFINGS




                 DIGEST OF WORLD        | INTERNAL
                   AGRICULTURE               USE
                    (MONTHLY)               ONLY




                 USDA OFFICIALS.
                 OTHER EXECUTIVE
                  GOVERNMENTAL
                    OFFICIALS




ECONOMIC RESEARCH SERVICE

Overview

     The Economic Research Service develops and provides
economic information to a wide variety of decisionmakers in-
terested in or responsible for improving agriculture. These
include Agriculture Department officials, Members of Congress,
officials of other government agencies, State and local admin-
istrators, foreign government leaders, farmers and farm organ-
izations, marketing firms and farm supply companies.



                                   76
     The research is carried out in a number of areas,
including the characteristics and performance of the U.S.
food and fiber sector, foreign trade, and foreign market
development.
     The Service's monitoring and short-term foreign agri-
cultural forecasting responsibilities are carried out by its
Foreign Demand and Competition Division. This Division fo-
cuses on worldwide supply and demand conditions and the impact
of U.S. and foreign policies on world farm trade. Its publi-
cations provide information needed by traders, government
officials, and trade negotiators.
     The Foreign Agricultural Service has the major short-run
forecasting responsibilities for the international area. The
Foreign Demand and Competition Division functions in a con-
sulting, review and advising rola and thus in the past did
little regular forecasting work.
     An in-house review in 1974 stated that the Division then
had only two regular forecasting projects:  (1) U.S. agricul-
tural trade forecasts and (2) world agricultural production
indices.

     The review went on to point out that one of the Divi-
s on's missions is an international agricultural intelligence
gathering service-oriented mission. In this role, the review
noted that the Division was often called on to make specific
forecasts for various projects, but that this work fell in
the one-time-only category.
     Recently, the Division began to develop its own short-
term forecasting capability as shifts in export demands be-
came more rapid and more important to U.S agriculture. Of-
ficials stated that these forecasts would contribute to the
Department's "Outlook and Situation" reports.
     Currently, the Division does some forecasting of exports
of major commodities, contributing this information indirectly
to the Department's official forecasts assembled through the
Interagency Commodity Estimates Committees. However. the
Foreign Agricultural Service has primary responsibility with-
in the Department for export forecasts and has the major
influence on the final export forecasts published by the com-
mittees. Nor does the Foreign Demand and Competition Division
share any responsibility for export forecasts with the Foreign
Agricultural Service, even though these units are supposed to
complement one another and utilize the same data base.

                            77
      According to Division officials, the primary purpose
 in developing its enhanced short-term forecasting
                                                    capability
 was to service internal Economic Research Service
                                                    needs.
 They claimed that their forecast methodology was
                                                   more analy-
 tic and hoped to improve the rigor of both their
                                                   and the
 Fo:eign Agricultural Service's forecasting.

     We were informed that the Division has two essential
lines of effort ongoing in short-term forecasting
                                                    of for-
eign supply/demand/exports:    the first is regional analysis
and the second is monthly one-month projections
                                                  of exports.
These efforts were closely coordinated with Foreign
                                                      Commodity
Analysis operations.   Both are based on subjective evaluation
of all of the available information.    One source is the U.S.
Export Sales reports.   officials use the reports to obtain -
an indication of export demand and to track their
                                                    forecast
estimates of exports.   Generally, they found the reports
inflated by   care buying when a shortage situation existed or
was antic    ;ed, and deflated in situations of excess supply.
For spec  ic commodities, these officals stated that wheat
and corn sales reported were reliable but that soybeans
                                                          sales
were very inflated.

     The Division has established a group to develop
                                                      new and
more sophisticated models for short-term forecasting
                                                      of pro-
duction/utilization/export demand by individual
                                                 foreign na-
tions and for U.S. agricultural exports.  Their effort was
geared to making the short-term forecasting process
                                                     more
efficient, as well as shifting to a more formal
                                                 quantitative
forecasting methodology to supplement subjective
                                                  evaluation
(qualitative analysis).

     Projections are now being developed of production
                                                        and
consumption levels for grain, feed and livestock
                                                  products
under alternative price and policy conditions for
                                                   several
developed nations.  From this information, projected im-
ports and exports of each country can be calculated.

      Despite the Division's interest in its  xpanding role
in the international forecasting effort, there
                                                is also cun-
cern chat the Economic Research Service may be
                                                perceived as
stepping directly into a role historically designated
                                                        as
FAS's.   The ERS report was careful to poirt out that by
developing a modeling approach to forecasting its
                                                   work
"* * * would be more complementary than competitive
                                                     to what
the Foreign Agricultural Service is currently doing."




                             78
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                                                              80
    The Under Secretary recommended:

    "For example, we believe that data on production, supply
    and distribution of agricultural commodities can be
    most efficiently developed by Foreign Agricultural
    Service commodity specialists, while data o:n general
    economic indicators and factor inputs can b most effi-
    ciently de-eloped by Economic Research SeLvice country
    analysts. Common data bases can be developed for use
    by both agencies on all types of data, just as [these
    services] Lhave done with grain data."
     The 1975 Consultants' Report for the Office of Technology
Assessment commented on the relationship between the two
services:

    "The organizational structure used by the Agricultuze
    Department  to operate the world agricultural informa-
    tion system impedes efficiency and effectiveness. It is
    extremely difficult to use analysts efficiently and
    effectively when the responsibility for the outputs cf
    a system is assigned to two completely separate agencies
    * * *It will be essentially impossible for USDA's wo£ld
    agricultural information system to reach potential under
    the present organzational setup."

     The report suggested several ways to achieve a meaning-
ful reorganization, The alternative ccnsidered most efficient
and effective would combine the Foreign Agricultural Service's
commodity analysts with the Economic Research Service forming
a group responsible "for assessing and disseminating informa-
tion on world and U.S. agriculture'.  The report claimed this
would eliminate duplication and maximize coordination.
PROBLEMS OF COORDINATION
      The barriers to smooth coordination of the sister agen-
cies range from philosophical to practical.   Foreign Agricul-
tural  Service officials believe that work is needed in the area
of defining relationships that will enable them to develop
short-term models so as to devise better forecasts. They
-tress the current situation, which is always changing, and
contend that because the Economic Research Service is too aca-
demic in its approach and spreads the work over a number of
years, the Foreign Agricultural Service has had to undertake
its own basic economic research.



                             81
     Others in the Foreign Agricultural Service cited poor
relations with their counterparts in the Economic Research
Service. They attributed it to a lack of understanding be-
tween the two groLps brought about' by their respective
orientations--the Foreign Agricultural Service personnel
having direct agricultural knowledge, the Economic Research
Service personnel having a more academic background with no
appreciation of how the agr.cultural sector functions. They
also said 'Chat the Economic Researci  ervice as competing
with the Foreign Agricultural Service in its efforts to
develop its ow, short-term forecasting apabilities.

     Economic Research Service officials agreed in part with
these statements and mentioned the need for their staff to
have more contact with private trade. On the other hand,
they felt that the Foreign Agricultural Service needed to
develop ita analytical capabilities.

     They also cited another problem. The Foreign Agricul-
tural Service retains primary responsibility for export fore-
casts and is adamant that its final forecasts of foreign
supply/demand fnr U.S. exports be retained as the Department's
official forecasts published for public dissemination. Given
this position, the Economic Research Service is relegated to
the position of attempting only to influence the forecast
figures.
IMPROVEMENTS,
CO1 INUED WEAKNESSES
     The Office of Technology Assessment published another re-
port in August 1976:  Food Information Systems: Summary and
Analysis. It noted improvements made in griculture's informa-
tion and forecasting system since 1972-73: modification of the
agricultural attache system; improving staff analytical compe-
tence; upgrading publications and eliminating duplication;
attempting to get better information on the Soviet food situ-
ation; releasing more timely crop forecasts; collecting dat-
from new areas; ane using modeling and remote sensing techno-
logies.

     The report concluded that four groups of deficiencies
continue to exist in the food information system:

    1.   poor national (foreign) systems, upon which the
         Agriculture Department must depend;

    2.   collection of inadequate and/or obsolete data;

                             82
      3.   inadequate analysis, especially by the overseas
           network of agricultural attaches;
      4.   Agriculture's fragmented organizational structure,
           which hinders effectiveness and promotes institu-
           tional conflicts of interests.
      The Office of Technology Assessment proposed the fol-
 lowing possible solution to the above weaknesses. The
 tionai Commission on Supplies and Shortages supported    a-
 possible soluticns in its December 1976 final report   these
                                                       to
 Congress. These solutions which are designed to protect
 the integrity of U.S. foreign agricultural data include:

      1.   Transfer the Foreign Commodity Analysis Unit out of
           the Foreign Agricultural Service and make it a
           Division of the Economic Research Service.
      2.   Combine the Foreign Commodity Analysis Unit    with
           the Foreign Demand and Competition Division    of the
           Economic Research Service into a new agency,    one
           with the sole mission of providing economic    intelli-
           gence on world agriculture.
     3.    Combine the Foreign Commodity Analysis Unit with
           tha Economic Research Service's Foreign Demand and
           Competition Di-ison and with domestic commodity
           analysts into a single economic intelligence agency
           responsible for assessing and disseminating informa-
           tion on world and U.S. agriculture.
      Both organizations (OTA and NCSS) agree that overall
ficiency and effectiveness would be highest under the         ef-
                                                        first
proposal." The National Comn:ission was highly supportive
the third option because it represents an effort to          of
                                                     end
redundancy of both operations and attempts to establish   the
integrated view. The Office of Technology Assessment      an
National Commission also concur in the belief that the and   the
                                                         best
long-run solution to developing a better iternational
                                                         infor-
.nation system is the employment of agricultural information
specialists who would reside in major food export and
port countries on a permanent basis. The Commission    im-
that be er data analysis is essential if             stresses
                                           the U.S. food in-
formation system is to improve.
     The Commission also proposed the following pertinent
guidelines regarding Agriculture and other materials
                                                     agencies
in its summary report:


                              83
      1.   Data collection and data analysis should be
           organizationally separate from policy and program
           activities.
      2.   Data collection and data aralyses should be placed
           in a separate, high level (preferably Bureau level)
           organization of comparable status.
      3.   The credibility of data and analyses should be main-
           tained through open access,advisory committees, and
           other institutional safeguards.
      4.   Data collection and analysis should be responsive
                                                             to
           the needs of users.
      5.   Statistical standards should be upgraded, and the
           limitations of the data--including sampling error,
           uncertainty, and assumptions--should be published
           with the data.
OTHER FORECASTING
ORGANIZATION

Central Intelligence Agen!c

      Central Intelligence Agency orecasts include periodic
assessments of harvest prospects ,rmpared to domestic
sumption levels of Communist-Bloc .ations. This is     con-
                                                    part
of its continuing research on agricultural and
                                               consumption
trends in these countries. The CIA also projects
                                                  interna-
tional trade in grain and other agricultural products,
into account its incomplete knowledge of domestic       taking
                                                  stocks
the intentions of Bloc leaders with regard to consumption and
levels.

     CIA findings go to everal government agencies
Agriculture) and to relevant interagency agricultural(including
groups. The CIA estimates demand for U.S. grain by     policy
sidering total worldwide supply and demand utilizing con-
matrix approach based on importer/exporter activity. a total
                                                       It
all other available sources of data, including Agricultureuses
and grain companies, in devising its trade estimates.

     It has developed a crop forecasting model to predict
crop yields in 27 major producing areas of the Soviet Union.
The predicted yields--based on time trends and a
                                                 composite
index of several weather variables--are combined with
                                                      reported
data on sown rea to produce crop estimates.


                              84
      Prior to the 1972 grain sales, the CIA had not placed a
significant priority on the forecasting of Soviet grain pro-
duction and import demand. During the past 4 years the CIA
h1ae continuously endeavored to expand arid improve its fore-
casting capability. Concern has emerged among Government
officials in recent years over differences in Agriculture and
CIA estimates of the Soviet grain situation. The differences
were generally attributed to the different data bases and
forecastiLg methodologies used by both agencies, as well as
difficulties in achieving effective interagency communica-
tion. Howevcr, since 1975 both Agriculture and the CIA have
improved their coordination and communication on the fore-
castilig of Soviet supply and demand. Although both agencies
utilize different forecasting methodologies based on many
different varieties of data, they recently have worked to-
gether in attempting to provide the executive branch with one
consensual estimate of Soviet production and demand.

Food and Agriculture Organization
o_ the United Nations
     The Food and AgricultLre Organization (FAO) of the United
Nations fosters international cooperation in the fields of
nutrition, food, and agriculture. The United States maintains a
permanent mission--under State Department supervision--to the
Organization's Rome headquarters.
     The Organization is_a source of international economic
and statistical data. It obtains information from a number
of sources, including member governments, the Organization's
technical personnel assigned overseas, and from Foreign Agri-
cultural Service publications.

     In turn, Agriculture uses the Organization's publica-
tions as a supplemental source of sttistical information;
however, Agriculture makes little attempt to follow the
Organization's information-gathering activities on a current
basis.

     GAO recommended in a previous report that closer
cooperation between the two groups might be desirable.
Agriculture responded that althoigh they would welcome closer
cooperation with the Orgaaization, it was not always the best
source of information or the most timely source.




                             85
      The Office of Technology Assessment in 1975 compared
                                                           the
 forecasting of the two groups and concluded:

      "All in all, USDA's system clearly has been
      superior with respect to timely assessments of
      the current situation and ear-term outlook,
      but unless steps are taken oon to improve
      USDA's system, the most reliable system will
      be the one operated by FAO."
      The Food and Agricultural Organization began
 an early warning system in 1965 which assembled     o develop
 mates of major food crops from over 7; developingmonthly  esti-
 order "to obtain advance indications o possible countries ia
                                                   emergency
 food aid needs." It is also experimenting with
 graphy to gather agricultural information from   aerial  photo-
 tries lacking adequate information-gathering    those coun-
                                              systems.
 Major Grain Exorting Companies

     GAO interviewed officials of several
porters including the six who handled the major grain ex-
                                          majority
1972 Russian grain sales (Cargill, Inc.; Cook      of the
Inc.; Bunge Corporation; Dreyfus Corporation; Industries,
Grain Co.; and Garnac Grain Co., Inc.).       Continental

     The exporters' forecasts are for the
dent of Agriculture's data. Coordindtion most   part indepen-
                                           between the ex-
porters and Agriculture is superficial and the
                                                exporters are
careful not to compromise their respective
positions.                                  competitive

     Although forecasting ability varies by company,
cials of the large exporting companies feel           the offi-
                                            that  their
term forecasts are more accurate than Agriculture's,    short-
ally on a commodity basis, because the Department     especi-
all agricultural commodities and does               overs
                                      not focus exclusively
on selected commodities as is the case with
                                            many exporters.
      Private grain exporters and some government
added that the Department's forecasts, as well     officials
                                                as  the De-
nartment itself, are subject to numerous bureaucratic
                                                        and poli-
tical constraints influencing ultimate supply/demand/export
forecasts. While instances of bureaucratic or
                                                political
constraints may have influenced ultimate forecasts
instances, the view of forecasters in the Foreign in some
Analysis Division is that, for grain, it would      Commodity
                                                be difficult

                              86
to imagine a situation where objectivi'y would be any less
prevalent than is the case now with Agriculture's forecasts
of foreign supply/demand/trade prospects.
     Agriculture maintains that its forecasts are not poli-
tically ifluenced for the following reasons:   "First, the
procedural system for grains ensures collective judgment by
a staff of analysts rather than allowing forecast judgments
to be compartmentalized or specialized. Under the existing
systemr all forecast judgments made by Foreign Agricultural
Service personnel are open to scrutiny by specialists in
the Economic Research Service and other concerned USDA agen-
cies. The second reason (for Agriculture's rejection of the
claim of outside influence)is the fact that all significant
components of the foreign supply/demand and U.S. export fore-
casts are regularly disseminated through public information
channels and therefore open to the scrutiny of the foreign
countries concerned, as well as the domestic producer groups
and exporter firms who themselves can judge the accuracy,
currentness, and objectivity of Department forecast judgments.
Under these conditions Agriculture insists analysts respon-
sible for the grain forecasts are acutely aware and continu-
ally reminded of the need for objectivity at all times in the
preparation of forecasts."




                              87
                           CHAPTER 6
                U.S. AGRICULTURAL EXPORT POLICY
     The most important consequence of Soviet grain purchases
over the past 4 years has been that these transactions have
highlighted the need to assess the Government's agricultural
export policy. The results of this review conducted by GAO
have raised a number of questions about the effectiveness of
recent policy.
FLEXIBILTY
      Export picy clearly should be sufficiently flexible to
adjust to extreme shifts in foreign demand for U.S. commodi-
ties. The difficulties encountered by the Government ill re-
sponding to the Soviet Union's 1972 and subsequent purchases
were only in part due to weaknesses in export reporting and
forecasting. They also arose from fuaAdamental policy assump-
tions.
     In 1972, the Government had completed a recent transition
in agricultural policy. The former policy--which had been
in effect for roughly 4 decades--had been focused almost
exclusively on limiting farm production in order to bolster
prices. The policy involved large-scale government inter-
vention involving billions of dollars for price supports,
export subsidies, Government held stocks, food aid programs,
and similar measures,
     In 1969, this policy was abandoned and supplanted by one
designed to remove the Government from agriculture altogether.
The policy change was articulated in legislative changes in
the 1970 and 1973 Agricultural Act.
     An article in a recent issue of Foreign Affairs described
the Goverment's new approach:
     "* * *the federal government according to this
     policy, should no longer own reserves of commodities
     and regulate prices, as it has for more than 30
     years. Price changes should regulate the movement
     of resources into and within agriculture."
     This ne* policy was based on expectations of full pro-
dudtion. Exports were encouraged, but without subsidization.
It was assumed that the free market could handle international
transactions in U.S. commodities.

                             88
     Then several forces came together in the early 1970's
to push foreign demand up sharply. From the perspective of
1976, it is clear that the Soviet purchases, though pivotal,
were only one part of this larger picture of growing world
demand.

     The phenomena contributing to growing demand in the early
1970s included:

     -.-world-wide (except in U.S.) shortfalls in crop pro-
        duction;
     -- Soviet decision to increase per capita protein con-
        sumption. and import grain;

     -- dollar devaluations of 1971 and 1973 made American
        agricultural commodities less expensive and, ther.fore,
        more competitive on the world market;
     -- world population continued to increase, particularly
        in the less developed countries, many of which tend
        to experience chronic focd shortages;

     -- Peruvian fishmeal supplies were temporarily exhausted;
     -- relative affluence and prosperity in the more developed
        nations stimulated demand for more, and better quality,
        food which entails greater consumption, directly or
        indirectly, of grain; and

     -- the effects of the so-called energy crisis, particu-
        larly with respect to fuel and fertilizer, impacted
        on most nations.
     These forces also came into play just at the time that
the U.S. and other major grain exporting nationF had embarked
on a stocks reduction policy. The result was an unprecedented
demand for U.S. grain, a situation the U.F. Government's
agricultural export policy was not geared to meet.  As a
consequence, between 1972 and   75 it was forced to modify
its commitmen' to non-interr    on and to take the steps
described earlier in this re
    1973 - Established a mandatory export reporting system
           and placed temporary export controls on soybeans
           and related products.




                             83
     1974 - Requested voluntary export restraints on grain
            sales to the Soviet Union, established a volun-
            tary prior approval system on grain exports, and
            initiated a mandatory daily export reporting
            system; imposed a temporary embargo on Soviet
            grain sales; and held up and renegotiated existing
            Soviet grain sales.

     1975      Requested voluntary export restraints on grain
               sales to the Soviet Union and Poland, negotiated
               a formal long-term grain sales agreement with the
               Soviet Union, and i nforally committed itself to
               supply Japan with grain for the next 3 years.

     These steps were required by the sudden transformation
to a tight-supply situation.  The question arises whether
Government policy may be similarly unprepared to meet a period
of agricultural surpluses.

     A close look at the phenomena which led to the sudden
increase in demand in the early 1970s shows that most of
these factors were subject to change.  They could fairly
suddenly shift in ways that would present a dramatically
different world market for U.S. grains from the one of the
early 1970s.

     Sharp drops in foreign demand, for example, could be
precipitated by a period of good weather and successful for-
eign harvest, by a prolonged recession in the developed
countries, or by an economic situation in wnich U.S. grains
were priced beyond foreign budgets.

     Changes in foreign demand could also come about as a
result of changes in national policies, sucn as the Soviet
Union's 1971 decision to abandon its practice of diverting
grain from livestock i periods of shortage, and to import
grain instead.

     The fact is that the demand picture is already changin-.
It appears that U.S. agricultural surpluses may again reach
and/or exceed pre-1972 levels as a consequence of stagnati: 9
or decreasing foreign demand.

     when faced with periods of extreme markets, either sur-
plus or shortage, Government officials implementing present
policy have to deal with the following questions:




                               90
     -- What is the range within which price variations for
        domestic producers and consumers will be tolerated?
     -- Should there be some overnmental mechanism over and
        above the market by which the domestic supply of grain
        is to be allocated among domestic and oreign
        consumers?
     --To what, if any, extent should Government respcnd to
       differences between foreign consumers with respect to:

         1.   their willingness and ability to pay for U.S.
              grain,
         2.   the regularity of consuming nations' purchases,
              ana
         3.   allowable quantities of grain to be purcnased.
     A degree of rigidity of official position in the face of
changing conditions may be expected, according to the March
1976 GAO report on export subsidies:

                .in the summer of 1972, Agriculture was ex-
     tremely reluctant to modify its surplus policy, in-
     cluding the payment of export subsidies which (had)
     existed foc many years, ad to shift to a policy oriented
     to a low surplus and high export demand. Although Agri-
     culture did finally adopt a market-oriented policy and
     suspend payment of subsidies, it finds itself in 1975/
     76 committed to that policy with the same degree of
     rigidity that it ad in support of subsidies in the
     summer of 1972 when signs of changing market conditions
     arose."
     GAO's current review of the 1974-75 transactions,
export reporting and forecasting, and export policy found
weaknesses in Government policy when hallenged by unantici-
pated market shifts. Besides the deficiencies in export
reporting and forecast data no contingency plans or impact
analyses had becn carried out.

     A more fundamental criticism, we believe, requires con-
sideration:  that the absence of guidelines and standby
mechanisms for government intervention contributed to the dis-
sension, confusion and uncertainty marking the Soviet pur-
chases.



                             91
 FOREIGN POLICY ASPECTS
   OF
    FOOD EXPORS

       Food export policy clearly warrants
 cause of its newly recognized importance consideration be-
                                           as a pt
 nation's overall foreign policy. The Commission     of the
                                                   on Inter-
 national Trade and Investment Policy,
 in 1971, assigned agricultural exports in its final report
                                         a major role in
 helping to overcome the Nation's trade
                                         deficit, and these
 hopes have been fulfilled. Approximately
 U.S export earnings are deL;ved from       one-quarter of
                                         gricultural
 As agricultural exports have ha a positive          exports.
                                              impact on the
 U.S. balance of trade, they have strengthened
 position.                                      the U.S. world

     The Secretary of Agriculture in 1976 pointed
"Agriculture has now become our numbe,            out:
exchange and it's a powerful factor in one source of foreign
                                       maintaining the econo-
mic health of this country."

     The Secretaray also pointed to the role
exports in U.S. foreign relations:           of grain
                                    "We are using food to win
friends."
     The special role of food exports in our
economic relations with Communist countries   political/
by the Administrator of Agriculture's        was underscored
                                      Foreign Agricultural
Service in 1976:

      "The plain fact is that agricultural trade
      been crucial to economic relations, and       has
                                               therefore
      political relations, with Communist countries.
      In the last three years, U.S. exports to
      Soviet Union have been more than two-thirdsthe
     cultural; the same ratio has held for exportsagri-
      to Eastern Europe, and U.S. (agricultural)
     ports to Mainland China have been 80 percentex-
     the total exports from this country."            of

     It has also been advocated that the
                                          U.S. use its food ex-
port potential more aggressively, to counteract
embargoes, for example, or as a mechanism          oil or other
age. Although ruled out, one suggestion    for  political lever-
                                          was  the
of "food power" to discourage Soviet involvement employment
                                                     in Angola.
     In Chapter 3 we noted the AL-CIO's proposal
negotiations that:                                during 1975
                    "The U.S.
policy to deal with commodity should establish an offensive
                              cartels such as the OPEC nations


                             92
and determine to what extent American corporations are
participating in and supporting them."

     A 1974 CIA document addressed to coming decades described
the potential economic and political dominance flowing from
the U.S.'s near monopoly Frosition as food exporter. The
report cited the "virtual life and death power" which could
result.
     This is a profoundly moral issue, and not the only one
bound up in grain export policy-making, both from a domestic
and a foreign relations veiwpoint. A former high-level Agri-
culture official has stated that:
          "The great difficulty with respect to food supplies
          during the next 25 years will not be one of too
          little grain and other food in the aggregate, but
          of distributing the grain equitably between people
          and animals, and nations."
1975 LONG-TERM GRAIN PURCHASING AGREEMENT

     Another problematical area of food export/foreign policy
is the long-term agreement negotiated with the Soviet Union
in 1975.  To recapitulate briefly, the Government's position
is tnat the agreement represents an attempt to shield pro-
ducers and consumers from wide fluctuations in foreign demand
by stipulating minimum annual grain purchased by the Soviet
Union for a 5-year period. Not only does the agreement pro-
vide certainty for farmers, but it assures the Soviet Union
a minimum of U.S. grain annually.
     In contrast to this official view, consumers complain
that they fear paying higher prices for farm products as a
consequence, farmers feel that the agreement both contra-
dicts Government's commitment to free markets and depresses
prices, and the grain trade believes that the Government's
arbitrary intervention impairs the credibility of both pro-
ducers and traders.

     There were also fears that the agreement might be the
first of more government-to-government contracts, but this
does not ap,ear to be the case. The official position is
that it was a unique agreeuaiint to deal with a unique situ-
ation" and tnat the Govern~lent does iot seek and would not
approve similar proposals from other Importing countries.
"Understandings" with Japan, Poland, and other countries,



                             93
according to officials, are not specific in their obligations
and provide only general assurances on both sides.

CONSTRAINTS ON FREE MARKET
AGRICULTURAL TANSACIONS
Government Controls in Other Countries

     The world context in which the U.S. agricultural economy
operates is one marked by government controls. Of all nations
involved in grain trade, the U.S. now stands alone in not
exercising considerable control over either agricultural
production or marketing.

     The rise of centrally-planned economies with state tra-
ding systems represents concentrated power disruptive to a mar-
ket model. Currently the most significant of these is the
Soviet Union, whose ability to disrupt a free market system
was demonstrated in the 1972 grain sales.

     The 1975 long-term agreement has drawn criticism be-
cause it is a contract between this kind of controlled econo-
my and the U.S. free market.
     The Farm Bureau Federation testified before Congress on
this point in January 1976:

          "The interest of the United States in international
          trade cannot be advanced by participation in politi-
          cally determined international commodity agreement
          . . .(therefore, the) Farm Bureau strongly opposes
          the recent Soviet grain agreement and others be-
          cause these government-to-government contracts
          establish a dangerous precedent for future political
          international commodity agreements and constitute
          further interference with the world market system."
     In other grain exporting countries a recently completed
review by GAO found a range of marketing controls. The market-
ing differences evolved mostly from the political orientation
of the respective governments.

     In Canada, Australia, and Argentina, only government
wheat or grain boards are authorized to buy wheat and certain
feed grains. Canadian and Australian wheat boards are pro-
ducer-oriented, while Argen-ine Acricultural policy until re-
cently has been geared primarily to benefit the urban popula-
tion. The European Community, in contrast to other markets we


                             94
studied, produces primarily for domestic consumpt 'n and uses
exports to dispose of surpluses. Brazil's agricultural policy
is directed toward expanding its developing soybean industry
and increasing eports, and Brazil gives credit, tax breaks,
and other incentives to producers.
     These marketing systems contained guaranteed producer
and domestic support price schemes.
     -- The European Community support price benefited pro-
        ducers but consumers generally paid higher-than-
        world-market prices.
     -- The Australian Wheat Board uses a wheat stabilization
        fund to smooth fluctuations in grower income and ties
        the domestic wheat price to growers' production costs.

     -- Argentine producers until recently paid a fixed price,
        which was about one-third of world-market prices, and
        Argentine consumers benefit from on-again, off-again
        subsidies to Argentine millers and other processors.
        (This system is now in a state of transition and it
        is unclear whether past policies will continue.)

     -- The Br..zilian Government has set attractive minimum
        soybean prices, but high world market prices have made
        price support unnecessary.
     -- The Canadian Wheat Board has established a minimum
        price for producers and sells wheat - domestic users
        at prices considerably below world m Ket prices.
Concentration in U.S. Grain Exportin

     Although U.S. grain is produced by a large number of
farms, grain marketing is characterized by a high degree of
concentration. The GAO's survey found that 11 multinational
firms control almost three-quarters of U.S. agricultural ex-
port sales. Since less than 10 percent of the firms account
for nearly 75 percent of all export sales, the grain trade
can thus be characterized as oligopolistic competition. This
raises the question whether current policy adequately ad-
dresses the subject of competition in the exportation of
grain.




                             95
GOVERNMENT DECISIONMAKING

     The ew status of food exports (as no longer a matter
solely of domestic concern, but a potent factor in U.S.
balance of trade and foreign policy) has meant considerable
shifting in decisionmaking, particularly during the Soviet
grain trarsactions.

     In January 1976 the Senate Subcommittee on Foreign
Agricultural Policy conducted hearings on decisionmaking
and food policy in order to learn more about executive branch
actions. The chairman's opening statement addressed the
inherent complications of 26 agencies participating in the
policy process:

     "When one looks at all of the aencies. . .in-
     volved in food and agricultural policy, it is
     understandable that decisions are made which
     are seemingly at cross purposes.
     If the Secretaries of State, Treasury, Agricul-
     ture, and Labor say conflicting things, one
     can only wonder who is in charge. And, obviously,
     this will have an important impact on decisions
     by our foreign buyers."
     As noted earlier. agricultural policy was consolidated
in arch 1976 under the Agricultural Policy Committee,
chaired by the Secretary of Agriculture. Agriculture in
theory was to be the "lead" agency in what had become an
inter-organizational policy process. However, the Pesident's
Economic Policy Board in reality remained the Nation's pri-
mary agricultural decision-making entity throughout 1976.

     Uncertainty continues to exist regarding how and when
major policy options should be implemented. GAO believes
a new mechanism to effectuate policy action is worth con-
sideration.
VIEWS OF RECENT POLICY

     The chairman quoted above also expressed concern about
weaknesses of current food policy:

    "If the complex interrelationships of food and
    agricultural system are to be balanced. . .we
    have got to start thinking in terms of a compre-
    hensive policy which relates all the basic ele-
    ments.

                             96
    We can no longer afford to have a separate policy
    for grain producers and another for livestock, dairy
    and poultry producers. We can not ever afford to
    have just an agricultural policy, or a consumer
    policy, or trade policy. We must have a policy
    which interrelates and balances all of these
    elements."
     Whether the Government has a food policy has ben a
matter of dispute. For example, the Director of th4e Com-
munity Nutrition Institute contends that there is nne:

          .the Administration (in existence in 1976)
     seems intent on emphasizing that we do not have
     a national food policy, and that we are not about
     to develop one. There is no mechanism within the
     Executive branch to develop a food policy, n c
     is there an agency to administer one if it s uld
     be developed. This does not relate to the economic
     consequences to farmers and consumers of farm
     exports, it also touches on such issues as food
     availability, food quality, and food safety."
     The National Farmers Union in 1976 also criticized the
lack of an overall food policy:

    'To service our domestic and export customers--
    and alleviate fears of shortages--adequat, reserves
    of storable food products should be maintained as
    a public policy. All of this, however, must be
    done as part of an overall food policy--and this
    is something which we do not have at this time.
       . .We regard it as important to have, as part
    of a definitive, comprehensive national food
    policy, an export licensing system which would en-
    able the government to insure that food supplies
    needed by American consumers and industries would
    be assured and maintained, and to allocate remaining
    supplies in times of real shortages among our var-
    ious export customers on the basis of their histori-
    cal record of purchases, and to provide food needs
    for humanitarian purposes and natural disasters.

    In 1973, in 1974 and again in 1975, the government
    has intervened and is now interfering to prevent
    farmers from selling their crops freely.



                            97
    Because this was done without any guidelines,
    without any line to a policy of food abundance,
    this has been the worst possible form of export
    control.  It has exposed farmers, American con-
    sumers and our export customers alike to the capri-
    cious, irresponsible and incompetent whim of
    politicians in the Executive branch, actin un-
    predictably and arbitrarily under the pressures,
    the hysteria and the political motives of the
    moment."
Similarly, the National Farmers Organization has said that if
Governrent can ask farmers to undertake full production,
farmers deserve to know more about Government's role in
the market place.

     The Secretary of Agriculture in 1976, however, had
taken exception to the charge that no food policy exists:
    "The plain truth is that this PAministration has a
    definite, and a very positive, food policy. Our
    food policy can be summed up in a single word--
    abundance. Its synonym is full production. Or
    differently, it is freedom from government re-
    straints for farmers. Or still another way, it is
    encouragement by the government of conditions that
    lead to full production of farm goods."

     Eut the policy may be inadequate to deal with the com-
plexities and equity of food distribution, as the Secretary
acknowledged    n his response to the chairman o   the Senate
Subcommittee on     oreign Agricultural Policy i.,Jtnuary 1976.
     SENATOR:     "Let us say there is going to be a short-
                  age of supply. . .Do we (Government1 have
                  ground rules that say if there is a short-
                  age, our regular customers are going to
                  be taken care of first? Do we have ground
                  rules that say if you are intermittent that
                  you can only expect to get a certain per-
                  centage over whet you got a year ago or
                  less than that? Are there any ground rules
                  such as this?

     SECRETARY:     No. It (Government olicy) makes it dif-
                    ficult to do that kind of thing."



                                98
IMPACTS OF RECENT POLICIES

     With respect to consumers, the table below reflects
the consumer price index of food in comparison with all other
items during the last 15 years. As world demand increased
and as U.S. grain stocks were depleted, domestic food prices
rapidly inflated, particularly in relation to non-food items.


