Foreign Assistance: U.S. Agencies Face Challenges to Improving
the Efficiency and Effectiveness of Food Aid (21-MAR-07,
GAO-07-616T).
The United States is the largest provider of food aid in the
world, accounting for over half of all global food aid supplies
intended to alleviate hunger. Since the 2002 reauthorization of
the Farm Bill, Congress has appropriated an average of $2 billion
per year for U.S. food aid programs, which delivered an average
of 4 million metric tons of agricultural commodities per year.
Despite growing demand for food aid, rising business and
transportation costs have contributed to a 43-percent decline in
average tonnages delivered over the last 5 years. For the largest
U.S. food aid program, these costs represent approximately 65
percent of total food aid expenditures, highlighting the need to
maximize the efficiency and effectiveness of food aid. To inform
Congress as it reauthorizes the 2007 Farm Bill, GAO examined some
key challenges to the (1) efficiency of delivery and (2)
effective monitoring of U.S. food aid.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-616T
ACCNO: A67092
TITLE: Foreign Assistance: U.S. Agencies Face Challenges to
Improving the Efficiency and Effectiveness of Food Aid
DATE: 03/21/2007
SUBJECT: Agricultural programs
Cost analysis
Food relief programs
Foreign aid programs
International food programs
International relations
Monitoring
Performance measures
Program evaluation
Strategic planning
Transportation
Transportation costs
Cost growth
Program costs
Timeliness
Africa
UN World Food Program
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GAO-07-616T
* [1]Summary
* [2]Background
* [3]Countries Provide Food Aid through In-Kind or Cash Donations
* [4]Most U.S. Food Aid Goes to Africa
* [5]Emergencies Represent an Increasing Share of U.S. Food Aid
* [6]U.S. Food Aid Is Delivered Through Multiple Programs with Mu
* [7]Multiple U.S. Government Agencies and Stakeholders Participa
* [8]Multiple Challenges Hinder the Efficiency of Delivery of U.S
* [9]Food Aid Procurement and Transportation are Costly and Time-
* [10]Various Factors Cause Inefficiencies in Food Aid Logistics
* [11]Funding and Planning Processes Increase Costs and
Lengthen T
* [12]Transportation Contracting Practices Increase Delivery
Costs
* [13]Legal Requirements Can Increase Delivery Costs and Time
Fram
* [14]Inadequate Coordination Limits Agencies' and
Stakeholders' R
* [15]While Agencies Have Taken Steps to Improve Efficiency, Their
* [16]Prepositioning and Transportation Procurement Could
Improve
* [17]New Transportation Bid Process Could Reduce Procurement
Time
* [18]Various Challenges Prevent Effective Monitoring of Food Aid
* [19]U.S. Agencies Do Not Sufficiently Monitor Food Aid Programs
* [20]Limited Staff Constrain Monitoring of Food Aid Programs
in R
* [21]Limited Resources and Restrictions in Their Use Further
Cons
* [22]Objectives, Scope, and Methodology
* [23]Conclusions
* [24]Agency Comments and Our Evaluation
* [25]GAO Contact and Staff Acknowledgments
* [26]GAO's Mission
* [27]Obtaining Copies of GAO Reports and Testimony
* [28]Order by Mail or Phone
* [29]To Report Fraud, Waste, and Abuse in Federal Programs
* [30]Congressional Relations
* [31]Public Affairs
Testimony
Before the Committee on Agriculture, Nutrition, and Forestry
U.S. Senate
United States Government Accountability Office
GAO
For Release on Delivery Expected at 9:30 a.m. EDT
Wednesday, March 21, 2007
FOREIGN ASSISTANCE
U.S. Agencies Face Challenges to Improving the Efficiency and
Effectiveness of Food Aid
Statement of Thomas Melito, Director
International Affairs and Trade
GAO-07-616T
Chairman Harkin, Ranking Member Chambliss, and Members of the Committee:
I am pleased to be here today to discuss ways to improve the efficiency
and effectiveness of U.S. food aid. The United States is the largest
provider of food aid in the world, accounting for over half of all global
food aid supplies intended to alleviate hunger and support development in
low-income countries. Since its last reauthorization of the Farm Bill in
2002, Congress has appropriated an average of $2 billion per year in
annual and supplemental funding for U.S. international food aid programs,
which delivered an average of 4 million metric tons of agricultural
commodities per year. In 2006, U.S. food aid benefited over 70 million
