obtains from producer mail surveys and from physical assessments of the condition and productivity of crop samples. SRS forecasts the winter wheat yield in December and makes monthly revisions beginning in May. It also makes monthly forecasts for spring wheat beginning in July and for corn beginning in August. In forecasting planted and harvested acreage, the committees consider such factors as farm prices, availability of labor and other production inputs, and how farmers have responded historically to commodity programs. Revised forecasts are based on SRS's mail surveys and physical assessments of crop acreage conditions. SRS makes its earliest estimate of winter wheat acreage in December after the crop is planted. Estimates of corn and spring wheat acreage are made in January and March on the basis of mail surveys of producers' planting intentions. Forecasts of domestic demand for wheat and corn for food, livestock feed, and seed consider trends and other indicators of prices, population growth, livestock on feed, and acres to be seeded. Revisions in amounts of wheat use as food are based on monthly information on millings from the Bureau of the Census, Department of Commerce. Changes in inventories of grain stocks on farms and at other domestic locations, together with information on exports and other uses, are the basis for revising amounts of wheat and corn used as livestock feed. Export forecasts are based on trend analysis of foreign countries' production and trade, adjusted for expected changes. The forecasts are revised on the basis of information from U.S. agricultural attaches and other data on each country's crop production, stock levels, exports, and imports. In estimating U.S. exports to each country, the committees consider the country's agricultural trade policies, expected imports, and other supplying countries' prices, credit programs, and agricultural trade policies. Commercial exporters provide information on export shipments and commitments weekly to FAS. This information is also considered in forecasting exports during the marketing year. Projected yearend carryover is an important factor used in forecasting season average farm prices. An inverse relationship exists between yearend carryover and season average farm price-as stocks decline, prices rise. This relationship has become particularly important in recent years and was emphasized in the 1972-73 and 1973-74 marketing years when farm prices soared as stocks fell to abnormally low levels. Before 1972 yearend carryovers were fairly large and farm prices did not fluctuate much as a result of changes in stock levels. TYPES OF FORECAST REPORTS The Department publishes numerous reports containing short-range forecasts of agricultural commodity supplies, demands, and prices. SRS's Crop Production reports summarize farmers' planting intentions for different crops and project yields and acres planted and harvested. Some SRS reports also project production and prices. SRS's quarterly Grain Stocks reports estimate the quantities of various types of grain on farms; at mills, elevators, warehouses, terminals, and processors and in Government-owned bins. The day after SRS crop and stock reports are released, ERS publishes Agricultural Supply and Demand Estimates containing the Interagency Commodity Estimates Committees' official forecasts of the supply, demand, and yearend carryover for selected crops. Other ERS agricultural outlook and situation reports analyze these forecasts and their implications. The Wheat Situation report and the Feed Situation report (for feed grains including corn) are published quarterly. Some of the situation reports forecast season average farm prices. A monthly Agricultural Outlook Digest summarizes and updates the commodity situation reports. About seven times a year, FAS publishes Foreign Agricultural Circulars containing historical data and forecasts of world production, stocks, consumption, and trade for wheat and feed grains. Much of the data is tabulated by major countries or groups of countries, including the United States. Senator BELLMON. I have no further questions. I would be glad to have any additional comments that any member of your group wishes to make. Mr. FASICK. I think the statement and the dialog this morning was comprehensive. Senator BELLMON. By and large, I feel that you have done an excellent job, and I want to commend you for the work that has been done. I do not, I think as I indicated, agree with all your conclusions, but I think that is only normal. Mr. FASICK. Thank you very much. [Whereupon, at 12:15 p.m., the subcommittees adjourned, subject to call of the Chair.] ADDITIONAL MATERIAL FILED FOR THE RECORD STATEMENT OF J. KENNETH FASICK, DIRECTOR, INTERNATIONAL DIVISION, GAO Mr. Chairman and Members of the Subcommittees: We are pleased to appear before you to discuss our current review of executive branch management of Russian grain sales, agricultural export reporting, and related export policy issues. Our fieldwork is completed, and we are preparing a draft report for executive branch comment. A final report will be issued to the entire Congress later this year. Before I go into the details of our review, I would like to place my testimony in perspective by briefly