     With respect to producers, average net farm income more
than tripled between 1960-1974, and the farm sector's aver-
age per capita income more than quadrupled. While the land
utilized remained roughly constant during this period, the
intensity of farming increased somewhat in terms of mechanical
power and enormously in terms of fertilizer.  The predictable
result is that crop production increased. Although farmers'
equity doubled over the last 15 years, total farm debt more

         U.S. FOOD SURPLUSES AND CONSUMER PRICES, 1960 TO 114
INDEX


                                                                                             185.0

                ., .   INDEX OF PRICES RECEIVED                                              1
 160                   BY FARMERS (1967 100)                   -
                CONSUMER PRICE INDEX                                                         1     7
 140                -FOOD (1967-100)
                     ALL OTHER ITEMS (1967 100)                    6.
 12_


 100                   ark


 s0            38.4                                                                          40
        35.&           36.0
                              32.         .
                                                                                             30
                                          22.2               22.223.5
                                                                                             20


                                                                                     90x     1.6



        1960 1961 1962 1963         1964 1965 1966 1967 1966 1969 1970 1971 1972 1973 1974


       NOTE: All figures for        974 are estimated

       SOURCES: Indexes for food prices and prices received by formers: Economic
                Report of the President (Washington, D.C. U.S. Government Printing
                Office, Feb. 1974). Stocks of wheat: Wheat Situation (Washington, D.C..
                U.S. Department of Agriculture, February 1974).

                                                        99
 than tripled. It should also be noted that farmers' operating
 costs have also risen steeply, particularly the price of
 fertilizer and of energy to run farm machinery. These and
 other rising costs mean that the farmers are in a vulnerable
 position should falling demand depress farm prices subscanti-
 ally.
 POSSIBLE MODIFICATIONS
 OF FRESENT POLICY

National Grain Reserve
     As noted previously, a key part of the post-1969 agricul-
tural policy was the decision to give up government reserves of
commodities. The Secretary of Agriculture observed:   "At
one time storage costs on government-held stores of grain
exceeded $1 million a day."

     Under the new policy the Commodity Credit Corporation
disposed of all of its grain holdings, except for oats, and
the Nation's grain stocks in the summer of 1973 were at their
lowest levels in years. Despite the bumper ctops of 1973,
stocks were not replenished.

     The U.S. was joined by other major grain exporting
countries in a general move to reduce surplus stocks. A
study prepared by the Congressional Budget Office described
the evolution of this policy:

           "As a. result of the continuing accumulation of
          surplus stocks, their depressing effects o mar-
          ket price and their high budget costs, the U.S.
          and other large grain producing nations embarked
          on a stocks reduction policy in 1970 to join with
          the produciton curbs launched a couple of years
          earlier. Between 1970 and 1971, the four major
          exporters reduced their combined stocks by more
          than one-quarter. They accomplished this through
          export sales promotion and changes in farm price
          support policy. By 1974, the stocks of these
          countries were only about 40 percent of the level
          four years earlier.    In the U.S., almost all stocks
          of grain are now held by the private sector."
     The above summary points out that one of the major con-
sequences of Government's accumulation of surplus stocks in
prior years was to stabilize or dampen upward price movements,
even though this was not the primary purpose of holding


                             100
stocks. For this reason, U.S. farmers are understandably
concerned that a resumption of formal Government policy of
holding reserves would have a smilar effect on prices in
the future.
     The advocates of reserves believe their function is
to smooth out the "peaks" and "valleys" of production and
prices not to eliminate them. In this view reserve stocks
can serve as buffers in the production and distribution
of agricultural products. A 1975 GAO report, "Grain
Reserves: A Potential U.S. Food Policy Tool," tressed this
point. Observing that crop shortfalls are as probable as
surpluses, we concluded that attention should be given to
developing a food reserve mechanism to facilitate decision-
making and management. Lacking some form of physical re-
serve, the Nation has no insurance in cse of crop failure.
And this commits U.S. consumers and deperdent foreign cus-
tomers to a hand-to-mouth strategy.
     Food reserves could improve the predictability of mar-
ket prices for farmers and consumer   nd assure a physical
supply of food, whereas other allocation mechanisms (such
as export controls or long-term agreements) only provide
the rules for allocating available supplies.

     Should the United States adopt a national grain reserve
policy, several types of management control systems are
available:

    -- voluntary private reserve,

    -- mandatory Government-financed reserve stored either
       by the private sector or by the Government,

     -- private sector-financed reserve stored by the private
        sector, and
     -- joint venture reserve mutually financed and stored
        by the Government and the private sector.
    Other Optional Modifications
     A number of options for dealing with exports under short
bupply conditions could be considered, including

     -- allocating export quotas by country or region,




                             101
     --selling export permits of fixed fees with no quota
       on the number of permits to e sold,
     -- selling export quota licenses to exporters at auction,

     -- distributing expert licenses to domestic producersl
        on the basis of production histories, and

     -- distributing export licenses t exporters on the
        basis of their historical market shares, or on a
        first-come, first-served asi,-
Any of these options could be trigge.   by a variety of
early warning systems, ranging from a voluntary to a man-
datory prior approval system on U.S. export sales.
     Another proposal advanced by a rgmber of Congress
would make the Commodity Credit Corporation (CCC) the seller
or marketing agent for grain exports. A flexible approach,
it would--at one extreme--enable the corporation to replace
private industry in all grain export transactions. At the
other extreme, the corporation would allow private industry
to continue to make sales but under certain guidelines and
regulations. It would be possible for the corporation to
manage sales with centrally-planned economies (a government-
to-government approach) and to allow the multinationals to
transact all other sales.

EXPORTERS' VIEWS OF OPTIONAL MODIFICATIONS
     In chapter 4 we reported the response of grain ex-
porters to various proposa:s involving export data reporting.
We noted their general preference for a voluntary prior ap-
proval system over a mandatory one, a temporary system
rather than a permanent one, and the current system over one
requiring written explanations for contract decreases.

     To the question whether Government might need to monitor
food exports routinely in order to permit market intervention
in the national interest, 64 percent of those responding did
perceive such a need.
     When presented various options for allocating exports,
roughly one-third of the companies responding preferred allo-
cation by export quotas by country or region.



                             102
      On the question of various forms of grain reserves, the
 responses were mixed. (See Vol. II, Appendix G, for details.)

 SUMMARY

     At this juncture, U.S. agricultural export policy must
not only eet domestic needs but is also expected to fulfill
important foreign policy and foreign economic policy objec-
tives. In this context, the full-production/nonintervention
policy appears inadequate to deal with periods of either
shortage or surplus. Seeking full production by farmers,
Government has a need for a range of alternatives as agricul-
tural surpluses accumulate and depress farm prices. On the
other hand, when shortages materialize, the policy hampers
Government's ability to intervene promptly and with a minimum
of disruption to the economy.
     Government interventions in marketing decisions during
the 4 years prior to 1976 appear to have both compromised
expressed policy and limited the opportunities for farmers
to realize greater financial returns from their efforts.
On the other hand, consumers can be said to have subsidized
the foreign grain sales through higher domestic prices.
Government intervention also appears to have increased
rather than reduced market uncertainty.
     The experience with the 1973 soybean embargo and with
Soviet grain transactions between 1972 and 1975 shows clearly
that the central issue of agricultural export policy is not
whether the Government can or should intervene. The Govern-
ment did intervene, several times dnd in various ways, during
this period.

     The basic issue is whether a more effective policy would
result from guidelines or ground rules establishing conditions
under which intervention (through either export controls or
export subsidies) would take place. This kind of more for-
malized intervention policy would allow a more flexible
response to extreme changes in market conditcns and
minimize the disruptions caused by these sit.t   ions.  The
agricultural sector would benefit from a poiLcy offering
some stability while simultaneously insuring fair prices for
consumers and acceptable returns for producers (conditions
essential to assuring an adequate supply).    Such a policy
would also benefit foreign buyers of U.S. grain, in that it
would provide more equitable access to available supplies,
and make the U.S. a more reliable supplier internationally.



                            103
      The GAO believes that these potential benefits warrant
consideration in the Congress's assessment of agricultural
export policy. Our 1976 study of grain reserves as a U.S.
food policy tool has already set forth our conclusion that
attention should also be given to developing a food reserve
imechanism to facilitate decisionmaking and management.
     Any attempt to develop a balanced agricultural export
policy should also include an assessment of the role of
multinational grain exporters in marketing and distributing
U.S. grain, their relationship to Government, and their im-
pact on the market in terms of supply and price.
     Attentior might also be paid to the potential role of
U.S. grain cooperatives which have shown considerable interest
in developing their export capabilities. 1/ There are strong
indications that this trend will continue, and such cooper-
atives might well provide a viable supplement to traditional
grain-exporting channels.
     In the GAO's view, a national agricultural policymaking
system which can deal effectively with current and future
challenges should include the following elements:

     -- An early warning system of changes in export sales.

     -- A flexible policy framework that satisfies specific
        objectives.
     -- A structure and procedure for implementing policy
        action.
     -- Contingency planning to meet domestic and foreign
        economic policy objectives and national security
        needs.
     A complete summary of GAO's conclusions and recommenda-
tions is provided in the following chapter.




l/The Farmer Cooperative Service of the U.S. Department of
  Agriculture issued FCS Research Report 34 in 1976: "Improving
  the Export Capability of Grain Cooperatives'.

                             104
                          CHAPTER 7

             CONCLUSIONS, AGENCY COMMENTS AND OUR
        EVALUATION, RECOMMENDATIONS, MATTERS FOR CONSIDERATION
                          BY THE CONGRESS
GENERAL CONCLUSIONS
     The Executive Branch has taken numerous actions over the
past 3 years to improve its information gathering, analysis,
and decisionmaking processes. But weaknesses cited in GAO's
1973 Russian Wheat Report and its 1974 Soybean and Commodity
Shortages Reports persist. we believe tat tnese weaknesses
are potentially destabilizing to the domestic economy and may
impact on the international economy as well.
     The domestic and international disruptions associated
with the 1973 soybean embargo and Russia's 1974 and 1975
grain purchases demonstrated a continuing agricultural export
policy problem--particularly on the issue of large-volume
grain purchases by Russia.
     While the 175 long-term grain purchasing agreement added
some stability to the purchasing relationship between_ the two
Nations, its effectiveness remains uncertain until tested un-
der a variety of circumstances.
     Various Government interventions in the grain exporting
market, prior to successful negotiation of the 1975 agreement
with the Soviets, occurred without warning and in the wake
of strong official statements that sch action would be un-
necessary. Government's reemergence in the market on an
ad hoc basis remains a distinct possibility despite the
existence of the grain agreement.

     The GAO believes a more balanced export policy, based
on established guidelines for government intervention, wculd
minimize disruptions and impacts of extrem. shifts in foreign
demand.

SPECIFIC CONCLUSIONS
     As a result of our review of Executive Branch management
of Russian grain sales, export reporting, and related export
policy issues, we arrived at the following specific conclusions.



                             105
     1974 Russian Grain Sales
     In our opinion, cancellation and renegotiation of the
Russian grain purchases and the adoption of the voluntary
export approval system are evidence of a need for greater
flexibility in export policy. Although an interagency
committee was established to monitor the U.S. crop situation
and its policy implications, the committee was not able
to implement its decisions effectively. More importantly,
it saw no need to modify export policy in light of a tight
supply situation and to assess the benefits of agricultural
exports in a broader national context. Instead, it avoided
intervention in the marketplace until a major disruption
had occurred. Instead of recommending Presidential adoption
and announcement of a formal mandatory export approval system,
the committee established a voluntary system as a stop-gap
measure.
      Firm rules and procedures for large disruptive trans-
actions involving purchases by centrally-planned economies
were not adopted until after such transactions occurred.
Weaknesses in the data base for decisionmaking were recog-
nized, and some steps were taken to eliminate the weak-
nesses. However, decisions of working groups were not prop-
erly considered and acted upon by senior officials.
     Consultations with U.S. trading partners did not result
in their sharing the adjustment burden of smaller supplies
caused by the U.S. crop shortfall nor in the provision of
accurate estimates of demand for U.S. grains. Nor did con-
sultations with U.S. exporters result in improvements in
data supplied by the export reporting system.

     There was an absence of agreement concerning decisions on
such policy issues as the need for a compliance program to
assure that grain exports were allocated as approved, and
the need for a prior approval system for large export sales.
There was also uncertainty resulting from conflicting
statements of U.S. policy.

     Policymakers were hampered by inadequacies of the data
base for decisionmaking and the delay caused by debate over
whether and how the data base should be improved. Finally,
there was interagency conflict over policy and a resulting
inability to reach consensus and adopt plans for effective
and coordinated implementation.




                            106
     1975 Russian Grain Purchases
     Despite the existence of the Export Reporting System,
the Executive Branch was surprised by and ill-prepared to
handle the events surrounding the 1975 Soviet sales--althougn
not to the same extent as in 1972. Once the first sales
were made, the Government reacted to pressure from various
groups and suspended sales indefinitely. Further pressure
was instrumental in the Government's decison to seek a long-
term purchasing agreement.
     As in 1974, certain events in 1975 caused the Government
to take actions that were contrary to its policy of full pro-
duction and open markets.
      It is presently difficult to assess the extent to which
the long-term grain agreement is a viable and effective alter-
native to the traditional Soviet approach of substantial
buying without prior notification. It has clearly raised
additional uncertainties that may only be resolved as its
application is tested under a variety of circumstances. For
example, concern continues over the extent of Soviet respon-
siveness to the agreement's terms and conditions. And doubt
continues as to how the U.S. Government will manage possible
extreme circumstances that may confront both signatories.
Such circumstances include unexpected changes in the market
environment and possible difficulties in the foreign policy
area hat might necessitate reconsideration of the entire
issue.

     Even with the agreement in force, the 1975 Soviet grain
experience clearly reflects a need for the U.S. Government to
improve grain export policy decisionmaking and monitoring.

     Agricultural Export Reporting System
     Our review of the system indicated that it falls short
of providing timely, accurate, reliable, and complete agri-
cultural export data. It does not provide prospective sales
information and therefore is not as effective an early warning
system as needed. Data currently reported b exporters is
not suitable for evaluating foreign demand on which to base
timely agricultural policy decisions. The data has limita-
tions because export contracts are frequently canceled or
extensively modified. Our survey of exporting firms showed
that about 20 percent of commodities contracted foL export
in 1973-74 were canceled or deferred.



                             107
      Although Agriculture officials administer the system
 an efficient manner, the uncertain nature of export        in
                                                     sales con-
 tract data virtually makes it impossible for the system
 provide the type of concrete information needed for     to
 early warning system.                               a timely

      The quality of information provided by exporters could
 be materially improved if Agriculture modified reporting
 quirements to include additional information on export   re-
 such as:                                               sales

      -- Classification of foreign buyer (Government agency,
         affiliate, private reseller, processor, distributor
         or other end user).
      -- Contract pricing terms or formula (including identifi-
         cation of flexible (basis) vs. fixed-contract types).
      -- Exact destinations.
      -- Contract provisions such as loading tolerances,
                                                         ship-
         ping dates, storage details, etc.
      Because contract decreases have affected the export
                                                            re-
porting system's credibility, requiring written
for export contract decreases might reduce the   explanations
unnecessary and speculative contract changes. extent
                                                Fewer
                                                        of
would, most likely, improve the quality, consistency,  changes
                                                        and
credibility of data generated by the system. Data
                                                    quality
could be further improved and the system's reliability
hanced by penalizing exporters who modify contracts      en-
acceptable justification. Such actions would expand   without
tem's regulatory role, however, and undoubtedly        the sys-
                                                 would
strongly opposed by grain exporters, as was indicated be
survey.                                                 in our

     During the export reporting system's 3 years of
existence, three different Agriculture organizations
                                                      have
been responsible for its administration. It is currently
administered by the Office of the General Sales Manager,
which has primary responsibility for managing Government-
funded agricultural export programs. We believe that
                                                       ex-
port monitoring by an agency whose main purpose is
                                                   to
export programs raises a question as to its objectivitymanage
carrying out its monitoring and quasi-regulatory         in
                                                 functions.




                               108
     Agricultural Forecasting
     To improve its aility to forecast Soviet grain pro-
duction, develop an appropriate early warning system, and
manage Soviet grain sales effectively, the United States
must endeavor to gather more and better data. This ob-
jective can be partially realized by taking a stronger stand
that the Sc-iet Union provide the forward estimates called
for under the 1973 US/USSR Agricultural Cooperation Agreement.
     In recent years, it has become clear that trend analyses
do not provide reliable forecasts because of the difficulty
of interpreting the impact of severe weather variations and a
variety of market and nonmarket variables. Forecasters in
various agencies are now attempting to make more detailed
analyses of the numerous factors that determine production
and consumption, both domestically and internationally.
     In the past forecasting was employed primarily for
export promotion and market development objectives, not to
provide high-quality data analysis for Government decision-
makers. Execu:ltive branch officials are interested in strength-
ening the application of forecasting to the management of
foreign agricultural policy.
     The Government still needs to improve its market in~-
telligence capability and forecasting system. Estimates of
foreign agricultural conditions are sometimes inadequate
for proper US. policy making due to the many demands placed
on the agricultural attaches' time and the difficulties in
collecting agricultural information in some countries. Com-
pounding the problem is a less-than-adequate methodology
and disagreements between the Foreign Agricultural Service
and the Economic Research Service--the two agencies within
Agriculture that make foreign agricultural forecasts. Since
major multinational exporters develop forecasts of foreign
demand for the commodities they export, we believe that
the executive branch could benefit by considering some of
the methodologies used by these companies. Other organiza-
tions, such as the Central Intelligence Agency, the United
Nations Food and Agriculture Organization and various pri-
vate organizations also collect information on foreign
agricultural conditions and, in some respects, with better
success than the Agriculture agencies.

     Agrirulture should improve its relationship with the
foregoing organizations and should persist in its attempts
                                109
to improve the in-house relationship between the Economic
Research Service and the Foreign Agricultural Service. it
should also evaluate the importance of foreign data gathering
by attaches in relation to their other duties. Finally, the
Department should continue pressing naticns such as the Soviet
Union for information about their domestic agricultural
situation.

Agricultural Export Policy
      Executive Bra ch commitment to a full-production/non-
intervention export policy has adversely affected its ability
to intervene effectively in the market and with a minimun of
disruption when a shortage situation materializes. This is
likely to be equally the case in periods of grain surpluses.
Although a variety of forms of limited Government interven-
tion are available, the Executive Branch has generally op-
posed considering such alternatives on the grounds that ad
hoc, voluntary export control systems are more effective.
Moreover, t claims that if ad hoc voluntary restraints fail
to achieve    eir objectives, the Export Administration Act
authorizes ormal Government intervention on a temporary
basis.
      In GAO's view, what is clearly needed is an agricultural
policy frameworK that contains a series of criteria designed
to satisfy specific objectives, but with the flexibility to
,hange when conditions change. Who should get what, when
 .nd why are the critical questions such a framework should
address. This would allow consideration of a number of dif-
ferent policy actions which would be appropriate under varying
conditions.
     We believe that a more balanced agricultural export pol-
icy, responsive to consumer, producer, exporter, and foreign
needs, could insure against recurrence of serious supply pro-
blems and satisfy basic domestic and international supply
commitments.
AGENCY COMMENTS AND OUR EVALUATION

Agency Comments

     The Assistant Secretary of Agriculture for International
Affairs and Commodity Programs, in his January 19,1977, re-
sponse to our report, acknowledged the accuracy of the factual
material presented in it. He wrote: "In general the draft
report appears to be a reasonably balanced presentation of
facts surrounding the 1974 and 1975 Soviet grain sales and
the Executive actions taken in response to these sales."


                             110
 However, the Assistant Secretary's letter disagrees with
 many of our conclusions and recommendations.

      Specifically, the Assistant Secretary contended that
 there is no evidence in the report justifying additional
 government intervention in the agricultural economy. In
 fact, he asserted that "recent experience indicates that
 Government intervention in the marketing system should
 rarely be used." He added that many of the forms of govern-
 ment intervention proposed by our report "may affect foreign
 purchasing of U.S. grains by encouraging importing countries
 to become less dependent on the U.S. as a source of their
 grain supplies."

     The Assistant Secretary
of recent agricultural policy contended that our criticisms
                               are unsubstantiated by fact.
He states that the market mechanism better serves all sec-
tors of the economy and the country than would formal govern-
ment mechanisms. He also reiterates that such an orienta-
tion represents a conscious and deliberate agricultural
                                                         pol-
icy.

     Other disagreement reflected in the Assistant Secretary's
formal response concerns the 1973 Agricultural Agreement
                                                          with
the Soviet Union, the export reporting system, and our recom-
mendations to improve the management and operation of the
export reporting system.
      The Assistant Secretary maintained that tne export re-
 porting system was never intended to function as an early
 warning system and that it is not organizationally misplaced
 by being assigned to the Office of the General Sales Manager.
 He stated that the export reporting system is intended
                                                         to
operate in an informational capacity and not in a egulatory
role and that many of our recommendations would make the
system more regulatory and consequently have the impact
of reducing the flow of U.S. grain exports abroad. He
questioned the need for an annual report to the Congressalso
on the management and operation of the export reporting
system because the system is included in the Office of
General Sales Manager's quarterly report on its operations.
      The Assistant Secretary also contended that we overstated
the significance of Soviet non-compliance with the forward
estimates provision of the 1973 U.S./USSR Cooperative Agree-
ment. He staled that other factors are also important.
                                                           His
letter also questioned our suggestion concerning Agriculture's



                             111
need to become more familiar with forecasting methodologies
used by other government agencies and the private sector on
the basis that we provided no evidence supporting the "sugges-
tion that export forecasts by these other organizations have
generally been more accurate that those made by USDA."

     A complete text of the Assistant Secretary's formal re-
sponse appears in Volume I, Appendix III, pp. 124-127.
     We also met with and eceived informal comments from
officials of the Federal Maritime Administration, the Presi-
dent's Economic Policy Board and the Council on International
Economic Policy. Officials of the Maritime Administration
acknowledged the accuracy o the report on matters pertaining
to the U.S. and Soviet Maritime Agreement.
     Officials of the Economic Policy Board and the Council
on International Economic Policy generally agreed with the
facts of the report but did have some concern about the
general thrust of several recommendations. Although they
agreed that a need exists to establish a flexible and more
responsive agricultural policy, they were uncertain concerning
whether increased government involvement through a more sys-
tematic approach would produce a stable and growth oriented
agricultural market. They expressed concern that our recom-
mendations could adversely impact on the market, however,
they also agreed that the past crisis-oriented approach had
also adversely impacted on the market and the entire economy.
Our Evaluation

     We believe that our conclusions and recommendations are
appropriate and constructive. They emerge from the general
factual accuracy of the report which the Assistant Secretary
acknowledges. We are not advocating increased government
involvement in the agricultural economy but we are recom-
mending a qualitative change ill government involvement de-
signed to preserve and enhance the existing agricultural
economy.
     Despite its commitment to a market-oriented system the
Executive Branch has intervened in the market repeatedly
during the past five years in a crisis manner precipitating
serious market disruptions. Had the Government developed a
flexible export policy designed to respond to a variety of
contingencies (including large lump sum Soviet purchases as
well as shortages and surpluses), fewer disruptions would
have materialized and the integrity of the market would have
been in better condition. We believe that some systematic
involvement of the Government in the exporting of U.S. grain

                             112
is both necessary and desirable.  Continued crisis-oriented
intervention in the absence of a flexiole policy could cause
unnecessary government intervention and the undermining of our
market oriented agricultural economy.  Our recommendations
are designed to preserve the integrity of a market oriented
agricultural economy while at the same time recognizing
government's responsibility to protect producer, processor,
consumer, exporter and importer interests by insuring adequate
supplies at reasonable prices.

     Our recommendations directed at strengthening the export
reporting system are based on the premise that better export
data will enhance the potential for informed, less crisis-
oriented and more market-oriented government decisions.
Agriculture's Office of Audit's recent evaluation of the
export reporting system (pp. 51-56! supports many of our con-
clusions and recommendations.   It is highly unlikely that an
improved export reporting system will reduce the flow o   U.S.
grain exports.  Such a posiLion was argued by USDA against
establishing the system initially; however, the performance
of the system thus far shows no relationship between its exis-
tence and a decline in exports.   Indeed, many exporters be-
lieve that the system has provided information that has
facilitated more effective operation of our market oriented
system.

     we believe an annual report to Congress on the operation
and management of the export reporting system would be use-
ful.  The current  uarterly report on the operations of the
Office of the General Sales Manager only contains a brief
description of the export reporting system.  It does not
represent the detailed analytical report that we envision to
be necessary.

     The growth in the size and importance of U.S. agricul-
tu,'l exports to tne U.S. economy and national interest
over the past five years cannot be denied.  All our recom-
mendations emerge out of an awareness of this new stature.
They are designed to support an updated and more realistic
agricultural policy.

     Our recommendations concerning the 1973 and 1975 U.S.
agreements with the Soviet Union are intended to help estab-
lish the proper framework for evaluating such agreements in
the context of a comprehensive U.S. export policy.

     Efforts at improving Agriculture's forecasts through more
knowledge of forecasting methodologies used by the private


                             113
sector and other government agencies are intrinsic to better
agricultural policy decisionmaking.

RECOMMENDATIONS

     In view of our conclusions, we recommend to the Secre-
tary of Agriculture that the following actions be taken,
either administratively, if possible, or by seeKing appro-
priate legislation:

1.   The Export Reporting System be modified to improve its
     accuracy and reliability by requiring all exporters to
     explain contract changes, and to penalize exporzers who
     modify export contracts for speculative or manipulative
     purposes.  (This could be done on an experimental basis
     so that if export flows are impeded a a result, these
     procedures could be modified.)

2.   All exporters who currently report export sales contracts
     to Agriculture also be required to report all verbal
     agreements concerning the sale of U.S. grain, including
     information on negotiations  f sales exceeding 50,000
     metric tons.

3.   A permanent "early-warning system" be established that
     supplements the daily and weekly export reporting system,
     taKing into consideration a variety of other market and
     decisionmaking factors that would result in a process
     that minimizes disruption and facilitates informed,
     orderly, and balanced decisionmaking.

4.   A permanent "prior approval system" be established as
     part of any early warning system to insure that the
     Government reserves the right to defer, modify, or other-
     wise intervene in the market to insure adequacy of supply
     and fairness of price.  Unlike past, ad hoc prior-approval
     systems, this system would be established as a formal
     entity with guidelines and subject to the rulemaking pro-
     cedures of the Federal Register and the Admi,&istrative
     Procedures Act.

5.   All exporters who currently report exports sales contract
     data to Agriculture be required to submit additional data
     involving more specific destination information. This
     would require importers to declare the final destination
     Fnd/or ultimate end-user location when known or deter-
     ained.  Exporters would also be required to identify the
     name of the buyer and submit information to Agriculture
     concerning the buyer's relationship to the seller.

                              114
6.   An annual report on the management and operations of
     the eport reporting system be submitted to Congress.
     Such a report would stress efforts ade to improve the
     systemi' reliability and effectiveness, and would be
     submitted to Congress prior to the convening of appro-
     priation hearings each year.

7.   Responsibility for managing and operating he Export
     Reporting System be transferred from any agency having
     operational export responsibilities, such as the Foreign
     Agricultural Service and the Office of the General Sales
     hanager, to an analytical and/or 'egulatory agency.
     iAgencies with a more objective, analytical and/or regu-
     latory orientation that appear to be appropriate reposi-
     tories of such a reporting function include Agriculture's
     Economic Research Service, Commerce's Office of Export
     Administration, and tne Commodity Futures Tra. ng Commis-
     sion. Another alternative would be to establish within
     Agriculture a separate and independent organizational
     entity which would report concurrently to the Secretary
     and to the Congress.

8.   A thorough evaluation of Soviet compliance with the 1973
     Agricultural Cooperation Agreement be made to determine
     now the agreement has benefitted the U.S. and the Soviet
     Union. This effort should also determine whether Soviet
     non-compliance with the agreement's forward estimates
     provision has rendered the agreement ineffective in U.S.
     terms. An attempt should also be made to determine a
     means for insuring Soviet compliance with the forward
     estimates provision.

9.   U.S. forecasting of foreign supply and demand--particularly
     for the Soviet Union and other non-market economies--
     should be upgraded and improved. Better market intelli-
     gence and analysis coupled with greater intraagency and
     inter-agency communications and coordination is necessary
     and desirable. The recommendations of recent studies (by
     the Economic Research Service on short-term forecasting
     and by the ffice of Technology Assessment on food infor-
     mation systems) should be considered in the response to
     this recommendation.

10. An agricultural export policy be established that clearly
    defines the Nation's policy goals and objectives as well
    as the role of the Government and private sector i imple-
    menting that policy. Such a policy should take irto con-
    sideration periods of surplus and shortage and provide


                              115
     policy variations responsive to each condition.
     policy should, to the extent possible,             The
                                             differentiate
     approach to non-market economies to minimize            an
     resulting from large-scale, unanticipated      instability
                                                purchases.
     In view of foreign economic policy considerations,
     for reasons of national security, the policy         and
     provide for contingency planning.             should

 11. Evaluate the effectiveness of the
                                       1975 long-term pur-
     chasing agreement with the Soviet Union,
                                               determining costs
     and benefits to producers, processors,
     porters, and the Soviet Union. Submit  consumers,   ex-
                                            an annual report
     to Congress on the agreement's effectiveness
     to provide for appropriate Congressional      in order
                                               action.
12. All future long-term grain purchasing
    as the 1975 Russian Agreement) be fullyagreements (such
    relevant Executive Branch agencies and reviewed by all
                                            subjected to ap-
    propriate Congressional consultation before
    signed by all parties.                       being formally

13. All future short-supply export control
                                           decisions should
    be subjected to some form of CongLessional
    before final decisions are made.           consultation

MATTERS FOR CONSIDERATION
BY THE CONGRESS
      In its consideration of and deliberations
cultural Act of 1977, GAO recommends that        over the Agri-
                                           Congress
legislation providing for an improved export         enact
that will function as an effective early      reporting  system
                                          warning system.
GAO has submitted to Congress proposed
providing for needed improvements to thelegislative language
                                          export reporting
system. (See vol. II, app. F.)
     The principal features of GAO's proposed
                                                legislation
include:
     -- Exporters would be required to provide
                                               Agriculture
        with weekly reports on any commitment,
        other agreement for export sales.      contract, or

    -- Exporters would be required to inform
       within 15 days of commencement of any Agriculture
                                             contracts with
       foreign commercial or governmental importers.

    -- The Secretary would determine at the
       marketing year whether a short-supply start of each
                                              situation
       exists or will exist. He will also periodically

                             116
       assess commodity situations and modify his determi-
       nation as appropriate.

     -- Whenever a short-supply situation is determined,
        the Secretary would report such a determination to
        Congress. Unless either House, within 30 legisla-
        tive days, provides a resolution to the contrary,
        exportation of the short-supply commodity would
        be subject to regulation by the Secretary of Com-
        merce under the Export Administration Act of 1969.
     --The Secretary, utilizing the full resources of the
       Depar'a2nt, would make a semiannual report to the
       Presiuent and the Congress on:  (1) the impact on
       the economy and world trade of shortages or increased
       prices for commodities subject to these reporting
       requirements; (2) the worldwide supply of such com-
       modities; and (3) actions being taken by other na-
       tions in response to such shortages or increased
       prices.
     --The Comptroller General would monitor ard evaluate
       the activities under section 812, including all re-
       porting activities.  Essentially, we would:
       (1) review and evaluate the procedures followed by
       the Secretary of Agriculture in gathering, analyz-
       ing, and interpreting statistics, data, and infor-
       mation related to the supply of agricultural com-
       modities; (2) evaluate particular projects or pro-
       grams; (3) gain access to any documents, data or
       records of persons or facilities engaged in any
       phase of exporting agricultural commodities; and
       (4) provide appropriate reports to the Congress.
     In its development of the 1977 'Agricultural Act we
recommend that the Congress establish an agricultural ex-
port policy that protects the interests of both producers
and consumers, while simultaneously providing an effective
policy mechanism for surplus and shortage market conditions.
The policy should also clarify the Government's position on
grain sales to non-market economies, including the propriety
of such mechanisms as long-term agreements and government-
to-government negotiations.
     Other issues which the Congress should consider include:
the question of a national grain reserve; the role of multi-
national grain exportcrs and the degree of concentration in
t.is field; and the role 'that might be taken in grain export-
ing by U.S. grain cooperatives.



                             117
 APPENDIX I
                                                    APPENDIX I


                          BIBLIOGRAPHY
1)  Food, Agriculture and Nutrition Information
   Assessment    d Recmmendations, Report of theSystems:
                                                   Food Ad-
   visory Committee, Congress of the United States;
   Office of Technology Assessment, June, 1975;
                                                  79 pp.
2) Working Papers On Agriculture, Food, and
                                             Nutrition Infor-
   mation Sstems, Appendix A, An Analysis of
                                               National
   and International Agricultural, Food and Nutrition
   mation Systems; Congress of The United States,        Infor-
   of Technology Assessment; June, 1975; 311        Office
                                              pp.
3) A Preliminary Report On The Agriculture
                                            Information Sys-
   tems, Appendix C, An Analysis of National and
                                                   Interna-
   tional Agricultural, Food and Nutrition Information
   tems; Congress of The United States, Office            Sys-
                                                of Technology
   Assessment; Jane, 1975; 307 pp.
4)   Preliminary Assessment Of The U.S. Food Consumption
     Nutrition tatus Information Systems, Appendix        And
                                                    B, An
     Analysis of National and International Agricultural,
     Food and Nutrition Information systems; Congress
                                                      of
     The United States, Office of Technology Assessment;
     1975; 219 pp.                                        June,

5)   Food Information Systems; Hearings Before
     Asessent Board Of The Office of TechnologyThe Technology
     Songress Of The United States; Ninety-Fourth Assessment,
                                                  Congress;
     t.rst and Second Sessions; September 24, 25
     10, 1975, February 4, 1976; 414 pp.         and  December

6)   Food Information Systems:  Summary and Analysis: United
     States Congress; Office of Tec no ogy Assessment;
     1976; 85 pp.                                       August,

7)   GAO Testimon on 1972 Russian Grain Sales (Interim Report)
     March , 1973, pp. 38-41; Hearings Before
     On Agriculture And Forrestry, United States The Committee
     Ninety-Third Congress, First Session On S. Senate,
     Of Farm And Related Programs (Part 1) U.S. 517, Extension
     Printing Office; Washington, D.C.; 1973.   Government




                              118
APPENCIX I                                        APPENDIX I


8)   GAO Testimony on 1972 Russian Grain Sales (Final Report);
      Ty 23, 197, pp. 149-16 ; Hearings Before The Permanent
     Subcommittee On Investigations Of The Committee On Govern-
     ment Operations, United States Senate, Ninety-Third Con-
     ress, First Session; Russian Grain Transactions; Pursuant
     To Section 4, Senate Resolution 46, 93rd Congress; U.S.
     Government Printing Office; Washington, D.C., 1973.

