U.S. Department of Agriculture

The marketing assistance loan program provides farmers who grow certain crops with financial assistance at harvest time, when prices are usually lower than at other times of the year. As of September 1999, $3.4 billion of the $3.7 billion in cash payments went to producers of the following four crops: corn, soybeans, wheat, and upland cotton. The top 10 states where producers received the assistance were Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, and Texas. This report discusses (1) which producers received cash payments through the program, (2) why some producers did not participate in the program, and (3) the concerns that have been raised about the program's effects on cash payments and potential forfeitures.

GAO noted that: (1) as of September 1999, $3.4 billion of the $3.7 billion in cash payments went to producers of four crops-corn, soybeans, wheat, and upland cotton; (2) the top 10 states in which producers received this assistance were Illinois, Indiana, Iowa, Kansas, Minnesota, Nebraska, North Dakota, Ohio, South Dakota, and Texas; (3) some producers of eligible crops did not participate in the marketing assistance loan program in 1998 and could not receive a loan deficiency payment because: (a) the posted county price for their crop equaled or was higher than the applicable loan rate; (b) they had sold their crop before requesting a loan deficiency payment and therefore were no longer eligible for a payment; or (c) they had produced crops, such as rye, that were not covered by the program; (4) as the use of the marketing assistance loan program increased, producers and Department of Agriculture (USDA) officials raised a number of concerns about: (a) inconsistencies in the cash payments available to some producers but not to others; and (b) the heightened potential for loan forfeitures; (5) they pointed out that because the rates for loan deficiency payments have been consistently higher in some counties than in nearby or adjoining counties, the program's design has created an incentive for producers to move their grain from one county to another to receive a higher payment; (6) because of the way USDA established its loan rates and posted county prices, producers of classes of wheat that have higher market prices have received, or are likely to receive, lower rates for loan deficiency payments than producers of classes of wheat that have lower market prices; (7) on the other hand, producers of lower-priced classes of wheat have been able to receive higher rates for loan deficiency payments; (8) because the national loan rates for some crops, such as soybeans, were set at levels that cover significantly more of production costs than the national loan rates for other crops, an incentive has been created to plant crops in response to government payments rather than to market demand; (9) the program had a cash payment limitation of $75,000; (10) USDA officials told GAO they were concerned that producers would use the program's loan component to obtain financing and would forfeit their collateral to the government once they reach the payment limitation; (11) the Secretary of Agriculture has not yet made the changes he could make to the program because of concerns about decreases in some producers' income during a period of low crop prices; and (12) other possible changes to the program's design would require legislation.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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