summarizing its major thrust. SUMMARY As you know, we have conducted a number of reviews of the agriculture export situation since 1972 when the Russian grain sale and a worldwide change in food supply helped to focus the nation and the world's attention on one of the great challenges currently facing the country: allocating the nation's precious food resources to maximize varying domestic and international objectives. Our most recent review and the one upon which my testimony today is drawn from, focuses on a key element of food resource allocation-food export policy, and more specifically executive branch management of the Russian grain sale, export reporting, and related policy issues. Our reviews of the issues reveal fundamental problems in our nation's food export policy machinery: Our agricultural reporting system fails to yield accurate and timely data on projected foreign demand-a necessary input to aid policymakers in exercising measures to mitigate the effects which large, lump sum purchases have on domestic supply and prices. Current export policies-which are part of a broader agricultural supply management system—are less than complete, lack cohesion and fail to provide the flexibility necessary to meet both domestic and international objectives and changing food supply and demand conditions. Current policy implementation is fragmented, often ill timed, and generally suffers from an absence of rational decisionmaking based upon a preselected policy use formula. Agricultural Export Reporting Although an export reporting system has been in operation for a few years, the system fails to provide reliable prospective sales data early enough to allow policymakers the time or confidence to make timely decisions. USDA requires only contract data be reported-data which is often dramatically altered before shipments are made and reported too late to provide an early warning indicator. To correct this fault, we suggest the Congress evaluate the following alternatives. Require exporters to justify contract changes to the Government. They may reduce modifications substantially and thereby increase data reliability. Require exporters to advise the Government of their intent to negotiate contracts at an early stage in negotiations. This would help satisfy the early warning need. Require additional information on contracts to include classification of foreign buyers, disclosure of pricing terms, exact destinations and other provisions. This information would greatly improve foreign demand data reliability. (45) 75-079-76-4 Supply Management Policy Current Government policy is more of a response to changing demand rather than a integrated formula for responding effectively to changing conditions and explicit objectives. Despite the virtues of a free market approach to economic policy, Government intervention is warranted and practiced extensively. What is clearly needed is an agricultural policy framework that contains a series of criteria designed to satisfy specific output objectives with the flexibility to change when conditions change. Who should get what, when and why are the critical questions such a framework should address. This would allow consideration of a number of different policy actions which would be appropriate under different conditions. Implementing Policy With no fewer than 26 Federal agencies having been involved in agricultural policymaking and despite a recent reorganization in our policymaking structure, there is still uncertainty regarding how and when major policy options should be implemented. With improved data reliability and in integrated supply management policy, a mechanism to effectuate policy action needs to be constructed. This is the "how" question in the decisionmaking system. In sum, we believe that a national agricultural policymaking system should contain these essential elements: an early warning system of food demand; a flexible policy framework that satisfies specific objectives; and a structure and procedure for implementing policy action. Having provided this summary statement, I would now like to discuss these points and our past activity in greater detail. PAST GAO AGRICULTURAL EXPORT REVIEWS We have been reviewing agricultural exports since the Russian grain sales of 1972 and have issued a number of reports to the Congress on agricultural exports and supply management and discussed their implications before congressional committees. I would like to submit a schedule of these reports for the record. In these reports and in our appearances before congressional committees, including the Senate Agricultural Committee in March 1973, we expressed concern over the Government's management of agricultural exports. Our Russian wheat report of July 9, 1973, expressed concern over domestic and international consequences of large grain purchases by nonmarket economies, particularly the Soviet Union and recommended that the Secretary of Agriculture: 1. Complete a systematic evaluation of the former wheat export subsidy program. 2. Establish a reporting system in cooperation with private exporters. 