9)   GAO Testimony a,Coping With Con-nodity Shortages, April
      4l T-JToint
             --    -Hearingsn The Domestic Supply Informa-
     tion Act; committee On Commerce and Committee On Govern-
     ment Operations, U.S. Senate; Ninety-Third Congress, Se-
     cond Session; U.S. Government Printing Office, Washington,
     D.C., 1974.
10) Russian Grair Transactions, July 31, 1974, Report Of
    The Committee On Government Operations, United States
    Senate, Permanent Subcommittee On Investigations; U.S.
    Government Printing Office; Washington, D.C., 1974
    67 pp.

11) Sales Of Grain To The Soviet Union; October 3, 1974,
    Hearings Before The Permanent Subcommittee On Investi-
    gations of The Committee on Government Operations, U.S.
    Senate; Ninety-Third Congress, Second Session; Pursuant
    to Section 4, Senate Resolution 269, 93rd Congress; U.S.
    Government Printing Office; Washington, D.C., 1974; 71
    PP.
12) GAO Testimony on Russian Grain Sales; July 31 and August
    1, 1975, pp. 76-104; Hearings Before The Permanent Subcom-
    mittee on Investigations of the Committee on Government
    Operations, United States Senate; Ninety-Fourth Congress;
    First Session; Pursuant to Section 4, Senate Resolution
    49, 94th Congress; U.S. Government Printing Office;
    Washington, D.C., 1975.
13) Russian Grain Sale; Hearing Before the Committee on Agri-
    culture and Forestry; United States Senate; Ninety-Fourth
    Congress; First Session; September 4, 1975; U.S. Govern-
    ment Printing Office; Washington, D.C., 1975.

14) United States Grain And Oil Agreements with the Soviet
    Union; Hearing Before the Committee on International
    Relations; House of Representatives; Ninety-Fourth Con-
    gress; First Session; October 28, 1975; U.S. Government
    Printing Office; Washington, D.C., 1975.




                             119
  APPENDIX I
                                                                 APPENDIX I

  15) Who's Makin Foreign Agricultural
                                         Policy?
      the ubcommittee on orelgn AgricuturaI Hearings Before
      Conimmittee on Agriculture and             Policy of the
                                     Forestry; United  States
      Senate; Ninety-Fourth Congress;
      22 and 23, 1976; U.S. Government Second Session;  January
                                        Printing Office;
      Washingtoc   D.C., 1976.
  16) U.S.S.R. and Grain: A Staff
                                   Report Prepared for the
      Ue Of the ucSu
                  ommittee on Multinational Corporations
      the Cmmittee on Foreign Relations;                    of
                                          United States Senate;
      April, 1976; U.S. Government
      D.C., 1976.                  Printing Office; Washington,

  17) The United States, FAO and
                                           World Food Politics:           U.S.
         elations With      IternationaTFoOg
       Staff Report Prepare                                     zatio:
       Nutrition and Human Needs;    or te Seect ommitteeon
                                           United Staes Senate; U.S.
       Government Printing Office; Washington,
                                                           D.C., 1976.
 18) Government and the Nation's
                                            Resources: Report of the Na-
       tional Commission on Su           ies
       Printing Office, Washington, a                 ortaes;           . Government
                                                  ; Dece     r 1976, 211 pp.
 19) Multiuational Corporations and
                                                United States Foreign Policy:
        nternationa      ra n ompanies; earing
      on itinational Corporations                            ore te ubcmmI tee
      Relations, United States Senate;        of  the  Committee       on Foreign
      Session; June 18, 23, and 24,               Ninety-Fourth        Congress; Secon
      Printing Office; Washington, D.C.       1976   (Part  16);     U.S.   Government
                                                   1977; 382 pp.
 20) GAO Testimon on Grain Export
      Before the ucommittee on Foreign        Policy Management; Hearings
      and the Subcommittee on AgriculturalAgricu ural Policy
      and Stabilization of Prices of                   Production, Marketing
                                               the Committee on Agricul-
      ture and Forestry, United Staes
      Congress; Second Session; une Senate; Ninety-Fourth
      Printing Office; Washington, D.C.,       24, 1976; U.S. Government
                                                    1976, 96 pp.
21)       rovin     he E   rtCapabit of Grain Coo
       C     esearc                                           peratives;
                       eportarmer Cooperative ervice;
     Department of Agriculture; 1976,                                         .S.
                                                 90 pp.
22) A Review andAppraisal of Forecasting
                                                        in the Economic
     Researc       rvice;     ra.
     C. Haiacher; Commodity Economics                 Matthews an          ichard
     Research Service; 1975 & 1976;               Division;    Economic
                                              U.S. Department of
    Agriculture, 2 volumes.
Note:   See also list of GAO reports,
                                      Appendix A, Volume II.

                                    120
APPENDIX II
                                                                                APPENDIX II


                         DEPARTMENT OF AGRICULTURE
                              orrFICC   orC     SECRECTARY
                              WASHINGTON. D. C. 20250



                                                             January 19, 1977

  Mr. Henry Eschwege, Director
  Community & Economic Development Division
  U. S. General Accounting Office
  Washington, D. C. 20548
  Dear Mr. Eschwege:
  This is in response to your letter of December 14, 1976,
                                                           asking for comments
  on your proposed report to the Congress entitled, "Executive
  of Russian Grain Sales, Agricultural Export                  Branch Management
  Policy Issues."                             Reporting, and Related Export

 Ingeneral the draft report apoears to be a reasonably
 of facts surrounding the 1974 and 1975                  balanced presentation
                                        Soviet grain sales and the Executive
 actions taken in response to these sales.  From these
 conclusions which differ considerably from most of the facts, however, we draw
 draft report. We also, therefore, disagree with many conclusions in the
 recommendations.                                      of the report's

  As presently drafted, the report appears to reflect an
                                                           underlying assumption
  that the current market system for U. S. grain is incapable
 allocating yearly supplies of U. S. produced                    of satisfactorily
 foreign buyers without considerel, governmentgrains   between domestic and
                                                  intervention. The report,
 however, contains no evidence to upport this underlying
 absence of the export subsidy mechanism which existed       assumption. !n the
 and until the autumn of 1972 whereby                    throughout the 1960's
                                       foreign buyers received a price advantage
 over domestic buyers, we believe recent experience   indicates that Government
 intervention in the marketing system should rarely be
 your report is unbalanced if it fails to recognize thatused. We believe that
 government intervention proposed in the report may affectthe forms of
 of U. S. grains by encouraging importing countries to        foreign purchasing
 on the U. S. as a source of their grain supplies.       become   less dependent
The draft report asserts that this Administration's export
implementation of these policies "lack cohesion", "fail to policies and the
are 'oftn ill-timed, and generally                             provide fexibility...",
decisionmaking...". These are strongsuffer   from an absence of rational
                                       charges that appear unsubstantiated by
fact. These charges appear to reflect the presumption
government in the export of U. S. grain is in the nationalthat intervention by
absence of form! mechanisms for government interventions interest. The
exports reflects an explicit policy (ot, as the report ingrain and focd
policy) -- based on the belief that the market mechanism implies, a lack of
the producing and consuming sector in the United States, better serves not only
interest of the country.                                    but also the general




                                          121
APPENDIX II                                                          APPENDIX II




Throughout the report there are references to inaccuracies in the USDA's
export forecasts due to weaknesses and deficiencies in the overall system of
export reporting and the forecasting of foreign demand. The draft report
fails to recognize that the principal reasons for "inaccuracies" of forecasts
and other export inlicators is not a failure of systems, procedures or
techniques, but simply the occurence of unpredictable deviations in the weather.
In regard to export forecasts, the draft report suggests that forecasting
methodology used by the multi-national exporters, the CIA, and the United
Nations Food and Agricultural Organization might be an improvement over that used
by the Department of Agriculture. However, the report offers no evidence to
support the suggestion that export forecasts by these other organizations have
generally been more accurate than those made by USDA.
The report makes repeated references to the need for obtaining forward
estimates of grain production from the Soviet Union under the 1973 Agricultural
Agreement. While such information would be of value, and in fact we have
made repeated efforts to obtain forward estimates, we believe the importance
of this point is overstated. Even if earlier crop estimates were given, there
would remain a wide range of uncertainty as to the size of Soviet import needs
since factors other than the level of production (e.g., availability of grain
reserves, government policy decisions, availability of foreign exchange, etc.)
may be more important n determining the level of imports.
Opportunity for receiving general indications of Soviet import needs for grain
will perhaps be best within the context of the biannual consultations with
the Soviets under the 5-year Grain Supply Agreement. The Ministry of Foreign
Trade, the agency responsible for imports, is the lead Soviet agency In
these consultations. Ifexperience with the bilateral agreement is satisfactory
on both sides, this channel of forward information may develop further, but
it will be through patient development of good working relationships rather
than by simply making new demands for information.
Our remaining observations relate to the report's conclusions and recommendations
concerning the export sales reporting system. GAO concludes that, although
the export sales reporting system is administered in an efficient manner, it
fails to provide timely, accurate and complete data on foreign demand for U. S.
agricultural commodities. This conclusion is based primarily on the determina-
tion that (1)reported export sales are often concelled or modified, and
(2)the system fails to provide information on prospect:ve export sales.
We do not believe that either of these determinations affect the accuracy or
timeliness of data generated under the reporting system. Cancellations and
modifications of contracts are normal trading practices inour free market
system. As long as such transactions are reported accurately and promptly to
the Department, and there isno suggestion in the report that they are not,
published summary data would accurately reflect the outstanding balance of
export sales. To penalize exporters for cancelling or modifying their contracts,
as recommended in the report, would amount to government control of sales, a
concept which we doubt the Congress intended and certainly one which this
Admin' tration opposes.




                                       122
APPENDIX II                                                         APPENDIX II




Likewise, we find nothing inthe law, nor in the legislative history, which
suggests that Congress intended prospective export sales to be included in
the reporting system. Moreover, we believe it impractical to implement such a
reporting system, as recommended in the report, without significantly impeding
export sales of agricultural commodities -- sales which are vital to the
American economy.
We generally agree with the recommendations concerning the reporting of verbal
transactions and ultimate destinations. In fact, verbal transactions, supported
by written documentation, which as a matter of trade practice represent or
lead to written contracts, are reportable under present regulations. The
reporting of ultimate destinations, ifknown, is also required under present
regulations.
Information concerning the name of the foreign buyer and other contract details
is being obtained on a periodic basis. However, we do not agree with GAO's
conclusion that the relationship between the buyer and seller determines
whether a given contract will be performed. Exporters maintain that all export
sales are bona fide contracts and will be fulfilled. Logically, it is the
importer's motivation, e.g. whether purchasing for consumption or for re-sale,
which most affects the incidence of cancellation, and this factor is
exceedingly difficult to determine.
Contrary to the report's conclusion that the reporting system is
organizationally misplaced in Agriculture, wt think a persuasive case can be
made for its relevance to the other activities of the General Sales Manager.
Itis inthis office that responsibility for agricultural export policy is
centered. Most decisions affecting commodity priorities or export stimulus
flow through the General Sales Manager. It therefore seems logical to make
this office responsible for the reporting of the consequences of USDA's export
policies. We would observe that the concept of the reporting system under the
present law is informational, not regulatory.
We disagree with the recommendation to establish a formalized early warning
system, encompassing a reporting procedure for prospective export sales and a
prior approval system. As indicated inthe draft report and in the proposed
amendment to Section 812 of the Agriculture and Consumer Protection Act of 1973,
this system would be effective only in those situations such as purchases by
the Soviet Union, where traditional intelligence and forecasting methods do
nct work. However, we believe the long term U. S./USSR Grain Supply Agreement
has now stabilized trading between our countries thus eliminating the threat of
large unexpected grain sales and the need for a formal early warning system.
An additional concern we have with the proposed amendment to Section 812 involves
the formalized procedures for Secretarial determinations of short supply. As
proposed, this concept could impede our ability to respond promptly and
effectively in critica' supply situations. Of special concern is the proposed
30 day period for Congressional override. We know from past experience that
time isof the essence when making determinations and policies affecting
commodity availability during these critical periods.




                                        123
APPENDIX II                                                             APPENDIX II




Finally, we question the eed for the recommended annual report to the
Congress on the management and operation of the export reporting system
since the General Sales Manager is already submitting quarterly re rts on
the operations of the Office of the General Sales Manager, includ>i g this
system.
USDA's detailed comments on specific portions of the draft report are
attached.
Sincerely,



Richard E. Bell, Assistant Secretary
International Affairs and Commodity Programs




                                        124
APPENDIX III                                          APPENDIX III



               PRINCIPAL OFFICIALS RESPONSIBLE FOR
                 ADMINISTRATION OF ACTIVITIES

                   DISCUSSED IN THIS REPORT

                                               Tenure of office
                                               From         To

                         DEPARTMENT OF STATE

SECRETARY OF STATE:
    Cyrus Vance                            Jan. 1977      Present
    Henry A. Kissinger                     Sept. 1973     Jan. 1977
    William P. Rogers                      Jan. 1969      Sept. 1973
                  DEPARTMENT OF THE TREASURY

SECRETARY OF THE TREASURY:
    W. Michael Blumenthal                  Jan. 1977      Present
    William E. Simon                       May 1974       Jan. 1977
    George P. Shultz                       June 1972      May 1974
    John B. Connally                       Feb. 1971      June 1972
    David M. Kennedy                       Jan. 1969      Feb. 1971

                     DEPARTMENT OF JUSTICE
ATTORNEY GENERAL:
    Griffin Bell                           Jan. 1977      Present
    Edward H. Levi                         Feb. 1975      Jan. 1977
    William B. Saxbe                       Jan. 1974      Feb. 1975
    Elliot L. Richardson                   May 1973       Oct. 1973
    Richard G. Kleindienst                 June 1972      May 1973
    John N. Mitchell                       Jan. 1969      Mar. 1972

                   DEPARTMENT OF AGRICULTURE

SECRETARY OF AGRICULTURE:
    Robert Bergland                       Jan.     1977   Present
    John A. Knebel (Acting)               Oct.     1976   Jan. 1977
    Earl L. Butz                          Dec.     1971   Oct. 1976
    Clifford M. Hardin                    Jan.     1969   Nov. 1971




                                125
APPENDIX III                                           APPENDIX III


                                            Tenure of office
                                            From         To
                   DEPARTMENT OF COMMERCE
SECRETARY OF COMMERCE:
    Juanita M. Kreps                     Jan. 1977       Present
    Elliot L. Richardson                 Feb. 1976       Jan. 1977
    Rogers C.B. Morton                   May 1975        Feb. 1976
    Frederick B. Dent                    Feb. 1973       Mar. 1975
    Peter G. PeteLson                    Feb. 1972       Jan. 1973
    Maurice H. Stans                     Jan. 1969       Feb. 1972
               OFFICE OF MANAGEMENT AND BUDGET
DIRECTOR:
    Bert Lance                           Jan.   1977     Present
    James T. Lynn                        Feb.   1975     Jan. 1977
    Roy L. Ash                           Feb.   1973     Feb. 1975
    Caspar W. Weinberger                 June   1972     Feb. 1973
    George P. Shultz                     July   1970     June 1972
    Robert P. Mayo                       Jan.   1969     June 1970
                  NATIONAL SECURITY COUNCIL
ASSISTANT TO THE PRESIDENT
  FOR NATIONAL SECURITY AFFAIRS:
    Zbigniew Brzezinski                  Jan. 1977       Present
    Brent Scowcroft                      Nov. 1975       Jan. 1977
    Henry A. Kissinger                   Jan. 1969       Nov. 1975
          COUNCIL ON INTERNATIONAL E"ONOMIC POLICY a/
EXECUTIVE DIRECTOR:
    John M. Dunn (Acting)                Feb.   1975     Jan.   1977
    William D. Eberle                    July   1974     Jan.   1975
    Peter M. Flanigan                    Feb.   1972     July   1974
    Peter G. Peterson                    Jan.   1971     Feb.   1972




a/Organization no longer in existence.




                             126
APPENDIX III                                          APPENDIX III


                                            Tenure of office
                                            From          To
                    CENTRAL INTELLIGENCE AGENCY

DIRECTOR:
    Vice Admiral Stansfield Turner         Feb. 1977     Present
    George Bush                            Jan. 1976     Jan. 1977
    william E. Colby                       Sept. 1973    Jan. 1976
    James R. Schlesinger                   Feo. 1973     July 1973
    Richard Helms                          Jan. 1969     Feb. 1973

                   COUNCIL OF ECONOMIC ADVISORS

CHAIRMAN:
    Charles Shultze                        Jan. 1977     Present
    Alan Greenspan                         Sept. 1974    Jan. 1977
    Herbert Stein                          Jan. 1972     Aug. 1974
    Paul w. McCracKen                      Feb. 1969     Dec. 1971

               OFFICE OF THE SPECIAL REPRESENTATIVE
                       FOR TRADE NETIATIONS

SPECIAL REPRESENTATIVE FOR
  TRADE NEGOTIATIONS:
    Rober Strauss                          Mar.   1977   Present
    Vacant                                 Feb.   1977   Mar. 1977
    Frederick B. Dent                      Mar.   1975   Jan. 1977
    william D. Eberle                      Nov.   1971   Jan. 1975
    Carl J. Gilbert                        Aug.   1969   Nov. 1971
                 EXECUTIVE OFFICE OF THE PRESIDENT

COUNSELOR TO THE PRESIDENT a/
  FOR ECONOMIC POLICY:
    Kenneth Rusn                           May 1974      Oct. 1974
ASSISTANT TO THE PRESIDENT a/
  FOR ECONOMIC AFFAIRS:
    L. William Seidman                     Sept. 1974    Jan. 1977




a/Position no longer in existence.




                                127
REPORT TO THE CONGRESS

BY THE COMPTROLLER GENERAL
OF THE UNITED STA TES




Issues Surrounding
The Management
Of Agricultural Exports
Volume II
(Related Appendixes)




ID-76-87                  MAY 2, 1977
                VOLUME II:   RELEVANT APPENDICES

                        Contents



APPENDIX

   A        GAO Reports on Agricultural Exports
              and Related Matters                  1

   B        Executive Office Organization for
              Food Issues (Diagram) in 1975        3

   C        Impact of Export Sales Reporting
              System on Agricultural Commodity
              Prices                               4

   D        Chronology of Events in Sales of
              Wheat to Russia - 1975               14

   E        Section 812 of the Agriculture and
              Consumer Protection Act of 1973      26

   F        GAO Amendment of Section 812 of the
              Agricultural Act of 1970, as Added
              by the Agriculture Act of 1973,
              and Explanation of Proposed Revi-
              sion of Section 812                  27

  G         Questionnaire Survey of Exporters'
              Attitudes Toward USDA'S Export
              Reporting System                     37

  Chapter
       1.   Introduction                           38

       2.   Description of the Exporters           39

       3.   Exporter Attitudes and Opinions on
              the Export Sales Reporting System    45

       4.   Contract Decreases                     54

       5.   Exporter Opinions on Past and
              Possible U.S. Involvemint in
              Export Markets                       65

       6.   Questionnaire Forms                    76
                                                    Page
APPENDIX

     H     1973 Agreement Between the U.S.A. and
             the U.S.S.R. on Cooperation in the
             Field of Agriculture                    89
     I     1975 Agreement Between the U.S.A. and
             the U.S.S.R. on the Supply of Grain     94
     J     Letter to Congressman Findley Concern-
             ing Legal Information on the Agree-
             ment Between the U.S.A. and the
             U.S.S.R. on the Supply of Grain         96
 K         Description of U.S.-U.S.S.R. Maritime
            Agreement                               112
 L         Provisions of General Agreement on
             Tariffs and Trade (GATT) Relevant to
             Polish Sales Suspension                114
APPENDIX A                                            APPENDIX A



                       GAO REPORTS ON
           AGRICULTURAL EXPORTS AND RELATED MATTERS

1.   July 9, 1973, Russian Wheat Sales and Weaknesses in
     Agriculture's Management of Wheat Export Subsidy
     Program," B-176943

2.   February 12, 1974, "Exporters' Profits on Sales of
     U.S. Wheat to Russia," B-176943

3.   March 22, 1974, Impact of Soybean Exports on
     Domestic Supplies and Prices," B-178753

4.   April 29, 1974, U.S. Actions Needed to Cope with
     Commodity Shortages," B-114824

5.   July 30, 1974, "Information Concerning Reports of a
     Possible Wheat Shortage," B-176943

6.   September 6, 1974, Increasing World Food Supplies--
     Crisis and Challenge," B-159652

7.   December 30, 1974, Alleged Discriminations and Con-
     cessions In The Allocation of Railcars to Grain
     Shippers," B-114824

8.   April 11, 1975, The Agricultural Attache Role Over-
     seas: What He Does and How Ho Can Be More Effective
     for the United States," i-133160

9.   April 21, 1975, The Overseas Food Donation Program--
     Its Constraints and Problems," B-159652

10. June 24, 1975, "Improvements Needed in Regulation
    of Commodity Futures Trading," B-146770
11. July 10, 1975, Review of U.S. Import Restrictions--Need
    to Define National Sugar Goals," ID-75-80

12. August 27, 1975, What The Department of Agriculture
    Has Done and Needs To Do To Improve Agricultural
    Commodity Forecasting and Reports," RED-76-6

13. November 26, 1975, 'Disincentives to Agricultural Produc-
    tion in Developing Countries," ID-76-2




                               1
APPENDIX A
                                                     APPENDIX A

14. February 12, 1976, Assessment of the National
    Inspection System," RED-76-71                 Grain

15. March 3, 1976, "Agriculture's Implementation
    GAO's Wheat Export Subsidy Recommendations andof
    lated Matters," ID-76-39                         Re-

16. March 26, 1976, "Grain Reserves:   A Potential U.S.
    Food Policy Tool," OSP-76-16
17. April 23, 1976, "Marketing Order Program--An
                                                 Assessment
    of its Effects on Selected Commodities,' ID-76-26

18. May 28, 1976, "Grain Marketing Systems
                                           in Argentina,
    Australia, Canada, and the European Community;
    bean Marketing System in Brazil," ID-76-61     Soy-

19. August 6, 1976, "U.S. Participation in
                                           International Food
    Organizations: Problems and Issues," ID-76-66
20. December 8, 1976, "U.S. Import Restrictions:
    to Present Dairy Programs," ID-76-44           Alternatives

21. March 3, 1977, "Summary of GAO Reports
                                           Issued
    Pertaining to Farm Bill Legislation," CED-77-39Since 1973




                             2
APPENDIX B
                                                                                       APPENDIX B




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APPENDIX C                                          APPENDIX C


          IMPACT OF EXPORT SALES REPORTING SYSTEM

              ON AGRJ.ULTURAL COMMODITY PRICES
     Since the inception of USDA's weekly export reporting
system in October 1973, comments have been made about the sys-
tem's influence on the price of agricultural commodities.
Farmers, for example, contend that the monitoring system has
been depressing grain prices. As evidence for their conten-
tion, they cite the dropoff in prices since late 1974.

     Consumers, on the other hand, are increasingly oncerned
about the role that grain prices play in the continuing rise
of food prices in general. Since the export reporting system
was established in part to assure "consumers of plentiful
supplies * * *. at reasonable prices", the question of the
possible price impact of the reporting system seems an appro-
priate one. We.began by looking at the determinants of agri-
cultural prices and price trends over the last few years.

Price Determinants

     Long-run agricultural price movements are commonly ex-
plained in terms of the fundamentals of supply and demand--
production, consumption, and reserves (stocks). In general,
when production exceeds consumption, prices fall and when
consumption exceeds production, prices rise.

     Because.of the nature of the demand for agricultural pro-
ducts, large price changes result when imbalances between pro-
duction and consumption coincide with low reserves. The price
increases of recent years, we found, have generally been attri-
buted to the dropoff in world grain production in 1972 and in
U.S. production in 1974, rising imports by both developing
and state-controlled economies, and depleted stocks.

     Short-run price movements are more complex. They are
influenced to a large extent by the same forces that affect
supply and demand. Among these are transportation and stor-
age costs; fertilizer and substitute grain prizes; inflation
and government policy; and weather, plant disease and pests.
But they reflect, additionally, people's perceptions
and expectations of future market conditions. The size of
a harvest is not a certainty until the crop comes in and the
estimates of future export activity undergo frequent revi-
sion throughout the marketing year. Day t day and week to
week fluctuations in agricultural prices are a result of the



                              4
APPENDIX C                                         APPENDIX C

constant interplay of economic factors and forecasts and
human emotions.

     A significant element affecting short-run price movements
is the periodic, detailed information on future supply and
demand coming from the Department of Agriculture and private
organizations. This information, in the form of forecasts of
production, farmers' planting intentions, and foreign demand
estimates (among others) allows speculation in commodity
futures markets to adjust for future supply-demand imbalances.
Given foreseeable imbalances, speculators tend to smooth out
the release of grain to the market over time and to stabilize
prices. Conversely, when speculators guess incorrectly about
future market events, they tend to aggravate price variability.

Price Trends

     The 1960's and early 1970's were relatively tranquil
times for U.S. agriculture. Grain surpluses and low prices
were the rule, with only an occasional exception. After 1972,
however, the grain situation underwent a rapid reversal when
world crop shortfalls and rising exports led to diminished
stocks, high prices, and general uncertainty.

     The deterioration in the grain situation was precipitated
by a drop in world production in 1972--off 35 million tons
against an average annual increase of 36 million tons the pre-
vious 10 years. At the same time, there was a sharp rise in
total world exports and a significant shift in their pattern.
World grain trade increased 31 million tons from 1972 to 1973.
Concurrently, state-controlled economies, and especially
Russia, chose to import on a massive scale rather than reduce
their consumption in the face of tight domestic supplies.
The U.S.S.R., traditionally a net grain exporter, led the world
in imports, buying 30 million tons in 1972 and 1973, compared
with net exports of 8.6 ilion tons the previous 2 years.

     These two large-scale occurrences--declining world pro-
duction and rising exports--combined to create demand that
put strong pressure on U.S. grain stocks and prices. From 1973
to 1974, U.S. wheat stocks dropped 71 percent and feedgrain
stocks were down to 54 percent. With the U.S. the world's
leading grain exporter, these short supplies sent prices sky-
rocketing (see figure 1).  The rebound of world grain pro-
duction in 1973 was not sufficient to replenish already low
carryover stocks and the downturn in the 1974 U.S. crop re-
duced exportable supplies even further. Grain prices in
general remained high through late 1974, when smaller export
APPENDIX C                                           APPENDIX C



demand and prospects of record 1975 crops combined   to prompt
a slow but steady price slide.  (See figure 2.)

Export Reporting System

     The export reporting system was established in October
1973 to act as an early warning system for short-supply
situations in heavily exported agricultural commodities.   The
summer of 1973 had seen just such a situation develop in soy-
bean markets, when strong export demand and depleted stocks
combined to drive soybean prices to all-time highs.   An em-
bargo on soybean exports, followed by an export licensing
system, led to a temporary easing of prices.   But the action
taken was not well received   y domestic producers or foreign
buyers.  The reliability of the U.S. as grain supplier had
been called into question   nd overbuying by foreign importers
as a hedge against further contract cuts may have occurred.

     The reporting system began, as a result, amid extensive
market uncertainty, both about the supply and demand of wheat,
corn, and soybeans, and about a reimposition of export con-
trols.  In view of these unusual market and non-market events,
we felt that the system's price impact would be difficult to
identify or measure.  Nonetheless, we considered various eco-
nomic and mathematical approaches to the problem.

     Econometric modeling   is a method frequently used to study
price behavior and the economic forces that influence it.
Occasionally, the impact of a single force can be inferred
from a change in price behavior at the time the force first
took effect. We discussed modeling with agricultural econo-
mists to see if it could be used to detect the export re-
porting system's price impact. Because price models are usu-
ally based on yearly--and sometimes quarterly--data, a formid-
able statistical problem developed. The export reporting
system had been in effect for less than 2 years, making
tests of a model for the system's impact unreliable. This
problem, combined with the difficulty of handling unusual
market evAnt, like recent dollar devaluations, export con-
trols, and large grain purchases by state-controlled eco-
nomies, led us to forego a modeling attempt.

     In its place, we tried two simpler, although less pro-
mising, methods. The first of these was to examine how much
prices seemed to be affected by the information published in
the weeKly export sales reports.  If we found a strong rela-
tionship between prices and the export data, the price impact



                               6
APPENDIX C                                        APPENDIX C


of the system might be inferred. Conversely, no relations' P
at all might suggest that the system had had minimal impace

     The second method was to study agricultural price vari-
ability or instability over recent years. We hoped to deter-
mine whether a change in variability occurred with the estab-
lishment of the export reporting system. Reasonable economic
arguments suggest that the system's impact on prices may well
be of this nature.

Regression Analysis

     To determine the relationship between prices and data in
the export reports, we performed a simple regression analysis.
Regression analysis is a statistical technique used to exam-
ine data and draw meaningful conclusions about the relation-
ship between elements. We selected four commodities the U.S.
exports heavily--wheat, corn, soybeans, and soybean meal--
and computed their average weekly cash prices from November
1973 through March 1975. The weekly averages were developed
from daily quctations at Chicagov Kansas City, and Decatur
markets. Two other major agricultural prices--futures and
prices received by farmers--were not used because they were
unavailable on a uniform weekly basis. To compare with
cash prices, we chose for each of the same commodities
two items published in the export reports--change in "ap-
parent export commitment" and weekly export shipments.

     Cash prices of agricultural commodities are commonly
classified by market, grade, and class. With no composite
cash price available, we chose those prices we felt were rea-
sonably representative of the commodities in question: corn-
No. 2 yellow, Chicago; soybeans - No. 1 yellow, Chicago;
soybean meal - 44% protein, Decatur; and wheat, No. 1 hard
winter ordinary, Kansas City.

     These items are both measures of the export activity of
an individual grain. Weekly export shipments represent sim-
ply the amount of the grain exported that week. "Apparent
export commitment," on the other hand, is obtained by adding
cumulative shipments (i. e., exports to date in the marketing
year) to outstanding sales. As such, this latter item re-
flects longer-run export activity and, in particular, future
demand for a commodity.

     We performed separate regression analyses for each of
the commodities, first with weekly prices against weekly ship-
ments and then with prices against changes in apparent export


                              7
APPENDIX C                                         APPENDIX C

commitment. All of these analyses presumed that the variables
were related on a simultaneous (same week) basis. Since
prices in some cases may have been responiding to export activ-
ity of a week or two earlier, e also performed regression
analyses that accounted for the possibility of delayed
responsec.
Results of Regression Analysis
     When cash prices were tested against weekly shipments,
no significant mathematical relationship was found for any
of the four commodities. This lack of relationship does not
seem unreasonable given the apparent random character of the
weekly shipment levels.
     The second group of tests measured the mathematical re-
lationship between prices and changes in export commitment.
For wheat and soybean meal, we found no significant mathe-
matical relatic 'hip between weekly prices and changes in
export commitment. In the cases of corn and soybeans, how-
ever, relationships of moderate strength were obtained. The
coefficients of determination (R squared) / for soybeans and
corn were .59 and .51, respectively. In effect, there was a
general tendency for large swings in the apparent export com-
mitment for these two commodities to be accompanied by
price movements in the same direction.
     We believe that, during periods of market stability, one
should expect to find a relationship between agricultural
prices and data on agricultural exports. For major export-
able crops like corn, wheat, and soybeans, however, such
stability was not the case from 1973 through 1974. As a
result, the inconsistency of the regression results among
the four commodities is not surprising. Unfortunately,
however, this inconsistency prevents us from making inferences
about the reporting system's price impact.
Price Variability
     The measure of variability we chose was based on month-
to-month percentage changes in the cash price of six agri-
cultural commodities. For each commodity, we computed the

I/The value of the R squared is a measure of the strength
  of the relationship. A perfect relationship yields an
  R squared of 1.0 and none at all gives n R squared of
  0.0.


                                 8
APPENDIX C                                                APPENDIX C

average absolute month-to-month price change for the periods
January 1960-December 1965, January 1966-December 1971,
January 1972-October 1973, and November 1973-July 1975.   (The
last two periods are the 22 months before and 21 months after
the export reporting system's establishment.) The resulting
averages, or variability indices, are a measure of the ten-
dency for prices to change, either up or down, from one
month to the next. 1/
        The results are presented in table I.

                                  TABLE I

                    Average Absolute Percentage Change
                            rtom Previous Month

                        I         II          III         IV
                    Jan '60-   Jan '66-     Jan '72-   Nov '73-
                    Dec '65    Dec '71      -t '73     Aug '75
   Corn
    price             2.7        3.1          6.2         5.6
   Cotton
    price
    (note a)           .7                     8.7         5.9
   Rice
    price
    (note b)           .6         .4         5.8          3.4
   Soybean            2.9        2.6        10.1          6.6
   Soybean meal
    price             4.5        4.2        13.3         10.9
   Wheat
    price             2.2        2.2         8.2           79

a/SLM   (41),   Staple 34
b/Southwest Louisiana (long)


1/As such, the indices are driven up during periods of us-
  tained price movements in a single direction (trends), as
  well as during periods of frequent up and down price swings.
  Since only the latter situation is what we mean by price
  variability, our indices are imprecise to the extent that
  they are not adjusted to account for the effect of under-
  lying trends.


                                 9
 APPENDIX C
                                                       APPENDIX C

      The pattern of the indices over time is similar for
 the commodities. Price variability seemed                all
                                            to rise markedly
 from Periods I and II to Period III. This rise,
 consistent with market events since 1972.        moreover, is

     The suggested decline in variability after 1973,
is not as easy to confirm. All of the commodities      however,
unusually large price increases in the summer of    experienced
increases that weighed heavily in the Period II 1973--
felt, however, that these increases were part of indices. We
trends in 1973 and, as such, did not reflect true major price
variablity. Consequently, w adjusted the Period price
to account for the increases. The adjusted Period III indices
and the Period IV indices are as follows.           IT indices

                               TABLE 2

                    9
                       III              III           III
                Jan 172-Oct 1973    Adjuisted   yNov973-Au   125
Corn price              6.2           4,1             5.1
Cotton
 price (note a)         8.7           7.1            5.9
Rice price
  (ndte b)              5.8           3.6            3.4
Soybean price        10.1             6.8            6.6
Soybean meal
 price               13.3            9.1            10.3
Wheat price           8.2            5.6             7.9
a/SLM (41), Staple 34
b/Southwest Louisiana (long)




                               10
APPENDIX C                                         APPENDIX C



     A comparison of t   adjusted Period III indices with
Period IV finds a modest increase for corn, soybean meal, and
wheat; a similar decline for cotton; and little change for
rice and soybeans. Given the acknowledged imprecision of
the indices and the relative shortness of Periods III and IV,
we believe that agricultural price variability has not greatly
changed since the establishment of export monitoring.

