Analysis of Certain Aspects of a Corn Shipment to South Texas To Meet Obligations to Producers Under the Payment-In-Kind Program

In response to a congressional request, GAO reviewed certain aspects of a corn shipment to South Texas to meet obligations to producers under the Department of Agriculture's (USDA) Payment-In-Kind (PIK) Program to determine: (1) the difference in the quality of some of the corn between the time it was graded at its point of shipment and the time it was graded at its arrival point and whether the warehouse used was a problem shipper; (2) the USDA rationale for shipping the corn to the warehouse rather than to its eventual destination; (3) whether the USDA position that it was not liable for reimbursing the warehouse for costs incurred in anticipation of receiving the shipment was correct; (4) whether the USDA decision not to have the corn upgraded by the warehouse but to ship the corn to another location was correct; and (5) whether USDA normally fulfills its PIK corn obigations with low-grade corn.

GAO found that it is common for corn to drop one grade when it is shipped. However, it is not common for corn to lose up to three grades in transit, as occurred in some shipments. GAO found that the sampling procedures used were in compliance with USDA requirements. In addition, GAO did not find any evidence to support the allegation that the warehouse at the point of origin was a problem shipper. GAO found that the lower grades were due to broken corn and the presence of foreign material. USDA shipped the corn to the warehouse in question because the producers designated it as the delivery point. Because the warehouse agreed to accept the shipment, USDA was not liable for the costs which the warehouse incurred in anticipation of the shipment. Due to a misunderstanding about the warehouse's price to upgrade the corn, USDA upgraded and shipped the corn to another destination. This saved USDA about $291,000 because it did not have to ship as much corn to that location, unloading charges were less, and the corn was not upgraded at the new destination. USDA does not fulfill its PIK obligations to producers with low-grade corn unless sufficient stocks of quality corn are not available. However, if lower grade corn has to be used, producers receive additional quantities of it to make up for the difference in value.