oversight

Agricultural Trade: Changes Made to Market Access Program, but Questions Remain on Economic Impact

Published by the Government Accountability Office on 1999-04-05.

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

                  United States General Accounting Office

GAO               Report to Congressional Requesters




April 1999
                  AGRICULTURAL
                  TRADE
                  Changes Made to
                  Market Access
                  Program, but
                  Questions Remain on
                  Economic Impact




GAO/NSIAD-99-38
      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      National Security and
      International Affairs Division

      B-281456

      April 5, 1999

      The Honorable Charles Schumer
      United States Senate

      The Honorable Steve Chabot
      The Honorable Eddie Bernice Johnson
      The Honorable Ron Kind
      The Honorable Marty Meehan
      The Honorable Rob Portman
      The Honorable Edward Royce
      House of Representatives

      This report responds to your request that we examine the U.S. Department
      of Agriculture’s (USDA) implementation of legislative reforms to the Market
      Access Program (MAP) and their impact on program participation. Since
      1986, MAP has provided funds to nonprofit organizations and commercial
      firms to help support their promotions of U.S. agricultural products in
      overseas markets.1 The Foreign Agricultural Service (FAS), an agency of
      USDA, administers this program and estimates that there are substantial
      economic benefits associated with MAP. Over the years, some Members of
      Congress have questioned MAP’s long-term economic returns to the
      taxpayer and expressed concerns about program operations—specifically
      that large corporations were using MAP to support their brand-name
      promotions and that there were no requirements for companies to
      graduate from the program. In addition, there was concern that these
      federal dollars were displacing private sector expenditures already
      planned for market development activities.2

      In response to these concerns, Congress enacted legislative reforms
      beginning in fiscal year 1993 that, among other things, directed FAS to
      (1) give small businesses priority when funding MAP promotion of
      brand-name products in foreign markets and, with certain exceptions,
      prohibit direct assistance to large companies; (2) establish a graduation
      requirement by limiting to 5 years the amount of time MAP funds can be
      used to promote brand-name products in a single market; and (3) require
      each recipient to certify that any federal funds received supplement, not


      1
       MAP has had two predecessors. In 1996, MAP replaced the Market Promotion Program, which was
      established in 1990 to replace the Targeted Export Assistance program authorized in 1985.
      2
       See International Trade: Changes Needed to Improve Effectiveness of the Market Promotion Program
      (GAO/GGD-93-125, July 7, 1993) and International Trade: Effectiveness of Market Promotion Program
      Remains Unclear (GAO/GGD-93-103, June 4, 1993).



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                   supplant, its expenditures for promotions in foreign markets.3 As
                   requested, this report provides information on and analysis of FAS’
                   implementation of each of these requirements. It also responds to your
                   request that we review assessments of the economic benefits of MAP.


                   As directed by Congress, the Foreign Agricultural Service implemented
Results in Brief   operational changes to the Market Access Program; these changes have
                   affected program participation and distribution of funds. Since fiscal
                   year 1994, FAS has increased the number of small businesses participating
                   in MAP to promote brand-name products as well as small businesses’ share
                   of program funds. As required by statute, FAS prohibited direct assistance
                   for brand-name promotions to large companies beginning in fiscal year
                   1996. This prohibition does not apply to cooperatives and certain
                   associations. Also, beginning in fiscal year 1998, FAS prohibited indirect
                   assistance to large companies (excluding cooperatives and certain
                   associations).

                   Furthermore, FAS implemented a graduation requirement that will affect
                   about a quarter of the small businesses with brand-name promotions
                   totaling $4.3 million in fiscal year 1999, as well as the number of MAP
                   brand-name promotions conducted in individual country markets. This
                   graduation requirement also could have affected about half of the
                   cooperatives; however, in December 1998, FAS chose to use its statutory
                   authority and waive the graduation requirement for all cooperatives, citing
                   special considerations.

                   Since fiscal year 1995, FAS has required all participants to self-certify that
                   MAP funds supplement, not supplant, their activities to develop new foreign
                   markets for their products. While FAS regularly verifies that the
                   participants and the companies they fund have completed their
                   certification statements, FAS’ Director of Compliance Review Staff reports
                   that it is difficult to assure that these funds are additional because it is
                   hard to determine what would have been spent in the absence of MAP
                   funds. Also, this requirement has had no apparent impact on program
                   participation.

                   Questions remain about the overall economic benefits derived from MAP
                   funding. FAS estimates of MAP’s macroeconomic impact are overstated
                   because they rely on a methodology that assumes that the resources used


                   3
                   The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66, sec. 1302, Aug. 10, 1993) and the Federal
                   Agriculture Improvement and Reform Act of 1996 (P.L. 104-127, sec. 244, Apr. 4, 1996).



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             were not employed prior to the funding. We note that this is inconsistent
             with Office of Management and Budget (OMB) cost/benefit guidelines. In
             addition, the evidence from market-level studies is inconclusive regarding
             MAP’s impact on specific commodities in specific markets.



             In fiscal year 1997, Congress allocated $90 million for MAP to support the
Background   overseas promotion of agricultural goods such as grains, cotton, forest
             products, fruits, nuts, seafood, meat, alcoholic beverages, and processed
             goods.4 (See fig. I.1 in app. I for MAP appropriations since fiscal year 1986.)
             During fiscal year 1997, FAS provided MAP funds directly to 65 participating
             organizations consisting of 54 nonprofit agricultural trade associations,
             5 nonprofit state regional groups,5 2 state agencies, and 4 agricultural
             cooperatives.6 (See app. I, table I.1, for a list of fiscal year 1997 MAP
             participating organizations and their budgets).

             MAP funds can be used to support both generic promotions and
             brand-name promotions. In fiscal year 1997, about 76 percent of MAP’s
             budget supported generic promotions, with the remaining funds
             supporting brand-name promotions. Generic promotions are undertaken
             by nonprofit trade associations, state regional groups, and state agencies
             to increase demand for a specific commodity with no emphasis on a
             particular brand, for example, U.S. peas and lentils, catfish, and cotton.
             Brand-name promotions, on the other hand, are conducted by companies
             and cooperatives to establish consumer loyalty for their brand-name
             products. Trade associations and others using MAP funds to support
             generic promotions must contribute at least 10 percent of the promotion
             cost; entities using MAP funds to support brand-name promotions must
             make a minimum 50 percent contribution.

             In order to receive MAP funds, participating organizations must submit, and
             FAS must approve, marketing plans specifically describing the manner in
             which MAP assistance will be expended. Under these plans, the MAP funds
             may be spent by participating organizations themselves (direct) and/or
             redistributed to entities that have applied to participating organizations for


             4
              At the time of our review, the most current year with complete MAP data with company detail
             available was fiscal year 1997. A fiscal year represents the year for which the MAP funds were
             authorized and allocated; however, these funds may have been expended the following fiscal year
             depending on the recipient’s marketing year.
             5
              State regional groups are associations of state Departments of Agriculture.
             6
              These agricultural cooperatives are agricultural producer companies that market and sell the
             production of individual growers.



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                    MAP assistance (indirect). In fiscal year 1997, there were 453 individual
                    companies and 20 cooperatives that indirectly received assistance for
                    brand-name promotions. These companies and cooperatives applied for
                    MAP funds through 19 participating organizations.


                    Eligible MAP expenses include production and distribution of advertising
                    and promotional materials (for example, posters, recipes, and brochures);
                    in-store and food service promotions; product demonstrations; and fees
                    for participation in exhibits. Funds used to support generic promotions
                    may only be spent on the generic aspects of a campaign rather than on any
                    promotional material or advertising that specifies a single company or
                    brand.7

                    MAP supported generic and brand-name promotions in 100 countries during
                    fiscal year 1997; 10 country markets accounted for 65 percent of the funds
                    (see app. I, fig. I.2, for top country markets). With regard to the MAP
                    brand-name program, a total of 475 companies and cooperatives received
                    assistance in fiscal year 1997. The amount of MAP funds awarded to each
                    ranged from $1,500 to $2.6 million; however, almost half of the awards
                    were in amounts less than $25,000 (see app. I, table I.2, for size of fiscal
                    year 1997 MAP awards).