Summary
     We studied the possible price impact of USDA's export
reporting system. We could not develop an agricultural price
model because of recent nusual market instability and the
comparatively short lifespan of the reporting system. A com-
prehensive and well-defined model should have identified any
significant changes in price behavior since the start of
export monitoring.

     In lieu of developing a model, we selected two other
approaches to identifying the system's impact on prices.
Using regression analysis, we studied the relationship be-
tween weekly agricultural prices and weekly data published
in the export reports. The analysis identified a moderate
relationship between changes in the weekly export commitment
and weekly cash prices for corn and soybeans, but none for
wheat and soybean meal. Because of the inconsistency of the
results, we do not believe that inferences about the system's
price impact can be made.
     Our second analysis was of the export reporting system's
possible impact on price variability. We developed indices
of price variability for six agricultural commodities
based on month-to-month price changes in the 22-month period
before reporting began and the 21-month period since. After
suitable adjustments to account for unusual market activity
in 1973, we find no great change in price variability since
the reporting system's establishment.




                              11
APPENDIX C                                       APPENDIX C




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 APPENDIX D                                         APPENDIX D




                          CHRONOLOGY


                             OF

                          EVENTS IN


                        SALES OF WHEAT



                         TO RUSSIA

                           1975




Prepared for the Subcommittee on Foreign Agricultural
of the Committee on Agriculture and Forestry          Policy
                                             by the
Congressional Research Service in January 1976. Modifica-
tions and updating of chronology provided by GAO.


                              14
APPENDIX D                                               APPENDIX D


             CHRONOLOGY OF 1975 Soviet Grain Purchases
January 23      A wheat expert from the International Wheat
                Council reported that unusually mild weather
                in Europe was threatening the Soviets' winter
                wheat crop. About 40 percent (100 million
                tons) was in danger.

March 6         Secretary nf Agriculture Earl Butz announced
                the termi,-.ion of the voluntary prior-approval
                system fo2 export sales for grains, soybeans,
                and soybean meal. The expo:t reporting system
                remained in effect.
May 20          A bumper grain crop was predicted for the
                Soviet Union by Western agricultural experts
                in Moscow. Poor weather conditions were not
                considered serious.
June 9          The Department of Agriculture revised downward
                its projection of Soviet grain production, from
                210 to 200 million tons. Soviet grain import
                requirements were estimated between 10 and 15
                million tons.
July 1          Agriculture's Crop Reporting Board predicted a
                bumper U.S. soybean and corn crop for ]
                Corn crop estimates ranged from 5.7 to a..
                billion bushels.
July 7          A Department of Agriculture team returned from
                a 3-week inspection tour of Soviet w eat-pro-
                ducing areas and predicted a lower yield than
                in 1974.
July 8          Richard Bell, Assistant Secretary of Agricul-
                ture, denied any knowledge of a grain pact with
                Russia or that Russian negotiators were in this
                country seeking purchases. He acknowledged,
                however, tat the Russians ere chartering ves-
                sels to ship grain from North America to the
                Baltic and Black Seas.
                First estimates of Russian grain needs indicated a
                10-million-ton a year purchase from the U.S. over
                3 years, and 2 million tons a year from Canada,
                also over 3 years.
APPENDIX D                                         APPENDIX D


July 9       Agriculture predicted Russia would harvest 195
             milli    .etric tons of grain, 10 percent below
             the S,   t goal of 215.7 million metric tons
             and under the 200 million metric tons that
             Agriculture forecasted last month.
July 10      Agriculture's July U.S. crop report predicted a
             153.6-million-ton corn harvest (30 percent over
             1974) and a 59.5-million-ton wheat harvest (22
             percent over 1974).
             Bell estimated that the U.S. could sell 12 to 14
             million tons to Russia "without endangering
             domestic supplies."
July 15      Government intelligence reports suggested
             Soviet import needs of 15 million tons for 1975.

July 16      USDA announced the sale of 2 million metric tons
             of hard red winter wheat to Russia (first 1975
             sale to USSR), confirmed by Cook Industries
             of Memphis.
July 17      USDA announced the sale of 1.2 million metric
             tons of hard red winter wheat to Russia.
             Cargill, Inc. of Minneapolis confirmed the sale
             through its subsidiary Tradax of Geneva.

             The Canadian Wheat Board announced that the
             Soviets had purchased 2.0 million metric tons
             of high-grade wheat. The Department of Agri-
             culture announced additional sales of 1.2 mil-
             lion metric tons of U.S. grains to the Soviets.
July 21      Agriculture announced the sale of corn and bar-
             ley by ContinGc.al Grain Co. to Russia. This
             sale included 4.5 million metric tons of corn
             and 1.1 million metric tons of barley.
July 22      The Department of Agriculture announced addi-
             tional sales of 1.0 million metric tons of
             wheat to the Soviets.
July 23      Major U.S. newspapers carried the story that
             the Soviets had declined t issue a formal in-
             vitation to members of the House Committee on
             Agriculture to tour Soviet farmlands in August.




                             16
APPENDIX D                                         APPENDIX n



             International Longshor.men's Association (ILA)
             in Miami voted to refuse to load American and
             Canadian grain on ships destined for Russia.
             However, they indicated the ban would be lifted
             if "the interests of the Aierican public are
             adequately protected." West Coast longshoremen
             opposed the move.
             To date, Russia has purchased approximately
             12,550,000 tons of foreign grain (within the last
             3 weeks)--2 million tons fromn Canada, 750,900
             tons from Australia and 9.8 million tons from
             private grain companies, primarily using U.S.
             supplies.
             Bell stated that the Russians will wait for the
             August 11 Agriculture crop report and further
             evaluation of their own crop before making ad-
             ditional purchases. He indicated the Russians
             will buy more. He lso projected Soviet import
             requirements at 16.!, million tons, with 12.1
             million tons from the U.S.
July 24      The Department of Agriculture asked export
             firms to notify the Department before making
             major grain sales to the Soviet Union. The
             Department revised its estimates of So;iet
             grain production, from 195 to 185 million ;mttric
             tons. Soviet import requirements were estimated
             at 20 million metric tons.

             Agriculture revised downward its estimate of
             the Russian grain crop to 185 million tons and
             increased their import requirements to about
             20 million tons of grain.
             ILA promised that they will load U.S. grain
             aboard Soviet-bound ships.
July 29      Lack of rainfall over much of Iowa and other
             parts of the Midwest corn belt with forecasts
             for continued hot and dry weather threatened
             the bumper crop prospects for corn and soybeans.

             At a hearing before the Joint Economic Committee,
             the Chairman of the Federal Reserve Board,




                             17
APPENDIX D                                         APPENDIX D



              Arthur Burns, testified that grain sales to the
              Soviets could lead to a sharp rise in food prices
              in the U.S.
July 31       The AFL-CIO pledged to support the International
              Longshoremen's Association if the longshoremen
              refused to load grain on ships bound for the
              Soviet Union.
July 31 and
  August 1    At hearings before the Permanent Subcommittee
              on Investigations of the Senate Committee on
              Government Operations, Assistant Secretary
              Bell stated that U.S. grain sales to the
              Soviet Union included 10.3 million tons of
              wheat, corn, and barley. John Schnittker
              testified that grain sales to the Soviets
              shou3d be stopped until mid-October.
              Bell, before the Senate Committee on Government
              Operations' Permanent Subcommittee on Investi-
              gations, stated that the grain sales will
              have minimal effects on consumer prices. He
              further said that the Government has no upper
              limit as to Russian purchases.

              General Mills (Minneapolis) and Multifood raised
              wholesale flour prices 1.6 cents a pound af-
              fecting grocery prices. Among reasons cited
              were the Russian grain developments.
August 1      J. Kenneth Fas.ck, Director, International Di-
              vision, GAO, testified that the Soviets have
              refused to comply fully with a 1973 agreement
              (Article II of the July 1973 Soviet-American
              Agriculture Agreement) to exchange estimates of
              farm production, consumption, demand, and trade
              information.
August 6      Mcritime union leaders (ILA) decided to meet in
              Washinrton on August 18 to consider an embargo
              against loadincg American grain for sLipment to
              the Soviet Union. Two other maritime unions,
              the Seafarer's Association and the Maritime En-
              gineers Benevolent Association, have already
              voted to refuse to load grain unless assured
              the sales will not substantially raise food

                              18
APPENDIX D                                        APPENDIX D



             prices. The meeting will also attempt to re-
             solve disagreements over ocean shipping rates.
August 8     Two-thirds of Iowa's 100 counties indicated
             their corn crop prospects for the October har-
             vest were fair to poor because of lack of rain.
             Iowa produces 16 percent of the U.S. corn crop.
August 9     The CIA received information indicating the
             Soviet grain harvest could be as low as 165
             million metric tons (20 million metric tons
             Delow current USDA figures).

             Information also obtained by CIA indicated
             that Soviet grain import requirements could
             reach 40 million metric tons.

             Government officials stated that Soviet port
             capacity may limit future grain purchases.
             Estimates indicated that their ports can handle
             a maximum of 25 million tons of grain annually,
             only 10 m.illion tons more than is already on
             order.
August 11    The USDA Crop Reporting Board forecasted U.S.
             corn production at 5,850 million bushels, 3 per-
             cent (196 million bushels) below July 1 but 26
             percent above 1974, and wheat production at
             2,141 million bushels, 19 percent more than 1974
             but 2 percent (47 million bushels) below the July
             figures.

             Bell released a new estimate of Soviet grain
             production--180 million metric tons, a de-
             crease of 5 million metric tons from earlier
             estimates. Russian import needs were increased
             to 25 million metric tons.

             The Secretary of Agriculture called on grain
             companies to withhold further sales to the
             Soviet Union until U.S. crop production figures
             were known. The Department of Agriculture es-
             timated Soviet grain production at 180 million
             metric tons.




                             19
APPENDIX D                                        APPENDIX D


August 13    Canada sold the Soviets 750,000 long tons
             (28 million bushels) low-grade wheat and 3.3
             million bushels of feed oats.
August 14    Pillsbury Co. raised flour prices by 8.5
             percent or 1.4 cents a pound.
August 18    President Ford told Iowa grain farmers that he
             expects additional grain sales to the Soviet
             Union pending more complete crop figures.
             The maritime unions reaffirmed their intention
             to boycott ships loading grain for the Soviet
             Union in ports along the Atlantic Coast, Gulf
             of Mexico, and Great Lakes. Longshoremen in
             Port Houston stopped loading grain.
August 19    A temporary Federal Court injunction on behalf
             of shippers, ordered longshoremen in Houston
             to return to their jobs loading grain on vessels
             bound for Russia.
August 20    Associations of wheat producers began to talk
             of a retaliatory boycott against union-made
             farm implements. President Ford called for
             restraint and cooperation.
August 21    The Secretary of Agriculture predicted a rise
             of 1.5 percent in U.S. food prices as a result
             of grain sales to the Soviet Union, and an
             annual food-price inflation rate of 9 percent.

             However, a senior official cautioned that the
             impact would be greater if further sales are
             consummated.

August 29    Agriculture again revised downward their es-
             timate of the Soviet grain crop to 175 million
             metric tons, 5 million metric tons below their
             previous estimate. Import requirements were set
             at 25 million metric tons.

             Soviet-American negotiations on a freight rate
             for American ships carrying grain to Russia
             were suspended after the Soviets refused to
             make an acceptable offer. rJ.S. sources were
             optimaistic that a settlement could be reached
             when talks resume in KMscow on September 9.


                             20
 APPENDIX D                                         APPENDIX D



 September 4   Secretary Butz and Chairman Burns testified
               before the Senate Committee on Agriculture
               and Forestry. Secretary Butz stated that no
               additional sales would be made to the Soviet
               Union until the dispute with the maritime un-
               ions was settled.

               Federal Reserve Board Chairman Arthur F. Burns
               said that Soviet grain purchases have had a
               "quite sizable" impact on food prices, but
               much less than the effect of rising production
               and marketing costs.

 September 9   As a result of negotiations between George
               Meany and President Ford, the President
               announced his intention to explore the possi-
               bility of a long-term grain agreement with the
               Soviet Union. He extended the moratorium on
               grain sales to the Soviets until mid-October.
               The maritime unions agreed to load grain des-
               tined for the Soviet Union.

               In response, the AFL-CIO agreed to end their
               boycott of ships loaded with grain bound for
               the Soviet Union. To date, the Soviets have
               purchased 10.2 million metric tons of grain
               in the U.S. this year.

September 10   Without a public announcement, the State De-
               partment requested through the Polish Embassy
               that Poland halt grain buying in the United
               States. Poland had purchased 1.9 million
               metric tons of wheat and corn before that date.
               On the same day, Under Secretary of State
               Charles W. Robinson left for Moscow to begin
               negotiations for a long-term grain trade
               agreement. President Ford announced that he
               would create a special board to consider re-
               lated questions of agricultural exports and
               domestic food prices.

September 11   USDA said that the 1975 U.S. grain crop will
               be large enough to permit additional corn and
               wheat sales to the U.S.S.R. without causing
               substantial food price increases in the U.S.




                               21
APPENDIX D                                          APPENDIX D


                The statement was based on the latest (as of
                Sept. 1) estimates of 5.69 billion bushels of
                corn and 2.14 billion bushels of wheat.
September 11
  or 12         Jozef Danilczuk of the New Ycrk Office of
                Rolinpex, the Polish grain-buying agency, was
                ordered by his government to stop buying
                grain on the American market.
September 12    Danilczuk informed grain exporting firms that
                Rolinpex was no longer buying grain in the
                United States. He later reported that he did
                not mention the embargo to the firms.
September 15    President Ford rejected a request by the
                American Farm Bureau Federation to lift
                immediately the administration's suspension
                of grain sales to Soviet Uniorn.
September 16    Und,.. Secretary Robinson announced in Moscow
                that the Soviets had agreed in principle to a
                long-term trade agreement.
September 19    The text of the U.S.-Soviet agreement on ship-
                ping rates of $16 per ton was released. The
                rate would go into effect on September 22 and
                extend at least through 1975.
September 21    The Polish Minister of Agriculture Kazimierz
                BarciKowski arrived in Washington to begin dis-
                cussion of a long-term grain trade agreement.
September 22.   News agencies began publishing reports of a
                secret government ban on grain sales to Poland.
                These news stories caused sharp fluctuations
                in grain prices on U.S. commodity exchanges.
September 23    An Associated Press article in the Washiiton
                Post stated that "informed sources" had con-
                 firmed that further U.S. sales to Poland had
                been suspended until a long-term agreement
                could be negotiated with the Soviet Union. De-
                partment of Agriculture officials confirmed the
                suspension but added that it originatAe in the




                             22
APPENDIX D                                         APPENDIX D


               State Department and not in Agriculture. State
               Department officials declined to comment or
               said that they were unaware of the suspension.
September 29   Secretary of Agriculture Earl Butz and the
               Polish Minister of Agriculture completed dis-
               cussions on a long-term trade agreement between
               the United States and Poland. The agreement
               was scheduled to be signed in November.
October 1      The Senate Committee on Agriculture and For-
               estry agreed that the United States should
               negotiate separate agreements for the sale
               of U.S. grains to the Soviets and for the
               sale of Soviet oil to the United States.
October 6      American newspapers reported a speech by a
               Soviet Communist Party leader, stating that
               Soviet grain production could reach only 170
               million metric tons, or 45 million tons short
               of the projected goal.
October 9      The Department of Agriculture reduced its
               estimate of Soviet grain production to 170
               million metric tons, including 82 million
               metric tons of wheat.
October 10     The Department of Agriculture released its
               October 1 crop estimates, showing record har-
               vests for wheat (2.137 billion bushels) and
               corn (5.737 billion bushels).
               President Ford announced that he was lifting
               the embargo on grain sales to Poland because
               the Department of Agriculture was estimating
               record corn and wheat harvests.
October 20     President Ford announced the signing of a
               five-year grain trade agreement with the
               Soviet Union and ended the embargo on grain
               sales to the Soviets. Shipments are to be
               in accord with the U.S.-Soviet Maritime
               Agreement. An oil trade agreement was still
               under negotiation.




                            23
APPENDIX D                                 APPENDIX D


October 24    The Department of Agriculture
              reduced its estimate of Soviet grain
              production to 160 million metric tons.
              Import needs were estimated at 30
              million tons.
October 24    Grain sales to the Soviet Union re-
              sumed. The U.S.S.R. has purchased
              1.2 million tons of co-ts, raising their
              imports to 25 million tons--11.5 tons
              from the United States USDA revised
              its estimate of Soviet grain produc-
              tion down to 160 million metric tons.
October 29    The U.S.S.R. has purchased an ad-
              ditional 400,000 tons of corn, raising
              their U.S. imports to 11.9 million
              tons.
November 27   Secretary Butz and Minister Barcikowski
              exchanged letters relating to a five-
              year grain trade agreement. Poland
              agreed to purchase 2.55 million tons
              of U.S. wheat and corn each year.
              This amount would be allowed to
              fluctuate from year to year by 20
              percent, depending on the size of
              the U.S. crop and Polish import re-
              quirements.
December 4    A Soviet planner disclosed that 1975
              Soviet grain production may total only
              137 million metric tons.
December 5    Assistant Secretary of Commerce
              Robert Blackwood announced that the
              Soviets were unwilling to pay above-
              market rates for American shipping
              after December 31, 1975. American
              longshoremen threatened another boy-
              cott of Russian-bound ships if the
              Soviets refused to pay the higher
              rates agreed to in September ($16 per
              ton).




                     24
APPENDIX D                                      APPENDIX D



December 5         A spokesman for the Washington Associ-
                   ation of Wheat Growers, Jerry Rees,
                   states that wheat growers might sue
                   the Federal Government over the five-
                   year grain export agreement with the
                   Soviets. Rees accused the government
                   of yielding to unjustified pressure
                   from consumer groups and the maritime
                   unions, and interfering unnecessarily
                   in the grain market.

December 9,        William Kuhfuss, President of the
                   American Farm Bureau, stated that
                   there was no lecal basis for suing
                   the Federal Government over the grain
                   trade agreement, though the Bureau op-
                   poses the agreement.

                   The Department of Agriculture reduced
                   its estimate of Soviet grain produc-
                   tion to 137 million metric tons,
                   about 80 million tons below the origi-
                   nal Soviet target for 1975.

December 18        Under Secretary Blackwood initialed
                   the U.S.-Soviet shipping agreement
                   which will take effect on January 1,
                   1976, and will remain in force for
                   6 years. The agreement allows
                   American ships to receive $16 a ton
                   for grain shipped to the Soviet Union.

December 29        Secretary of Commerce Rogers Morton
                   and Minister of the Merchant Marine
                   Timosey Guzhenko signed the shipping
                   agreement in Washington and Moscow.

January 22, 1976   The National Association of Wheat
                   Growers authorized initial steps to-
                   ward making a legal challenge of the
                   U.S.-Soviet grain agreements.




                          25
APPENDIX E                                         APPENDIX E.


               SECTION 812 OF THE AGRICULTURE

             AND CONSUMER PROTECTION ACT OF 1973
                        (P.L. 93-86)
                  "EXPORT SALES REPORTING"
     "Sec. 812. All exporters of wheat and wheat flour, feed
grains, oil seeds, cotton and products thereof, and other
commodities the Secretary may designate produced in the
United States shall report to the Secretary of Agriculture,
on a weekly basis, the following information regarding any
contract for export sales entered into or subsequently
modified in any manner during the reporting period: (a)
type, class, and quantity of the commodity sought to be ex-
ported, (b) the marketing year of shipment, (c) destination,
if nown. Individual reports shall remain confidential but
shall be compiled by the Secretary and published in complia-
tion form each week following the week of reporting. All
exporters of agricultural commodities produced in the United
States shall upon request of the Secretary of Agriculture
immediately report to the Secretary any information with
respec: to export sales of agricultural commodities and at
such t mes as he may request. Any person (or corporation)
who knwingly fails to report export sales pursuant to the
requir ments of this section sha.ll be fined not more than
$25,00) or imprisoned not more than one year, or both.
The Secretary may, with respect to any commodity or type
of class thereof during any period in which he determines
that there is a domestic supply of such commodity substan-
tially in excess of the quantity needed to meet domestic
requirements, and that total supplies of such commodity in
the exporting countries are estimated to be in surplus,
and that anticipated exports will not result in excessive
drain on domestic supplies, and that to require the reports
to be made will unduly hamper export sales, provide for
such reports by exporters and publishing of such data to
be on a monthly basis rather than on a weekly basis."




                             26
APPENDIX F                                           APPENDIX F


          GAO PROPOSED AMENDMENT TO SECTION 812 OF

               THE AGRICULTURAL ACT OF 1970,
     AS ADDED BY THE AGRICULTURE ACT OF 1973 (P.L. 93-86)
     The Congress hereby finds that accurate, reliable,
complete, and timely information on exports of agricultural
commodities and control of such exports in situations of
potential or actual short-supply are necessary to protect
the domestic economy from: (1) excessive drain of certain
commodities; (2) the disruptive effect of major price
fluctuations; and (3) the serious inflationary impac of
excessive foreign demand.

     Section 812 of the Agricultural Act of 1970, as added
by P.L. 93-86, is amended to read as follows:

                  "EXPORT SALES REPORTING"
      "Sec. 812.  (a) All exporters of agricultural commodit-
ies produced in the United States shall, pursuant to regu-
lations to be promulgated by the Secretary, report to the
Secretary on a weekly basis the following information,
including any changes in information previously reported,
regarding any commitment, contract, or other agreement for
export sales entered into, modified in any manner, or ter-
minated during the reporting period:   (1) type, class,
quantity, and price of the commodity sought to be exported;
(2) the marketing year of shipment; (3) ultimate destination
and any intermediate destinations; and (4) identity of the
buyer and the relationship, if any, of the buyer to the
seller. The Secretary may, upon request by one or more
exporters of a particular commodity, waive the reporting
requirements of this section with respect to such commodity
for good cause shown; provided, however, that such waivers
may not be granted for exports of wheat and wheat flour,
feed grains, oilseeds, soybeans, soybean meal, and cotton
and products thereof, and that waivers may be withdrawn
by the Secretary if in his opinion it becomes necessary
to begin or resume reporting on a particular commodity.

     (b) In addition to the other reporting requirements
established herein, and subject to the penalties set forth
in subsection (f) for knowing failure to report, exporters
of agricultural commodities shall notify the Secretary,
within 15 days of their commencement, of any contacts with
Foreign commercial or governmental importers which may


                             27
APPENDIX F                                         APPENDIX F


result in export sales of wheat and wheat flour, feed grains,
oilseeds, soybeans, soybean meal, cotton, and products
thereof, or of other agricultural commodities as may be
designated by the Secretary. For purposes of this subsection,
the Secretary may establish threshold notification quantities
by regulations. For each commodity for which the Secretary
establishes a threshold notification quantity, notification
is only required when a contract with a foreign importer
may result in an export of at least that quantity. Notifi-
cation shall consist only of identification of commodity,
the quantity expected to be exported, and the expected
marketing year of shipment.
     (c) The Secretary shall, with respect to each commodity
concerning which reports are required to be filed hereunder,
determine at the start of each marketing year whether a
short-supply situation exists or will exist. A commodity
shall be determined to be in a short-supply situation when
the total of reserves on hand, estimated total domestic
production, and an amount determir d by the Secretary to
be an adequate reserve is exceeded y the total of estimated
exports (both commercial and under Government programs) and
estimated domestic consumption.

      The Secretary shall, as additional information beccmes
available to him during the marketing year by means of the
required reports, consultation with other agencies, and
otherwise, review his determinations whether or not agri-
cultural commodities are in a short-supply situation, and,
as appropriate, modify those determinations. In developing
the necessary information and in making determinations here-
under, the Secretary shall seek information and advice
from the Department of State, the Council of Economic
Advisers, the Council on Wage and Price Stability, and
the Commodity Futures Trading Commission; from the several
departments and agencies concerned with aspects of our
domestic and foreign policies and operations hav 1.. an
important bearing on exports of agricultural commodities;
and, ith respect to foreign demand, from foreign sources
including governments, importers, grain boards, and other
such sources. All departments and agencies of the United
States shall fully cooperate in rendering such advice and
information.

     The Secretary shall cause to be published in the
Federal Register any determination that a commodity is or
will be in a short-supply situation, with a summar of
the basis for such determination.


                             28
APPENDIX F                                         APPENDIX F



     (d) The Secretary shall, when he determines that a
short-supply situation exists with respect to a particular
agricultural commodity, report this determination to the
Congress. Unless either House, within 30 legislative days,
by resolution provides otherwise, export of the commodity
shall, notwithstanding 50 U.S.C. App. 2403(f), be subject
to regulation by the Secretary of Commerce under the Export
Admini.stration Act of 1969, as amended, 50 U.S.C. App.
2401-2413.
     (e) The Secretary shall publish in the Federal Register
notice of proposed regulations to implement the reporting
requirements of this section, and of subsequent modifications
of uch regulations, at least 45 days before their effective
date, and shall consider and evaluate all comments received
thereon.
     (f) All exporters of agricultural commodities pro-
duced in the United States shall, upon request of the
Secretary, immediately report to the Secretary any information
with respect to export sales of agricultural commodities
and at such times as he may request. Any person (or corpor-
ation) who Knowingly fails to report export sales pursuant
to the requirements of this section shall be fined not more
than $25,000 or imprisoned not more than 1 year, or both.
     (g) Individual reports submitted hereunder shall remain
confidential. Reports submitted under subsection (a)
shall e compiled by the Secretary and published .n compil-
ation form each week following the week of reporting;
Provided, however, that published compilations shall not
include information concerning identity of buyers or buyer-
seller relationships. Nothing contained herein shall be
construed to limit the authority of the General Accounting
Office to have access to all records of the Department of
Agriculture, including the reports filed hereunder, to the
extent necessary to carry out its duties.
      (h) The Secretary, utilizing the Economic Research
Service ani the Office of Planning and Evaluation,
Department of Agriculture, shall make a semi-annual report
to the Pesident and the Congress of his operations heLe-
under.   Each such report shall contain an analysis by the
Secretary of: (1) the impact on the economy and world
trade of shortages or increased prices for commodities
subject to the resorting requirements of this section;
(2) the worldwide supply of such commodities; and (3)
actions being taken by other nations in response to such

                             29
APPENDIX F                                         APPENDIX F


shortages or increased prices. Each report shall include
also summaries of the information contained in the reports
required by subsection (a).  For each commodity reported
on under subsection (a), the report shall include the
Secretary's mst recent estimates of exports, domestic
consumption, domestic production, reserves on hand, and
w.at he considers to be an adequate carryoveL, along with
dn account of the bases for reaching these conclusions.
The second semiannual report required hereunder and every
second report thereafter shall set forth the internal audit
guidelines relied upon by the Secretary to evaluate the
effectiveness of the reporting system, and his recommenda-
tions with respect to any changes or additional legislative
action deemed necessary or desirable in carrying out the
program.

      (iJ Upon his determination that an agricultural
commodity is potentially in a hort-s:?ply situation, the
Secretary may pomulgate temporary eincrgency re% lations
requiring that all proposed agreements to export such
commodity-in excess of a quantity to be d    rmined by the
Secretary shall be reported to him in adv..ce by the exporter,
and shall not be executed without his approval. Approval of
an export contract shall be granted unless the Secretary,
based on written findings, makes a determination that the
proposed export would unduly contribute to the creation of
a short-supply situation. Notice of the emergenicy regula-
tions shall be given directly to all persons who have pre-
viously reported exports of the affected commodity under
subsection (a) and shall simultaneously be published in
tne Federal Register, and reported to the Congress pursuant
to subsection (d). ?he emergency regulations may remain
in effect only for '' legislative days after the report
to the Congress. Unless either House disapproves, exports
of the commodity shall become subject to regulation under
the Export Administration Act, as provided in subsection
(d).
      (j) (1) The Comptroller General of the United States
shall monitor and evaluate the operations hereunder including
reporting activities. The Comptroller General shall (A) re-
view and evaluate the procedures followed b the Secretar'
in gathering, analyzing, and interpreting semiz-ics, datd.
and information related to he supply of agricultural
commodities, and (B) evaluate particular projects or pro-
grams. The Comptroller General shall have access to such
data within the possesJion or control of the Secretary
 .rom any public or private source whatever, notwithstanding


                             30
APPENDIX F                                         APPENDIX F


the provisions of any other law, as are necessary to carry out
his responsibilities under this section and shall report to
the Congress at such times as ha deems appropriate with
respect to the operations hereunder including his recommen-
dations for modifications in existing laws, regulations,
procedures, and practices.

      (2) The Comptroller General or any of his authorized
representatives, in carrying out his responsibilities under
this section shall have access to any books, documents,
papers, statistics, data, records, and information of any
person owing or operating facilities or business premises
who is engaged in any phase of export of agricultural
commodities as he may determine relates to the purposes
of this section.

     (3) To assist in carrying out his responsibilities
under this section, the Comptroller General may sign and
issue subpoenas requiring the production of books, documents,
papers, statistics, data, records, and information referred
to in subsection (j) (2).
      (4) In case of disobedience to a subpoena issued under
subsection (j) (3) of this section, the Comptroller General
may, through his own attorneys or attorneys he may choose,
invoke the aid of any district court of the United States
in requiring the production of the books, documents, papers,
statistics, data, records, and information referred to in
subsection (j) (2). Any district court of the inited
States within the jurisdiction ,.here such perscn is found
or ransacts business may, in case of contumacy or refusal
to obey a subpoena issued L the Comptroller eneral, issue
an order requiring such person to produce the books, docu-
ments, papers, statistics, data, records, or information;
and any failure to obey such order of the court shall ue
punished by the court as a contempt thereof.
     (5) eports submitted by the Comptroller Genera to
the Congress pursuant to this section shall be available
to te public at reasonable cost and upon identifiable
request. The Comptroller General may not disclose to the
public any information which concerns or relates to a trade
secret or other matter referred to in section 1905 of title
18, United States Code, except that such information shall
be disclosed by the Comptroller General or the Secretary,
in manner cesigned to preserve its confidentiality--



                             31
 APPENDIX F                                           APPENDIX P


      (A) to oth.r Federal Government departments, agencies,
          and officials for official use upon request;

      (B) to committees or Congress upon request; and

      (C)   to a court in any judicial proceeding urAer court
            order.
       (r) To the extent necessary or appropriate to the enforce-
 ment of this section the Secretary (and officers or em-
 ployees of the Department specifically designated by him)
 may make investigation and obtain information from, require
 reports or the keeping of records by, make inspection of
 the books, records, and other writings, premises, or
 property of, and take the sworn testimony of, any person.
 In addition, such officers or employees may administer
oaths or affirmations, and may by subpoena require any person
 to appear and testify or to appear and produce books, records,
and other writings, or both, and, in the case of contumacy
by, or refusal to obey a subpoena issued to, any such person,
the district court of the United States for any district in
which such person is found or resides r transacts business,
upon application, and after notice to any such person and
hearing, shall have jurisdiction to issue an order requiring
such person to appear and give testimony or to appear and
produce books, records, and other writings, or both, and
any failure to obey such order of that court may be unished
by such court as a contempt thereof. No person snall    be
exciused from com-lying with any requirements under this
section because      his privilege against self-incrimination,
but the imunity provisions of the Compulsory Testimony
Act, Part V of itle 18, United States Code, shall apply
with respect to any individual who specifically claims such
privilege.
     (1) The Secretary of Ag-iculture and the Secretary of
Commerce shall fully cooperate in the administration of
this section.

     (m) In the administration of this section, reporting
requirements shall e so designed as to reduce the cost of
reporting, recordkeeping, and export documentation to the
extent feasible consit ent with effective enforcement and
compilation of usefui statistics. Reporting, recordkeeping,
and export documentation requirements shall be periodically
reviewed ad revised in the light of developments in the
field of information technology.



                              32
APPENDIX F                                         APPENDIX F


     Explanation of Proposed Revision of Section 812
     The Export Administration Act of 1969, as amended,
recognizes that control of exports may be necessary in
certain circuz.tances. Agricultural commodities are specifi-
cally exempted from export controls unless the Secretary of
Agriculture approves the imposition of controls in a partic-
ular instance (50 U.S.C. App. s2403(f), Supp. IV, 1974).
Except where the President determines that control of an
agricultural commodity is required to further U.S. foreign
policy and fulfill its international responsibilities, or
where control over the export is significant to te national
security of the United States, the Secretary may ot give
his approval to controls over exports of agricultural
commodities during any period for which he determines the
supply of such commodity to be in excess of the requirements
of the domestic economy.

     One grave difficulty with the operation of this system
has emerged: the Secretary's determination whether supply
exceeds domestic demand can only be as good as the informa-
tion available to him, and that information, with respect
to the export by private persons or corporations of agricul-
turai commodities, is often incomplete or inaccurate, and
hence misleading.

     Currently, the source of information on exports of
agricultural commodities is section 812 of the Agricultural
Act of 1970, as added by the Agriculture and Consumer
Protection Act of 1973 (7 U.S.C. §612c-3, Supp. IV, 1974).
The accompanying amendment to section 812 is intended to
make more and better information available to the Secretary,
and to provide a mechanism whereby the crisis atmosphere and
the decisions without sufficient information which have
characterized previous short-supply situations can be avoided.

     Of crucial importance is improvement of the data base.
The amendment would require all exporters of agricultural
commodities to report to the-Secretary, rather than just
those of wheat, feed grains, cotton, oil seeds, soybeans,
and soybean meal, as in section 812. While the Secretary
may, under existing law, designate other commodities to
be reported on, the problem remains that by the time a
short-supply situation with respect to a particular cormodity
has develcped to the point that the Secretary finds it
necessary to require reports on exports, much of the harm
may have been done.



