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The Agriculture and Food Act of 1981 contains authority for a revolving fund to finance agricultural exports. This provision, however, has not been funded because of budget constraints. With farm prices at low levels, several farm groups have suggested that monies for the export credit revolving fund be made available. This paper provides the CBO's assessment of this suggestion to include the implications for: farm prices and cash receipts; agricultural trade, to include exports and employment; and budget outlays, to include the effects on price support programs.
 

BACKGROUND

Since 1956 the federal government has used credit to stimulate commercial exports of agricultural commodities, mainly grains, soybeans, and cotton. Prior to fiscal year 1981, the Commodity Credit Corporation (CCC)--under its permanent charter authority--made direct, short-term export credit loans. Under this program, a U.S. exporter would sell agricultural commodities to an importer on a deferred payment basis for periods up to 36 months. In turn, the CCC purchased the exporter's account receivable--covered by irrevocable letters of credit issued by U.S. or foreign banks. The CCC had discretion in determining the interest rate. In the early years of the program, the interest rate charged borrowers was usually greater than CCC's cost of borrowing from the Treasury; later, the interest rate was set 0.5 to 1.5 percentage points above the U.S prime rate.

The annual budget impact of the pre-1981 direct export credit program varied from net outlays to net receipts depending on the precise volume of new loans, the amount of principal repayments, and the difference between interest receipts from borrowers and interest payments to the Treasury. Payments due from some countries, including Poland, have been rescheduled, and there was one instance of default. Over time, however, the short-term export credit program has probably resulted in no net outlays other than administrative expenses. Nevertheless, direct loans were replaced by loan guarantees in fiscal year 1981, in part because of the potential annual net outlays associated with direct loans.

Under the current export credit program, the CCC guarantees that U.S. exporters or their assignees (U.S. financial institutions) will receive payment in the event of nonpayment by a purchaser's bank. The CCC guarantees 98 percent of the borrowed principal and up to 8 percent interest charged by the bank. Loan guarantees in 1982 and 1983 are projected at $2.5 billion each year, about 5 percent of the total value of U.S. agricultural exports.

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