Commodity Letter of Credit (CLOC) Program

The USDA commodity price stabilization and surplus removal program supports U.S. agriculture when markets are weak and provides immediate and direct benefits to producers.  Only about 13 percent of program funds go to directly support agricultural markets through the commodity program.  The remainder is in cash payments to child nutrition programs.  Commodity foods represent about 20 percent of the food acquired in the National School Lunch Program (NSLP).  Considerable flexibility is currently afforded school districts which can use the vast majority of funds for unrestricted uses including labor, food and other costs.

The positive effect of commodity programs needs to be retained.  The existing commodity distribution program has been extremely valuable in stabilizing market prices of U.S. agricultural commodities and in providing nutritious and cost effective government feeding programs such as the school lunch and school breakfast programs.  The market impact of agricultural support programs is more pronounced when the amount of product removed from the market represents a relatively large portion of the total market for that commodity.

In the early 1980s a pilot program called the Commodity Letter of Credit (CLOC) was established as an alternative to the existing commodity distribution system.  CLOC purchases are made at the consumer end of the food pipeline and USDA purchases are made at or near the producer end.  When a single large entity such as the federal government announces an upcoming large purchase, the market impact can be considerably different than if the approximately 20,000 school districts take delivery of small purchases from commercial distributors.

• USDA has acknowledged that CLOC may not have the advantage of responding quickly to unexpected market changes.  This is particularly true for bonus commodity purchases targeted for specific regional relief.
• USDA can assure the purchase of domestic products, a statutory requirement guiding the commodity program.  Current labeling requirements are not specific enough to provide local purchasers with this information.
• There is no guarantee that USDA funds are used to purchase U.S. produced commodities.  Imported commodities may be being purchased with USDA dollars under the CLOC program.

The last official announcement from USDA did not support continuation or expansion of the Commodity Letter of Credit (CLOC) system.  USDA's position was "The pilot sites testing CLOC and a cash alternative should return to the commodity system.  It is in the best interest of agricultural producers, administrators of commodity distribution systems and recipients of USDA's domestic commodity programs to retain the traditional commodity program.

Traditional USDA commodity price stabilization, surplus removal and distribution programs should be continued.  However, expansion of the Commodity Letter of Credit program should not be undertaken since it has not proven to be a viable alternative.