                             33
APPENDIX F                                          APPENDIX F


     Second, the kind of information to be reported will be
significantly broadened. The amendment makes it clear that
not just formal cntracts for export but any kind of cormmit-
ment or agreemen;, written or otherwise, which may result in
an export, shou.d be reported. Price is to be reported
along with the other information. Price trends may give a
valuable clue for forecasters, Where an export is not at
a fixed or pre-determined price, reports should reveal the
basis or formula on which price will ultimately be set.

     Existing law requires that destination be reported.
The amendment makes it explicit that the purpose of the
reports is not served by reporting intermediate destinations
or transfer points only. Where the    nal destination is
Known to the exporter, it should be reported. A requirement
is adci that the identity of the buyer be reported, and
that if the buyer is in some way affiliated with the
beller, this relationship should be revealed.

     The bill recognizes that the information sought is
proprietary in nature. The confidentiality requirement of
existing section 812 is retained, with a direction added
that information concerning identity of uyers, and buyer-
seller relationships is rot to be publisaed or disseminated.
Nothing in he bill, however, is intended to limit the access
of the General Accounting Office to records of the Department,
including reports filed thereunder, to the extent necessary
to carry out its duties. GAO would be expected to respect
the confidentiality of private data.

      In addition to reports of contracts, exporters would
be required to submit reports of negotiations with foreign
buyers which may lead to contracts. This requirement is
intended to allow the Secretary to predict accurately the
potential for a hort-supply situation, particularly with
respect to certain critical commodities. Once the Secretary
determines that an gricultural commodity is potentially in
a short-supply situetion, he can, on a temporary emergency
basis, promulgate regulations which prevent consummation of
any further agreements for export of that commodity without
prior approval by him. (At the same time, he would be
required to report hs determination to the Congress, so
as to activate the i._:hanism in the bill which brings export
of commodities in short-sLpply within the Export AJministra-
tion Act, unless the Congress disapproves.)

     But a short-suplly situation may be created by the
execution of contracts which are not known . the Secretary
until after they are executed and reported to him. At that

                             34
APPENDIX F                                          APPENDIX F


time, exercise of his power to prevent execution of proposed
contracts might come too late to avoid market disruption and
the other consequences of an unforeseen short-supply situation.

     The bill therefore provides for reports of negotiations
by exporters which, if they result in execution of a con-
tract, are likely to have a significant impact on supply.
The reports are to b made when the negotiations are entered
into, and are intended to provide an additional and crucial
source of data for the Secretary to make forecasts. Recog-
nizing he sensitivity and the competitive nature of negoti-
ations at an early stage, however, the bill not only protects
the confidentiality'of individual reports of negotiations,
but does not require that these reports include the identity
of the prospective buyer, and further provides that the re-
ports of negotiations are not be to published by the Secre-
tary, even in compilation for.,.
     A requirement that the Secre t ary publish regulations
and consider comments thereon has been added. Its purpose
is to give the exporters who will be affected, as well as
interested Government agencies, a chance to review the
procedures proposed by the Secretary before they go into
effect.

     The Secretary is to report semi-annually on the export
reporting system. The purpose of this requirement is to
provide continuing assurance that the system is accomplish-
ing its intended purpose and, particularly, that there is
adequate capability within the Department to ensure that the
requlations are being complied with. That capability does
not now exist, and one result has been the failure of the
current reporting system to be responsive. The evaluation
of the system by the Secretary should be useful to the
Congress as well as to the General Accounting Office which,
it is expected, will also carefully review and comment on
the manner in which the Secretary carries out the mandate
of sc.ioan 812.
     Finally, the bill is addressed to the problem tat
there is now no adequate system to ensure adequate supplies
of a variety of agricultural commodities at stable prices,
that there is no effective early warning system to protect
the domestic economy against the disruptions of unan.ici-
pated export sales, ad that the short-supply "trigger" for
agricultural commodit. s--that is, the mechanism for bring-
ing agricultural commodities under the export controls of
the Export Administration Act of 1969--does not now operate


                            35
 APPENDIX F
                                                       APPENDIX F


 effectively. The trigger in 50 U.S.C. App. S2403(f)
 requires approval by the Secretary, but he cannot
                                                    give
 approval during any period for which supply is determined
 by him to exceed the needs of the domestic economy.
 limits are set on his authority to withhold approval. No
      What s needed is a rigger which is a matter of public
 knowledge, and which gives ,ore weight to forecasting,
 than to the upply-demand relationship at the present rather
The bill enjoins tne Secretary to determine when a       moment.
supply situation existz c- will exi3t. Its intent    short-
                                                     in this
respect is that he make a careful and systematic assessment
of develop ng shortages and tne long-term supply and
situation. His analysis should show the impact on      demand
                                                     the
economy and world trade c shortages or increased
their probable duration, the worldwide supply, and prices,
taken by other nations in response to such shortages actions
increased p)rices.                                     or
                    The analysis is intended to allow develop-
ment of appropriate policies before a crisis materializes,
and before options short of a complete embargo are
                                                     fore-
closed.

      Such a provision was controversial in the proposed
1973 amendments to the Export dministration   Act of i969
and, ultimately, was rejected. This provision is
                                                   intended
to answer some of the objections which led to rejection
that earlier provision.                                    of
                          Under this bill, the Secretary's
determination of a short-supply situation does not
                                                    auto-
matically impose controls, but only brings the commodity
potentially under controls, subject to congressional
                                                       veto.
     The bill incorporates the penalty provision contaiilld
in present section 812. While the nature and amounL
penalties are matters for the Congress, we are not     of any
                                                    convinced
that the present provisions are effective. The Congress
wish to consider providing for civil penalties, as          may
                                                    is  done
in the Export Adminiptra_,on Act of 1969, as amended,
sibly to include suspension of the right to export.     pos-




                              36
APPENDIX G                                       APPENDIX G



              QUESTIONNAIRE SURVEY OF

             EXPORTERS' ATTITUDES TOWARD

               USDA'S EXPORT REPORTING

                      SYSTEM
                      CONTENTS

CHAPTER                                                Page

   1            INTRODUCTION                            38

                DESCRIPTION OF THE EXPORTERS            39
   2

   3            EXPORTER ATTITUDES AND OPINIONS ON
                  THE EXPORT SALES REPORTING SYSTEM     45

   4            CONTRACT DECREASES                      54

   5            EXPORTER OPINIONS ON PAST AND
                  POSSIBLE U.S. INVOLVEMENT IN
                  EXPORT MARKETS


   6            EXPORTER QUESTIONNAIRE                  76




                         37
                          CHAPTER 1

                        INTRODUCTION
     Under the Agriculture and Consumer Protection Act of
1973, the Dpartment of Agriculture was required to assume
the responsibility for monitoring the export sales of agri-
cultural commodities. U.S. agricultural supplies had been
severely strained that year, in part by the &cceleratinq rate
of exports. The Export Sales Reporting Syasem, as the
monitoring has come to be known, provides information on
future export demand, so that in the event of shortages
thoughtful Government planning car replace precipitate market
intervention.

     All firms exporting U.S.-origin wheat, feed grains,
cotton, and oil seeds are required to submit weekly reports
to USDA on their export activity, including among other
things information on actual exports and outstanding (forward)
sales. The Office of the General Sales Manager at USDA is
responsible for the administration of the Export Sales
Reporting System and each week compiles the information
submitted by the exporters and publishes it in the U.S.
Export Sales" report.

     we surveyed agricultural exporters to determine their
attitudes and opinions on the Export Sales Reporting System
and on other past, present, and potential short-supply
management systems. The survey was conducted through the
use of a questionnaire that was mailed in the summer of 1975
to 316 businesses that had filed export sales reports with
USDA. Fort,-six o these businesses, however, were sub-
sidiaries whose parent corporations answeLed for them,
or were no longer active in the agricultural export business.
Of the remaining 270 exporters, 195 (or 72 percent) returned
completed questionnaires acceptable for analysis. These
195 respondents were found to represent, in terms of sales
and exports, almost all of the agricultural export industry.




                            38
                               CHAPTER 2

                  DESCRIPTION OF THE EXPORTERS
     This chapter describes the 195 exporters that
participated in our survey. In so doing, it also describes
to a large extent the entire agricultural export industry,
since the firms surveyed account for almost all of the agri-
cultural commodities exported by the U.S. in 1973 and 1974.
The agricultural export industry is a concentrated one, we
found, with relatively few firms doing most of the business.
The firms range in size from a small exporter with export
sales of only $35,000 to a large multinational firm with
export sales of $3.7 billion.

Organization of     xporters
     Although some of the firms in our sur'ey have been in
the export business since the late 1800's and early 1900's,
about two-thirds of the firms appear to have entered the
agricultural exporting industry during te past 25 years.
The following table shows how 175 exporters responded to a
question on this matter.

    Period entered                               Exporters
    export industry                        u            Percent
     1880 to 1925                           19            10.9
     1926 to 1950                           39            22.3
     1951 to 1960                           42            24.0
     1961 to 1970                           38            21.7
     1971 to 1975                           37            21.1
                                           175           100.0
     Aithough we have no Knowledge of the frequency with
which firms go in or out of the export business, about a
third of those responding have entered since 1965--possibly
drawn to exporting by the increased demand for U.S. agri-
cultural commodities over the past decade.

     The exporters in our survey were found to range from
small firms exporting less than 100 metric tons of a single
agricultural commodity (or with no exports at all) to


                                 39
multi-national companies dealing heavily in a variety of
commodities. In answer to a question concerning their
organization, most of the 193 respondents identify themselves
as private corporations (123 firms), a small group as public
corporations (31 firms) and the remainder either as partner-
ships (8 frms), sole proprietorships (7 firms), or some other
form of business (24 firms). Although we did not determine
how many of the firms are U.S.-owned, 37 of the exporters
say they are subsidiaries or affiliates of foreign-based
companies.

     Pursuing the parent-subsidiary relationship, we found
that one-third (70) of the surveyed exporters are a subsidi-
ary or affiliate of another company. Sixty-six of the
firms, furthermore, indicate that they export U.S.-origin
agricultural commodities to parent, subsidiary, or affiliate
organizations. The latter were identified mostly as mer-
chants, processors, or traders located in the European
Community, Japan, or Canada.

Export Sales 1/

     The exporters were asked to approximate the dollar alue
of all the U.S.-origin agricultural commodities they ex-
ported (i.e., export sles) during calendar years 1973 and
1974. Although a number of firms gave no sales information
(34 for 1973 and 36 for 1974), the rest estimate sales
totaling $18.6 billion in 1973 and 974, respectively. We
compared these figures to published ones 2/ on the total
1973 and 1974 dollar value of all U.S. agricultural exports,
so that we could measure the sales volume of the firms on
which we did not obtain data. The published figures are
$17.7 billion and $22 billion for 1973 and 1974, respec-
tively, suggesting that most major exporters are included
in our survey. 3/


1/The term "sales" refers here and in later sections to the
  dollar value of agricultural commodities actually exported.
2/"Foreign Agricultural Trade of the United States," September
  1975, USDA.
3 VWe are unable to explain why the surveyed firms claim ex-
   port sales in excess of the total U.S. export value beyond
 ascribing the discrepancy to exporter overestimates, USDA
 underestimates, or a combination of the two.

                             40
     The 1974 sales figures indicate further that the
agricultural export industry is a concentrated one, with
relatively few firms accounting for a substantial share of
the business. In addition to the 36 firms who did not
identify their 1974 export sales, 11 firms reported zero
sales. Of the remaining 148, however, just 7 firms (only
5 percent) account for 62 percent of the total sales for
the group as a whole. The 75 smallest, or 51 percent of the
148 firms, on the other hand, have less than 1 percent of
the total sales. The following table shows 1974 export
sales by sales categories and the number of firms, total
sales, and averaqe sales in each category.

     In the analysis of the questionnaire, we frequently
make use of the terms "large," "medium," and "small" ex-
porter.  These designations evolved from the above table
and refer to firms with 1974 sales of $500 million and
more, between $10 and $S00million, and of $10 million and
less, respectively. The 11 large exporters captured about
74 percent of the total sales for all surveyed firms and
are, for the most part, multinational corporations dealing
in a wide variety of agricultural commodities.

                       1974 EXORT SALES

                                          Total
                 Exporters             Export Sales        Average
1974 Sales    Number   Percent        Amount    Percent     Sales
                                      (millions)           (millions)
$0-$10         75        50.7         $      173     0.7   $   2.3
$10-$100       45        30.4              1,759     7.6      39.1
$100-$500      18        11.5              3,974    17.2     233.8
$500-$999       4         2.7              2,949    12.7     737.2
$1,000 & up     7         4.7             14,323    61.8   2,046.2
              148       100.0         $23,178      100.0   $ 156.6
Commodities Exported

     We asked the exporting firms for their 1973/74 export
totals in wheat, corn, rice, soybeans, cottonseed, soybean
oil, cake and meal, and cottonseed oil, caKe and meal. We
found that, as with sales, the exports were frequently
concentrated in the hands of a few large companies. The
seven commcdities are presented in the following table with



                                 41
the number of firms that dealt in them, the total exports
claimed, and corresponding USDA figures for the industry as
a whole.

                   Commodities Exported (1973/74)
                      Number         Total exports     Total U.S.
Commodity            of firms           claimed        exports 1/
                                     (etric   tonsT   (Metric tons)
theat and products      42           35,068,000        31,067,000
Corn                    43            35,263,000       31,574,C00
Soybeans                36           18,435,000       14,700,000
Soybean oil,
  cake, and meal        42            4,312,000        5,600,000
Rice                   37             1,565,000        1,589,000
Cottonseed               5               31,000           44,000
Cottonseed oil,
  cake,and meal        18               239,000           62,600
     As with 1974 export value (sales), some survey export
figures exceed comparable USDA figures for the industry as
a whole. A Department of Agriculture official has indicated
that USDA 1973/74 data on agricultural exports came in part
from the newly established Export Sales Reporting System, in
whose early months accuracy was questionable. The sizes of
the discrepancies, however, lead us to believe that the
surveyed exporters may have overestimated their 1973/74
exports to some extent also.

      Jsing the 1973/74 export information provided by the
exporters, we assigned each of the 195 firms to a primary
export commnodity group. For these purposes, cottonseed
and cottonseed oil, cake and meal were combined, as were
soybeans and soybean oil, cake and meal. We wanted to see
whether exporters in different commodities would  respond to


1/"Foreign Agricultural Trade of the United States," Septem-
  ber 1975, USDA.



                                42
questions in different ways. Where 1973/74 export information
was lacking, we turned to 1974/75 data obtained from USDA for
the classification. A primary commodity was assigned to a
firm if better than two-thirds of its exports in one of the
years were of a single commodity. Otherwise the firm was
designated "multi-commodity."   (Nine of the very large
exporters are in this category.) Some of te exporters in
our survey proved to be inactive i all five commodity
groups and were classified as such. The following table
shows the primary commodity exported for the firms in our
survey and the total 1974 export sales for each commodity
group.

                  Primary Export Commodity

                                                      Total
                        Number        Percent       1974 sales

                                                    (millions)
Multi-Commodity            27          13.9           $17,402
Soybeans and Products      34          17.4               687
Wheat and Products         22          11.3             1,212
Corn                       17           8.7             2,304
Cotton and Products        54          27.7               839
Rice                       26          13.3               706
Inactive                   15           7.7                29
                          195         100.0           $23,179
Sh iment Terms
      The exporters were also asked to provide a percentage
 )reakdown of the mode of shipment for their export sales.
£he following table shows the volumes of seven major
commodities exported in the 1973/74 marketing year and the
percent exported by mode of shipment for the firms who
completed this question.




                                 43
                    Airunt in
Commodity          metric tons        F.O.8    /   C.I..      2/ P.A.S. 3/ C&t      4
                  '000     omitted)
wheat (in-                                 -       -.         ercent
   cluding
   wheat
   products)        35,068             79.2             5.2            0.4   15.3
Corn                35,263             64.5          11.3              0.0   24.2
Rice                     1,565         16.1          16.5          47.8      19.5
Soybeans            18,145             45.6          24.3              0.0   29.1
Soybean oil,
  cake, and
  meal                   4,267         67.6          17.7              0.1   14.6
Cottonseed                  31        99.6              0.0            0.4    0.0
Cottonseed oil,
  cilKe, and meal         239         54.0              3.1            4.8   37.9
                    94,543            65.8          11.9               1.0   21.3
More than half of the 1973/74 exports of wheat, corn, cotton-
seed, soybean oil, cake and meal, and.cottonseed oil, cake and
meal were F.G.B. Almost half of the soybeans also went
F.O.B., while rice was most frequently sold F.A.S. On the
whole, about two-thirds of the exports for all seven commodi-
ties went F.O.B.




I/F.O.B. - free on board
I/C.I.F. - cost, insurance, and freight
I/F.A.S.   -   free alongside
4/C&F - cost and freight


                                      44
                             CHPft   '   3
             EXPOURTE   ATTITUDES AD OPINIONS ON

              THE EXPORT SALES REPRTING SYSTEM

     A majority of the eporti. firms believe that the U.S.
Government needs an export sales reporting system. Most of
the exporters feel that the present Export Sales Reporting
System has met the provisions of the Act that established it
and has, to at least a moderate degree, achieved its objective
of providing accurate, timely, and reliable export statistics.
The firms have had few problems in complying with the report-
ing regulations and requirements, and most of them receive
and use the weekly U,S. Export Sales reports. Despite their
belief that the Export Sales Reporting System has not
affected their own sales, the exporters generally feel that
tne publication of the export reports has to some extent
influenced agricultural commodity prices and has given at
least a minor advantage to foreign buyers in export contract
negotiations. Most exporters believe the U.S. Export Sales
reports would be more useful if additional information on
contract destinations, decreases, and shipment dates were
included.
General Comments on Export
Sales Reporing yste

     Tne Export Sales Reporting System (ESRS) is intended
to monitor the amount of agricultural commodities being exported
so that, i.n the event of shortages, the U.S. Government will
have on a timely basis the intJrmation required to formulate
necessary decisions. The exporting firms were asked how
they feel about the U.S. Government's need for an export
sales reporting system. Almost 70 percent of the firms
believe a reporting system is needed, while 15 percent say
it is not. None of the large exporters (those with 1974
export sales above a half billion dollars) is among the 15
percent. The firms' responses follow.




                                45
                         Need for an ExDort
                       Sal     eotiIIISystem?

                                                         Exporters
                                                     Number   Percent
      Needed                                          1,6        69.8
      Undecided                                        26        13.3
      Not needed
                                                       30        15.4
      Did not answer
                                                           3      1.5
                                                      195       100.0
      USDA's Export Sales Reporting System was established
under section 812 of Agricultural Act of 1970,
                                                as added
by the Agricultural Act of 1973 (P.L. 93-86).
                                                The exporters
claim a good understanding of the Act's provisions
generally feel that ESRS has met those provisions. and
                                                     The
exporters' responses to a related question are
in the following table.                         presented

                         Has ESRS Met The
                       Pr7i
                         ov   s-ions-oj-'i7 -Ac t?

                                                         Exporters
                                                     Number   Percent
     Yes                                             145        74.4
     Undecided                                        39        20.0
     No
                                                       8         4.1
     Did not answer
                                                       3         1.5
                                                     195       100.0
     The exporters were asked to what
the Export Sales Reporting System has degree they believe
                                      achieved its stated
objective of providing accurate, timely, and
                                             reliable export
statistics. Most of the exporters wno answered
believe the System has acnieved that objective (74 percent)
                                               at least to a




                                46
moderate degree. The other 26 percent claim tne achievement
has been minimal at best.

     Because the Export Sales Reporting System represents,
an entry of the Federal Government into the private sector,
the exporting firms were also aske4 for their primary per-
ception of the system a it is presently operated. About
41 percent of the firms responding view the system primarily
as a means to provide the U.S. more information on foreign
demand and export commitments, In a imilar vein, 17 per-
cent perceive it mainly as an improvement of the Government's
system for forecasting exports. Twenty-two percent see
ESRS as a first step toward a comprehensive Government
short-supply management system, while 14 percent term it
a Government activity of marginal utility. These percep-
tions were found to be unrelated to the firms' sizes or
commodities exported.
AdmJiistration of tie   Export
Sales Reportng Sysem
     A certain amount of work is required of exporting
firms ir providing information to USDA on their weekly
export sales activity. In addition to the basic "Report
of xport Sales and Exports" form, which they must submit
each week that they have some activity in exports, there
are three other report forms that are filled out at varying
times. To guide the e.-,rters in completing the report forms,
USDA issued regulations and instructions for the reporting
system. We asked the exporting firms to evaluate these
regulations and instructions in terms of clarity, format,
indexing, and comprehensiveness. The majority of the
exporters indicate that they have little or no problem
in any area.

     Similarly, we asked the exporters to rate the export
report forms themselves, in terms of the language, format,
response space, measurement conversions, the burden asso-
ciated with completing the forms, and the meeting of report
deadlines. Again, the majority of the exporters say they
have little or no problem with the forms in the areas
mentioned.

      xv determine whether the exporters are burdened by
export reporting requirements, we asked them to estimate
no.! many staff hours per week are spent in completing the
following four forms used in administering ESRS:



                                 47
        1,     Report of Optional Origin Sales (Form 97).
        2.     Report of Etport Sales and Exports (Form 98).

        3.     Contrac Terms Supporting Export Sales and Foreign
               Purchases (Form 99),
        4.     Report of Exports for Exporters Own Account
               (Form 100).
Forms 97 and 100 are used to report relatively uncommon
transactions, and we found that almost all of the exporters
responding had spent an hour or less each week completing
each of them. Forms 98 and 99, on the other hand, are
submitted more frequently--when reporting export sales,
changes in he status of sales, or specific sales trms.
The following table shows how many staff hours the 180
exporters who responded say they spend each week in com-
pleting these two forms.

            Average Staff Hours Spent Each Week by Exporters
                       To Complete Forms    an


                                Form 98                      Form 99
                        Numier of-                  NuFmberFo   -
Hours       er wee      expoters          Percent   eporters        Percent
Less than 1                29               16.1        95             52.8
        1                  98               54.5        52             28.9
        2                  22               12.2        11              6.1
        3                  10                5.6         2              1.1
        4                   6                3.3         2              1.1
        5                   2        !        .1         5              2.8
        6 to 10             8                4.4         6              3.3
        Over 10             5                2.8         7             3.9
                         151              100.0         85          100.0




                                     48
     As might be expected, we found tnit large exporters
spend appreciably more time completing the forms. On the
whole, however, we believe the results indicate that thr
completion of the USDA report foris is not a burden for the
exporters.

USEFULNESS OF THE US. EXPORT SALES REPORT

     Almost 90 percent (172) of the 195 exporters in our
survey say they receive the weekly U.S. Export Sales reports.
We asked these 172 firms to rate the overall usefulness of
the data published in the reports. Of the 168 firms who re-
sponded, 103 (or 61 percent) term the data generally or ver
useful. Only 23 firms, in contrast, find the data of little
or no use.  The larger firm:s consider the export data more
useful than do the smaller firms. The responses follow.

                 Exporters Rate "U.S. Export
                         Sales Data

                                             Exporters
                                          Number   PFrcent
     Very useful                               26    15.1
     Generally useful                          77    44.8
     As useful AS not                          12     7.0
     Of some use                               30    17.4
     Of very little or no use                  23    13.4
     Did not answer                             4     2.3

                                            172     100.0
      In a similar manner, we inquired about the
and manner of use the exporters make of the U.S. frequency
                                                  Export
Sales reports. As can be seen from the table below, slightly
more than two-thirds use the report at least occasionally.
The big exporting firms were found to be the more frequent
users.




                            4'
                                                 Exporters
        Frequency of Use                      Numer        Perce
 Very frequently - about 2 or 3 times a day      3           1.8
 Frequently - about 2 or 3 times a week         40          23.8
 Occasionally - about 2 or 3 times a month      79         47.0
 Rarely - about 1 or 5 times a year             31         18.5
 Don't use it at all
                                                15          8.7
 Did not answer                                  4          2.3
                                               172     100.0
     The exporters were also asked to identify the different
ways they use the weekly U.S. Export Sales reports.
                                                       I gen-
eral, the reports appear to be used for market dcvlopment
and intelligence, with the most common use bein.g as a
ence for export sales to foreign countries by cmmodity. refer-
following table summarizes the results.                     The

                                                     Number
                                                       of
          Description of Useexorters
Compare company's export sales with
  total U.S. export sales                             54
Forecast foreign countries' needs for
  specific agricultural commodities                   55
Use as a reference for exrort sales to
  foreign countries by commodity                     107
Develop planning strategy for buying
  U.S. agricultural commodities                       37
Develop planning strategy for company's
  trading decisions with foreign buyers               34
Use to make transportation and/or storage
  decisions                                           19
Other                                                 16



                              50
     The major determinants of agricultural commodity prices
are worldwide and domestic supply and demand factors. After
acknowledging thts, we asked the exporters if the weekly pub-
lication of export data in the U.S. Export Sales report has
any additional influence on commodity prices. Sixty (60)
percent of the exporters responding feel the reports influence
commodity prices to some extent, while 25 peL-ant believe
they have little or no price influence at all. The table
below illustrates the exporters' responses.

                   Influence of Export Reporte
                 on rAqricultura Commoi     ies

                                              Exporters
                                         Number      Percet
     Little or no influence                46         25.4
     Small influence                       44         24.3
     Noderate influence                    54         29.8
     Substantial influence                  9          5.0
     Very great influence                   1          0.6
     No basis to judge                     27         14.9
         Total                            181       100.0
     The eekly publication of export sales data is believed
by about half of the firms to be of some benefit to foreign
governments or trading companies. Of the 169 firms answering
a question on this matter, 61 feel the reports give foreign
buyers at least a moderate advantage in contract negotiations.
The exporter responses folloi.




                              51
                 Advana ge of Export Reeorts to
            Foreign Governments or Trading CoTmpanies

                                                    Exporters
                                            Number         Percent
     Major advantage                           10               5.9
     Somewhat of a major advantage             19           11.2
     Moderate advantage                        32           18.9
     Minor advantage                           23           13.6
     Little or no advantage                    48           28.4
     No basis to judge                         37           21.9
                                             lb9           100.0
     The expocters were also asked what effect the Reporting
System has had on their firms' export sales f agricultural
commodities during the past year. An overwhelming majority
(93 percent) of the exporters able to judge claim ESRS has
not affected their export sales volumes. Given this result,
TE-may well be that the advantage some exporters feel for-
eign buyers are getting is in the orm of lower prices for
the commodities they buy.

Exporters   Commients on Changes

     The inclusion in the export reports of some information
not now provided would apparently increase their usefulness
substantially. Of great interest to exporters are destina-
tions, decreases (cancellations, buy-backs, etc.), and ship-
menc periods (dates). Each of these items is regarded as
very or generally important by a majority of the firms re-
sponding. Only 1 out of 5 exporters, in contrast, considers
these items of little or no importance. Contract type, i.e.,
fixed or basis, is rated at least moderately important by
about half the firms, while little importance is attached to
quantity tolerances and transportation details. About 92
percent of the 172 firms receiving the export reports re-
sponded to this uestion, and their responses are summarized
in the following table.




                              52
                     Information that      ight Improve
                         the Reports'      Usefulness
                    (By Percent of firis     Responding)


                 Very or generaily   Moderately or    Little or no
  Type of           i rtat         somewhat .mportant iu    tance
lnformation          Percent             Percen          Percent
Destinations           63.3                    22.2        14.5
Decreases              57.3                   21.7         21.0
Shipment Daies         57.0                   23.4         19.6
Contract Type          35.5                   23.4         41.1
Transporlation
  Details              21.7                   28.0         50,3
Tolerances            10.8                    25.9         63.3




                                  53
                          CHAPTER 4

                     CONTRACT DECREASES
     For a number of reasons, agricultural export contracts
do not always result in actual exports. At the opt.on of the
buyer or the seller, contracts can be cancelled or modified,
and deliveries can ba deferred to another marketing year --
actions which are called, in general, "contract decreases".
Because of their potential for decrease, outstanding export
contracts tnd to overestimate the actual U.S.   export commit-
ment.
     Through or survey of exporters we attempted to measure
the extent c contract decreases for five selected commod-
ities, the reasons for the decreases, and the characteristics
of export contracts that are likely to be decreased. We
found that about a fZth of the total quantities of wheat,
corn, rice,.soybeans, and soybean oil, cake and meal origi-
nally contracted for. export in 1973/74 by 48 firms in our
survey were not shipped. Large exporters as a group had a
rate of decrease below that of the rest of the exporters,
while two firms cancelled all 2.2 million metric tons of
corn, soybeans, and soybean oil, cake and meal they had con-
tracted for export.

     The most commonly cited reasons for the decreases were
commodity price changes, contracting for maximum rather than
probable needs; overcontracting in anticipation of controls,
and hedging to protect a market position. Our survey also
revealed that basis contracts (those with no specifically
stipulated price) were much more frequently-decreased than
fixed price contracts, and unknown destination contracts more
often than known destination. About half of the 1973/74 de-
creases were made by exporters against contracts with their
own affiliates.

      The surveyed exporters oppose being required to submit
written explanations to USDA for their contract decreases
and are even stronger in their opposition to the addition of
penalties for unjustifiable decreases. In addition, more
firmas are against than are for the public disclosure, even
on an aggregated basis, of information they presently provioe
USDA in Form 99 (Contract Terms Supporting Export Sales and
Foreign Purchases).




                             54
Contract Decreases

     As defined in USDA's Export Salcs Reporting instructions,
"decreases" means cancellations or modifications, including
those times when (a) smaller quantities are shipped than or-
iginally contracted for, (b) delivery is deferred to te next
marketing year, (c)  nother commodity is substituted for the
original one, and (d) purchases from foreign sellers are
used by the seller to fulfill the original contract.

     We asked the exporting firms to estimate the quantities
of five commodities (wheat, corn, soybeans, rice, nd soybean
oil, cake and eal) they contracted to export in the 1973/74
marketing year.  "'~ang with thaL, we requested the total
quantity decreases for each of the commodities in the same
year, so we coild sea the percentage of the quantities orig-
inally contracted for that were decreased. The following
table summarizes the results for the 48 firms who responded.

                   Contract Decreases* - 1973/74
                                                 Soybean
                                        Soy-    oil, cake
                      wheat    Corn    beans    and meal Rice     Total
Total quantities
  originally
  contracted for     41,486   45,855   23,086    6,308    1,564 118,298
Total quantity
  decreases           6,407    9,547    4,671     3,704      39   24,369
Percent of
  decreases            15.4     2".8     20.2      58.7     2.5     20.6



*In thousands of metric tons.




                                 55
      AF, can be seen, about a fifth
                                     of
commodities originally contracted for the    agricultural
                                        export in 1973/74 were
not shipped that year. Better than half
cake and meal contracted for export was of the soybean oil,
                                          cancelled or deferred.
The rates of decrease for wheat, corn,
ranged from 15 to 21 percent, while rice and  soybeans, meanwhile,
ligible.                                   decreases  were neg-

      Of the 48 firms who described their decreases,
 subgroups are of particular interest,                 two
                                        The
among the 48 had a combined rate of decrease 9 big  exporters
                                               substantially
below that of the other firms. With original
ing 88,073,300 metric tons and decreases        contracts total-
                                          at 15,841,291 metric
tons, the larger exporters' decrease rate
compared to 28 percent for the others.      was only 18 percent,
latter group, moreover, cancelled 100    Two  exporters in the
                                       percent  of their 1973/74
export contracts--representing over 2.2
of corn, soybeans, and soybean oil, cake million  metric tons
firms are subsidiaries of foreign-based   and  meal.   These
                                         companies and, not
surprisingly, registered for but did not
either.                                   export in 1974/75

      In order to determine the causes of decreases,
the exporters to break out on a percentage           we asked
for their 1973/74 contract decreases.       basis the reasons
                                        Although only 35 of
the 48 exporters answered, these 35 account
                                             for almost 99
percent of the decreases made by the surveyed
following table shows the reasons t            firms. The
                                       exporters
their 1973/74 contract decreases and the         gave for
                                          percentage and
amounts of the decreases attributed to
                                        each reason.




                            56
                 Reasons Given by Exporters

               For 1973/74 Contract Decreases

                                      Volume
                                   tmetric tons)   Percent
     Contracting for maximum
     ratherthan probable needs      6,957,479        28.9
     Overcontracting in
     anticipation of controls       4,-783,602       19.9
     Price changes                  7,350,076        30.5
     Hedging to protect a
     market   siti o n              3,185,303        13.2
     Other                          1,806,760         7.5
                     Total         2483,220         100.0
     Decreases, then, play a significant role in the agricul-
tural export market. With 21 percent-Of the 1973/74 agricul-
tural contracts ultimately not fulfilled in that year, the
U.S. Export Sales reports consistently overstated the extent
to which U.S. grain supplies were committed. Recognizing
this, bSDA cautions readers of its weekly reports that a
meaningful export projection is not obtainable by simply
adding outstanding sales commitments to exports to date be-
cause sales commitments outstanding are subject to modifica-
tion, deferral or cancellation.

Fixed vs. Basis Contracts

     The terms fixed" and basis' refer to the pricing ar-
rangements of agricultural export contracts. Fixed contracts
have a price set at the time they are written, while in
contracts the price is set at a later date. As one mightbasis
expect, we found that decreases were made much more fre-
quenty against basis contracts than against fixed.

     Almost 50 million metric tons of the five commodities
we surveyed were originally contracted for export in 1973/74
with a basis pricing arrangement. Of these, about 16 million
metric tons did not get shipped--a 32 percent rate of de-
crease. Of the 69 million metric tons in fixed contracts,



                             57
 however, only 8.4 million metric tons, or 12 percent, were
 ultimately not exported. Fixed contracts, then, appear
 to represent a substantially more solid commitment of U.S.
 grain for export than do basis contracts. The following
 table contains the results for all five commodities.

