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Agricultural Trade: USDA Is Monitoring Market Development Programs as Required but Could Improve Analysis of Impact

GAO-13-740 Published: Jul 31, 2013. Publicly Released: Aug 30, 2013.
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Highlights

What GAO Found

Market development program participants use program funds to support a variety of activities intended to raise awareness or acceptance of U.S. agricultural products in overseas markets. Common activities include, among others, market research, consumer and retail promotion, and participation in international trade shows. GAO's analysis of expenditure data from 2007 through 2011 shows that participants in the Market Access Program (MAP) and the Foreign Market Development Program (FMD)--the largest of the five market development programs--remained generally consistent during that period. The program participants with the largest shares of funding and the countries where the largest shares of funds were spent also remained relatively consistent. Expenditure data for 2011 show that MAP and FMD participants met or exceeded FAS contribution requirements that they match minimum percentages of the program funding they receive. Unlike funding for the other programs, a portion of MAP funds is used for promotion of branded products. In 2011, MAP participants spent about 85 percent of program funding on overseas promotion of generic commodities. More than 600 small companies and seven agricultural cooperatives spent the remaining 15 percent of MAP funding to promote branded products.

The U.S. Department of Agriculture's (USDA) Foreign Agricultural Service (FAS) uses several management and monitoring processes to reduce the risk of duplication among the five programs. FAS uses an integrated system to process funding applications for multiple programs and to monitor expenditures, which reduces the risk of duplication. According to FAS officials, FAS also monitors participants' expenses for all programs through its compliance review process. In addition, FAS guidance requires program participants to submit annual progress reports on the results of their market development activities. GAO found that performance measures in a sample of progress reports generally reflected selected FAS guidance and key attributes of successful performance measures that GAO had identified. However, the sampled reports did not always outline the methodologies used to assess activity results as required by FAS guidelines. In these cases, it would be difficult for FAS to determine the reliability of the reported results and the impact of market development activities.

A 2007 cost-benefit analysis of MAP and FMD, commissioned by FAS, found that the programs increased U.S. agricultural exports and benefited the U.S. economy, but methodological limitations may affect the magnitude of the estimated benefits. Overall, the analysis asserted that the government's expenditures for the two programs resulted in greater increases in U.S. agricultural exports and greater benefit to the U.S. economy than would have occurred without the expenditures. However, an economic model used to estimate the programs' impact on U.S. market share omitted important variables, such as commodity prices. Also, the study did not include sensitivity analyses of certain key assumptions underlying its estimates of impacts on U.S. exports. For example, analyses of the possible effects of varying levels of program funding would provide a clearer picture of the potential impact of increased or decreased funding on U.S. exports and the economy. FAS officials reported that they plan to commission a new cost-benefit analysis in 2014 but have not yet identified the methodologies that the new analysis will use.

Why GAO Did This Study

USDA administers five programs to assist U.S. agricultural industry efforts to build, maintain, and expand overseas markets. However, members of Congress continue to debate the level of funding for this assistance and its impact on agricultural exports. USDA provides about $250 million annually for the five market development programs. MAP and FMD received about 90 percent of this funding in fiscal year 2012, with allocations of $200 million and $34.5 million, respectively.

GAO was asked to review USDA's market development programs. This report (1) describes participation and expenditures in these market development programs, particularly MAP and FMD; (2) examines FAS's management and monitoring of its market development programs; and (3) assesses FAS's cost-benefit analysis of MAP's and FMD's impact on the U.S. economy. GAO analyzed USDA expenditure data from 2002 through 2011 and reviewed key agency and program participant documents. GAO also assessed a sample of participants' annual progress reports and assessed economic cost-benefit analyses of MAP and FMD commissioned by USDA.

Recommendations

GAO recommends that USDA (1) emphasize that market development program participants' annual progress reports should identify the methodologies used to assess results and (2) ensure that any economic models used in future cost-benefit analyses of the programs include industry-specific variables and sensitivity analyses of key assumptions. USDA concurred with GAO's recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Agriculture To improve MAP and FMD participants' annual reporting of the results of their market development activities, the Secretary of Agriculture should direct FAS to use appropriate means to emphasize the importance of participants' identifying the methodologies used to assess results for each performance measure in their annual country progress reports.
Closed – Implemented
USDA concurred with our recommendation. The recommendation resulted in USDA emphasizing the importance of identifying the methodologies used to assess results for each performance measure in their annual country progress reports to program participants at their annual USAEDC meetings held in November 2013 and 2014. Beginning with the 2015 program year, USDA added the six attributes of good performance measures that GAO identified to the program application review process, making it explicit that a constraint/performance measure cannot be considered adequate without an identified methodology. USDA also informed program participants that the adequacy of performance measures is considered in their overall rating. In 2015, USDA conducted an assessment of performance measures and found a marked improvement in performance measures having an identified methodology.
Department of Agriculture To improve the accuracy of future cost-benefit analyses of FAS's market development programs, the Secretary of Agriculture should direct FAS to ensure that any econometric model used for the cost-benefit analysis, such as the market share model, includes industry-specific variables that could have a significant role in determining the U.S. market share--for example, commodity prices, production volumes, and number of export competitors.
Closed – Implemented
USDA concurred with our recommendation. USDA's April 2015 Request for Proposal and Terms of Work for the program-wide cost-benefit analysis for spring 2015 incorporated requirements to respond to GAO's recommendation and include additional variables. USDA's June 2016 "Economic Impact of USDA Export Market Development Programs" cost-benefit analysis report specifically outlined the variables they applied to their study, including export unit price and foreign production (non-U.S. countries), and took into account the effect of foreign competition on export demand, price, and revenue.
Department of Agriculture To improve the accuracy of future cost-benefit analyses of FAS's market development programs, the Secretary of Agriculture should direct FAS to conduct a sensitivity analysis, in accordance with best practices for cost estimates, of the key assumptions that are applied in any economic models used in the cost-benefit analysis, such as the market share model and spillover effect model.
Closed – Implemented
USDA concurred with our recommendation. USDA's April 2015 Request for Proposal and Terms of Work for the program-wide cost-benefit analysis for spring 2015 incorporated requirements to respond to GAO's recommendation and include a sensitivity analysis. USDA's June 2016 "Economic Impact of USDA Export Market Development Programs" cost-benefit analysis report specifically outlined the sensitivity analysis conducted to test the stability of the models and key parameters to provide increased confidence in the study results.

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Agricultural industryAgricultural productsAgricultural programsAgricultural tradeCommodity futuresCommodity marketingCost effectiveness analysisEconomic analysisExportingForeign aid programsForeign governmentsInternational tradeInternational trade restrictionPerformance measuresResearch programsSales promotionSmall business