Cargo Preference Requirements Add to Costs of Title II Food-for-Peace Programs

In response to a congressional request, GAO estimated the costs to the federal government imposed by title II of Public Law 480 on cargo for the Food-for-Peace Program and determined the additional aid that could be delivered in the absence of the cargo preference requirement. Under the requirement, while the U.S. Government pays for virtually the entire cost of the commodities, U.S.-flag ships must carry at least 50 percent of the commodities to their destination.

In fiscal year 1981, the government spent nearly $250 million to ship title II commodities. GAO calculated that a savings to the government of $15.6 million dollars would be possible if the requirement were removed. One possible change that might follow its removal would be that more shipping operators would set shipping rates below the current level. Removal of the requirement should not threaten U.S. operators' business which decreases the probability of default on government-guaranteed ship construction loans. GAO estimated that an additional 41.7 thousand metric tons of wheat could be shipped to underdeveloped areas if the requirement were removed.