        1973/74 Contract Decreases/Fixed vs. Basis Contracts

                                                        Decreases as
                                                       a percentage
                        Originally        Contract     of original
                       contracted for     decreases   contract volumes
                        (metric tons)   (metric tos      (percent)
Wheat          Fixed   33,082,988        3,530,621         10.7
               Basis    8,402,638        2,876,737         34.2
Corn           Fixed   21,947,937        3,303,653         15.1
               Basis   23,907,266        6,243,414         26.1
Soybeans       Fixed    9,959,973        1,272,935         12.6
               Basis   13,125,967        3,398,216         25.9
Soybean oil, Fixed      2,547,592          273,405         10.7 CF
cake & meal Basis       3,759,950        3,430,113         91.2
Rice           Fixed    1,562,930           39,443          2.5
               Basis        1,150                0          0.0
               Fixed   69,101,420        8,420,057         12.2
Total          Basis   49,196,971       15,948,480         32.4
Known vs. Unknown Destination Contracts

      When an exporter reports a grain sale on the weekly
reporting form, he is required to enter a country of destina-
tion if it is known at the time. Otherwise, the sale is
considered of unknown destination unless and until the ulti-
mate destination becomes known and the exporter files an
amending report. Occasionally, however, grain is shipped
without a country of destination ever being identified.
This frequently happens with free on board (FOB) sales,
where the seller's responsibility ends as soon as the grain
is loaded on the transport vessel. When the Office of the
General Sales Manager compiles and publishes the weekly sales
report, it keeps the quantity of outstanding sales with un-
known destination separate from those with known destination.



                               58
     We asked the exporting firms in our survey to indicate
the amount of thei: 1973/74 contract decreases that were
known destination. Again, only the commodities wheat, corn,
soybeans, rice, and soybean oil, cake and meal were included.
About 56 percent of the 24,368,391 metric tons of decreases
were identified as known destination, leaving 44 percent of
the decreases as unknown destination. The results for the
individual coanmooties and for all five as a whole are shown
below.
                  1973/74 Contract Decreases
                          by Destination
                                                  Decreases
                                          Amounrt      -
Commodity         Destination          (metric tons) Percent
wheat             Known                    3,~24,995   47.2
                  Unknown                  3,382,363   52.8
Corn              Known                    5,643,815   59.1
                  Unknown                  3,g03, 52   40.9
Soybeans          Known                    3,082,213   66.0
                  Unknown                  1,588,938   34.0
Soybean oil,      Known                    2,014,824   54.4
cake & meal       Unknown                  1,688,694   45.6
Rice              Known                       11,518   29.2
                  Unknown                     27,925   70.8
Total             Known                13,777,365      56.5
                  Unknown              10,591,172      43.5




                                59
      How these results compare with the breakout of
and unknown destination sales originally contracted   known
                                                      for can-
not be determined directly, since the latter information
not obtained. An indirect comparison can be made,           was
                                                     however,
using 1974/75 contract data. An analysis
wheat and corn contracts revealed that 89.9ofpercent
                                              data on 974/75
original sales were known destination. Assuming       of the
                                                  that same
percentage to have held for 1973/74 wheat and corn
                                                     sales
yields decrease rates fog Lnown and unknown destination
tracts of 11.0 percent and 82.6 percent, respectively. con-
Because the 1974/75 data does not represent a complete
marketing year, however, we conclude from the comparison
only that known destination sales appear more solid
those with unknown destination.                       than

Affiliate vs. Non-Affiliate Contracts
     As with known and unknown destination contracts,
                                                       we
asked the exporters to identify those 1973/74 decreases
that were again:st contracts with
non-affiliate contract decreases. affiliates, as opposed to
                                    No information about the
quantities originally contracted for with affiliates
non-affiliates was obtained, however, so the solidity and
two kinds of salestremains unknown. Nonetheless,       of the
with affiliates constituted almost half of all     decreases
                                                the 1973/74
contract decreases in our survey. The results
                                                for the five
commodities follow.




                            60
                   Decreases:    Affiliate vs,
               Non-Affiliate Contracts, 1973/74

                                       Decreases    Percent
Wheat          Affiliate                2,997,223   46.3
               Non-Affiliate            3,410,135   53.2
Corn           Affiliate                3,728,477   40.0
               Non-Affiliate            5,818,590   60.0
Soybeans       Affiliate               2,534,509    54.3
               Non-Affiliate           2,136,642    45.7
Soybean oil,   Affiliate               2,772,352    74.9
cake & meal    Non-Affiliate             931,166    25.1
Rice           Affiliate                    7,056   17.9
               Non-Affiliate              32,387    82.1
Total          Affiliate              12,039,617    49.4
               Non-Affiliate          12,328,774    50.6
Possible Modifications to the
 xport ales kepti      stem
     The Export Sales epcrting System was intended to act
as an early warning system in agricultural export markets.
The level of agricultural xports could be constantly mea-
sured against existing and forecasted supplies so as to
avoid overcommitment of U.S. agricultural commodities. A
problem with the reporting system is that many of the ex--
ports originally contracted for are not shipped because of
contract cancellations or modifications.   It has been
suggested that if USDA had certain additional information,
not currently available in all cases, it would be able to
estimate more accurately the percentage of exports originally
contracted for that would result in actual shipments. Such
information could be obtained from the exporters through a
modification of the export reporting forms.



                                61
       In line with this, we asked
  indicate the extent to which they the exporting firms to
                                     feel certain items of
  information mignt help USDA identify contracts
 potential of being fulfilled. For each item        with a high
 about 30 percent of the firms marked "don't     of  information,
                                               know" or did
 not respond. The est of the firms rank information
 foreign buyers' capability to honor contracts            on
 in importance, with over half calling it helpful as  highest
 stantial extent or ore. About 40 percent             to a sub-
                                              of  the
 rate exact estinations, foreign buyers' advanced firms
 and the ecent of buyers' activities and position needs,
 U.S. cash and futures market as substantially         in the
 Less importance is ascribed, however, to foreign helpful  also.
 storage capacities, the exact classification         buyers'
                                                of the foreign
 buyer, contract pricing terms (fixed vs. basis),
                                                      and contract
 provisions.   In general, large exporters attribute less
 imprtdnce to all of the information.

       Another way of modifying the existing Export
 Reporting System would be to require exporters       Sales
 writtei explanations for contract decreases.     to  provide
                                                It
 from our survey, however, that such a requirement   appears
 meet considerable resistance                         might
                               from the exporters themselves.
 Firms in opposition to written explanations
                                              outnumber those
 in support by a wide margin, and the opposition
 strong than oderate in its tone. Turthermore, is more
 large exporters oppose the requirement and        eight of the
 The exporteis' responses follow.            only  one supports.

                   Exporter Attitudes Toward
          Written Explanations for Contract Decreases


Oppose                Strongly 63%              Moderately 377   102
Neither oppose
  nor support
                                                44
                                                Firms


Support             Strongly     odertel       Firms40
                     45%                       Firms

     We then a3sked the 84 firms not opposed to
planations how they would feel abot the additionwritten ex-
assessments for unjustifiable decreases.           of penalty
                                           Of the firms


                                     52
 responding, 21 oppose this stronger action, 30 support it,
 and 30 are neutral (neither oppose nor support). One large
 exporter is in support and tne other two are neutral. The
 results for the 84 can be combined with the imputed opposi-
 tion of the 102 firms against written explanations to obtain
 a composite exporter opinion on the addition of penalties
 for unjustifiable decreases. About two-thirds oppose the
 action, a sixth support it, and the rest neither oppose nor
 support.
      These same 84 exporters feel that written explanations
 and/or the assessment of penalties for unjustifiable contract
 decreases could possibly have some effect in various areas.
 The largest impact would be in the form of a decrease in
 contract cancellations and in the number of contracts,
 with commodity prices and total export volumes not a greatly
 affected. As might be expected, the assessment of penalties
 is seen as having the greater impact.
      At the present time, exporters are notified on an idi-
 vidual basis when to file the form, "Contract Terms Suppoiting
 Export Sales and Foreign Purchases." We asked the exporters
 for their position on the public disclosure of the informa-
 tion on these forms if it were aggregated to protect indi-
 vidual firms' identities. Exporters in opposition to public
 disclosure exceed those in support 76 to 58 (with 7
 expressing indifference). Moreover, the firms opposed
 to disclosure called their position a strong one. We found
 that large exporters are against disclosure more so than
 medium and small exporters. The responses follow.

                Exporters' Position on Public
             Disclosure of Export Contract Terms



Oppose              Strongly 67%         Moderately 33%    76 Firms

Neither oppose                                     57
 nor support                                       Firms


                    Strongly       Moderately      Firma
                      55%             43%




                                    63
        A potential sho;:tcoming of the Export
  System is duplicate reporting. For example,Sales Reporting
  exporters might each report the same shipment differ'nt
  vidual exporter might report a single shipment or an indi-
  once. We asked the exporting firms to estimate more than
  centage of the total export volumes reported      what per-
                                                 they would
  attribute to such duplication. Of the 133
  us estimates, almost one-third feel that     firms who gave
  accounts for more than 10 percent of total duplicate reporting
                                               volumes. Another
  third put the duplication rate in the 3
                                            to 10 percent range,
  while the rest believe it is less than 3
  exporters tend to minimize the extent of percent. Large
                                             the duplication.
  The responses are shown below.




                         Exporter Estimates of
                   Percent of Total Export Volumes
                 Attributable to Duplicate Reorting

Percent
  of
 Firms




    20



    10-

          47        44       20      12           10      Percent
                                                          attributable to
                      Finns Firms
                             Fm      Firms
                                     Fl        ._.        duplicate reporting
          0-2%      3-10%   11-20%   21-307.   Over 30X




                                64
                          CHAPTER 5

            EXPORTER OPINIONS ON PAST AND POSSIBLE
              U.S IVV      NT IN EXPORT MARKETS

     Part of the survey dealt with the roles tne U.S.
Government has played in the past and might consider for the
future in agricultural export markets. Our survey diselosed
that the exporters were generally dissatisfied with the
Government's role in the soybean embargo in 1973 and the
renegotiations of Soviet wheat and corn sales in 1974. On
the other hand, the exporters were generally satisfied with
the prior approval system implemented for a short time by
the Government in 1974 and 1975. As t future U.S. involve-
ment in the export market, a majority of the exporters pre-
fer tne present reporting system to other forms of Government
export monitoring and/or controls.

1973 Soybe a n E bargo
     Because of a domestic short-supply situation in the
soybean market and an increase in foreign demand, the
Department of Commerce imposed an embargo on the export of
soybeans on June 27, 1973. On July 2 the embargo was
replaced by export controls that remained in effect until
October 1, 1973. A decidedly large number of exporters in
our survey were dissatisfied with this Government action.
Of the 131 firms responding, only 15 (12 percent) express
satisfaction with the controls, while 89 (68 percent) claim
dissatisfaction. Two out of three exporters in this latter
group, moreover, call their dissatisfaction strong rather
than moderate. The following graph illustrates the over-
all responses.




                               65
                                Exporters' Attitudes Toward
                                      1973 Soybean Controls



      Percent


      i
     40                                          6


     30
     20                       221.4




          m1
                  7.67.   1    27          28        61
         5 Firmi 10 Firm Firms     Films      Firms
      Strongly Moderately Undecided'Moderately Strongly
      Satisfied Satisfied           Dicsatisfied Dissatisfied


      Not surprisingly, a greater proportion of exporters
directly affected by the c,,trols express dissatisfaction
with them. We found, for xample, that 77 percent of the
firms who exported soybeans or their products in 1973/74 were
dissatisfied, compared to 61 percent for the rest of the
firms. Similarly, of the 39 firms who were forced to make
contract decreases because of the embargo, almost 85 percent
(33) were dissatisfied, as against 61 percent for the others.
These two results converge in the case of the 11 large ex-
porters, 10 of whom exported soybeans and 9 of whom had to
cancel contracts. We fund that 10 of these 11 claim
strong dissatisfaction *.th the Government's action.
     Just under half of those dissatisfied say that the
Government controls were implemented at the wrong time or
were simply not necessary. Smaller percentages feel the
controls were the wrong type to apply or were excessive in
nature.




                                      66
The 1974 Soviet Union
Wheat and Corn Sales
     In mid-September 1974, the Soviet Union entered the U.S.
market to purchase wheat and corn. Because of a tight-
supply situation in this country, the U.S. Government in-
tervened in the following month, causing the original sales
to be renegotiated for small quantities. As with the soy-
bean embargo, we sought to determine the exporters' attitudes
toward this U.S. action. Their responses are shown in the
following table.


                      Exporter Attitudes Toward the
               U.S. Ro'e in the 1974 Soviet Grain Purchases



   Percent                          32.1%7
  30
                        20.47.%                   19.0        1S.07%
  20



  10                                                1
             9.5%

           13             28         44           26         26
          Firms          Firms      Firms        Firms      Firms
        Strongly    Moderately    Undecided   Moderately Strongly
       Satisfied    Satisfied                 Dissatisfied Dissatisfied


     Although more firms were dissatisfied than not, the
strength ot the dissatisfaction is noticeably less than it was
with the embargo. The difference, we feel, is that the 1974
U.S. intervention was considerably less severe than the em-
bargo. Only 6 firms, in fact, had to make contract cancel-
lations or deferrals as a result of the U.S. action. The
dissatisfaction of the 52 exporters was centered on the
feeling that the intervention was simply not necessary, and
the exporters' responses appear unrelated to how much and to
what they export.




                                    67
The Prior Approval System

     From October 7, 1974, to March 6, 1975, USDA operated a
voluntary Prior Approval System for large volume export
transactions. Under this system, exporters were requested
to receive Drior approval from USDA before entering into
contracts for selected agricultural commodities in excess of
50,000 tons.  In the later months of the system's operation,
the limit was raised to 100,000 tons.
     As with the 1973 soybean embargo and the 1974 Soviet
wheat and corn sales, we asked the exporting firms whether or
not they were satisfied with the implementation of the Prior
Approval System. In contrast to he two earlier U.S. actions,
exporters expressing satisfaction (as opposed to dissatisfac-
tion) are in the majority this time, as shown in the following
table.




                                Exporter Attitudes Toward
                                      Prior Approval


       Percent

      40


      30

      20



      10

                 12        55         70         13         5.7
                  iFrmFa    i              FirmsFirm s
           Strongly Moderately Undecided Moder- Strongly
           Satisfied Satisfied           ately   Dissatisfied
                                        Dissatisfied




                                      68
     Exporters who were satisfied with Prior Approval
outnumber those dissatisfied by about three to one, with
the response about the same through all sizes of firms. The
exporting firms repeated this favorable view of Prior Ap--rval
in their response to another question.  When asked how eft   -
tive, in terms of the national interest, Prior Approval was,
the firms answered as follows.

                 Exporters Rate The Effectiveness

                        of Prior Aproval

                                                         Exporters
                                             hum-eer                 Percenit
Positive effect                                   69                  35.4
Little or no effect                               64                  32.8
Negative effect                                   20                  10.3
Did not answer                                    42                  21.5
                                              195                    100.0
     A final question posed to the exporters concerns the
impact of Prior Approval in four specific areas. Alth..ugh
the responses are generally mixed, the most common answer in
each case is that Prior Approval had no effect. The results
are shown in the following.

                 Expo:ters' Opinions on the Impact

                         of Prior Aproval

                         Increase     No effect        Decrease   No answer
Total Volume of Exports      6          79               56          54
Commodity Prices            29          57               36           53
Number of Contracts         27          66              44           58
Contract Cancellations      26          92               20          57




                                 69
Government Role in Export Markets

     Besides simple modifications to the Export Sales
Reporting System, we asked the exporters about various levels
of involvement in the agricultural export market that the U.S.
Government might wish to consider. Among these are different
kinds of Prior Approval Systems, export allocation schemes,
and national grain reserve policies. Many of the programs
represent a more active market role for the Government than
the monitoring now being done, while others are similar to
action that has been taken by the U.S. in the past.

     When asked to rank, in order of preference, ten forms
Government involvement in the export market might take, the
exporters responded as follows;

       Exporters' Preferences For Government Involvement

                                                     Average Rank
 1.   An Export Sales Reporting System similar to          2.1
      the one currently in operation.
 2.   A voluntary temporary Prior Approval System.         3.8
 3.   An Export Sales Reporting System with the            4.9
      requirement to submit written explanations
      foL contract decreases.
 4.   A voluntary permanent Prior Approval System.         4.9
 5.   A mandatory temporary Prior Approval System.         5.0
 6.   An agricultural commodity reserve system.            5.9
 7.   An Export Sales Reporting System with the           6.3
      requirement for penalties to be assessed
      against exporters unable to reasonably
      justify contract decrea3es in writing.
 8.   A mandatory permanent Prior Approval System.        6.4
 9.   An export licensing system.                         7.5
10.   A producers' licensing system.                      8.2




                             70
     We have included the average rankings to demonstrate the
relative strength of the exporters' preferences. The Export
Sales Reporting System as presently operated is strongly pre-
ferred over all the others, with 86 of the 143 firms who
responded placing it first. Similarly, a voluntary temporary
Prior Approval System is a solid second choice.
     The rankings reflect, in adition, a preference in most
cases for the minimal necessary Government involvement.  For
example, the firms favor a voluntary Prior Approval System
over a mandatory one and a temporary rather than a permanent
one. They prefer the Export Sales Reporting System as it is
to one with written explanations for contract decreases and
would like the addition of penalties for unjustifiable
decreases even less.
     The exporters' preference for the present Export Sales
Reporting System is, furthermore, not simply a choice among
evils. Earlier we mentioned the firms' strong belief in the
U.S. Government's need for an export sales reporting system.
A second question we asked concerns the Covernment's need
to monitor agricultural exports routinely as to permit inter-
vention when it is felt to be in the national interest.
About 64 percent of the exporters who expressed an opinion
believe there is such a need, while only 23 percent say no.
Large exporters overwhelming say yes. No significant dif-
ference of opinion on this issue appears among the various
commodity groupings. The results follow.
                         Need for Monitoring

                         Agricultural Exports

                                                  Exporters

                                         Number               Percent

Yes                                       111                 64.2

Maybe                                      19                  11.0

No                                         43                  24.8

No basis to judge
     or did not answer                     22                   --

                                          195                 100.0



                                 71
     Two final questions on alternative programs involve
different export allocation schemes and national grain re-
serve policies. Were the U.S. Government to implement an
allocation program in the face of a sort-supply situation
like the 1973 soybean shortage, exporters would prefer to
see the allocation based on quotas by country r region than
to have export licenses sold or distributed on any basis.
The exporters' preferences are shown in the following table.

                 Exporter Preferences Among
          Short-Supply Export Allocation Programs

                                                   Exporters
                                          Number        Percent
Allocate export quotas by country           63           32.3
  or region
Distribute export licenses on the           19            9.7
  basis of exporters' historical
  market shares
Distribute export licenses on a first-      13            6.7
  come, first-served basis
Distribute export licenses to domestic      11            5.6
  producers on the basis of production
  histories

Sell export quota licenses to exporters      7            3.6
  at auction
Sell unlimited export permits at fixed       5            2.6
  fees
Other or did not answer                    77            39.5
                                          195          100.0
     In the event that the U.S. adopts a national grain re-
serve policy, however, exporters disagree widely on the types
of management control systems they would favor. The differ-
ent systems and the numbers of firms favoring each are shown
below.




                             72
                Exporters' Preferences Among
                    Grain Reserve Systems
                                                  Exporters
                                        Number         Percent

Voluntary private                            34          17.4

Mandatory Gov't-financed, stored by          35          18.0
  private sector
Mandatory Gov't-financed, stored by          32          16.4
  Gov't

Joint venture--mutually financed and         32          16.4
  stored by Gov't and private sector
Private sector-financed and stored           11           5.6

Other or did not answer                      51          26.3

                                            195         100.0




                              73
                             SUMMARY
     The surveyed exporters are generally satisfied with
USDA's Export Sales Reporting System as it is presently
operated. For example, most of the eporters:

   *   believe the U.S. Government needs a monitoring system
       to prepare for commodity shortages,
   *   feel ESRS has met the provisions of the act that
       established it,

       think ESRS has at least moderately achieved its
       objective of providing accurate, timely, and reliable
       export statistics,
       find the Weekly Export Sales Reports useful for market
       de, opment and intelligence purposes,

       have little problem with the actual reporting require-
       ments,
       claim that ESRS has not affected their export sales
       volumes,
       and prefer ESRS over other forms of U.S. Government
       involvement in agricultural export markets.
     In a somewhat different vein, many of the exporters feel
that the publication of the export reports has to some extent
influenced agricultural commodity prices and has given at
least a minor advantage to foreign buyers in export contract
negotiations. Also, most exporters think that the reports
would be more useful if additional information on contract
destinations, decreases, and shipment dates were included.

     We pursued the subject of contract decreases (i.e.,
cancellations, modifications, or delivery dferrals) in an
attempt to measure the overall extent of decreases and the
characteristics of contracts that are likely to be decreased.
Using data obtained from 48 firms in the survey, we calcu-
lated a 21 percent rate of decrease in the total volumes of
contracts to export wheat, corn, rice, soybeans, and soy-
bean oil, cake and meal in the 1973/74 marketing year.
Given the unusual market events and Government actions that
took place in that period, we view this rate as not at all
surprising. The exporting firms attributed over 90 percent
of their decreases to one of the following four reasons:


                              74
  ·   Disadvantageous price changes,

  ·   Contracting for maximum rather than probable needs,

  *   Overcontracting in anticipation of the imposition of
      controls, and

  .   Hedging to protect a market position.
     Further analysis revealed that basis contracts (those
with no specifically stipulated price) were much more
frequently decreased than fixed price contracts and that
unknown destination contracts were less solid than those
with known destinations. About half of the decreases,
moreover, were made by firms against contracts with their
own affiliates.
     Part of the survey dealt with the roles that he U.S.
Government has played in the past and might consider for the
future in agricultural export markets. The exporters were
asked first about three recent Government actions--the
soybean embargo in 1973, the renegotiations of Soviet wheat
and corn sales in 1974, and the Prior Approval System in
1974 and 1975. Both the embargo and the renegotiations
resulted in the forced cancellation of some outstanding
export contracts, while Prior Approval was mainly a voluntary,
pre-contractual review of large volume sales. Exporters
expressing an opinion were generally dissatisfied with the
first two actions, but satisfied with the third.
     As for future forms of U.S. involvement, the exporters
also appear to prefer a minimal Government role. Were
Prior Approval reestablished, for example, the firms would
want it to be temporary instead of permanent and voluntary
rather than mandatory. Although they accept the funda-
mental need for monitoring itself, the exporters oppose
modifications to the existing Export Sales Reporting System
that would step up the Government's involvement.   Specifi-
cally, more firms are against than are for the public
disclosure of export sales contract terms, even on an
aggregated basis. They are in opposition, furthermore, to
being required to submit written explanations for their
contract decreases and even more opposed to the assessment
of penalties for unjustifiable contract decreases.

     Although only 72 percent of identifiable exporters
participated in the survey, the participants were found
to represent, in terms of sales and exports, almost all of
the agricultural export industry. As such, the survey
results extend, we believe, to tht industry as a whole.


                               75
                                                             *CHAPTER 6
                                                      U.S. O    A AUCOUIWUdO
                                                                    CL       OpFICE
                                                         SUIVLmY1 IOltZIG Iruml
 INSTRUCTIONS
     All exporters who have filed export males repo-te Jith the oreign Agricultural Service of the U.S. Depart-
 ent of Agriculture are being surveyed to determine their att'udese ad opinions on the Exprt Sales Reportinp
System and other past, present, and potential short-supply m,.lgement ystems. Please read the followins
questions and ansr   each one as frankly ond completely as poss.ble. If   question doe not apply to your firm,
simply cross it out and go on to the next question. In responding to specific items tointhis questionnaire,
pleasel
          1. Consider only U.S. origin agricultural cmitie,                     specifically those identified in Appendix I
             of the Export Sleo Reporting Regulations.

         2. Respond as if all alternative actions mentioed could be .tplemeted under existing legislation.
         3.    Iespond to quetilrs o the Ebport Sales Reporting System as it currently operates. Please dort
               be Influenced by the initial "tartup" problems or early reviicms    d modificatiomes unless the
               questions are specifically about the original or early system.
         4.    Assue norml market cond:tiona umles               the queston directs you to consider certain specific
               abnormalities.

         S. Conider n export to be defined      a hipment of     commodity from the United States to (a) a destina-
            tion outside the United States or (b) ay territory or possession of the United States. The
            comodity hall be demed to have been       ported on the date of the applicable export carrier on-
            board bill of lading or the date the cadity     is received for ahip   t, as specified n the bill
            of lading; in the case of a commodity received for shipment in a lash berge or containerised van
            if a through on-board bill of lading is isuod for himnt to (a)        destination outside the
            United L.atcs or (b) any territory or possession of the United States.
         Please feel free to add any         dditional commute you         ay have at the end of the questionamir.

GINAL I1           fATIOU
I. Please identify your fim.                                               4.   Is your fir o   subsidiary or affiliate of another
                                                                                corporation?

                                (N'eme)                      -     -                      tZ7     Yes
                                                                                If j,. please provide the mme     and address of the
         irm No. (the same no. used to report export              -sles)        parent corporation or compny.


                               (Address)
                                                                                Address

                               (Zip Code)                                                                     Zip Code
2.       Company official completing quetioraire.




                                   (title)

                              (Telephone)
3.   How is your firm orpsnised?             (Check   ne.)
     L        Sole pr6prietorship
     .        Private corporetion

     .        Partnership

     D        Public corporation
     0        Other (please   pecify/




                                                                  76
5.   Does your firm expert U.S. origin agricultural codities to any orglaniation* that re either Ca) your
     parent organisation or partially or wh ly owned affiliates or subsidiaries thereof or (b) partially or
     wholly owned affiliaaes or ubsadiaries of your firm .(Check one.)     o     Yes          °     No

     If ys, please liat the ani of each orgafsiaton, the country or territory n vhich it is located, and the
     nature of Its ooeration, e.gl. shipper, ,aent,storage facility, cmmodity trader, end user, processor,
     merchant, etc. If your firm deals with mere than five such organisstions, please list the five with which
     you ordinarily conduct the reuest volums of export activity.
                         ftilitoe/SubsidLary                                 Country or             Type of
                            or barat                                         Territory            Oeanpit ~tion




6.   In what year did your fire bgin exporting      gricultural commodities?              Year

7.. What was the approximate value of all your U.S. origin agricultural ccemoditios exported during calendar
    years (1 January through 31 December) 1973 and 1974?

             1973   $                                             1974   S

8. Please enter the amount (in metric ton) of each agricultural comodity listed below that your firm
   exported during the 1973-74 marketing year. Also indicate whet percent of exort sales of each commodity
   was . 0. . (free on board), C. I. . (cash, insurance, and freight), F. A. S. (free alongside), C & F
   (cost and freight), or other. plcase approximate the amounts and prcentagts requested if you don't
   have this nfnrmatton readily available.



       Comodi ty/                               Amount n
      mrktin vyar                              metric tons                       ..
                                                                              C.OI.l.      A.S.               Other

      Wheat (ncudin.n          wheat
        products) '/1/     I       /30/74


      Corn      l0/1/'   - 9/30/74


      Rice     8/1/73 - 7/31/74


      Soybeers 9/1/73 - 8/31/74


      Soybean oil, coke and
         eal 10/1/73 - 9/30/74


      Cottonseed 8/1/73-         7/31/74


      Cottonseed oil, cake,
        and meal 10/1/73 - 9/30/74




                                                             77
ADMINISTRATIO N O T             EX(   T 8AWL    ISITIG   SYSTU
      Regardiess of whether you agree or disagree vith                   12.        Each of the items below deals with USDA's "Export
      the need for an Export Sales Rporting System,                                 Sales Reporting Regulations" nd "Export Sales
      do you understand the provisions of Section 812                               ReportinU Inatruction' (both revised effective
      of the Agriculture nd Consumer Protection Act                                 June 1, 1974). Rate each item as c. whether you
      of 1973t        (For exact wording refer to page 1 of                         consider It      to be a problem or not.          %Check only
       the Export Sales RporJing Regulations.) (heck             one.)              one box for each item.)

       D.J      Very good understanding
      j         Generally good understanding                                                                                                /o

      L.J/Moderate          understanding

          D     Generally poor understanding
                                                                         a.        Language--can you
      L_/       Very poor understanding                                                 tnd it
                                                                         b. ?ormt--order of
10.       Do you believe th- Export Sales Reporting System,                  reentia infor       n               __
          as formulated and implemented by the Department                c. Indexing--your ability
          of Agriculture, hs met the stated provisions of                   to find what ou need
          the Act? (Check one.)                                          d. Comprehensiveness--
                                                                            does it cover every-
          D      Definitely yes                                                    thp
                                                                              . Other (pleseespecify):i_                      _         _
          I /    Probably yes

          D/_Undecided
      JJ         Probably no

          Di     Definitely no                                           13.        Each of the items below deels with certain
                                                                                    features of the export report forms that your
11.       The Export Sales Reporting System is intended to                          rirm is required to submit. Rate each item as
          monitor the amount of agriculturel coimdities                             to whether vou onsider 't to be    problem or
          being exported so that, in the event of shortages,                        not.     (Check only one box for each item.)
          the U.S. Government will have on   timely basis                                                              /
          the information required to formulate necessary                                                                 /
          decisions. Which statement best describes hov                                                                  /9
          Jou feel about the U.S. Government's need for an                                                               .        0
          export sales reporting system? (Check one.)                                                                         e                  0

          D     Definitely needed                                                          r-7                                    p0f
                                                                          .        Language--can you
          ..J Probably neededcen                                                              you
                                                                         bb. Undecided
                                                                                     t--order in which
                L
                Undecided                                                      inforntion is requested
          Di    Probably not --'~Probably
                              needed
                              needed           not                       c.        Adequacy of space for

          -     Defnitely not needed                                     d.         eaesurement conversions
                                                                         e. Cost or burden associated
                                                                         f.        Meeting deadlines for
                                                                         ..         __1fou
                                                                         g.        Other (please specify)


                                                                               _     _      _    _               ,::ii




                                                                    78
14.    List in the box belov the verage tiA in toaff                      17.   Now does your firm feel bout tho adequacy of
       hours per week that your firm spend on filling                           the tie   llowed to ubit c     ent on prop
       out the follwing rpor.                                                    odthe               Export Soles Reporting
                                                                                System? (Check one.)
                                                       Staff hours
                                                                                ~            Completely tindequate
form       .g.    0-o2      (prt    of Ot10~l
                              Ortain olo)                                       C7 Slightly less then               dequate
*ormCt            06°008    (Report    o  rt
                                 la N     u                                     j2D          tbout right
fore CB             .00    '(Gr     T   t TT"    Sup    _
                                  parting Exprt                                 /7           Sl:ghtly more then adequate
                                  soloee   d Foreign

form c.I.         06-00
                                   h.r.. F*)
                                  ooprt o tiqort         _
                                                                                 D7 Luch more          than needed

                                    ffor bpoters                          18.    What was the extent of your participation in
                                     0    oiunt)-                                the modification process? (Choek all that apply.)
                                                                                =_           Did not participate (Skip to question 20.)
15.    At the present tim, reporting exporters are
       notified by USDA on an individual basis wheo to                           Dm
                                                                                  Submitt.ad           telephone caeunts
       file form CE 06-00S9 (ontract Teors Supporting
       report Seatl end foreiga Purchases). This form                           L/           Submitted written c      ents
       contain export soles information related to
       reporting exportor, um of foritn buyer.                                   I           Participated in meetings that were closed
       contract terms, actual contract quantity not                                            to the general public
       exported, destinotionsl etc.
                                                                                LJ           Participated in meetings that veats     open to
        Would your firm support or oppose the public                                          the generol public
        disclosure of such data in a periodic report
        if it were combined or aggregated with similar                          L1           Other (please specify)
        data from other firm so that it could not be
        identified with your firm or any other firmat
        (Check one.)

       L==       Strongly suppOrt
                                                                          19.    What is your firm's impression about the exten
       N         Moderately support
                 h                                                               to which USIA has considered your views prior
                                                                                 to finslirlng modifications to the System?
       _         Neither support nor oppose                                           Very little consideration if any

       U         Moderately oppose
                                                                                      Some consideration,
                                                                                ly oppose                           but not enough
           0-    Strongly oppose
                                                                                LJ           An appropriate mount of eonsideration
 16.       Several changes huve been made to the REport Sales
           Reporting System since its inception. Now did                                7 Too much consideration
           your firm first learn that changes were being
           considered? (Check one.)                                             L_           No basis to judge

       L/        From the Federal Register                                20.    In addition to exporters, which (if any) of the
                                                                                 following interest groups do you believe should
       L         Goverrment officials requested your coents                      be represented if future motings concerning
                                                                                 changes to the Export Sales Reporting System
        =L       sly found out after changes were implemented                    are required? (Check all that apply.)
                  (If you checked this box, please skip to
                    question 20.)                                               L.J          Farm groups

       t_        Other (please specify)                                             0        Consumer groups

                                                                                         /   Trade associations

                                                                                    0        Transpottation companies

                                                                                    0        Storage copoanies
                                                                                     0       Foreign importers

                                                                                L7            Foreign governnents

                                                                                LU           Retail food companies
                                                                                     0       Other (please specify)




                                                                     79
 usmus               Ot        rt u.s. te      S.         AES No
21.       Do you receive the U.S. upeort aele Ipert that                                      75.   D, you believe that the weekly pblicetion of
          is ublihed each week by the Foreip Aricultural                                              export data n the U.S. Lsport Sale& report
          Service, USDAt                                                                             ives foreign govrusto or trading comtpanes
                                                                                                    any advntate in elotietiu contracts wich
                                  7     Yese                   7         b                          U.S. eporting comaiet (Check on.)

          If II,        please skip to questioa 28.                                                 7     majorodvat       ta

22.       Which of the following stotments describe how your                                        7     Somewet of a ajor advantage
          fir       generally uses the weekly U.S.                      eport Salee
          report?             (Check all tohat aply.)                                               D             -&to advatage


                                                             *lee with total
                                                                                                    D.r           Zedvktag
                   Cqpre toepay's export
                    U.S. export sales                                                               °     Little or        o advatage

              .7   For ecastforeig ceutries'                       ed             lta
                                                                          for specific                       b         t    je
                     agricultural comodities
                                                                                              26.   At time, the xoert Sal      Reprting Syste has
                   Use as a reference for export ales to foreign                                    bee critid     for cetoaii    duplicate reports
                     countrie by c     dity                                                         of the somshipment i.e.,      iffermat exporters
                                                                                                    reportlot the export of the sm quantity of
                   Develop plaing  · tratq for buying U.S.                                          sive eemdity (e        shipment) or a give
                     agricultural cmodities                                                         eporter reporting the exprt of te ses ship-
                                                                                                      nt two or more tie.        the syrte is
                   Develop plaaing stretegy for company's trading                                   currntly operated, what percent of the total
                     decisions with foreign buyers                                                  export vims reported do you believe is
                                                                                                    attributable to such duplicate reporting
                   Use to uake transportation                      or storage                       (Ceck      e.)
                     decisions                                                                          0.2               21-30
           7       Other (pls          specify)
                                                                                                          3-101                     31-401   D   re then 5S
                                                                                                    0--D
                                                                                                      11-201                    D   *1-5o
23.       Ihich statement best describes how frequently
          your firm uses the data from the eekly U.S.
          Ixportr Saler report? (Check one.)