people through emergency and development-focused programs. However, about
850 million people in the world are undernourished in 2007--a number that
has remained relatively unchanged since the early 1990s, according to
United Nations (UN) Food and Agriculture Organization (FAO) estimates.^1
Furthermore, the number of food and humanitarian emergencies has doubled
from an average of about 15 per year in the 1980s to more than 30 per year
since 2000, due in large part to increasing conflicts and natural
disasters around the world. Despite growing demand for food aid, rising
transportation and business costs have contributed to a 43 percent decline
in average tonnages delivered over the last 5 years.^2 For the largest
U.S. food aid program, Title II of the Food for Peace program, these costs
now account for approximately 65 percent of expenditures, highlighting the
need to maximize the efficiency and effectiveness of U.S. food aid.
My testimony is based on a report that we expect to issue in April 2007.
Today, I will primarily focus on the need to improve the efficiency of
delivery of U.S. food aid. I will also focus on the importance of efforts
to monitor U.S. food aid programs in order to enhance their effectiveness.
In addition to these issues, our April report will address monetization,
assessments, targeting, and commodity quality and nutritional standards.
^1According to FAO's 2006 The Sate of Food and Agrcuure report, conditions
in Asia have improved while those in Africa have worsened.
^2While we acknowledge that commodity prices also affect tonnages, there
has been no clear trend in total average commodity prices for food aid
programs from fiscal year 2002 to fiscal year 2006.
We conducted the work for the forthcoming report and this testimony
between April 2006 and March 2007 in accordance with generally accepted
U.S. government auditing standards.
Summary
Multiple challenges combine to hinder the efficiency of delivery of U.S.
food aid by reducing the amount, timeliness, and quality of food provided.
These challenges include
o funding and planning processes that increase delivery costs and
lengthen time frames. These processes make it difficult to time
food procurement and transportation to avoid commercial peaks in
demand, often resulting in higher prices than if such purchases
were more evenly distributed throughout the year.
o transportation and contracting practices that differ from
commercial practices and create high levels of risk for ocean
carriers, increasing food aid costs. For example, food aid
transportation contracts often hold ocean carriers responsible for
costly delays that may result when food aid cargo is not ready for
loading onto an ocean vessel, or when a destination port is not
ready to receive cargo. Ocean carriers factor these costs into
their freight rates, driving up the cost of food aid.
o legal requirements that result in the awarding of food aid
contracts to more expensive providers and contribute to delivery
delays. For example, cargo preference laws require 75 percent of
food aid to be shipped on U.S.-flag carriers, which are generally
more costly than foreign-flag carriers. The Department of
Transportation (DOT) reimburses certain transportation costs, but
the sufficiency of these reimbursements varies.
o inadequate coordination between U.S. agencies and stakeholders
in tracking and responding to food delivery problems. For example,
while food spoilage has been a long-standing concern, the U.S.
Agency for International Development (USAID) and the U.S.
Department of Agriculture (USDA) lack a shared, coordinated system
to track and respond to food quality complaints systematically.
However, to enhance the efficiency of delivery of food aid, U.S.
agencies have taken measures to improve their ability to provide
food aid on a more timely basis. Specifically, USAID has been
stocking food commodities, or prepositioning them, in Lake Charles
(Louisiana) and Dubai (United Arab Emirates) for the past several
years and is in the process of expanding this practice.
Additionally, in February 2007, USAID and USDA implemented a new
transportation bid process in an attempt to increase competition
and reduce procurement time frames. Although both efforts may
result in food aid reaching vulnerable populations more quickly in
an emergency, their long-term cost effectiveness has not yet been
measured.
