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Commodities Finance

  • Export Credit Guarantee Program
  • Supplier Credit Guarantee Program
  • Facility Guarantee Program
  • Dairy Export Incentive Program
  • Eligible Commodities
  • Export Credit Guarantee Programs (GSM-102/103)


The U.S. Department of Agriculture's export credit guarantee programs help ensure that credit is available to finance commercial exports of U.S. agricultural products, while providing competitive credit terms to buyers. By reducing the financial risk to lenders, credit guarantees encourage exports to buyers in countries, mainly developing countries, where credit is necessary to maintain or increase U.S. sales, but where financing may not be available without such guarantees.


Two programs underwrite credit extended by the private banking sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign banks using dollar-denominated, irrevocable letters of credit for purchases of U.S. food and agricultural products by foreign buyers. The Export Credit Guarantee Program (GSM-102) covers credit terms of up to three years. The Intermediate Export Credit Guarantee Program (GSM-103) covers longer credit terms of up to 10 years.


USDA's Foreign Agricultural Service (FAS) administers these programs on behalf of the Commodity Credit Corporation (CCC), which issues the credit guarantees.


Under these two programs, the CCC guarantees payments due from approved foreign banks to exporters or financial institutions in the United States. The CCC provides the guarantee, but the financing must be obtained through normal commercial sources. Typically, 98 percent of principal and a portion of interest at an adjustable rate are covered by a guarantee.


Because payment is guaranteed, financial institutions in the United States can offer competitive credit terms to the foreign banks, usually with interest rates based on the London Inter-Bank Offered Rate (LIBOR). Any follow-on credit arrangements between the foreign bank and the importer are negotiated separately and are not covered by the CCC guarantee. Program announcements issued by FAS provide information on specific country and commodity allocations, length of credit period, and other program information and requirements.


Eligible Countries or Regions:
Interested parties, including U.S. exporters, foreign buyers, and banks, may request that the CCC establish a GSM-102 or GSM-103 program for a country or region. Prior to announcing the availability of guarantees, the CCC evaluates the ability of each country and foreign bank to service CCC-guaranteed debt. New banks may be added or levels of approval for others increased or decreased as information becomes available.


Eligible Commodities:
The CCC selects agricultural commodities and products according to market potential.


Participation:
The CCC must qualify exporters for participation before accepting guarantee applications. An exporter must have a business office in the United States and must not be debarred or suspended from participating in any U.S. government program. Financial institutions must also meet established criteria and be approved by the CCC. The CCC sets limits and advises each approved foreign bank on the maximum outstanding amount the CCC can guarantee for that bank.


The exporter negotiates the terms of the export credit sale with the importer. If the exporter anticipates being paid at the time of shipment, the exporter and importer must work closely during negotiations with the eligible U.S. financial institution and the eligible foreign bank. This will help ensure that arrangements are firmly in place for the U.S. financial institution to pay the exporter and to extend credit to the foreign bank.


Once a firm sale exists, the qualified U.S. exporter must apply for a payment guarantee before the date of export. The exporter pays a fee calculated on the dollar amount guaranteed, based on a schedule of rates applicable to different credit periods.


Financing:
The CCC-approved foreign bank issues a dollar-denominated, irrevocable letter of credit in favor of the U.S. exporter, ordinarily advised or confirmed by the financial institution in the United States agreeing to extend credit to the foreign bank. The U.S. exporter may negotiate an arrangement to be paid as exports occur by assigning to the U.S. financial institution the right to proceeds that may become payable under the guarantee, and later presenting required documents to that financial institution. Such documents normally include a copy of the export report, which also must be submitted to the CCC.


Defaults/Claims:
If the foreign bank fails to make any payment as agreed, the exporter or assignee must submit a notice of default to the CCC. A claim for loss also may be filed, and the CCC will promptly pay claims found to be in good order.


For CCC audit purposes, the U.S. exporter must obtain documentation to show that the commodity arrived in the eligible country, and must maintain all transaction documents for five years from the date of completion of all payments.


Supplier Credit Guarantee Program


The U.S. Department of Agriculture's export credit guarantee programs help ensure that credit is available to finance commercial exports of U.S. agricultural products, while providing competitive credit terms to buyers. The Supplier Credit Guarantee Program (SCGP) helps exporters offer direct, short-term credit to foreign buyers of U.S. food and agricultural products.


Under this program, USDA's Commodity Credit Corporation (CCC) reduces the financial risk to exporters by guaranteeing a large portion of the payments due from importers under financing arrangements of up to 180 days. The direct credit extended by the exporter to the importer for the purchase of U.S. agricultural products must be secured by a promissory note signed by the importer.


USDA's Foreign Agricultural Service (FAS) administers this program on behalf of the CCC, which issues the credit guarantee. The exporter or the exporter's bank provides the financing.


A substantially smaller portion of the value of exports (currently 65 percent) is guaranteed under the SCGP than under the Export Credit Guarantee Program (GSM 102), where CCC is guaranteeing foreign bank obligations. FAS program announcements provide information on specific country and commodity allocations, length of credit periods, the required form of promissory note, and other program information and requirements. Regulations for this program are found in 7 CFR 1493, Subpart D.