                   Donut use it        t all

      I            ra    Iy    - about I to 5 times a year
      t            Occslonally-&bout 2 or 3 time a m th

                   Frequently - about 2 or 3 ties                       a week

          0        Very frequently-about 2 or 3 time a day
24.         I would your fir rate the overll usful ·      tof
          the data published i tohe eekly U.S. mport Shle
          report? (Check se.)

      7            Very ueful

          7        Generally useful

          0        ao useful asu ot

          0        Of oe use
                   Of very little or
                   O                                use




                                                                                         80
27.    blew are listed se it        of itfomtion that                         28.    Nay people believe chat expert coamitments
       could be included i the U.S. Ruport Sale report                               (outetiag      export oles plus export hip-
       if UfD had dot on than. Mo importat do you                                    munts to dote) frequently overstate probable
       believe each of then i, or ould be, to the                                    actual export hipmfts for       gliven arketing
       usefulness of the U.S. aoport salei rportt                                    year. This hapras because export contracts
       ( Cheek one box for each ite.)                                                are (1) cenolle with no shipments being
                                                                                      ade, or (2) modified so that () actual
                                                                                     quantties shipped ere less than originally
                                                                                     contracted for, (b) delivery of cmodities
                                                                                     is deferred to the next markting yar, (c)
                                                                                       nother comdity is substituted for the
                                                                                     comnodity originally contracted for, d)
                                                                                     delivery of coamodities is changed to snother
                                       - -' - -
                                    ___________________   -      _                   destination, or (a) purchases from foreign
 . Quantity tolerses (percent                                                        sellers are used to fulfill export sales
   of allowble under/over                                                            contracts. Please estimate what poroantse
     hgimfta_)                                            _                          of your firm's total decreases that occurred
b. raportation d ls                 -    -                                           in the 1973-74 marketing year was attributable
   (such as P.O.., C.I.P.,                                                           to each of the following reasons? Please
                                        t.-)_ _ __        _                          respond in terms of the percent of volume, e.i.,
                . Dinaons                                                            tons or running bales, etc., of commodities
                                                                                     that wre decreased.     If your firm did not
                        "                    _eids(dates)                              xperience      contract decreases during the
d.      nSbipot priodns(dota specified               _                                           period, please check this box
e.    Contract type (fixued',                                                         and skip to question 29.
            d
              . *tc.l-
         'b42is                     _) _ __Percent                                                                           becrease

f.    Ibcrease}s(including                                                           rLr                     A         in Volume
      cancllations, buy-
        b u
      Oth*rtcplase  specifyI)                -                                a) Original quantities based on
        c
      Othkr (please specify)                          :                            atites   of maximum rather
                                                                                 than iebable ned
                                                     ;..'__   _:_i'_          b) Original quantities based
                                                                                 on anticipation of the
                                                      i._.:_:.____      _         imposition of U. S. Govern-
                                                 .....             _         __m           t   controls           _t

                                                             :_ _ __    -c          Hedging
                                                                                          to protect their
                                                                                 cash or futures market
I     fixed contracts are defined as contracts or                                 oition
      transactions in which s definite cash price is                          d) rice dropped--more
      established at the time te contract is written,                            advantageous for buyer
      sometimes referred to as fsia contract&.                                   to cancel or modify
                                                                                 _ontracts                                  _
      b sis contracts are defined as contracts or                             e) oretign buyers' inability
      transactions in which a definite cash price is                               to nav
      not originally set --someties referred to os                            f) Foreign buyers' inabillty
      open, discount, or premium contracts.                                      to take delivery
                                                                              Seller Activities:
    / Decemases are defined as domwWard djustments of                         g) Oriine    quentities beed
      quantities actuelly exportdincludig cacelltio-                               riginal quantitiesxi baedof
       buy-backs", loading tolerances, changes in market                         on             ofble
                                                                                            t estimha x ne

      Ir.gyears, or chnges in cd _tie.                                        h) Original quantities based
                                                                                    on nticipation of the
                                                                                    imeositlon of U. S. Govern-
                                                                               i) Hedging to protect their
                                                                                  cash or futures market
                                                                                    sosition
                                                                              j) Price dropped--more
                                                                                 advantageous for seller
                                                                                 to cancel or modify
                                                                                 contracts
                                                                              k) Seller'   inability to
                                                                                 deliver
                                                                              1) Other (please specify)




                                                                       81
PO     ssxLf ALSmIVES TO T            !   011T    LU
RN                                                                             .ha~in          tionh~"*"'""""""i
                                                                                                       f         nst        cma

      Sverai alternatives to the xport Sales Ieporting                   30.        Would your firm support or oppose   U.S. overn.
System hve been proposed t various times. Thee hve                                  ment policy that required xporters to provide
ranged from a slightly modified export rporting system                              writton explanations for contract decreasesl
to drastically different kinds of comodity supply                                   (Chock one.)
onag_ nt yte
                                                                                   system.
                                                                                        Strongly support
     Some of these lternative rogrmu h        been tried
in the past. In this seoction we would like     obtain                                    M
                                                                                          Irbd tely          support
your views both as to your past experiece with sm of
these alternttive proposals, as well as to  the desire-                             D     Neither support nor oppose
bility of implementing them in the future.
                                                                                             IModerately oppose
29.     It has been suggestod that if USDA had certain
        additional information not currently available                             LZ     Strongly oppose
        in all cases, it would be able to more accurately
        estimate what prentage of the exports origL-                                If you choked either "Ibderetely oppose" or
        nally contracted for would result in actual ship-                           "Strongly oppose, skip to question 3.
        mnts.   Please indicate the extent to which you
       believeeach of the folloing item of information                   31.         ould your firm upprt or oppose a U.S. Govern-
       would permit USDA to more accurately make such                               ment policy that required penalties to be assesed
       estimates. (Check one box for each item.)                                    againt exporters wbo were uable to reasonably
                                                                                    justify, in writing, contract dcreases?
                                                                                    (Check one.)

                                                                                    07 Strongly            support

                                                                                          N7
                                                                                           bderatly upport
                                                                                          Neither support nor oppose

                                                                                          aNoderately oppose
                                                                                    0        Itronly owppo
                                 _ _-_ _ _                               32.        If the gowrremt did require either, k)rittsr
CMWUACTS                                                                            aepleutt.os for contract decreases or, () both
  aClassification of foreignp                                                        ritten explnations nd the asseomemat of
    buyer Gover     nt agency,                                                      pealtfre for unjustified contract docruass,
    affiliate, private rel-                                                         whot do you think the ffet weould be o the items
    lor, processor distribu-                                                        litoil below? (Cbheck oe box for eath item in
     or, ar oh.      -A u      _ _r") _    _                                        sectirm a md one box for each item in section b.)
  b)Contrset pricing term or
    formul (including identi-
    fiction of ixed vs.
    b-_~is centract    om) _ _ _ _ _         I
   e         et
            tinutio    (t.e..
    not prmittin destine-
       &ion 00.o       matries              -
     d)Contrect provisions such
       as leodin tolaraneos,                                             &) bitt-
                  Totl strage
       shipplig dtes,                                      _.                                          s    of         rt
       details, etc.
     e)Other (pl'ee specify)               |                                  '      C-ditL              mries_
                                                                                                         r

                 ,____________________                                        3.     Bb      er of cotracto
                                                                                     ._trt           cma/atim
AJDD     A BTU                                         _                      S._ Other (            a      specify)
   f)oreigp buyers'      dvsmeod

                        oreip    o|         I s   _             _        b)        Vritte meplmtiemn                 ad
     h loreip b.yr'     cap
     i)Dbtet of      et buy.                                                              l vel     of    rt
       activities and position                                                L.     -     iv    oric--
       tn the U.S. cash                                                               udr     of   otrct.

     j)Other (pleaoose specify)                                               4.     Contract canellti
                                                                              5.     Other (please specify)                 _




                                                                    82
i1    lb      hPior      ~ra     X k        et

       from October 7, 174, to Maorch 6, 1975, UIA operated                                  37.        In terms of the national interest, rw effective
      a voluntary rior Approval System for large volute                                                 we the most recent voluntary Prior Approval
      export treJoeatioln.                 UOder this system,              xporter                      System? (Check one.)
      were u           o resolve prior approval from USDA
      before eneri     late export contreate for relected                                           L       major positive offect
       gtriculturel cemmditiet   tis emeoe of 0,000 tone
      origieally, sod fttinally     the ltor oaths fot                                                      CGeerally positive effect
      qutitte,    t esoos of    100,0    tes.
                                                                                                    e       Little or no effect
33.   Mat Ld you think weo the primary rease                              ibhy USDA
      Implemeted the Prior Apprval ytro                                  (Coeek onei.                       OGenerlly unegtive efIect

              Dsme       for the U.S. cn                .r                                          j       Moajor   egative effect

              Coselrs    for the U.S. tar                come ity                            38.        It ie osible that, during the period the meoot
                                                                                                        reocent Prior Approval Sysetm m in effect,
              Concern for U.S. exporters                                                                om instancec of mltiple con'ract between
                                                                                                        U.S. exporters ad foreign buyler were rrgeod
              U.S. overment como                      for the adequacy of                               ti order to circuvent or aoid obtaiing prioer
                foreign eupplis                                                                         approvall for exaple, contracting for tenages
                                                                                                        slightly uoder that requiring approval oe day
          D   USAs      desire to avoid mr4e tringent eontrll                                           and contracting for rore shortly after. Of
                                                                                                        the total contracts entered into during the
      D       Other (please specify)                                                                    period that the Priot 4proval System es it
                                                                                                          ffect, what percentage do you believe repre-
                                                                                                        ·
                                                                                                        snted   attempts to cir-cuvent or avoid obtaining
                                                                                                        approval? (Check one.)
34.   Dung the period the Prior Approvel System was t
      effect, ws it clear to your fire what criteria                                                        None          11-25             than 5.#
                                                                                                                                        Mbrore
      USDA was using to approve or disapprove export
      contractsa  (Check one.)                                                                      L       O-lO      0   26-50%

              Very clear A                 firlyclear                    oat clear            39.         hst effect do you believe the met receut
                                                                                                           all Approval System hbd on the fecors It,'-
                                                                                                        Prior
                                                                                                        at
                         Syst
                          rior
                  3. Th Syte         etbi
                                  roval
                                ewas             ed
                                               d aml                                                    belowt (Chck one box for each factor,)
35.   The Pior Approval              establiobod
      operated by US as a volntary yotem. Dd your
      firm perceive it ao a volu tery system? (Check one.)

      L        tes      A            NO            Do't know

36.        In retrospect, w your firm satified or nt vith
          thes ixlmtation of the Prior Approval System?
           (check ome.)
              Strongly satisfied
              S.7                                  -7         adseretely aisatisfied          A)    Total volum       of expot
      d       lbderately satisfied               J_       Strongly dissatified

          0
          Udecidd                                                                             3)        Commdity prices
      Yf you ecked "Noderately dissaotisfied" or"Strogly
      dissatisfied", please ottt  to identify your                                            C)        Iuber of contracts
      ream(s) by hecking ose or mare of the followings_
                                                                                              D) Contract cancellations
      A        U.S. Goveret cantrols weot                           naoeoeary

      i        Wreg tpe of coatrols                     ere    pplio d                        1) Other (please specify)

               Centrolo        ere        implemented at the wrong time

      t        Controls were terminated at the wro                          tim

                                              xc   aiVe                                       ___
               Control      were too

      o        Control were not strong enough

               Other (please specify)




                                                                                        83
 40.          It the U.8. Govcrunut were considering     tablihil l     Z          M 1974 Soviet   Union        and
                                                                                                                .at Corn SLe
              either () a temporary Prior Approval lyete, oly
              when it perceives such acti    tbe in the                            In Ld-Sleptmber 1974, the Soviet Union
              national interest or (b)    permonent Pritr Approval                 entered the U.S. umrket to purchase wheat dnd
              System, which of the following cystems muld your                     eorn. Because bf     tt    supply situation in
              2ir prefer? (Chock one.)                                             this ountry, n October 1974, the U.S. overn-
                                                                               sont      intervened, causing the origti l soles to
                  A voluntary parnmeent system                                     be renegotiated for smaller q. titi.
                  A voluntary       porary syseem                        43.   Did your firn cncel contract o defer delivery
                                                                               under any contracts s a result o.' the U.S.
                / A mandatory permanent system                                 Oovermet.control applied to the Actober 1974
                                                                               dturchase of corn end wheat by the Soviet Union?
          _       A andatory temporary       yera                                  (Chek oe.)

          L.      Doi t know                                                           Neither cancelled contracts nor deferred
                                                                                       delivery under aay contracts
III. 1'73 Sovbasm             ubArmo
                                                                                       Cancelled scoe contracts but did not defer
              Dus to   domestic abort-supply situatLo in                               delivery under any contracts
              the soybean market end n increseo in foreign
              demand, the Deprtent of Coinrce imped exprt
              controls on July 5, 1973 that reuined in effect
                                                                                   D   Deferred delivery under ome contracts but
                                                                                       did not cnel   any contracts
              until October 1, 1973.
                                                                               L       Cancelled mine contracts   d deferred
                                                                                       delivery undoer other cotracts
41         Did our firm cncel contrects or defer delivery
           under any of your ontracts s a result of the                  44.   Fro. your understanding of the October 1974
           U.S. Goernment imposed soybe embargo of 1973?                       control applied to the sales of corn end wheat
           (Check one.)                                                        to the Soviet Union. were you satisfied or not
               Neithh~r cancelled contracts nor Jorrewith
           0   Neither zancelled contracts nor deferred
                                                                                    the Goveruent s ction? (Check one.)
               de ivery under any contracts                                    0       Strongly satisfied
               7 Cancelled sme contracts but did not defer                     0       Moderately satisfied
                 delivery under ny contracts
           0.    Deferred delivery under ams contracts but
                 did not cancel any contracts                                          Moderately disutisfied
       /        / Cncelled om contracts end deferred                           0       Strongly dissatisfied
                  delivery under other contracts
                                                                               If you checked "oderately discatisfied" or
42.       From your understeding of the oybean embrgo of                       "Strongly dissetisfioed", please ttet   to
          1973, ere you satisfied or not with the Govern-                      identify your reason(s) by checking one or
          ment's action? (Check one.)                                          more of the followings
                 Stronguy satisfied                                            0       U.S.   overnnt controls were not necessary
           ... Noderately satisfied                                                    Wruong type of controls were applied
           D     Undecided                                                     D       Controlc were Impl em ted at the wrong tine
       L         Noderately ditsstisfied                                       D Controls were       terminated at the wrong timein
           D=    Strongly dissatisfied                                         D       Controls were too excessive
       If you checked "Noderately dissatisfied" or         /C'Gmtrols                          wre not strong enough
       "Strongly dissatisfied", please attempt to identify
       your reason(s) by checking one or man of the
       followings
                                                                               D       Other (please specify)

          0      U.S.   overnisnt controls were not necessary

          0.     Wrong type     f   ontrols were applied
       _J Controls were implemented             t the wrong time
          D/     Controls were terminated      t the wrong tinm

      L/        Controls were too excessive

      /        / Controls wcre not strong erough

      L/       /Other   (please specify)                                _9_




                                                                   84
45.       In thr event of   short supply export control               zEXpITn        ATTITUD    u   AND OPImIOvS
          situation materislising, similar t   he soybean
          shortage of 1973, which c' the following Govern-            47.   What ffect do you believe the Export Sales
          ment export allocation programs would you prefer                  IReporting System has had n your firm's export
          (Check one.)                                                      sales of agricultural commodities during the
                                                                            paet year? (Chck one.)
      /7       Allocating export quotaes by cour try or region
                Selling
                S       export permits t fixed fees with no
                                                                             D        oddratu increse in sale         volume
                quota on the number of pemsi.L to be old                    I.Z      Slight increase in el*es        olume

      /         Selling export quota license
                auction
                                               to exporters at               D       No effe-

                                                                                 . Sligsht decres          in sales volun
      7        Distributing export lfcesee to domestic
               producers on the basis of production histories                        Noderete drease in sleF uolum
                                                                                     m

          0    Distributing xpnrt liceaes to esporters on
               the besis of their historical market bshars
                                                                             0       No bsis to judge
                                                                      48.   The major determinants of comadity prices are
               Distributing export license to exporters on                  worldwide aud domestic supply and dcrad factors.
               a first-come, first-served basis                             Recognising this, do you telieve that the vekly
                                                                            publication of export data in the U.S. Export
          0_Other     (pleas   specify)                                     Sales report hs any addittonal influence on
                                                                            coodity prices? (C.ek one.)

v..!s·eri                                                                    0       Little or      no   influence
          In anticipation of future short-supply situs-                              Small influence
          tions the U.S. Government could establish reserves
          in which   specified quantity of specific con                      0       Moderate influence
          moditles would be set side for future national
          needs.                                                                    / Substantial influence

46.       in the event tb- .S. adopts     national grain                             Very great influence
          reserve policy, please indicate which of the
          following types of management control systems                      0       No basis to judge
          you would prefer.  (Check one.)
                                                                      49.    Whet is your firm's drirv pereption of he
          0     Voluntary private reserve                                    Export Sales Reporting System as it is presently
                                                                             employedt   (Check one.)
          0     Mandatory Government finaced reserve stored
                by the private sector                                           0    A means to provide morr iformation on
                                                                                     foreign demand and export comitments
          D     Mandatory overrnent finsnce*
                by the ovurment
                                               reserve stored
                                                                                      Improvement of the Government'3 system for
                                                                                      forecasting exports
          0     Private sector financed reserve stored by the
                private sector                                                        The first step toweard a comprehensive Govern-
                                                                                      ment short supply manegeent system
          0    Joint vnture reserve--mutually financed nd
               mutually stored by the Government and the                        0     A Goverment activity of marginal utility
               private sector

      /       / Other (please specify)
                                                                                D     Other (plese specify)


                                                                      50.    To what degree do you believe the Export Sales
                                                                             IReporting System hs            achieved its stated
                                                                             objective of providing accurate, timely,              nd
                                                                             reliable export statistics? ~Check on..)
                                                                            LJ        Little or no achievement

                                                                            L         Minimally achieved
                                                                                0     Modeately achieved

                                                                             _        Major achievement
                                                                             =        Almost completely achieved




                                                                 85
       DS you believe that there I a need for the U,I. Cvrernmat to -sL                   mte rU.S. agrtculture eaport
                                                                                       r eu
       se as to permit intervention w   it prcreives uch action to be i t              e atieal interest  (Che4k ee.)
       7        ft0lftIy tyeL= PrWobbly yes A       A muh ye         n       Probably                Defiit ly so
                                                                                                                         to b
            a                                                                                                                 ui
                                                                                                                            Judge


52.     egardle·· of whether or not you believe that there it a need for Overano t ivolvt        in the tstivities
       of agrieulturl ceomdity exporters, in th, event that     ovraemrt nvolvement is to contioue, we would
       like your viove as to det form this involvm. nt should to.     Selow ore listed teoo different types of
       control for the export of agricultural coemoditieo.  Fnloas reek order the lternativee presented from the
       mot to the least preferred by your firm. Select the lternative most preferred ad indicate it by
       circling lt to the right of it.   Do the me for all remeoning alternatives, rking them 2d, 3rd 4th,
       5th, th, 7th, 8th, 9th and lOch. MlOt Bach rnk, lot threou       10th should be circled only oce.


       1.   An Dport Sles    porting System    mittlar to the        lot   2nd   3rd    4th   5th    6th   7th   8th   9th   10th
            one urrently in operation
       2.   A Ibport Sale Reportig System with the                   lst   2ad   3rd    4th   Sti    6th   7th   8th   9th   10th
            require   t to euboit written expleetion
            for contract decreases

       3.   An Lport Sales Reporting System with the                 !-    2nd   3rd    4th   5th    Gth   7th   8th   9th   10th
            requirerment for penalties to be assessed against
            exportr r     ble to reasonably justify, in
            writing, cotreact &dAreeas

       4.   A voluntary   etporary Prior Approval rystem             lot   2nd   3rd    4th   Sth    6th   7th   8th   9th 10th
       S. A voluontry permanent Prior Approval      ytem             lot   2nd   3rd    4th   5th 8th 7th        Sth 9th     10th
       6.   A mndatory toerry      Prior Approvel System             lot   2ed   3rd    4th   5th Gth      7th   Sth 9th     10th
       7.   A mendatory perm    ent Prior Approval Syrtem            lot   2ad   3rd    4th   Stbh    th   7th   8th   9th   10th
       8.   A eaporter licensing system                              lt    2nd   3rd    4th   5th    6th 7th     8th   9th   10th
       9. A producers licenosing system                              lot 2nlad   3rd    4th    th     th   7th   8th   9th   10th
      10.   As agricultural comodity reservCsystm                    let   2ed   3rd    4th   5th    8th 7th     8th   9th   10th




                                                                86
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                                                     4
                                             J.          48
CENEUAL COSE4CSI

     Please use this space for meking any comments you may have on the
                                                                       Export Sales R   rting Svstem or any
of the other items mentioned in the questionnaire. Your vieve are
                                                                  greatly pprnoiateu.   Thnk you.




                                                  8
APPENDIX H                                         APPENDIX H




                       AGREEMENT BETWEEN

     THE GOVERNMENT OF THE UNITIED STATES OF AMERICA AND

  THE GOVERNMENT OF THE UNION OF SOVIET SOCIALIST REPUBLICS

      ON COOPERATION IN THE FIELD OF AGRICULTURE
     The Government of the United States of America and the
Government of the Union of Soviet Socialist Republics;
     Taking into'account the importance which the production
of food has for the peoples of both countries and for all of
mankind;

     Desiring to expand existing cooperation between the two
countries in the field of agricultural research and develop-
ment';
     Wishing to apply new knowledge and technology in agri-
cultural production and processing;
     Recognizing the desirability of expanding relationships
in agricultural trade and the exchange of information neces-
sary for uch trade;

     Convinced that cooperation in the field of agriculture
will contribute to overall improvement of relations between
the two countries;

     In pursuance and further development of the Agreement
between the Government of the United States of America and
the Government of the Union of Soviet Socialist Republics
on Cooperation in the Fields of Science and Technology of
May 24, 1972, and in accordance with the Agreement on Ex-
change and Cooperation in Scientific, Technical, Educational,
Cultural and Other Fields of April 11, 1972, and in accord-
ance with the Agreement on Cooperation in the Field of En-
vironmental Protection of May 23, 1972.

     Have agreed as follows:
                          ARTICLE I

     The Parties will develop and carry out cooperation in
the field of agriculture on the basis of mutual benefit,
equality and reciprocity.



                               89
APPENDIX H                                       APPENDIX H



                          ARTICLE II

     The Parties will promote the development of mutually
beneficial cooperation in the following main areas:

     1. Regular exchange of relevant information, including
        forward estimates, on production, consumption, de-
        mand and trade of major agricultural commodities.
     2. Methods of forecasting the production, demand and
        consumption of major agricultural products, in-
        cluding econometric methods.

     3. Plant science, including genetics, breeding, plant
        protection and crop production, including produc-
        tion under semi-arid conditions.

     4. Livestock and poultry science, including genetics,
        breeding, physiology, nutrition, disease protec-
        tion and large-scale operations.

     5. Soil science, including the theory of movement of
        water, gases, salts, and heat in soils.

     6. Mechanization of agriculture, including develop-
        ment and testing of new machinery, equipment and
        technology, as well as repair and technical serv-
        ice.

     7. Application, storage ar transportation of mineral
        fertilizers and other i;ricultural chemicals.

     8. Processing, storage and preservation of agricul-
        tural commodities, including formula feed tech-
        nology.

     9. Land reclamation and reclamation engineering in-
        cluding development of new equipment, designs
        and materials.

    10. Use of mathematical methods and electronic com-
        puters in agriculture, including mathematical
        modeling of large-scale agricultural enterprises.

     Other areas of cooperation may be added by mutual
agreement.




                             90
APPENDIX H                                       APPENDIX H



                         ARTICLE III

     Cooperation between the Parties may take the following
forms:
     1. Exchange of scientists, specialists and trainees.

     2. Organization of bilateral symposia and conferences.

     3. Exchange of scientific, technical and relevant
        economic information, and methods of research.
     4. planning,'development and implementation of jcint
        projects and programs.

     5. Exchange of plant germ plasm, seeds and living
        material.

     6. Exchange of animals, biological materials, agricul-
        tural chemicals, and models of new machines, equip-
        ment and scientific instruments.

     7. Direct contacts and exchanges between botanical
        gardens.

     8. Exchange of agricultural exhibitions.
     Other forms of cooperation may be added by mutual
agreement.
                         ARTICLE IV

     1. In furtherance of the aims of this Agreement, the
        Parties will, as appropriate, encourage, promote
        and monitor the development of cooperation and di-
        rect contacts between governmental and non-
        governmental institutions, research and other orga-
        nizations, trade associations, and firms of the
        two countries, including the conclusion, as appro-
        propriate, of implementing agreements for carrying
        out specific projects and programs under this Agree-
        ment.

      2. To assure fruitful development of cooperation, the
         Parties will render every assistance for the travel
         of scientists and specialists to areas of the two
         countries appropriate for the conduct of activities
         under this Agreement.



                              91
APPENDIX H                                         APPENDIX H


     3. Projects and exchanges under this Agreement will be
        carried out in accordance with the laws and regu-
        lations of the two countries.

                             ARTICLE V
     1L   For implementation of this Agreement, there shall
          be established a US-USSR Joint Committee on Agricul-
          tural Cooperation which shall meet, as a rule, once
          a year, alternately in the United States and the
          Soviet Union, unless otherwise mutually agreed.
    2. The Joint Committee will review and approve specific
       projects and programs of cooperation; establish the
       procedures for their implementation designate, as
       appropriate, institutions and organizations respon-
       sible for carrying out cooperative activities; and
       make recommendations, as appropriate, to the Parties.
    3. Within the framework of the Joint Committee there
       shall be established a Joint Working Group on Agri-
       cultural Economic Research and Information and a
       Joint Working Group on Agricultural Research and
       Technological Development. Unless otherwise mu-
       tually agreed, each Joint. Working Group will meet
       alternately in the United States and the Soviet
       Union at least two times a year. The Joint Com-
       mittee may establish other working groups as it
       deems necessary.

    4. The Executive Agents for coordinating and carrying
       out this Agreement shall be, for the Government of
       the United States of America, the United States
       Department of Agriculture, and for the Government
       of the Union of Soviet Socialist Republics, the
       Ministry of Agriculture of the USSR. The Execu-
       tive Agents will, as appropriate, assure the co-
       operation in their respective countries of other
       institutions and organizations as required for
       carrying out joint activities under this Agreement.
       During the period between meetings of the Joint
       Committee, the Executive Agents will maintain
       contact with each other and coordinate and super-
       vise the development and implementation of coopera-
       tive activities conducted under this Agreement.




                              92
APPENDIX H                                         APPENDIX H



                        ARTICLE VI

     Unless an implementing agreement contains other provi-
sions, each Party or participating institution, organization
or firm, shall bear the costs of its participation and that
of its personnel in cooperative activities engaged in under
this Agreement.
                        ARTICLE VII

     1. Nothing in this Agreement shall be interpreted to
        prejudice or modify any existing Agreements between
        the Parties.

     2. Projects developed by the US-USSR Joint Working
        Group on Agricultural Research which were approved
        at the first session of the US-USSR Joint Commis-
        sion on Scientific and Technical Cooperation on
        March 21, 1973, will continue without interruption
        and will become the responsibility of the US-USSR
        Joint Committee on Agricultural Cooperation upon
        its formal establishment.
                        ARTICLE VIII

     1. This Agreement shall enter into force upon signature
        and remain in fce for five years. It will be
        automatically extended for successive five-year
        periods unless either Party notifies the other of
        its intent to terminate this Agreement not later
        than six months prior to the expiration of this
        Agreement.

     2. This Agreement may be modified at any time by mutual
        agreement of the Parties.

     3. The termination of this Agreement will not affect
        the validity of implementing agreements concluded
        under this Agreement between institutions, organi-
        zations and firms of the two countries.

     DONE at Washington, this 19th day of June, 1973, in
duplicate, in the English and Russian languages: both texts
being equally authentic.

FOR THE GO¥ERNMENT OF THE         FOR THE GOVERNMENT OF THE UNION
UNITED STATES OF AMERICA          OF SOVIET SOCIALIST REPUBLICS

/S/ Earl L. Butz                  /S/ A. Gromyko


                             93
     APPENDIX I                                                                        APPENDIX I



                   Agreement Between the Govunmen                of the United     tatee
                     of Amricsa and The        ovrnmet of the Union of ioviet
                             Soolaet Rpublice on the Supply of Gain
 The Government of the United States of                                      ARTICLE 11
America ("USA") and the Government of the                 During the term of this Agreement, etcept as
Union of Soviet Socialist Republics ('USSR");           otherwise agreed by the Parties, the Government of
  Recalling the "Baic Prindciples of Relations          the USA shall not exercise any discretionary
Between the United States of America and the            authority available to it under United States law to
Union of Soviet Socialist Republic of May 29,           control exports of wheat and corn purchased for
 1972;                                                  supply to the USSR in accordance with Article I.
   Desiring to strengthen long-term cooperation
between the two countries on the basis of mutual
benefit and equality,
   M'-idful of the importance which the production        In carrying out their obligations under this
of food, particularly grain, has for the peoples of     Agreement, the foreign trade organizations of the
both countries;                                         USSR shall endeavor to space their purchases in
   Recognizing the need to stabilize trade in grain     the USA and shipments to the USSR as evenly as
between the two countries;                              possible over each 12-month period.
   Affirming their coor;, that cooperation in
the field of trade will contribute to overall                              ARTICLE IV
improvement of relations between the two count-
ries.                                                     The Government of the USSR shall asure that,
   Have agreed as follows                               except as the Parties may otherwise agree, all
                                                        wheat and corn grown in the USA and purchased
                                                        by foreign trade organizations of the USSR shall
                       ARTICLE 1                        be supplied for consumption in the USSR.
    The Government of the USA and the Govern-
 ment of the USSR hereby enter into an Agreement
 for the purchase and sale, of wheat and corn for                           ARTICLE V
 supply to the USSR To this end, during the period         In any year this Agreement is in force when the
 that this Agreement is in force except as otherwise
 thagreedt
       ths Agreement in force, except a otherie         total grain supply in the USA, defined as the offi-
                    reed
                    Patie,by he(i)the forein trade      cial United States Department of Agriculture eti-
organizations of the USSR shall purchase from pni-      mates of the carry-in stocks of grain plus the offi-
vate commercial sources, for shipment in each           cial United State Department of Agriculture
  twelve month period beginning October 1, 1976, six    forward crop estimates for the coming crop year,
nillion metric tons of wheat and corn, in approxi-      falls below 225 million metric tons of all grains,
mately equal proportions, grown in the USA; and         the Government of the US may reduce the quan-
(ii) the Government of the USA shall employ its         tity of wheat and corn available for purcha by
good offices to facilitate and encourage such sales     foreign trade organizations of the USSR under
by private commercial sources
    The foreign trade organizations of the USSR
may increase this quantity without consultations
by up to two million metric tons in any twelve                              ARTICLE VI
month period, beginning October 1, 1976 unless the        Whenever the Government of the USSR wishes
Government of the USA determines that the USA           the foreign trade organizations of the USSR to be
has a grain supply of less than 225 million metric      able to purchase more wheat or corn grown in the
tons as defined in Article V.                           USA than the amounts specified in Article I it
    Purchases/sales of wheat and corn under this        shall immediately notify the Government of the
Agreement will be made at the market price pre-         USA.
vailing for these products at the time of purchase/        Whenever the Government of the USA wishes
sale and in accordance with normal commercial           private commercial soures to be able to asell m'e
termns.                                                 wheat or corn grown in the USA than the amounts




                                                   94
   APPENDIX I                                                                       APPENDIX I



spedfied in Artidel, it shall immediately notify                     ARTICLE VIll
the Government    of the USSR.       i conltTh           Paties shall hold consultations concerning
      oernment of the PartUR. will
   Inthe                                consult as
   In both instance,     the PartiS    ent      o  tho impementation   of this Agreement and related
                       Po to rach
                eonin ord
possible quantities of grain to be suppliedo tho   matters at intervals of ix months beginning six
             UR      pior to
               purchase/ale    or codualon of con~ months after the date of entry into force of this
truas for the purchase/sale of grain in amounts       Agreement, and at any other time at the request of
above those ipfied in Artidcle 1.                      ither Party.

                  ARTICLE VII
  It is understood that the shipment of wheat and                         ARTICLE IX
corn from the USA to the USSR under this Agree
ment shall be in accord with the proviions of the         This Agreement shall enter into force on exe-
AmericanzSovit Agreement dn Maritime Matters             cution and shall remain in force until Sp-
which is in force during the period of shipments         tember 30, 1981 unless extended for a mutually
hereunder.                                               agreed period.




                                                    95
APPENDIX J                                                     APPENDIX J

                     OMPTROLLER oHENRAL Op THE UNITED STATE
                              WAmGOtO,   D.C. gied



                                                      June 24, 1976
  B-176943



  The Honorable Paul Findley
  House of Representatives

 Dear Mr. Findleys

      This is in response to your request for the views of
 concerning the legal basis of certain administrative       our Office
                                                       actions that
 were taken by the Departments of State and Agriculture
 to grain sales to Poland and the Soviet Union. You      with respect
 several specific questions concerning the "Agreement also submitted
 Government of the United States of America and the    Between  the
                                                    Government of the
 Union of Soviet Socialist Republicson the Supply of Grain,"
 October 20, 1975.                                             dated

       In accordance with the policy of our Office, we requested
 Departments of State and Agriculture to povide us with           the
                                                          complete
 reports containing their views and comments concerning
 you raised. We have enclosed copies of the responses the questions
                                                        we received
 from these Departments, together with copies of
                                                  other
 and reports we have been able to obtain. Based on the relevant documents
                                                         information thus
 obtained, as well as our own analysis, w offer the
                                                      following responses
 to your questions, which have been consolidated as
                                                     necessary for ease
 in presentation.