                    FAS’ Strategic Plan 1997-2002 contains estimates of the economic impact of
                    FAS foreign market promotion programs, including MAP. This plan fulfills
                    the requirement established under the Government Performance and
                    Results Act of 1993 (Results Act) (P.L. 103-62) whereby federal agencies
                    must prepare strategic and annual performance plans covering the
                    program activities set out in the agencies’ budgets. For purposes of
                    conducting cost/benefit analyses of government programs, OMB has
                    established guidelines.8


                    Since fiscal year 1994, FAS has significantly increased the number of small
MAP Brand-name      businesses participating in MAP’s brand-name program as well as their
Promotions Target   share of MAP funds. In fiscal year 1996, as required by statute, FAS
Small Businesses    discontinued providing direct assistance to large businesses other than
                    cooperatives and certain associations, which by law are eligible to receive


                    7
                     Any activity that involves two or more companies is considered a generic promotion as long as MAP
                    funds are not used on items that identify the company, and all other companies had equal opportunity
                    to participate in the promotion.
                    8
                    See “Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs,” OMB Circular
                    A-94 (Washington, D.C.: Oct. 29, 1992).



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                           this assistance for brand-name promotions regardless of size.9 In fiscal
                           year 1998, FAS eliminated MAP funding for brand-name promotions by large
                           companies entirely, by prohibiting their indirect participation in the
                           brand-name program.


Small Business Share of    Congress enacted legislation in 1993 directing FAS to give priority to small
MAP Brand-name             businesses when allocating MAP funds for brand-name promotions
Assistance Has Increased   (P.L. 103-66). FAS requires businesses that are applying for brand-name
                           assistance to certify that they are a small-sized entity based on their own
                           assessment using the Small Business Administration’s (SBA) criteria.10
                           Since fiscal year 1994, FAS has increased the number of small businesses
                           participating in MAP’s brand-name program and raised the total amount
                           allocated to small businesses while decreasing the total amount allocated
                           to large companies. The number of small businesses participating in the
                           MAP brand-name program increased from 312 to 370 between fiscal
                           years 1994 and 1997. Also, the share of MAP brand-name program funds
                           allocated to small businesses increased from 41 percent to 61 percent, and
                           the share allocated to large companies decreased from 35 percent to
                           16 percent during that period (see fig. 1). During the same period, the
                           share allocated to cooperatives remained about the same, around
                           23 percent.11




                           9
                            The prohibition on direct MAP assistance for brand-name promotions does not apply to cooperatives,
                           nonprofit trade associations, and Capper-Volstead associations (P.L. 104-127, Apr. 4, 1996).
                           10
                             The thresholds for establishing company size under SBA’s criteria depend on the type of business
                           and are based on either the maximum number of employees or annual receipts. Under 13 C.F.R. part
                           121, SBA established criteria to classify companies as small businesses for each industry according to
                           their Standard Industrial Classification codes. For example, agricultural producers cannot exceed a
                           production value of $500,000, and most types of wholesalers cannot have more than 100 employees. In
                           calculating a firm’s number of employees or annual receipts, the SBA criteria require that all affiliated
                           companies, whether parent or subsidiary, foreign or domestic, are included.
                           11
                             Of the 22 cooperatives that received MAP assistance in fiscal year 1997, 3 cooperatives had annual
                           receipts or total employees that would place them within the SBA criteria for small businesses.



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Figure 1: MAP Brand-name Allocations by Type of Recipient, Fiscal Years 1994 and 1997

Fiscal year 1994 allocation                               Fiscal year 1997 allocation

                           Small companies                                                       Small companies
                           (312)                                                                 (370)
     41%                                                            61%
              35%          Large companies                                  16%                  Large companies
                           (105)                                                                 (83)


          24%              Cooperatives                                            23%           Cooperatives
                           (16)                                                                  (22)




                                          Note: The fiscal year 1994 allocation represents expenditures amounting to $26.1 million, and the
                                          fiscal year 1997 allocation represents a budgeted amount of $29 million. The figures in
                                          parenthesis represent the total number of companies or cooperatives.

                                          Source: USDA.




                                          According to FAS officials, these results have been achieved by conducting
                                          presentations throughout the United States encouraging small companies
                                          to promote their products overseas. In addition, FAS has provided state
                                          regional groups with additional funds to expand their outreach activities.
                                          We estimate there were 145 first-time recipients of MAP funds for
                                          brand-name promotions in fiscal year 1997.12 Our analysis of FAS data
                                          shows that these first-time recipients included 2 cooperatives, 125 small
                                          businesses, and 18 large companies.




                                          12
                                            Our classification of a recipient as a first-time recipient is based on the fact that a recipient had not
                                          received brand-name program funds for fiscal years 1994-96. This methodology may overstate the
                                          number of first-time recipients if any had received funding in prior years; however, detailed company
                                          information is not available for earlier years to determine whether these recipients received
                                          brand-name funds before 1994.



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Changes to MAP            Legislation enacted in 1996 prohibited FAS from providing direct assistance
Brand-name Allocations    for brand-name promotions to companies that are not recognized as small
Based on Recipient Size   business concerns under the Small Business Act. Nonprofit trade
                          associations, Capper-Volstead associations,13 and cooperatives were
                          specifically exempted from this prohibition. As a result, FAS ended direct
                          assistance to six large companies that had received direct assistance in
                          fiscal year 1995. One of these large companies continued to receive MAP
                          funds indirectly for brand-name promotions in fiscal years 1996 and 1997
                          by applying through two state regional groups.

                          While the 1996 legislation prohibits only direct assistance to large
                          companies, FAS recently decided to prohibit large companies (excluding
                          cooperatives and certain associations) from receiving MAP brand-name
                          funds indirectly through the trade associations, state regional groups, and
                          state agencies. Fiscal year 1997 was the last year that FAS allowed large
                          companies to participate, either directly or indirectly, in the MAP
                          brand-name program. Consequently, 83 large companies that had received
                          MAP brand-name assistance in fiscal year 1997 were expected to be
                          eliminated from the brand-name program in fiscal year 1998.14 Large
                          businesses can still take part in MAP’s generic promotions. According to FAS
                          officials, their decision to entirely eliminate large companies from the
                          allocation of MAP funds for brand-name promotions responded to
                          criticisms that MAP represented “corporate welfare” and recognized that
                          small businesses need greater assistance in exporting.


                          FAS first issued regulations in fiscal year 1995 to implement the statutory
Graduation Affects        direction to establish a graduation requirement for MAP participants. These
Brand-name                regulations limited assistance to 5 years per specific branded product per
Promotions, but           single market. They were later revised to limit assistance to 5 years per
                          company per country market. Our projection, based on FAS data, suggests
Waivers Reduce            that the graduation requirement could affect half of the cooperatives and
Impact                    about a quarter of the small businesses that used MAP funds in fiscal
                          year 1997 to promote their brand-name products. These entities face the
                          prospect of losing MAP assistance for approximately 40 percent of their


                          13
                            The Capper-Volstead Act (7 U.S.C. sec. 291) authorizes persons engaged in the production of
                          agricultural products to act together in association for the purpose of processing, preparing for
                          market, handling, and marketing such products. The act establishes a qualified immunity for such
                          associations from the antitrust laws. The act applies to growers and processors of fruit, dairy products,
                          trees, and general agricultural products. Nonprofit agricultural cooperatives, as well as cooperatives
                          having capital stock, can qualify as associations under the act.
                          14
                            Fiscal year 1998 data was not available at the time of our review and, therefore, we could not confirm
                          that large companies did not receive MAP assistance for brand-name promotions in fiscal year 1998.



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                         current promotions, totaling $9.2 million in fiscal year 1999. However, FAS
                         used its statutory authority in December 1998 and waived the graduation
                         requirement for all cooperatives. The effect of this decision reduced the
                         impact of the graduation requirement on program participation to
                         $4.3 million, affecting only brand-name promotions conducted by small
                         businesses.


Graduation Requirement   To implement the graduation requirement, FAS established regulations in
Applies to All Company   February 1995 limiting a company or a cooperative to 5 years of MAP
Products in a Single     assistance per “single market” per “specific brand product.”15 FAS first
                         applied the graduation requirement to companies receiving assistance for
Country                  brand-name promotions in fiscal year 1994. While FAS officials recognize
                         that many market segments can exist within a single country (for example,
                         a particular geographic region, target audience, or demographic group),
                         the rule defines “single market” as a “single country” to reduce the
                         administrative burden on both the participant and FAS as well as to
                         eliminate the need for interpretation. Under the 1995 regulations, FAS had
                         discretion to determine whether two or more brand-name products were
                         substantially the same product or different products. Some participants
                         requested that FAS use its discretion to more narrowly define the term
                         “single product.” For example, representatives from an almond producers’
                         cooperative told us that they thought they should be able to follow a 5-year
                         MAP promotion of their brand-name almonds in frozen yogurt in a
                         particular country with a MAP promotion of their almonds in ice cream
                         because they would be promoting a different type of brand-name product.