Eligible Countries or Regions:
Interested parties, including U.S. exporters and foreign buyers, may request that the CCC establish a program for a country or region. Prior to approval, the CCC evaluates the ability of each country to service CCC-guaranteed debt.


Eligible Commodities:
The SCGP targets specific U.S. agricultural products, with an emphasis on high-value products and market potential.


Participation:
The CCC must qualify exporters for participation before accepting guarantee applications. Exporters who have previously qualified under the Export Credit Guarantee Program (GSM-102) or the Intermediate Export Credit Guarantee Program (GSM-103) are automatically eligible. New program applicants must have a business office in the United States and must not be debarred or suspended from participating in any U.S. government programs.


The exporter negotiates the terms of the export credit sale with the importer. Once a firm sale exists, the qualified U.S. exporter must apply for a payment guarantee before the date of export. The exporter pays a fee for the guarantee calculated on the guaranteed portion of the value of the export sale.


Financing:
The importer must issue a dollar-denominated promissory note in favor of the U.S. exporter. The note must be in the form specified in the applicable country or regional program announcement. The U.S. exporter may negotiate an arrangement to be paid, in full or in part, by assigning to a U.S. financial institution the right to proceeds that may become payable under CCC's guarantee. Under this arrangement, the exporter would also provide transaction-related documents required by the financial institution, including a copy of the export report, which must also be submitted to the CCC.


Defaults/Claims:
If an importer fails to make any payment as agreed, the exporter or assignee must submit a notice of default to the CCC. A claim for loss may also be filed, and the CCC will promptly pay claims found to be in good order unless the CCC determines that the guaranteed portion of the port value exceeds the prevailing U.S. market value of the commodity or product exported.

For audit purposes, the U.S. exporter must obtain documentation showing that the commodity arrived in the eligible country and must maintain all transaction documents for five years after payments are completed.



Facility Guarantee Program


The U.S. Department of Agriculture's Facility Guarantee Program (FGP) is designed to expand sales of U.S. agricultural products to emerging markets where inadequate storage, processing or handling capacity limit trade potential. The program provides payment guarantees to finance commercial exports of U.S. manufactured goods and services that will be used to improve agriculture-related facilities.


Emerging markets often lack the infrastructure to support increased trade volume. Export sales of U.S. equipment or expertise to improve ports, loading/unloading capacity, refrigerated storage, warehouse and distribution systems, and other related facilities may qualify for facility guarantees, as long as these improvements are expected to increase opportunities for U.S. agricultural exports.


Under this program, USDA's Commodity Credit Corporation (CCC) guarantees payments due from approved foreign banks to exporters or financial institutions in the United States. USDA?s Foreign Agricultural Service (FAS) administers this program on behalf of the CCC. The financing must be obtained through normal commercial sources. Typically, a guarantee covers 95 percent of principal and a portion of interest.


FGP regulations are a subpart of the Export Credit Guarantee Program (GSM-102) and the Intermediate Export Credit Guarantee Program (GSM-103) regulations (7 CFR Part 1493).


Qualified Projects:
The Secretary of Agriculture must determine that the project will primarily promote the export of U.S. agricultural commodities or products to emerging markets.


Emerging Market:
An emerging market is a country that the U.S. Secretary of Agriculture determines (1) is taking steps toward a market-oriented economy through the food, agriculture, or rural business sectors; and (2) has the potential to provide a viable and significant market for U.S. agricultural products.


U.S. Content:
Only U.S. goods and services are eligible under the program. The CCC will consider projects only where the combined value of the foreign components in U.S. goods and services approved by the CCC represents less than 50 percent of the eligible sales transaction.


Initial Payment:
An initial payment representing at least 15 percent of the value of the sales transaction must be provided by the importer to the exporter.


Payment Terms:
Payment terms may range from 1 to 10 years, with semi-annual installments on principal and interest. The applicable program announcement will specify actual payment terms.


Payment Mechanism:
Payment must be made to the exporter in U.S. dollars on deferred payment terms under an irrevocable foreign bank letter of credit.


Coverage:
The CCC determines the rate of coverage (currently 95 percent) that will apply to the value of the transaction, excluding the minimum 15-percent initial payment. The CCC also covers a portion of interest on a variable rate basis. The CCC agrees to pay exporters or their assignee financial institutions in the event a foreign bank fails to make payment pursuant to the terms of the letter of credit. The FGP does not cover the risk of defaults on credits or loans extended by foreign banks to importers or owners of facilities.


Dairy Export Incentive Program (DEIP)


The Dairy Export Incentive Program (DEIP) helps exporters of U.S. dairy products meet prevailing world prices for targeted dairy products and destinations. Under the program, the U.S. Department of Agriculture pays cash to exporters as bonuses, allowing them to sell certain U.S. dairy products at prices lower than the exporter's costs of acquiring them. The major objective of the program is to develop export markets for dairy products where U.S. products are not competitive because of the presence of subsidized products from other countries.


Eligible Commodities


Cattle/Beef

Grains

Organic Products

Cotton

Hides & Skins

Planting Seeds

Dairy

Hogs/Pork

Poultry Meat

Forest Products

Livestock & Genetics

Tallow & Grease

Goat

Oil seeds

Tobacco

Tropical Products