     Concerning the reported request b the Department of
                                                          State to
Poland to delay grain purchases from the United States,
                                                        you ask:
           "Did the official of th? U.S. State Department
      on or about September 10, act lawfully in tele-
      phoning a request to the Embassy of Poland that
     Poland delay purchases of grain from the U.S.? This
     question has special significance, because the
     request was transmitted several days before anyone
     else, including the other branches of government,
     the Agriculture Department, the putlic, the grain
     trade and the farmer, became aware of it. The
     circumstances of the 1972 grain sale to the Soviet
     Union made the Agriculture Department very sensitive
     to the need o avoid private selective notification
     of grain sale developments in order to minimise the
     perversion of such information to windfall personal

                                   96
APPENDIX JJ


5-176943



     profit. An employee of the State Department
     notified my office that the request was made to
     Poland in order to 'hold down prices.' I
     question the State Department's legal authority
     for such action.

           nDid the official telephoning the request
     comply full.y with laws and regulations con-
      teraing the handling of market-sensitive in-
     formationt. At *whosedirection did he act? To
     whom did he give notice of his telephoned
     request and on what dates? Why did he or his
     superiors fail to notify, immediately, the
     Agriculture Secretary in view of the historic
     and statutory responsibilities of the Agriculture
     Department in handling and monitoring such in-
     formation?

           "What was the legal basis for a request of
      this nature?"

      According to the State Department, the official who asked the
 Polish Government to refrain temporarily from making further purchases
 of U.S. grain was implementing an Executive decision made at a White
 House meeting between the President and various other officials. The
 State Department official reporteO his action to the Secretary of State
 on the same day, September 10, 197%5  The State Department has further
 stated that this Executive decision, was only made "* * * after con-
 sultations with all appropriate advisers, including the Department of
 Agriculture.** * *"

      With respect to the legal basis for a request of this nature, the
 StOte Department's position is as follows:

      "A request of this nature is within the authority of
      the President under the constitution. This request
      did not purport to be legally binding or enforceable
      under United States law. It has never beer. doubted
      that one aspect of the President's constitutional
      authority is the authority to make requests of foreign
      governments in the national interest; indeed, the
      President could hardly fulfill his constitutional
      responsibilities without such authority. For example,
      the request to foreign steel producers to restrain

                                     97
APPENDIX
                                                            APPENDIX J

 B-176943



      steel exports to the United
                                  States
      authorized under the Constitutional was held to be
      Executive                            power of the
                in Consumers Union of the
      Kissinger, 5 06 F2d 136 (D.C. 1974) U.S., Inc. v.
      producers' undertakings to           even when the
                                 comply were set forth
      in a written arrangement."
See also the discussion in
                           Part III of the State Department
on the Legal Status and Effect                              Memorandu
United States and the Soviet   of the Grain Agreement between
                             Union (copy enclosed).           the
      Concerning the President's
                                  authority to negotiate and conclude
 agreements with foreign governments,
 actions taken in this instance        we agree with State that the
 constitutional authority to     fall within  the scope of
                             conduct foreign relations. the President's
part III of the State Department                           As stated in
President's authority under        Memorandum, the existence of
                             the Constitution to negotiate        the
foreign governments aid to conclude                          with
has been upheld by the                appropriate agreements with
                             aourts.
                                 For                                them
Curtiss-Wriht Corp., 299 U.S.         example in United States v.
                                304, 319-20 (1936), the Supreme
'aid8                                                              Court

          "* * * In this vast external
     ternational relations7, with        realm /of in-
    plicated, delicate, and        its  important,  come
    President alone has the manifold    problems, the
                             power to speak or listen
    as a representative of the
    treaties with the advice andnation. He makes
                                   conseht of the
    Senate; but he alone negotiates,
    of negotiation the Senate cannot Into the field
   Congress itself is powerless to intrude; and
   Marshall said n his great          invade it. As
                                argument of Harch 7,
   1800 in the House of Representatives,
   President is the sole organ               'The
                                 of the nation in its
   external relations, and its
                                 sole rerepresentative
   with foreign nations.'

        *           *           *           *       *
        "It is important to bear in
   here dealing not alone with       mind that we are
   the President by an exertion  n  uthority  vested in
                                 of legislative power,
   but with such an authority
                               plus the very delicate,
   nlenary and exclusive power
                                of the President as the

                                    98
APPENDIX J                                                  APPENDIX J


B-176943



     sole organ of the federal government in the field
     of international relations--a power which des not
     require as a basis for its exercise an act of                    /
     Congress **    *o"   (Emphasis in original.)

In other words, the President's authority in the field of international
relations is not dependent upon an act of Congress.

     It has also been held that the President has some authority under
the Constitution to negotiate agreements that affect foreign commerce,
notwithstanding the constitutional responsibility of the Congress "To,
regulate Commerce with foreign Nations* * *."   Const., Art. I, sec. 8,
el. 3. In the case of Consumers Union of U.S. v. Kissinger, 506 F.2d
136 (D.C. Cir. 1974), cited in the State Department s response to this
question, the State Department, at the direction of the President, had
negotiated with foreign steel producers concerning the quantity of
steel imports. As a result, the producers sent letters to the Sec-
retary of State, stating their intention to limit steel shipments to
the United States to specified maximum tonnages. The Court affirmed
the ruling of the District Court (in Consumers Union v. Rogers, 352
F. Supp. 1319 (D.D.C. 1973)) that the Executive had the constitutional
power to carry out the negotiations, and to request foreign steel
producers to restrain voluntarily their steel exports to the United
States. In this regard Judge Mc Gowan, speaking for the majority of
a three judge panel of the Court of Appeals, said the following:

     "* *   * There is no potential for conflict * * *
     between exclusive congressional regulation of
     foreign commerce * * * and assurances of
     voluntary restraint given to the Executive. Nor
     is there any warrant for creating such a con-
     flict by straining to endow the voluntary under-
     takings with legally binding effect, contrary
     to the manifest understanding of all concerned* * *"

We conclude that the President does have the authority to make an
informal request to a foreign government to refrain from making purchases
of grain from this country.

     You ask next, in connectioitt with the request to the Polish Govern-
sent, whethdr the requirements of the Export Administration Act were
met fully. The Export Administration'Act of 1969, 50 U.S.C. App.      2401




                                      99
  APPENDIX J                                                     APPENDIX J

   B-176943


   et sea, (1970) as amended (St:pp. IV,
                                          1974), authorizes the President,
  or his delegate, to prohibit or curtail
  commodities from the United States          exports of agricultural
                                       during periods when,     as determined
  by the Secretary of Agriculture, supply
  in order to further the foreign policy      exceeds  domestic  requirements,
  protect national security. When supply of the United States, or to
  requirements, controls may be imposed       does not exceed domestic
                                           on
  for the additional purposes of protecting agricultural conmodity exports
                                                the-economy from excessive
 drain of scarae materials and reducing
                                            the inflationary impact of
 foreign demand. However, as stated
 to this question, the request to the in the State Department's response
                                         Polish Government "'**
 made pursuant to the Export Administration                          was not
 purport to make Polish compliance with          Act, nor did the President
                                            the request enforceable under
 that Act." There was no attempt to "prohibit"
 pointed out above, only to solicit voluntary        exports but, as
 the procedural requirements of that               cooperation.   Accordingly,
                                       Act were not applicable.
      You ask further whether the request
 in conformity and compliance with United to the Polish Government was
 the General Agreement on Tariffs and     States obligations under
                                      Trade. After reviewing the
 General Agreement on Tariffs and Trade,
 ment's response to this                 we agree with the State Depart-
                         question which reads as follows:

      "* * * The General Agreement on Tariffs
                                              and Trade
      in no way forbids the U.S. from requesting
      party to limit or suspend purchases          another
                                           of a U.S.
     product. The GATT has a general requirement
     Article XIII that export restrictions           in
     on a most-favored-nation basis, as      be applied
     but there are many exceptions in thebetween members,
                                            GATT to this
     provision, and in any event the GATT
                                            clearly does
     not prevent members from agreeing,
                                         formally or
     informally, rLo different terms which
                                            do not prej-
     udice the rights of other parties
                                        to the GATT."
      In addition to your questions
Polish Government, you refer to the concerning the request made to the
                                     earlier incident when, on July 2,
1975, the United States Department
to advire the Department of further of Agriculture asked grain exporters
                                     sales to the Soviet Union. This
evolved, you state, into a suspension
press conferences with the Secretary of sales through a series of
legal basis was for a request of this of Agriculture. iou ask what the
                                       nature, and whether the requirements
of the Expnrt Administration Act were
                                       met fully.



                                   100
APPENDIXX                                                 APPENDIX J
                                                                   J


B-176943



      The response to these questions is the same s the response to
the prior questions concerning the basis for the request to t Polish
Government to limit grain purchases from this country. As t; State
Depirtment points out, the "suspension of sales" to the Sovi t Union
was not legally binding under United States law and Terr er,tcd a
lawful exercise of executive branch authority to conduct foreign
relations and "make requests of foreign governments in .the national
interest."

    The report of the Department of Agriculture said the following
with respect to this matter:

    "In late July, based on information received under
    the export monitoring program coupled with nfor-
    mation on the Soviet crop situation,. we concluded
    there was the likelihood of further large sales of
    grain to the Soviet Union. The Department con-
    sequently asked exporters to advise the Department
    prior to negotiating any large sales for export to
    the USS2. * * *0

    "Thereafter, it was announced at the Secretary's
    press conference, following release of the crop
    estimates on Augvst 11, 1975, that U.S. exporters
    were being asked to refrain from contracting for.
    additional quantities of U,S. grain to the USSR
    until more precise information was available con-
    cerning the size of the 1975 U.S. grain crops.
    The Secretary further stated at that time that he
    expected additional grai ses irom the 1975 U.S.
    grain crops to be made to the Soviet Union at a
    later date. * * * (These statements were reported
    in a publication on U.S. export sales issued by the
    Foreign Agricultural Service, United States Depart-
    ment of Agriculture on August 14, 1975 * ' *.)

    "The Department of Agriculture's actions were
    limited merely to making informal requests to
    grain exporters to defer temporarily export sales
    to the Soviet Union. Compliance with these requests
    was purely voluntary on the part of exporters. No
    action was taken pursuant to the authority of the
    Export Administration Act."


                                  101
  'PENDIX J                                                APPENDIX J

 P-176943



Although the foregoin& explanation from the Department of Agricilture
suggests that only the American grain exporters were requested to
refrain from contracting for additional quantities of grain to the
Soviet Union, the cited publication on Export Sales, dated August 14,
1975 (copy enclosed) states that the Soviet Union was also requested
to refrain temporarily from making additional purchases until more
precise information became available concerning the size of the 1975
United States grain crop.

     The request to the Soviet Union, as in the case of the request
to the Polish Government, represented a lawful exercise of Executive
authority, ince the request was not legally binding and compliance
was not mandatory. We are aware of no legal basis to object to the
request to the grain exporters to refrain voluntarily from sales to
the Soviet Union.

     You have also requested that we determine what is the legal basis
for the Agreement Between the Government of the United States of America
and the Government of the Union of Soviet Socialist Republics on the
Supply of Grain dated October 20, 1975 (referred to hereafter as the
Agreement). You ask specifically what is the legal authority for
entering into or negotiating this Agreement.

     The Agreement is an executive agreement which became effective
upon signing by representatives of our Government and of the Government
of the Soviet Union on October 20, 1975. The purpose of the Agreement
has been explained by the State Department as followst

         "* * * The impetus of this Agreement was a
    legitimate public concern that sudden and secre-
    tive purchases of huge quantities of United
    States grain by the Soviet Union might, as in the
  - past, disrupt grain markets in the United States
    and contribute strong inflationary pressures to
    the economy; The objective of the Agreement was
    to assure a substantial and steady market for
    American grain to the Soviet Union, to proteCt
    consumers from sharp price increases, and to
    strengthen cooperation between the two countries
    by stabilizing the important grain trade between
     them."

     Es:.ztially, the Soviet Union has agreed to purchase, at the
prevailing markct price, at least 6 million metric tons of United States


                                 102
APPENDIX J                                                 APPENDIX J


B-176943



wheat and corn in approximately equal proportions for each of 5 years
beginning October 1, 1976. Purchases of up to 2 million additional
metric tons in each of the 5 years can be made without prior con-
sultption unless the total United States grain supply is less than
225 million metric tons. Purchases of more than 8 million metric tons
of grain in these years cannot be made without the prior consent f
the United States, In return, the United States has agreed to
facilitate and encourage sales by private comnercial sources and not
to exercise its discretionary authority under United States law to
curtail exports unless the domestic grain supply, as determined by
the Department of Agriculture, should fall below 225 million metric
tons. The Agreement provides for consultations in the event that
sales of more than the amounts of grain specified therein are desired
by either Government.,

     In its response, the State Department explains the President's
legal authority to negotiate the Agreement as follows:

     "The President has the authority under Article II of
     the Constitution to negotiate and conclude appro-
     priate agreements with foreign governments. This
     Agreement was concluded on the basis of the President's
     Constitutional authority. It is consistent with
     the statutes of the United States and carries out
     Congressional policies expressed in such legislation
     as the Agricultural Marketing Act of 1946."

Also see Part III of the State Department's legal memorandum, cited
above, which deals at considerable length with this issue.

     The President's authority to negotiate and enter into executive
agreements with foreign governments (other than treaties, which are
subject to the advice and consent of the Senate) is firmly established
and well settled, In this regard, see the discussion in the State
Department memorandum and the cases cited therein, including United States
v. Curtiss-Wright Corp., supra; United States v. Belmont, 301 U.S. 324
(1937); and United States v. Pink, 315 U.S. 203 (1942).

     However, the President's legal authority to enter into the
particular Executive Agreement involved here may be subject to attack
in light of the provision in Article , Section 8, Clause 3 of the
Constitution, authorizing the Congress rather than the President to
regulate forei;n cocierce, and the specific terms of the Export Admin-
istration Act which set forth certain procedures to be followed by the



                                103
APPENDIX J
                                                             APPENDIX J

 B-176943


  Executive branch in implementing export controls
                                                     under the Act,
  especially when agricultural commodities are
                                                involved. Admittedly,
  the Export Administration Act procedures were
                                                 not adhered to in this'
  case because, as stated by the State Department,
                                                     the authority con-
  ferred upon the President by the Export Administration
 exports did not form the basis for negotiation             Act to control
                                                  of the Grain Agreement.
 The basic legal issue is whether the President
 Constitutional authority to enter into this      has independent
                                               type of Executive Agreement
 affecting foreign commerce or whether his legal
 regard is solely derived from and dependent       authority in this
                                              upon the provisions of the
 Export Administration Act, in which case it
                                              would have tc be exercised
 in compliance with the Act.
       In Consu. s Union of U.S., Inc. v. Kissinger,
                                                        supra, the Court
 of-Appeals for the District of Columbia was
 question with respect to the authority of the confronted with a similar
bring about a reduction in steel imports by     Executive Branch to
                                              requesting foreign producers
to limit their steel exports to this country.
without adhering to the procedural requirements The request was made
restrictions set forth in the Trade Expansion      concerning import
                                                Act of 1962, 19 U.S.C.
M8 1801 et seq. (1970). The Court said the
                                             following:
           "What is clear from the
      cussion of th:_ Trade Expansionforegoing /Lds-
                                       Act/ is a purpose
      on the part of Congress to delegate legislative
     power to the President for use by him in certain
     defined circumstances and in furtherance of
                                                    cer-
     tain stated purposes. Without such a delegation,
     the President could not increase or decrease
     tariffs, issue commands to the customs service
                                                        to
     refuse or delay entry of goods into the country,
     or impose mandatory import quotas. To make
    of such delegated power, the President would use
                                                     of
    course be required to proceed strictly in
    accordance with the procedures specified in
                                                    the
    statutes conferring the delegation. Where,
    here, he does not pretend to the possession as
                                                   of
    such power, no such conformity is required.

        "The steel import restraints do not purport
   to be enforceable, either as contracts or as
   governmental actions with the force of law;
                                               and
   the Executive has no sanctions to invoke in
                                               order


                                   104
APPENDIX J
                                                            APPENDIX J

             B-176943


                   to compel observance by the foreign producers
                   of their self-denying representations. They.
                   are a statement of intent on the part of the
                   foreign producer associations. The signatories'
                · expectations, not unreasonably in light
                                                            of the
                   reception given their undertakings by the
                  Executive, are that the Executive will consult
                  with them over mutual concerns about the steel
                   import situation, and that it will not
                  sudden recourse to the unilateral steps have
                                                           avail-
                  able to it under the Trade Expansion Act to
                  impose legal restrictions on importation. The
                  President is not bound in any way to refrain
                  from taking such steps if he later deems them
                  to be in the national interest, or if consultation
                  proves unavailing to meet unfc-~en difficulties;
                  and certainly the Congress is nuL inhibited from
                 enactingsany legislation it desires to
                                                          regulate
                 by law the importation of stel.

                      "The formality and specificity with which
                 the undertakings are evuressed does not alter
                 their essentially precakoxy nature insofar as
                 the Executive Branch is cona:ned. In effect
                                                                the
                President has said tt he will not initiate
                                                               steps
                to limit steel imports by law if the volume
                                                             of
                such imports remains within tolerable bounds.
                Communicating, through the Secretary of
                                                         State, what
                levels he considers tlerable merely enables
                                                               the
                foreign producers to conform their actions
                accordingly, and to avoid the risk of guessing
                what is                                          at
                        acceptable * * *.

                     "The question of congressional preemption is
               simply not pertinent to executive action of
               sort. Congress acts by making laws binding, this
               valid, on their objects and the President,     if
                                                           whose
               duty it is faithfully to execute the laws.
                                                            From
               the comprehensive pattern of its legislation
               regulating trade and governing the circumstances
               under and procedures by which the President
                                                            is
               authorized to act to limit imports, it appears
               quite likely that Congress has by statute oc-
               cupied the field of cnforccahble import restrictions,


                                   105
APPENDIX J                                                  APPENDIX J

B-176943



      if it did not, indeed, have exclusive possession
      thereof by the terms of Article I of the Con-
      stitution. There is no potential for conflict,
      however, between exclusive congressional regu-
     .lation of foreign commerce--regulation enforced
     ultimately by halting violative importations at
      the border--and assurances of voluntary restraint
     given to the Executive. Nor is there any warrant
     for creating such a conflict by straining to
     endow the voluntary undertakings with legally
     binding effect, contrary to the manifest under-
     standing of all concerned and, indeed, to the
     manner in which departures from them have been
     treated." 506 F.2d at 142-44 (emphasis in original).

     Although there are differences between the situation in the
Consumers Union case and this situation, we agree with State's position
on the applicability of the decision to he instant situation. State
contends (on page 5 of its legal memorandum):

          "While the grain Agreement differs from the
     arrangement in question in the Consumers Union case
     in that this arrangement is an inter-governmental
     agreement that gives rise to obligations of states
     under international law, it is similar in that it
     does not create any restraints on commerce enforce-
     able under domestic law. Moreover, the Agreement
     does not go as far as the arrangements in the Con-
     sumers Union case which established specific
     ceilings on steel imports. This Agreement does
     not establish a ceiling on grain exports. * * *

         "In the case of the grain Agreement, the action
    of the Executive Branch is consistent with the
    statutes relating to exports and carries out important
    Congressional policies expressed in legislation. There
    is no evidence of any Congressional intent to pre-empt
    the President's constitutional authority to conclude
    such an agreement."

     The statutory provisions referred to by the State Department are
sections 202 and 203 of the Agricultural Marketing Act of 1946, 7 Us.C.
1i 1621 and 1622 (19701 which encourage the development of wider markets,
both foreign and domestic, for American agricultural products. Section
202 of the Act provides that it is the policy of the Congress that uch


                                 106
APPENDIX J                                                 APPENDIX J
 B-176943



 markets be developed to help make it possible "*   * or the full
 production of American farms to be disposed of usefully, economically,
 profitably, and in an orderly manner. * * *" The grain agreement with
 the Soviet Union would appear to further these policies.

      In accordance with the foregoing, we believe that enactment of
 the'Export Administration Act did not preempt the authority of the
 President to negotiate and enter into the Agreement.

      You ask further "What is the legal authority for limiting the
 amount of sales of agricultural goods as defined in the agreement?"
 As stated in the State Department's response to this question, the
 Agreement does not limit or set a ceiling on the quantity of American
 wheat and corn that can be purchased by the Soviet Union. To the
contrary, the agreement establishes a minimum annual amount of 6
million metric tons of grain that the Soviet Union is "obligated" to
purchase and what is in effect an option for an additional 2 million
metric tons, which the Soviet Union can exercise without consultations
-unless U.S. supply is less than 225 million metric tons. In the event
the Soviet Union wishes to purchase grain in excess of the specified
amount, the Agreement provides for rior consultation with the United
States Government. Of course, our Government would retain its
statutory authority under the Export Administration Act to impose
export controls should the Soviet Union desire to make such additional
purchases. This further demolstrates that the Agreement is in no way
inconsistent with the provisions of the Export Administration Act of
1969, which authorizes the.President to "prohibit or curtail" exports.

      In addition, you ask that we identify the legal obligations of
'the American government imposed by the Agreement. We agree with the
 following State Department response to this questions

     "The Agreement is legally binding upon te two
     governments under international law. Under the
     Agreement the United States is obligated not to
     exercise discretionary authority to control
     exports of wheat and corn purchased in accordance
     with the Agreement. The United States is also
     obligated to use its good offices to facilitate
     and encourage sales under the Agreement and to
     consult on various matters under the Agreement.
     However, the Agreement does not establish any
     obligation enforceable against any erson under
     United States domestic law."

Your next question is stated as follows:


                                 107
APPENDIX J
                                                            APPENDIX J


  B-176943



       "In Article II of the Agreement, the term
                                                  'shall
      not exercise any discretionary authority
                                                 avail-
       able to it under United States law' appears.
      What is the discretionary authority to which
     .Agreement refers?"                             the

      The President, or such other official as
                                                he designates, has
 discretionary authority under section 4(b)(l)
                                                of the Export Administration
 Act of 1969, 50 U.S.C. App.    2403 (1970), as amended (Supp. IV, 1974),
 to control exports as follows:

           "To effectuate the policies set forth
     section 3 of this Act * * * the President ir
                                                 ay
     prohibit or curtail the exportation from
                                               the
     United States, its territory and possessions,
     of any articles, materials or supplies,
                                              in-
     cluding technical data or any other information,
     except under such rules and regulations
     shall
                                              as he
             prescribe * * *"   (Emphasis added.)

     You ask next:

      "On July 2, 1975, the United States Department
      of Agriculture asked exporters to advise
     Department of further sales to the Soviet the
                                                 Union.
     This evolved into a suspension of sales
                                               through
      a series of press conferences withthe
     of Agriculture. This embargo was removedSecretary
                                                 by
     the President October 20, 1975. Yet, I
                                              have
     read that the Soviets can only purchase
                                               7 million
     tons of wheat and grain for shipment between
     and October 1, 1976. If this is true, is       now
     limitation lawful? What law authorizes      this
                                              it?"
     The State Department justified this Executive
following grounds:                                 action on the

    "In concluding the grains agreement. which
    effective with the next crop year /beginningbecomes
    October 1, 1976/, we had to reach an understanding
    with the Soviets regarding further purchases this
    year. The Soviets assured us that they
                                            would not
    make additional purchases of grain in the
                                              current



                                  108
APPENDIX J                                                  APPENDIX J

 B176943



      crop year in a volume which could disrupt the
      U.S. market and that they would consult with us
      before purchaan&s more than an additional seven
      million retric tons of grain.*   * The seven
      million ton limitation does not purport to be
      binding as a matter of domestic law, nor does it
      constitute a formal international legal otli-
      gation of either the United States or the U.S.SR."

 In light of the nonbinding nature of this limitation, we believe that
 the same rationale, discussed above, justifying the President's
 request to the Polish Government to suspend grain purchases, is
 applicable hre:

     You ask that we outline the procedures and requirements the
Administration would have been required to follow under'the Export A4-
ministration Act, had that statute been relied upon.

     Section 4(b)(1) of the Export Administration Act of 1969,
50 U.S.C. App.    2403(b)(1)(1970), as amended (Supp. IV, 1974), auth.o,.ise
the President to prohibit or curtail exports from the United States of
"* * * any articles, materials, or supplies, including technical data
or any other infirmation, except under such rules and regulations as he
shall prescribe * * *" The purposes for which such controls may be
implemented have been set forth above, and include foreign policy,
national security, and prevention of short supply. 50 U.S.C. App.
  2402(2)(1970), as amended (Supp. IV, 1974). Pursuant to section 4(e)
of the Act, 50 U.S.C. App.    24 03(e)(1970), as amended (Supp. IV, 1974),
authorizing the President to delegate the authority conferred upon him
under the Act, the President has delegated the authority to regulate
exports to the Secretary of Commerce. Exec. Order No. 11,533,
June 4, 1970.

     The Office of Export Administration within the Commerce Department
implements export control. With several exceptions, the Office of-
Export Administration authorizes exports either by issuing specific
"validated licenses" or by issuing broad "general licenses." A
validated license is a formal document issued to an exporter by the
Office of Export Administration, based on his signed application. It
authorizes the export of commodities or technical data within the
specific limitations of the license. See 15 C.F.R. Part 372 (1976).
A general license, on the other hand, is a broad authorization
established by the Department of Commerce to permit exports under
specified conditions. Neither the filing of an application by the
exporter nor the issuance of a license document by the Department is
required. See 1 C,FR. Part 371 (1976).

                                   109
APPENDIX J                                                 APPENDIX J


     Ercept for most exports to Canada for internal consumption;
exports for the official use of the United States Armed Forces; ex-
ports of commodities and technical data controlled by another Govern-
ment agency; and exports to an American territory, the export frcn ;
the United States of all commodities and technical data is prohibited
unlqss a general license authorizing the export shall have been
established or a validated license or other authorization for the
export shall have been granted by the Office of Export Administration.
15 C.F.R. HS 370.3, 370.4 (1976). The Commodity Control List which
is published in the Department of Commerce Export Administration
Regulations contains the complete list of all commodities under
the export control jurisdiction of the Office of Export Administration.
For additional specific information in this regard including the
different types of general and validated licenses and their usage,
see 15 C.F.R. Parts 368-399 (1976).

     Any agricultural commodity is specifically exempted from export
control under the Act during any period for which the Secretary of
Agriculture determines the supply of the commodity to exceed domestic
requirements.   50 U.S.C. App.  2 4 03(f)(Supp. IV, 1974). Controls
may ba imposed with respect to any agricultural commodity, however,
regardless of the supply, when control of the commodity is required
to further significantly foreign policy and fulfull international
responsibilities, or when control is significant to national security.
Id.

     Accordingly, to invoke the Export Administration Act with respect
to grain exports, during a period when omestic supply exceeded demand,
the President or his delegate would have to deLurmine that controls
were necessary to further foreign policy or for national security reasons.
Thereafter exports of grains could only be made if licensed, pursuant
to the procedures discussed above.

     Finally you ask whether it is possible for the Export Administration
Act to be implemented ex post facto. It would in our view be improper
to attempt to invoke the sanctions provided under the Act with respect
to an export which at the time was licensed or was exempted from the
controlo imposed by the Act.

     As discussed above, the President's authority to institute legally
binding and enforceable controls on exports is derived from and
dependent upon the authority delegated to him by Congress in the
Export Administration Act. As stated in the Consumers Union case con-
cerning a similar situati-on  "* * * To make use of such delegated power
the President would of course be required to proceed strictly in accordance
with the procedures specified in the statutes conferring the delegation.* * i
506 F,2d at 143.

                                  110
                                                           APPENDIX J
APPENDIX J


B-176143


                                                   the use of "ex post
    Nothing in the statute itself would support
facto" controls. However, 15 C.F.R.      370.3(b)(i976) provides that
                                                to export "*    * are
all export licenses and other authorizations             notice.* * *"
subject to revision, suspension or revocation withoutfacto implementation
                                                  post
Although this provision would not authorize ex      the Executive Branch
of the Export Administration Act,   it would allow
                                             to  subsequent  exports,
to institute export controls, w th respectwhere export authority for
without advance notice or in -ituation
a particular commodity had p- .iousl.y been granted.
                                                    responses to
    We trust that the foregoing information and o.r
your questions will be helpful to you.
                             Sincerely yours,




                     DEPUTY Comptroller General
                            of the United States

 Enclosures




                                 111
  APPENDIX K
                                                       APPENDIX K



                  D     IPTION OF U.S.-U.S.S.R.

                       MARITIME AGREEMENT

  U.S.-U.S.S.R, MARITIME AGREEMENT

       The 1972 Maritime Agreement
                                   between the United States
 and the Soviet Union, which
                              extends through December 31,
 1981, contributes to the establishment
 mercial relationship.                   of an expanding com-
                         By providing a broad framework
 clear set of ground rules for                          and a
                                maritime activities between
 the two countries, the agreement
                                   represents an important step
 toward normalizing and expanding
                                   commercial relationships
 between the U.S. and the Soviet
                                  Union.
      Due to the positions adopted
                                     by American maritime unions
 through the 1960s, the trade
                               relationships between the two
countries stalemated.   The unions insisted that 50
grain an' other cargoes to                             percent of
                            the Soviet Union be reserved
U.S. ships, but the Soviets                                 for
                              were reluctant to pay the addi-
tional shipping costs that
                            use of U.S. flag vessels would
entail.   However, the Merchant Marine
for the payment of operating             At of 1970, providing
made it possible for American  subsidy  to bulk carriers, has
                                snips to engage in carrying
wheat to the Soviet Union at
                               reasonable rates.   In view of
this radical change, the unions
                                  withdrew their long-standing
objections and the United States
                                   was able to conclude various
trade agreements with the U.S.S.R.

      dasically, the Maritime Agreement
first, to open the channels              has two objectives:
                             of maritime commerce between
two nations by opening major                                the
                               U.S. and Soviet commercial
ports to calls by U.J. and
                            Soviet flag vessels and second,
to afford to U.S. and Soviet
                              flag vessels the opportunity
to participate substantially
                              in the carriage of all cargoes
moving by sea between the two
                                nations.  The Agreement pro-
vides that U.S. flag vessels
                              and Soviet flag vessels will
each have the opportunity to
third of all cargoes moving   carry not less than one-
                             by sea between the  two nations.
      With the aid ot operating subsidies,
are able to offer a reasonable             U.S. flag vessels
                                freight rate and thus partic-
ipate in this program.   Initially, the Agreement provided
for the Soviets to pay a negotiated
a premium over and above these       fixed freight rate plus
                                fixed rates through June 30,
1973.




                            112
APPENDIX K                                         APPENDIX K



      For the period July 1, 1973, to March 31, 1975, this
negotiated rate system was replaced with a more favorable
index system which adjusted, on a monthly basis, the rates
paid to U.S. vessels to reflect current market conditions.
The index system used the U.S. Gulf/Holland-Belgium grain
trade as the base trade used to calculate the U.S./Soviet
Black Sea freight rate. This index system was terminated on
March 31, 1975, due to the U.S. Gulf/Holland-Belgium trade
being abnormally distorted by large vessels. Subsequently,
a fixed freight rate of $9.50 was agreed to through June 30,
1975.
     Negotiations for a new rate agreement were concluded in
mid-September on the establishment of a freight rate for U.S.
flag ships participating in the cartriage of Soviet grain.
     Terms of the agreement included:
     -- A minimum U.S. Gulf/Soviet Black Sea grain freight
        rate of $16.00 through December 31, 1975.  In January,
        the rate was extended through December 31, 1976.
        This minimum rate is significantly in excess of the
        current market price.
     -- A revised index system for determining monthly freight
        rates offered to U.S. flag vessels. The index base
        now uses a Gulf/Black Sea rate that is twice as high
        as the old rate.

     --A credit/debit system which is a low market provides
       for Soviet payment of a freight rate which is higher
       than the market rate and sufficient to allow a
       significant number of U.S.-flag vessels to partici-
       pate in the trade and, in a strong market, provides
       for an offset. When the credit is eliminated, the
       rates received by U.S.-flag carriers will be deter-
       mined under the new index system.
     -- A higher minimum demurrage rate (the penalty paid by
        Soviets to shipowners for delays).




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 APPENDIX L                                              APPENDIX L


           PROVISIONS O   GENERAL AGREEMENT ON TARIFFS
    AND TRADE (GATT)t RLEVANT TO POLISH SALES SUSPENSION
     The Gneral Agreement on Tariffs and Trade (GATT) is
multilateral and, therefore, he U.S. must abide by set
criteria covering embargoes stemming from short supply
situations, as explained in Articles 11, 20, and 13.
Article 11 contains an absolute prohibition on export controls
but is followed by an important exception which allows:

     'export prohibitions or restrictions temporarily applied
     to prevent or relieve critical shortages of foodstuffs
     or other products essential to the exporting contracting
     party."
Article 20 permits the adoption of measures:

     "(i) involving restrictions on exports of domestic
     materials necessary to assure essential quantities of
     such materials to a domestic processing industry during
     periods when the domestic price of such materials is
     held below the world price as part of a governmental
     stabilization plant Provided that such restrictions
     shall not operate to increase the exports of or the
     protection afforded to such domestic industry, and
     shall not depart from the provisions of this
     Agreement relating to nondiscrimination;
      "(j) essential to the acquisition or distribution of
     products in general local short supply; Provided that
     any such measures shall be consistent with the
     principle that all contracting parties are entitled
     to an equitable share of the international supply of
     such products, and that any ich measures, which are
     inconsistent with the other provisions of this
     Agreement shall be discontinued as soon as the
     conditions giving rise to them have ceased to exist."
Article 13 provides that:
     "1.   No prohibition or restriction shall be applied
    by any    ontracting party * * * on the exportation of
    any product destined for the territory of any other
    contrcting party, unless * * * the exportation of
    the like product to all third    ountries is similarly
    pl:ohiLited or restricted."



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APPENDIX L                                         APPENDIX L



     Article 13 also provides guidance for allocating import
and export restrictions and makes the principles, insofar
as applicable, apply also to export restrictions. It
suggests that a global quota for import restrictions be
established or, if there is to be allocation among countries
that quota shares be negotiated or allocated as in the past.
Article 20 states that there must not be "arbitrary or
unjustifiable discrimination between countries when the same
conditions prevail," and the general rule that "all con-
tracting parties are entitled to an equitable share of the
international supply of * * * products."




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