                         FAS revised the regulations in June 199816 to limit each company to no
                         more than 5 years of MAP funding for brand-name promotions per country.17
                         According to FAS officials, the new regulation simplifies program
                         administration and allows FAS to share its resources more effectively with
                         a wider variety of U.S. exporters and markets. After 5 years of assistance
                         in a country, FAS officials told us, a company should have established itself
                         in that market and be able to finance 100 percent of its market
                         development costs. Upon graduating from these markets, companies are
                         not excluded from the MAP program, because they can receive funds for

                         15
                           7 C.F.R. 1485.14(d)(2), Federal Register, Vol. 60, No. 21 (Feb. 1, 1995), p. 6366.
                         16
                           7 C.F.R. 1485.14 (d)(2), Federal Register, Vol. 63, No. 105 (June 2, 1998), p. 29940.
                         17
                           A company is limited to a total of 5 years of MAP assistance (consecutive or nonconsecutive) for its
                         promotions in a particular country beginning with fiscal year 1994 allocations. Fiscal year 1998 is the
                         first year any company would graduate from a particular country market, meaning the company will
                         have to continue its promotion without MAP assistance in fiscal year 1999.



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                          brand-name promotions in other countries or take part in MAP’s generic
                          program. FAS officials hope that the graduation requirement might
                          encourage companies to enter new and promising markets that have been
                          previously ignored.


Graduation Affects Many   Our projection of FAS data suggests that 11 of the 22 cooperatives
Companies and Country     (50 percent) and 87 of the 370 small businesses (24 percent) that received
                          MAP funds for brand-name promotions in fiscal year 1997 could be affected
Markets
                          by the 5-year graduation requirement in fiscal year 1999.18 These
                          11 cooperatives and 87 small businesses conducted a total of 445
                          brand-name promotions in fiscal year 1997, of which an estimated 183 of
                          these promotions (or 41 percent) would not qualify for MAP funding in
                          fiscal year 1999 if there were no waivers to the graduation requirement.19

                          The graduation requirement could impact MAP brand-name promotions in
                          some country markets more than in others (see table 1). Almost two-thirds
                          of MAP’s $29 million budget for brand-name promotions supported
                          company and cooperative promotions in nine countries in fiscal year 1997.
                          Our analysis estimates that 7 percent of the companies and cooperatives
                          with brand-name promotions in Korea and Taiwan could graduate from
                          MAP assistance in fiscal year 1999 compared to the approximately
                          25 percent share of companies and cooperatives that face graduation in
                          Japan, the United Kingdom, and Canada. However, some country markets
                          will not be as significantly affected by the graduation requirement; for
                          example, 65 percent of the companies and cooperatives conducting
                          MAP-assisted brand-name promotions in the People’s Republic of China
                          were using the program for the first time in that country in fiscal
                          year 1997.




                          18
                            Fiscal year 1998 data was not available at the time of our study, so we projected the number of
                          companies and cooperatives expected to graduate from certain country markets in fiscal year 1998
                          based on their funding history for each country. In other words, if a company received 4 consecutive
                          years of MAP funds for a certain country (fiscal years 1994-97), we assumed it will receive funds for
                          the same country in fiscal year 1998.
                          19
                            The graduation requirement does not apply to those companies, cooperatives, and trade associations
                          receiving MAP funds for generic promotions, which represented 76 percent of the total MAP program
                          budget in fiscal year 1997. Trade associations that receive MAP funds to support their generic
                          promotions face no restrictions on the number of years they can receive assistance in a country. For
                          example, since 1986 almost $87.2 million in MAP funds has been spent by one trade association for the
                          generic promotion of U.S. meat in Japan, with annual MAP expenditures ranging between $3.9 million
                          and $18.8 million (in 1997 dollars). Similarly, over $15 million in MAP funds has been spent by one
                          trade association on the generic promotion of U.S. wine in the United Kingdom, with annual MAP
                          expenditures ranging between $614,000 and $4.7 million (in 1997 dollars).



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Table 1: Country Markets With Largest MAP Brand-name Budgets, Fiscal Year 1997
                                              Number of companies in fiscal year 1997                      Companies projected to
                                    Budget
                                   FY 1997                First-time recipients in countrya                 graduate in FY 1998b
Country markets                (in millions) Total number         Number            Percent                    Number                 Percent
Japan                                 $5.0                 160                 74                 46                 36                   23
United Kingdom                         2.9                 118                 44                 37                 31                   26
Canada                                 2.3                 111                 40                 36                 30                   27
Hong Kong                              1.9                  71                 36                 51                 14                   20
Germany                                1.8                 123                 67                 54                 19                   15
Mexico                                 1.5                  77                 39                 51                 12                   16
People’s Republic of
China                                  1.0                  72                 47                 65                   0                   0
Taiwan                                 1.0                  55                 30                 55                   4                   7
Republic of Korea                      1.0                  54                 34                 63                   4                   7
                                          Legend:
                                          FY=fiscal year

                                          Note: In this table, the number of companies represents the total number of companies and
                                          cooperatives.
                                          a
                                           We projected the number of companies and cooperatives that used MAP funds for brand-name
                                          promotions for the first time in fiscal year 1997 based on the observation that they had not
                                          received MAP funds for fiscal years 1994-97.
                                          b
                                           We projected the number of companies and cooperatives that will have received MAP
                                          brand-name assistance for 5 years based on funding history for each country (that is, the
                                          company or cooperative received MAP assistance for fiscal years 1994-97, and we assume they
                                          will receive funds in fiscal year 1998).

                                          Source: Our analysis of USDA data.



                                          To study the long-term impact of the graduation requirement on MAP
                                          participation, we analyzed the top 10 cooperatives and small businesses
                                          that received MAP brand-name funds in fiscal year 1997. Our analysis
                                          estimates that 9 of the 10 recipients would graduate from at least one
                                          country market in fiscal year 1998. In addition, four recipients would face
                                          the prospect of graduating from at least half of their country markets in
                                          fiscal year 1998 (see table 2). For example, International American
                                          Supermarkets is expected to graduate in fiscal year 1998 from seven of its
                                          nine Middle Eastern markets. In addition, this company is expected to
                                          graduate from its remaining two country markets in fiscal year 2000.
                                          International American Supermarkets has received over $3.1 million (in
                                          1997 dollars) since 1989 to promote grocery products in these markets.




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Table 2: Small Businesses and Cooperatives With Largest MAP Brand-name Awards in Fiscal Year 1997 and Projected
Graduations From Country Markets
                                                                                Number of country markets
                                                             Budget
                                                          allocation    Total      Projected graduations from MAPa
Company name            Type      Commodity types           FY 1997    FY 97       FY98       FY99      FY00       FY01
Sunkist Growers        Coop       Fresh citrus                  $2,594,000               5             5            0             0          0
Blue Diamond           Coop       Almonds,                       1,419,000               9             4            2             0          3
                                  pistachios
Welch Foods            Coop       Grape juice                      740,000               6             2            3             0          1
Sunsweet               Coop       Prunes                           616,000               3             3            0             0          0
IntlAmSupMkts          Small      Bakery,snacks,vegs               475,000               9             7            0             2          0
ASB Group Intl         Small      Snack food                       350,000               2             1            1             0          0
Ocean Spray            Coop       Cranberries &                    320,000               3             1            0             1          1
                                  products, fresh
                                  grapefruit
Herman Goelitz         Small      Confectionery                    265,000               6             2            1             1          2
Org Log Cabin Homes    Small      Log cabins                       250,000               1             0            0             1          0
Wente Bros             Small      Wine                             250,000               9             4            2             1          2
                                           Legend:
                                           FY=fiscal year

                                           Note: These top 10 recipients received 25 percent of the brand-name budget.
                                           a
                                            We projected the number of countries the company is expected to graduate from based on
                                           funding history (that is, the company received MAP funds for a certain country for fiscal years
                                           1994-97, and we assume that it will receive funds in fiscal year 1998).

                                           Source: Our analysis of USDA data.