3. Develop a cohesive export policy. In addition to following up on these 1973 Russian wheat report recommendations, our current review included assessments of the Government's agricultural export reporting system, international forecasting capability, and supply management policy. We also reviewed the circumstances surrounding the 1974 and 1975 sales of U.S. grain to Russia, including the long-term purchasing agreement between the two countries. IMPACT OF SOVIET GRAIN PURCHASES Massive sales of U.S. grain to the Soviet Union in 1972, 1974, and 1975 had a considerable impact on U.S. and world economies. Following these sales, an unprecedented era of tight supplies, high prices, and general market uncertainty emerged. Although a variety of supply and demand variables has contributed to the unstable market situation that has prevailed over the past 3 years, Soviet grain purchases have had a destabilizing effect on agricultural markets worldwide. Some of the more significant domestic impacts of these market changes include the: Recognition of the interrelationship between domestic and international economic policy. Elevation of agriculutre to a high priority in formulating and executing foreign economic policy. Promotion of interagency decisionmaking in the agricultural policy area. Support of a market-oriented approach to resolving agricultural policy issues. Recognition of the need for accurate, timely, reliable, and complete export data. Depletion of U.S. and world grain stocks. Increased U.S. agricultural exports and public recognition of the impact of high exports on domestic commodity and food prices. Repeated Government entrance into the export market to impose voluntary and mandatory short-supply export controls. Establishment of formal and informal long-term grain purchasing agreements between the United States and other countries. Improvement in the U.S. balance of trade. Decreased availability of commodities for concessional food and feedgrain exports to developing countries. Need for a better system of forecasting events that will affect the availability of agricultural commodities. The Soviet grain purchases also aroused controversy over the Government's management of such exports. In response, the United States signed a long-term purchasing agreement with the Soviet Union in October 1975 to help mitigate the effects of the Soviet's periodic entry into the U.S. agricultural economy. Some of the pros and cons of this agreement will be addressed later in my statement. Export subsidies RECENT AND CURRENT GAO GRAIN REVIEWS In response to a recommendation by the Senate Permanent Investigations Subcommittee and at the request of other Members of Congress, we have followed up on recommendations made in our 1973 Russian wheat report to determine actions taken by the executive branch to improve the management of agri-cultural exports. On March 3, 1976, we issued our first followup report entitled, "Agriculture's Implementation of GAO's Wheat Export Subsidy Recommendations and Related Matters." We found that: (1) Agriculture had not evaluated the former subsidy program. (2) Agriculture officials contended that there was no need to systematically evaluate the former subsidy program (which was suspended in September 1972) nor to subsequently develop a new, standby program because they believe the tight wheat supply and high demand situation existing since 1972 would continue, precluding the need to reestablish export subsidy. (3) Agriculture's policy provides no adequate policy alternatives for disposing of surplus wheat. (4) Current Federal investigations of U.S. grain inspection practices raised the question of recovering Federal subsidy payments on grain exports. Based on our findings and continuing concern for better program management, we recommended that the Secretary of Agriculture (1) conduct an evaluation of the former subsidy program, and (2) initiate appropriate action to insure that any future program will be effective and efficient. We also suggested to Congress that it might wish to reexamine the entire subject of agricultural export subsidies and to determine whether legislation should be considered as a means for insuring a more effective and efficient subsidy program, should one become necessary in the future. In a recent response to our recommendations, the Department of Agriculture restated its position that it had no intention of reinstating any subsidy program. Should one become necessary in the future, Agriculture will make a thorough review of the former program to determine necessary changes. We believe our conclusions and recommendations are still valid since the uncertainties of agricultural production and demand may cause surpluses to materialize which could trigger needed Government actions. EXPORT REPORTING SYSTEM Massive unanticipated U.S. grain sales to the Soviet Union in 1972 clearly revealed that the Government did not possess the timely, accurate, reliable, and complete agricultural export data necessary to make rational and responsive export policy decisions. Subsequently, Congress authorized the establishment of a mandatory export reporting system in September 1973 under section 812 of the Agriculture and Consumer Protection Act of 1973. Since the system's inception, all exporters of wheat and wheat flour, feed grains, oilseeds, cotton, and related commodity products-as well as other commodities designated by the Secretary |