Waivers Reduce Impact of                   The impact of the graduation requirement was reduced when FAS decided
Graduation Requirement                     in December 1998 to waive the graduation requirement for all
                                           cooperatives. While the legislation encourages graduation, it also gives the
                                           Secretary of Agriculture authority to waive the graduation requirement
                                           and extend MAP brand-name assistance beyond 5 years for a particular
                                           company if it is determined that further assistance is necessary to meet the
                                           objectives of the program. According to FAS’ Deputy Administrator for
                                           Commodity and Market Programs, FAS extended MAP assistance to all
                                           cooperatives for brand-name promotions beyond the 5 year limit for two
                                           reasons: (1) some cooperatives represent the interests of thousands of
                                           individual growers and (2) some cooperatives represent a large share of




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                           U.S. production and could be viewed as trade associations that promote a
                           generic product.20

                           We estimated that absent a waiver, small companies and cooperatives with
                           promotions totaling $9.2 million would have graduated in fiscal year 1998.21
                            However, the potential impact of the graduation requirement was reduced
                           to $4.3 million when FAS waived the requirement for all cooperatives. The
                           lower figure represents 15 percent of the $29 million MAP budget for
                           brand-name promotions, or about 4 percent of MAP’s total budget of
                           $118.8 million in fiscal year 1997.

                           Of the 11 cooperatives that could have been impacted by the graduation
                           requirement in fiscal year 1999, 4 of them have been in some country
                           markets since the program’s inception. For example, our projections
                           indicate that Sunkist and Blue Diamond Growers would graduate from 9 of
                           their 14 country markets in 1998 if FAS had not waived the graduation
                           requirement. Sunkist has received a total of $70.6 million in program funds
                           to promote fruit in five countries, and Blue Diamond has received
                           $27.4 million to promote almonds in four countries between 1986 and 1997
                           (in 1997 dollars).22


                           Beginning with the fiscal year 1994 budget allocations, participants that
Difficult to Verify That   receive MAP funds directly from FAS must certify that the assistance
MAP Funds                  supplements, not supplants, their own funding for foreign market
Supplement Recipient       development (the concept of “additionality”). Furthermore, trade
                           associations, state regional groups, and state agencies must assure that
Expenditures               applications for indirect MAP assistance include completed and accurate
                           certification statements. The certification requirement is meant to ensure

                           20
                             Among cooperatives participating in MAP, the number of producers in a cooperative and its market
                           share vary greatly. For example, Sunkist has total sales over $1 billion in 1997, represents nearly
                           60 percent of the domestic market for navel oranges, and is owned by 6,500 citrus farmers in California
                           and Arizona. Land O’Lakes Food Ingredients with sales at $3 billion represents over 300,000 producers
                           in 30 states organized in local cooperatives. However, other cooperatives represent a smaller number
                           of growers. For example, Bard Valley Medjool Date Growers Association with sales of $13 million has
                           9 growers, and Naturipe Berry Growers has 50 grower associates and sale revenues of $72 million.
                           21
                             Fiscal year 1998 data was not available at the time of our study, so we projected the amount of funds
                           that could potentially be released as a result of the graduation requirement by (1) estimating the
                           number of companies expected to graduate from certain countries in fiscal year 1998 (see fn. 18) and
                           (2) assuming that the amount of MAP funds they would have received in fiscal year 1998 would be the
                           same as the amount the company received for the country promotion in fiscal year 1997.
                           22
                            Since 1986, Sunkist has received the following amounts of MAP funds (1997 dollars) for these
                           country markets: Canada, $7 million; Hong Kong, $11.8 million; Japan, $42.1 million; Malaysia,
                           $4.8 million; and Singapore, $4.9 million. Blue Diamond Growers received the following amounts of
                           MAP funds for these country markets (1997 dollars): India, $437,000; Japan, $19.8 million; Korea,
                           $6.3 million; and Thailand, $838,000.



                           Page 12                                                       GAO/NSIAD-99-38 Agricultural Trade
                       B-281456




                       that MAP funds do not substitute for promotional expenditures recipients
                       would have otherwise undertaken with their own funds. According to FAS
                       officials, no recipients have been disqualified from the program because
                       they failed to meet the certification requirement.

                       FAS’ Compliance Review Staff (CRS) regularly audits the participants that
                       receive direct MAP funding and verifies that these participants and the
                       recipients they fund have completed their certification statements. To
                       determine whether MAP assistance (generic or brand-name) has not
                       supplanted a participant’s foreign market development expenditures, the
                       Director of CRS told us that they review the participant’s foreign market
                       development budget and verify that it is spending at least as much as it
                       spent the previous year. CRS also considers variations in a recipient’s
                       promotional strategies within a country and in new markets. According to
                       the Director, CRS reviews supporting documentation each year for about
                       5 percent of all indirect recipients (15-20 companies and cooperatives).
                       The Director reported that it is difficult to verify whether MAP funds
                       supplement a participant’s own funds for foreign market development
                       activities because it is hard to determine what a participant would have
                       spent in the absence of MAP funds.

                       According to FAS officials, they have no evidence based on the CRS audits
                       that any participant has falsely certified regarding additionality.
                       Nonetheless, a private consulting firm has been hired to review the
                       effectiveness of MAP, and one component of the work plan includes a
                       section that addresses the issue of whether MAP funds supplement or
                       supplant the funds of MAP participants. FAS officials expect this project to
                       provide the best analysis to date on the topic of additionality.


                       FAS officials continue to attribute substantial macroeconomic and
Economic Benefits of   market-level benefits, including increased income and employment, to MAP.
MAP Unclear            Specifically, FAS estimates that the cumulative effect of MAP expenditures
                       since 1986 is $5 billion of additional agricultural exports in 1997 which, in
                       turn, FAS says generate 86,500 jobs and $12 billion in additional economic
                       activity.23 This estimate is based on the projected impact of $1.25 billion
                       (1997 dollars) of spending between 1986 and 1997 on consumer food



                       23
                        Foreign Agricultural Service Strategic Plan: 1997-2002 (Washington, D.C.: USDA/FAS, 1997), p. 7. The
                       Foreign Market Development Program, also known as the Cooperator Program, provides funds to
                       nonprofit associations to help develop export markets and promote U.S. agricultural
                       commodities—typically bulk (wheat, corn, soybeans) or generic products. Historically, USDA’s
                       contribution to this program has averaged approximately $30 million a year.



                       Page 13                                                     GAO/NSIAD-99-38 Agricultural Trade
B-281456




export promotion through MAP (including an estimated $5 million per year
in Foreign Market Development Program expenditures).

Our review of the recent estimates of MAP’s impact on the macroeconomy
and the methodology used to derive them suggests that the benefits
attributed to MAP by FAS are overstated. The model FAS used to generate
these estimates assumes that all of the resources (land, labor, and other
inputs) associated with additional agricultural exports would be
unemployed in the absence of government market promotion efforts.24 As
we previously reported, this approach is inconsistent with OMB cost-benefit
guidelines, which instruct agencies to assume that resources would be
fully employed, and leads to an overstatement of benefits of the program.25


In addition, FAS continues to assume that all of the market development
efforts subsidized through MAP funding are in addition to what the private
sector would do in the absence of the government program efforts. This
position differs from the view of the Trade Promotion Coordinating
Committee (TPCC).26 In its 1998 annual report, the TPCC concluded that
government agencies currently do not have the means to measure whether
exports would have taken place without government intervention and that
the results of studies of net economic effects of export promotion are
speculative.




24
 The methodology used by FAS is developed in Evaluating the Effectiveness of the Market Promotion
Program on U.S. High-Value Agricultural Exports, FAS Staff Paper 1-95 (Washington, D.C.: Feb. 1995).
25
  For another discussion of the assumptions in the FAS model, see U.S. Agricultural Exports: Strong
Growth Likely, But U.S. Export Assistance Programs’ Contribution Uncertain (GAO/NSIAD-97-260,
Sept. 30, 1997). See also OMB Circular No. A-94. The circular states: “Generally, analyses should treat
resources as if they were likely to be fully employed.” When the economy is near or at full
employment, government promotion activities largely reallocate production, employment, and income
between sectors and are therefore less likely to generate additional economic activity.
26
  The National Export Strategy: Staying the Course, Trade Promotion Coordinating Committee, Sixth
Annual Report to the U.S. Congress (Washington, D.C.: TPCC, Oct. 1998). The TPCC was established
by the President under authority of the Export Enhancement Act of 1992 (P.L. 102-429). Members of
the TPCC include representatives from government Departments and agencies such as the
Departments of Agriculture, Commerce, and State; the Small Business Administration; the Overseas
Private Investment Corporation; and the U.S. Trade Representative. The TPCC is responsible for
coordinating the development of the trade promotion polices and programs of the U.S. government
and establishing a set of priorities for federal activities in support of U.S. exports.



Page 14                                                       GAO/NSIAD-99-38 Agricultural Trade
B-281456




FAS officials directed us to academic studies that they identified as
demonstrating the positive effect of MAP on agricultural exports.27 We
examined the relevant studies of MAP’s impact in specific markets and
found that they reveal mixed results. Of the studies that estimate MAP’s
impact on agricultural exports in specific foreign markets, all report
positive benefits in one or more of the targeted markets, but most of these
studies also report that MAP funding failed to influence exports in other
targeted markets. Moreover, caution should be used in interpreting the
benefits ascribed to MAP in these studies, since the studies that report
positive effects from MAP funding employ a methodology that results in an
upward bias on the estimated benefits (see app. II for a more detailed
review of these studies). Thus, it is difficult to generalize about the impact
of MAP based on the results of these market-level studies.

FAS  officials responsible for developing agency strategic and performance
plans in accordance with Results Act requirements are undertaking steps
to redesign performance measures as a basis for developing market-level
strategies. FAS recently requested the National Association of State
Departments of Agriculture to develop performance measures in order to
improve the system for evaluating MAP’s effectiveness in selected markets
and for assessing the overall impact of the program. The goal of this
initiative is to develop a more effective mechanism for allocating MAP
program resources through new market-level studies. This initiative
provides an opportunity for FAS to overcome the limitations of existing
studies by carrying out a more rigorous analysis of the impact of the
program. This new approach is reinforced by a direction in a recent
Appropriations Committee conference report that the Secretary of
Agriculture produce a comprehensive analysis of the economic impact of
MAP.28




27
 Specifically, FAS officials directed us to studies carried out by the Research Committee on
Commodity Promotion (NEC-63) and the National Institute for Commodity Promotion Research and
Evaluation (NICPRE), which are both university-affiliated organizations that carry out research in
agriculture and related fields. The majority of studies of MAP-funded promotions in specific markets
have been carried out under the auspices of these organizations.
28
  See the Conference Report on the Omnibus Consolidated and Emergency Supplemental
Appropriations Act, 1999 (P.L. 105-277, Oct. 21, 1998). The report directs the Secretary of Agriculture
to “produce a report on the MAP which should include an analysis of the costs and benefits of the
program for compliance with OMB Circular A-94; estimate the impact of MAP on the agricultural
sector, on consumers, and other sectors of the economy in the United States; assess the relation
between the priorities and spending levels of programs carried out under MAP and the privately
funded market promotion activities undertaken by participants in the programs; and evaluate the
additional spending of participants and the amount of export additionality resulting from the MAP.”
H. Conf. Rept. No. 105-825, 105th Cong., 2d Sess. (1998), p. 989-90.



Page 15                                                        GAO/NSIAD-99-38 Agricultural Trade
                     B-281456




                     We obtained oral comments from FAS on a draft of this report. FAS said that
Agency Comments      it agreed with the report’s presentation of the operational changes to MAP
and Our Evaluation   that FAS has implemented in response to legislative direction.

                     However, FAS officials disagreed with the report’s conclusion that their
                     economic analyses tended to overstate MAP’s macroeconomic benefits.
                     They said that FAS uses a standard USDA methodology to convert MAP’s
                     estimated export impacts to “supported employment” effects. These
                     multipliers are taken from the input-output model of the U.S. economy
                     developed and updated each year by USDA’s Economic Research Service.
                     They also said that they recognize that their methodology is not consistent
                     with OMB Circular A-94 guidance that “generally, analyses should treat
                     resources as if they were likely to be fully employed.” FAS officials said
                     they believe that OMB’s guidance is unrealistic and unduly restrictive. FAS
                     analysis assumes slack (less than fully employed) resources, especially
                     labor. FAS officials cite evidence of labor unemployment as proof of slack
                     resources in the U.S. economy. FAS officials state that their estimate of the
                     number of jobs supported by MAP is small compared to the total number of
                     new jobs created each month in the U.S. economy and this reinforces their
                     belief that OMB’s full employment assumption is unrealistic for a small
                     program like MAP. Furthermore, FAS officials note that USDA is not the only
                     government agency that uses employment multipliers to estimate the
                     macroeconomic benefits of exports.

                     We note that the guidelines in OMB Circular A-94 apply to all agencies of
                     the executive branch and for any analysis used to support government
                     decisions to renew programs such as MAP.29 We believe that the guidelines
                     provide a sound basis on which to evaluate programs such as the MAP and
                     their contributions to the national economy.

                     FASalso provided some technical comments and, where appropriate, they
                     have been incorporated.


                     To report on actions FAS took to implement legislative reforms enacted by
Scope and            Congress in the mid-1990s, we reviewed MAP legislation and regulations.
Methodology          We also interviewed and collected documents from FAS officials from the
                     Commodity and Marketing Programs Division who are responsible for the

                     29
                       The OMB Circular A-94 guidelines “apply to any analysis used to support Government decisions to
                     initiate, renew, or expand programs or projects which would result in a series of measurable benefits
                     or costs extending for three or more years into the future.” Some decisions are exempted from the
                     scope of the circular concerning: water resource projects, the acquisition of commercial-type services
                     by government or contractor operation, and federal energy management programs.



                     Page 16                                                      GAO/NSIAD-99-38 Agricultural Trade
B-281456




management and oversight of MAP, as well as officials from FAS’
Compliance Review Staff and USDA’s Office of Inspector General. In
addition, we interviewed and gathered documents from five MAP
participants to understand how different types of program participants
(that is, trade associations, state regional groups, and cooperatives)
participated in the program. Our review of the program relied on data from
fiscal years 1986 to 1997. At the time of our review, fiscal year 1998 data on
company participation in the MAP brand-name program was not available.
A fiscal year represents the year for which the MAP funds were authorized
and allocated; however, these funds may have been expended the
following fiscal year depending on the recipient’s marketing year. For the
years of available data, we analyzed actual expenditure data, with the
exception of fiscal year 1997, because only budget data was available at
the time of our review.30 We did not verify the accuracy or completeness of
the electronic data.

To determine the impact of FAS’ implementation of legislative reforms to
give priority to small-sized businesses when funding the MAP brand-name
program in fiscal years 1994 and 1997, we analyzed changes in the number
and shares of small businesses participating in MAP’s brand-name program.
We also examined the size of the 22 cooperatives participating in the
brand-name program for fiscal year 1997 by comparing the SBA
criteria—the same criteria used by companies to qualify themselves as
small-sized businesses for MAP brand-name funds—to data obtained from
business references and other sources on the total number of employees
and annual sales for each cooperative.31

To determine the impact of the graduation requirement on MAP
participation, we projected the number of companies and their promotions
that might be affected. Fiscal year 1998 data was not available at the time
of our review, so we estimated the number of companies and cooperatives
expected to graduate from certain country markets in fiscal year 1998
based on their funding history for each country. To estimate the amount of
funds expected to be released due to the graduation requirement, we
assumed the amount of MAP funds these graduating companies and
cooperatives would have received in fiscal year 1998 would be the same as
the amount they received for the country promotion in fiscal year 1997.
Our review of graduation did not include any consideration of the number

30
 Program data included statistics on the allocation of MAP funds by participant, company, country,
and type of MAP promotions, that is, generic or brand-name.
31
   Whenever possible, we used data from Dunn and Bradstreet (Bethlehem, PA: 1998); otherwise, we
used data from Standard & Poor’s (New York, NY: 1998) and the Standard Directory of Advertisers
(New Providence, NJ: 1998).



Page 17                                                     GAO/NSIAD-99-38 Agricultural Trade
B-281456




of years that trade associations, cooperatives, and companies had received
MAP funds to support their country-specific generic promotions; this was
outside the scope of our review.

To determine the impact of the legislative requirement that MAP
participants certify that MAP funds supplement, not supplant, their
expenditures for promotions in foreign markets on MAP participation, we
interviewed FAS officials responsible for the management and oversight of
MAP, including representatives from FAS’ Commodity and Marketing
Programs Division and Compliance Review Staff. We also reviewed
compliance reports and other documents provided by the Compliance
Review Staff.32

In order to provide a review of the economic impact of MAP, we focused
our analysis on those studies that estimated or analyzed the economic
impact of MAP and its predecessors (the Market Promotion Program and
the Targeted Export Assistance program). We revisited some of the
studies that were analyzed in a prior review of all FAS export promotion
programs as well as more recent estimates by FAS of the program’s
economic impact.

In our review of studies of MAP’s impact on U.S. agricultural exports and
related effects on employment and gross national product, we performed
two tasks. First, we relied on our previous analysis of FAS’ methodology for
estimating effects from MAP funding on agricultural exports, employment
generation, and income effects and compared this methodology with OMB
guidelines for cost-benefit analysis. We spoke with FAS officials charged
with the development and implementation of the 1993 Government
Performance and Results Act-mandated strategic and annual performance
plans to gather their opinion of the applicability and reliability of FAS
estimates and methodology. Also, we considered the methodology FAS
used to derive its macroeconomic estimates from the perspective of
standard economic analysis of the effects of subsidies on the target sector
and related sectors. In addition, we also reviewed how the TPCC reported
benefits of MAP and other export promotional spending in its annual
National Export Strategy.

Second, to obtain evidence on the impact of MAP on sectoral exports, we
reviewed analyses provided to us by FAS as well as other applicable
research analyses from academic publications of the impact of the

32
  This review of documentation included compliance reports for 10 MAP participants, audit schedules
for fiscal years 1993-97, and accomplishment reports for fiscal years 1994-96.



Page 18                                                     GAO/NSIAD-99-38 Agricultural Trade
B-281456




program on particular markets. When reviewing these studies for the
current analysis, we focused on both the findings of economic impact and
the methodology used to derive results. The available studies focused on
MAP-funded generic promotions. We synthesized this information to
present an overview of the impact of MAP funding on exports and the U.S.
economy. We spoke to officials at FAS and the National Association of
State Departments of Agriculture, which is collaborating with FAS in
developing performance indicators for the MAP program, and we reviewed
the National Association of State Departments of Agriculture’s Request for
Proposal for an evaluation project for MAP.

We conducted our work at FAS in Washington, D.C., and completed
telephone interviews with representatives from three trade associations,
one cooperative, and one state regional group located throughout the
United States.

We performed our review from January 1998 to December 1998 in
accordance with generally accepted government auditing standards.


As agreed with your offices, we will send copies of this report to Senator
Richard G. Lugar, Chairman, and Senator Tom Harken, Ranking Minority
Member, Senate Committee on Agriculture, Nutrition, and Forestry;
Representative Larry Combest, Chairman, and Representative Charles W.
Stenholm, Ranking Minority Member, House Committee on Agriculture.
We are also sending copies of this report to the Honorable Daniel
Glickman, Secretary of Agriculture. We will also make copies available to
others on request.

This review was done under the direction of JayEtta Z. Hecker, Associate
Director. If you or your staff have any questions concerning this report,
please contact Phillip Thomas, Assistant Director, at (202) 512-9892. Major
contributors to this report are listed in appendix III.




Benjamin F. Nelson, Director
International Relations and Trade Issues




Page 19                                      GAO/NSIAD-99-38 Agricultural Trade
Contents



Letter                                                                                             1


Appendix I                                                                                        22
Statistics on
Participation in the
Market Access
Program
Appendix II                                                                                       29
Review of
Market-Level Studies
of MAP
Appendix III                                                                                      32
Major Contributors to
This Report
Tables                  Table 1: Country Markets With Largest MAP Brand-name                      10
                          Budgets, Fiscal Year 1997
                        Table 2: Small Businesses and Cooperatives With Largest MAP               11
                          Brand-name Awards in Fiscal Year 1997 and Projected
                          Graduations From Country Markets
                        Table I.1: MAP Participants and Budgets—Generic and                       24
                          Brand-name—Fiscal Year 1997
                        Table I.2: Size of MAP Brand-name Awards by Type of Recipient,            28
                          Fiscal Year 1997


Figures                 Figure 1: MAP Brand-name Allocations by Type of Recipient,                 6
                          Fiscal Years 1994 and 1997
                        Figure I.1: Annual MAP Appropriations, Fiscal Years 1986-97               23
                        Figure I.2: Country Markets With Largest MAP Budgets, Fiscal              27
                          Year 1997




                        Page 20                                    GAO/NSIAD-99-38 Agricultural Trade
Contents




Abbreviations

CRS        Compliance Review Staff
FAS        Foreign Agricultural Service
MAP        Market Access Program
MPP        Market Promotion Program
NEC-63     Research Committee on Commodity Promotion
NICPRE     National Institute for Commodity Promotion Research and
                Evaluation
OMB        Office of Management and Budget
SBA        Small Business Administration
TEA        Targeted Export Assistance
TPCC       Trade Promotion Coordinating Committee
USDA       U.S. Department of Agriculture


Page 21                                   GAO/NSIAD-99-38 Agricultural Trade
Appendix I

Statistics on Participation in the Market
Access Program

                Since its inception in 1986, the Market Access Program (MAP) and its
                predecessors, the Targeted Export Assistance program (TEA) and the
                Market Promotion Program (MPP), have provided funds to commercial
                firms and nonprofit organizations to support the promotion of U.S.
                agricultural goods in foreign markets. TEA was first authorized in 1985 to
                reverse a decline in U.S. agricultural exports and to counter the unfair
                trade practices of foreign competitors.1 Only those commodities adversely
                affected by unfair foreign competitor practices were eligible for
                assistance. When Congress reauthorized the program in 1990, it was
                renamed the Market Promotion Program, and assistance was no longer
                restricted to commodities adversely affected by unfair competitor
                practices.2

                In 1993 Congress initiated three major program changes. The first directed
                that the Foreign Agricultural Service (FAS) give small businesses priority in
                the allocation of MAP funds for brand-name promotions. The second
                change established a graduation requirement with a 5-year limit on the use
                of MAP funds to promote a “specific branded product” in a “single market”
                unless FAS determines that further assistance is deemed necessary to meet
                program objectives. The third change was a requirement that each
                participant certify that MAP funds supplement its foreign market
                development expenditures.3

                With the Market Promotion Program’s 1996 reauthorization, Congress
                changed the program name to MAP, and, among other things, prohibited
                direct assistance to companies that are not recognized as small business
                concerns under the Small Business Act, except for cooperatives and
                certain associations.4 The 1996 reauthorizing legislation also capped
                annual funding for MAP at $90 million for fiscal years 1996-2002 (see fig. I.1
                for annual MAP appropriations, fiscal years 1986-97).




                1
                 The Food Security Act of 1985 (P.L. 99-198, sec. 1124, Dec. 23, 1985).
                2
                 The Food, Agriculture, Conservation, and Trade Act of 1990 (P.L. 101-624, sec. 1531, Nov. 28, 1990).
                3
                 The Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66, sec. 1302, Aug. 10, 1993).
                4
                 The Federal Agriculture Improvement and Reform Act of 1996 (P.L. 104-127, sec. 244, Apr. 4, 1996).



                Page 22                                                        GAO/NSIAD-99-38 Agricultural Trade
                                           Appendix I
                                           Statistics on Participation in the Market
                                           Access Program




Figure I.1: Annual MAP Appropriations, Fiscal Years 1986-97
Dollars in millions
250

                                200     200      200       200
200

                                                                    148
150
          110    110     110                                                           110
                                                                             100
                                                                                                90        90
100



 50



   0
        86      87     88      89     90       91     92          93       94        95       96       97
                                               Fiscal year

                                           Note: The budget for MAP in fiscal year 1997 was $118.8 million (this figure includes the 1997
                                           annual appropriations plus carryover from the prior year).

                                           Source: U.S. Department of Agriculture (USDA).




                                           Page 23                                                     GAO/NSIAD-99-38 Agricultural Trade
                                             Appendix I
                                             Statistics on Participation in the Market
                                             Access Program




                                             Table I.1 presents a list of all participants who received MAP funds directly
                                             during fiscal year 1997 along with the amount of MAP funding they were
                                             allocated and the percent they spent on generic and brand-name
                                             promotions.



Table I.1: MAP Participants and Budgets—Generic and Brand-name—Fiscal Year 1997
                                                                             1997                        Percent            Percent
Participant                                                           MAP budget                         generic        brand-name
Trade Associations
Almond Board of California                                                           $504,043                100                   0
American Brandy Association                                                              230,000              66                  34
American Forest & Paper Association                                                 7,568,704                100                   0
American Jojoba Association                                                              200,000             100                   0
American Indian Trade and Development Council                                             75,318             100                   0
American Seafood Institute/Rhode Island Seafood Council                                  637,249              58                  42
American Sheep Industry Association                                                      170,000             100                   0
American Soybean Association                                                        2,373,422                100                   0
Asparagus USA                                                                            258,103             100                   0
California Agricultural Export Council                                                   611,787             100                   0
California Cling Peach Growers Advisory Board                                            798,931             100                   0
California Kiwifruit Commission                                                          158,000             100                   0
California Pistachio Commission                                                          979,103              91                   9
California Prune Board                                                              2,563,500                 76                  24
California Strawberry Commission                                                         508,567             100                   0
California Table Grape Commission                                                   2,348,272                100                   0
California Tree Fruit Agreement                                                          774,664             100                   0
California Walnut Commission                                                        2,593,772                100                   0
Cherry Marketing Institute                                                               165,292             100                   0
Chocolate Manufacturers Association                                                 1,695,376                 12                  88
Cotton Council International                                                        9,753,438                100                   0
Hop Growers of America                                                                   125,000             100                   0
Kentucky Distillers Association                                                          847,952              60                  40
Mohair Council of America                                                                 75,000             100                   0
National Dry Bean Council                                                                728,469             100                   0
National Honey Board                                                                     144,382              67                  33
National Peanut Council                                                             1,155,000                100                   0
National Potato Research & Promotion Board                                          1,674,984                100                   0
National Renderers Association                                                           286,967             100                   0
                                                                                                                          (continued)



                                             Page 24                                               GAO/NSIAD-99-38 Agricultural Trade
                                            Appendix I
                                            Statistics on Participation in the Market
                                            Access Program




                                                                                      1997              Percent            Percent
Participant                                                                     MAP budget              generic        brand-name
National Sunflower Association                                                          999,958             100                   0
New York Wine and Grape Foundation                                                      152,814              79                  21
North American Blueberry Council                                                         92,000             100                   0
North American Export Grain Association                                                 194,950             100                   0
Northwest Wine Promotion Coalition                                                      280,664             100                   0
Oregon Seed Council                                                                     197,858             100                   0
Oregon-Washington-California Pear Bureau                                           1,065,813                100                   0
Pet Food Institute                                                                      991,030             100                   0
Raisin Administrative Committee                                                    2,444,619                 91                   9
Texas Produce Export Association                                                        123,930             100                   0
The Catfish Institute                                                                   309,905             100                   0
The Popcorn Institute                                                                   502,077             100                   0
USA Dry Pea & Lentil Council                                                            577,918             100                   0
USA Fresh Sweet Cherry Promotion                                                        858,020             100                   0
USA Poultry and Egg Export Council                                                 3,952,570                 78                  22
USA Rice Federation                                                                3,497,075                100                   0
USA Tomato (CA FL tomatoes)                                                             653,396             100                   0
US Apple Association                                                                    505,548             100                   0
US Dairy Export Council                                                            1,934,781                100                   0
US Feed Grains Council                                                             3,945,878                100                   0
US Livestock Genetics Export, Inc.                                                 1,077,468                 75                  25
US Meat Export Federation                                                          9,875,166                 98                   2
US Wheat Associates                                                                2,278,750                100                   0
Washington Apple Commission                                                        3,198,266                100                   0
Wine Institute                                                                     4,454,000                 59                  41
State regional groups
Eastern US Agricultural & Food Export Council (USEAFEC)                            4,287,219                 25                  75
Mid-America International Agri-Trade Council (MIATCO)                              6,378,167                 16                  84
National Association of State Departments of Agriculture (NASDA)                        600,000             100                   0
Southern United States Trade Association (SUSTA)                                   4,336,616                 23                  77
Western US Agricultural Trade Association (WUSATA)                                 6,989,000                 19                  81
State agencies
Alaska Seafood Marketing Institute                                                 2,569,203                100                   0
                                                                                                                         (continued)




                                            Page 25                                               GAO/NSIAD-99-38 Agricultural Trade
                                           Appendix I
                                           Statistics on Participation in the Market
                                           Access Program




                                                                                     1997              Percent            Percent
Participant                                                                    MAP budget              generic        brand-name
Florida Department of Citrus                                                      4,498,525                100                   0
Cooperatives
Blue Diamond Growers                                                              1,375,000                   0                100
Ocean Spray International, Inc.                                                        319,848                0                100
Sunkist Growers, Inc.                                                             2,593,546                   0                100
Welch Foods Inc. (National Grape Cooperative)                                          664,261                0                100
Total                                                                         $118,781,134                  76                  24

                                           Source: USDA.



                                           The 10 country markets with the largest MAP budgets in fiscal year 1997
                                           represent all countries that had MAP generic and brand-name promotions
                                           totaling $2 million or more (see fig. I.2). Approximately 65 percent (or
                                           $77 million) of the total $118.8 million in MAP funds was budgeted for
                                           promotions in these markets in fiscal year 1997. The remaining 35 percent
                                           of the MAP funds was budgeted for generic and brand-name promotions in
                                           90 other country markets.

                                           Approximately $2.2 million of the MAP budget in fiscal year 1997 supported
                                           efforts conducted in the United States that underpinned foreign market
                                           development activities. About 32 percent of the budget covered
                                           administrative costs expected to be incurred by four state regional groups
                                           for such items as rent, salaries, and supplies. Approximately 17 percent of
                                           the funds were budgeted for anticipated travel expenses by staff from
                                           seven trade associations and three state regional groups. Another
                                           28 percent supported activities such as demonstrations, media, public
                                           relations, promotions, and trade shows. The majority of these funds
                                           supported preparations at the largest food export trade show in the United
                                           States.




                                           Page 26                                               GAO/NSIAD-99-38 Agricultural Trade
                                                           Appendix I
                                                           Statistics on Participation in the Market
                                                           Access Program




Figure I.2: Country Markets With Largest MAP Budgets, Fiscal Year 1997
                                  United Kingdom - $8.0 million                        Germany - $5.9 million
                                  27 trade organizations received $5.1 generic funds   24 trade organizations received $4.1 generic funds
                                  118 companies received $2.9 brand-name funds         123 companies received $1.8 brand-name funds

Canada - $4.8 million                                                                                                             Republic of Korea - $6.3 million
19 trade organizations received $2.5                                                                                              21 trade organizations received $5.3
generic funds                                                                                                                     generic funds
111 companies received $2.3                                                                                                       54 companies received $0.9
brand-name funds                                                                                                                  brand-name funds




United States - $2.2 million                                                                                                      Japan - $27.8 million
12 trade organizations received                                                                                                   32 trade organizations received $22.8
$2.2 generic funds                                                                                                                generic funds
$0 brand-name funds a                                                                                                             160 companies received $5.0
                                                                                                                                  brand-name funds



                                                                                                                                  Taiwan - $4.6 million
                                                                                                                                  19 trade organizations received $3.6
Mexico - $7.6 million
                                                                                                                                  generic funds
31 trade organizations received $6.1 generic funds
                                                                                                                                  55 companies received $1.0
77 companies received $1.5 brand-name funds
                                                                                                                                  brand-name funds




                              People's Republic of China - $4.6 million                     Hong Kong - $5.1 million
                              23 trade organizations received $3.6 generic funds            18 trade organizations received $3.2 generic funds
                              72 companies received $1.0 brand-name funds                   71 companies received $1.9 brand-name funds



                                                           a
                                                            Due to rounding, this amount does not reflect the $8,000 of MAP funds supporting one
                                                           brand-name promotion in the United States.


                                                           Source: Our map based on USDA data.




                                                           Page 27                                                             GAO/NSIAD-99-38 Agricultural Trade
                                          Appendix I
                                          Statistics on Participation in the Market
                                          Access Program




                                          A total of 475 recipients participated in the MAP brand-name program in
                                          fiscal year 1997. Four cooperatives (Sunkist, Welch Foods Inc., Ocean
                                          Spray, and Blue Diamond) received MAP funds for brand-name promotions
                                          directly from FAS.5 All other companies and cooperatives applied indirectly
                                          to FAS for MAP funds for brand-name promotions through trade
                                          associations, state regional groups, and state agencies. The amount of
                                          brand-name assistance awarded to each recipient ranged from $1,500 to
                                          $2.6 million; however, almost half of the awards were in amounts less than
                                          $25,000 (see table I.2).



Table I.2: Size of MAP Brand-name Awards by Type of Recipient, Fiscal Year 1997
                                                            Large companies                    Small companies            Cooperatives
Size of award                                                       Number       Percent       Number       Percent     Number        Percent
Below $25,000                                                              37             45       187          51 6            2             7
$25,000-$99,999                                                            35             42       126            34            8            36
$100,000-$299,999                                                           9             11         55           15            3            14
                                                                             a                         b                          c
$300,000 and over                                                           2             2           2            1            5            23
Total                                                                      83         100          370          101d           22            100
                                          a
                                              Large company awards amounted to $440,000 and $597,874.
                                          b
                                              Small company awards amounted to $350,000 and $475,000.
                                          c
                                              Cooperative awards amounted to $319,848, $616,000, $740,261, $1.4 million, and $2.6 million.
                                          d
                                              Greater than 100 percent due to rounding.

                                          Source: Our analysis of USDA data.




                                          5
                                           Two of these cooperatives, Welch Foods Inc. and Blue Diamond, also received MAP funds for
                                          brand-name promotions indirectly through state regional groups.



                                          Page 28                                                      GAO/NSIAD-99-38 Agricultural Trade
Appendix II

Review of Market-Level Studies of MAP


              The studies that analyzed the effect of MAP and its predecessor programs
              were for the most part carried out under the auspices of
              university-affiliated institutes and organizations. Nine universities are
              affiliated with the National Institute for Commodity Promotion Research
              and Evaluation (NICPRE). NICPRE is an offshoot of the Research Committee
              on Commodity Promotion (NEC-63), which is a component of the land grant
              committee structure to coordinate research in agriculture and related
              fields.

              FAS officials identified a number of market-level studies published by
              NICPRE  and NEC-63 that they said showed MAP’s economic benefits to
              agriculture through increased exports and market shares for specific
              commodities. Our review found that the studies provide mixed evidence
              of a positive impact of MAP-funded promotions at the market-level unit of
              analysis. The studies also vary in terms of their functional forms,
              assumptions, and independent variables. Some models are more
              completely specified in that they include variables measuring income, the
              prices of substitute and complementary goods, exchange rates, and
              long-term trends. However, others lack one or more of these important
              variables, raising the possibility of biased estimators due to model
              misspecification.1 The presentation of the econometric estimation of the
              models also varies. Some studies are rigorous, while others fail to present
              complete diagnostics of the model performance.

              Few studies show an unambiguously positive effect of government
              promotional activities on exports. For example, a study of the effects of
              FAS-funded promotions for U.S. red meat (pork, veal, and beef) in the
              Pacific Rim countries showed a positive result in the case of South Korea
              and insignificant results for the other three countries included in the
              analysis.2 Also, an analysis of the effects of government-funded
              promotions of meat in Japan showed a positive influence on the demand
              for U.S. beef but found no evidence that advertising and promotion




              1
               See the discussion by Karen Z. Ackerman and Shida Rastegari Henneberry in “Economic Impacts of
              Export Market Promotion,” Commodity Promotion Policy in a Global Economy, Proceedings of a
              Symposium (Arlington, VA: Oct. 22-3, 1992).
              2
               See Cong Tru Le, Harry M. Kaiser, and William G. Tomek, “Export Promotion and Import Demand for
              U.S. Red Meat in Selected Pacific Rim Countries,” NICPRE 97-04 (Ithaca, NY: Cornell University, Sept.
              1997).



              Page 29                                                      GAO/NSIAD-99-38 Agricultural Trade
Appendix II
Review of Market-Level Studies of MAP




expenditures had an expansionary effect on the demand for U.S. pork and
poultry products.3

Additionally, a number of the market-level studies that find positive effects
associated with government-subsidized programs are incomplete in their
analysis and result in an upward bias on the estimated effects of
MAP-funded promotions. They exclude factors that could permit program
administrators to assure that the impact is positive even after accounting
for increased costs. Most studies only calculate the expansion of exports
associated with a dollar input of MAP advertising. For example, one study
finds that “$1,000 spent in Japan yields an increased revenue of
approximately $5,850” (the cumulative effect after 40 years) for U.S.
walnut producers.4 This and similar types of estimates that report “gross
returns” do not consider the production and transportation costs of these
additional exports and thus fail to determine whether the promotion has
positive net economic returns.5 Also, as one study notes, it is not always
possible to take into account the potentially large advertising and
promotion expenditures made by private firms, which would reduce the
computed increase in exports attributed to Market Access Program
efforts.6

It should be added that only a few of these studies take into account the
effects of promotional activities on other agricultural exports or on market
shares of competitor countries. Advertising and promotion of U.S.
brand-name and generic products can have considerable spinoff effects
(sometimes called “halo effects”), both positive and negative, for related
products and competitor firms and/or countries. A study of U.S. apple
exports to Singapore and the United Kingdom found that while U.S.

3
 See Allison Comeau, Ron C. Mittelhammer, and Thomas I. Wahl, “Assessing the Effectiveness of MPP
Meat Advertising and Promotion in the Japanese Market,” NICPRE 96-10, R.B. 96-20 (Ithaca, NY:
Cornell University, Dec. 1996). In contrast, Shida Rastegari Henneberry and Marco De Brito, “An
Analysis of the Effectiveness of U.S. Non-Price Promotion Programs: The Case of Red Meats in Japan,”
in Promotion in the Marketing Mix: What Works, Where and Why, Proceedings from the NEC-63
Conference, Toronto, Canada (Apr. 28-29, 1994) found evidence that the Market Promotion Program
expenditures increased exports of beef offal to Japan, but there was no evidence of its supporting
increased exports of pork or of other cuts of beef.
4
 See Kenneth R. Weiss, Richard D. Green, and Arthur M. Havenner, “Walnuts in Japan: A Case Study of
Generic Promotion under the USDA’s Market Promotion Program,” in Agricultural Commodity
Promotion Policies and Programs in the Global Agri-Food System, Proceedings from the NEC-63
Conference, Cancun, Mexico (May 26-27, 1996).
5
 See also “An Analysis of the Effectiveness of U.S. Non-Price Promotion Programs: The Case of Red
Meats in Japan,” and Karen Halliburton and Shida Rastegari Henneberry, “The Effectiveness of U.S.
Nonprice Promotion of Almonds in the Pacific Rim,” Journal of Agricultural and Resource Economics,
Vol. 20, No. 1 (July 1995).
6
 “Assessing the Effectiveness of MPP Meat Advertising and Promotion in the Japanese Market.”



Page 30                                                     GAO/NSIAD-99-38 Agricultural Trade
Appendix II
Review of Market-Level Studies of MAP




government-subsidized marketing and advertising had a positive impact on
the U.S. market share and value of exports to the United Kingdom,
U.S.-funded promotions in Singapore mainly benefited the foreign
competitors in the market. According to that study, which FAS officials cite
as evidence of successful MAP funding, Chilean and French apple
producers would be the main beneficiaries of the MAP promotions in
Singapore, experiencing increases in export shares 3 to 10 times greater
than the U.S. producers.7 This result shows the importance of taking into
account both direct and indirect effects and concomitant advertising by
other U.S. firms and sectors and by major competitors.8

In summary, the market-level studies that we reviewed revealed mixed
results and do not allow generalization about MAP’s impact on agricultural
exports. Estimations revealed both positive and insignificant effects
associated with MAP promotional spending. In some cases, the
methodology employed results in an upward bias on the estimated effect
of MAP. Also, the effects on other U.S. agricultural markets or on the
agricultural exports of competitor nations are unclear.




7
 Timothy Richards, et al., “A Two-Stage Analysis of the Effectiveness of Promotion Programs for U.S.
Apples,” in Agricultural Commodity Promotion Policies and Programs in the Global Agri-Food System,
Proceedings from the NEC-63 Conference, Cancun, Mexico (May 26-27, 1996).
8
 The importance of this effect is demonstrated in a study that analyzed the effects of U.S. and
Canadian expenditures in research and advertising and found that the “results suggest that Canadian
producers would be better off giving C$100,000 to the U.S. generic advertising campaign” due to
spinoff effects of U.S. advertising on the demand for Canadian beef in the United States. See Daniel
Sellen, Ellen Goddard, and Stephen Duff, “Returns from Research and Advertising in the North
American Hog and Pork Industry,” in Economic Analysis of Research and Promotion, Proceedings
from the symposium sponsored by Agricultural Research and Development and NEC-63, New Orleans,
LA (Mar. 21-22, 1997).


Page 31                                                      GAO/NSIAD-99-38 Agricultural Trade
Appendix III

Major Contributors to This Report


                        Phillip J. Thomas
National Security and   Emil E. Friberg, Jr.
International Affairs   Kimberly M. Gianopoulos
Division, Washington,   Rona H. Mendelsohn
                        Samantha C. Roberts
D.C.
                        Ernie E. Jackson
Office of the General
Counsel, Washington,
D.C.
                        Daniel E. Coates
Office of the Chief
Economist,
Washington, D.C.
                        Christine M. Broderick
San Francisco Field     May M. Lee
Office




(711359)                Page 32                   GAO/NSIAD-99-38 Agricultural Trade
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