Despite the importance of ensuring the effective use of food aid
to alleviate hunger, U.S. agencies' efforts to monitor food aid
programs in recipient countries are insufficient. Given limited
food aid resources and increasing emergencies, ensuring that food
reaches the most vulnerable populations, such as poor women who
are pregnant or children who are malnourished, is critical to
enhancing its effectiveness and avoiding negative market impact.
However, USAID and USDA do not sufficiently monitor food aid
programs, particularly in recipient countries, due to limited
staff, competing priorities, and restrictions in the use of food
aid resources. For example, although USAID has some non-Title II
staff assigned to monitoring, it had only 23 Title II-funded staff
assigned to missions and regional offices in just 10 countries to
monitor programs costing about $1.7 billion in 55 countries in
fiscal year 2006. USDA has even less of a field presence for
monitoring than USAID. As a result, U.S. agencies may not be
sufficiently accomplishing their goals of getting the right food
to the right people at the right time.
In our draft report, which is under review by U.S. agencies, we
recommend that the Administrator of USAID, the Secretary of
Agriculture, and the Secretary of Transportation take actions to
improve the efficiency and effectiveness of U.S. food aid. These
actions include (1) improving food aid logistical planning; (2)
modernizing transportation contracting practices; (3) minimizing
the cost impact of cargo preference regulations on food aid
transportation expenditures; (4) tracking and resolving food
quality complaints systematically; and (5) improving the
monitoring of food aid programs.
USAID, USDA, and DOT reviewed a draft of this testimony statement
and provided us with oral comments, including technical comments
that we have incorporated as appropriate. We also provided DOD,
State, FAO, and WFP an opportunity to provide technical comments,
which we have incorporated as appropriate.
Background
Food aid comprises all food-supported interventions by foreign
donors to individuals or institutions within a country. It has
helped to save millions of lives and improve the nutritional
status of the most vulnerable groups, including women and
children, in developing countries. Food aid is one element of a
broader global strategy to enhance food security^3 by reducing
poverty and improving availability, access to, and use of food in
low-income, less-developed countries. Donors provide food aid as
both a humanitarian response to address acute hunger in
emergencies and as a development-focused response to address
chronic hunger. Large-scale conflicts, poverty, weather
calamities, and severe health-related problems are among the
underlying causes of both acute and chronic hunger.
Countries Provide Food Aid through In-Kind or Cash Donations,
with the United States as the Largest Donor
Countries provide food aid through either in-kind donations or
cash donations for local procurement. In-kind food aid is food
procured and delivered to vulnerable populations,^4 while cash
donations are given to implementing organizations for the purchase
of food in local markets. U.S. food aid programs are all in-kind,
and no cash donations are allowed under current legislation.
However, the Administration has proposed legislation to allow up
to 25 percent of appropriated food aid funds for purchase of
commodities in locations closer to where they are needed. Other
food aid donors have also recently moved from providing less
in-kind to more or all cash donations for local, regional, or
donor-market procurement. While there are ongoing debates as to
which form of assistance is more effective and efficient, the
largest international food aid organization, the World Food
Program (WFP), continues to accept both.^5 The United States is
both the largest overall and in-kind provider of food aid,
supplying over one-half of all global food aid.
Most U.S. Food Aid Goes to Africa
In fiscal year 2006, the United States delivered food aid to over
50 countries, with about 78 percent of its funding allocations for
in-kind food donations going to Africa, 12 percent to Asia and the
Near East, 9 percent to Latin America, and 1 percent to Eurasia.
Of the 78 percent of the food aid funding going to Africa, 30
percent went to Sudan, 27 percent to the Horn of Africa, 17
percent to Southern Africa, 14 percent to West Africa, and 12
percent to Central Africa.
Emergencies Represent an Increasing Share of U.S. Food Aid
Food aid is used for both emergency^6 and non-emergency purposes.
Over the last several years, the majority of U.S. food aid has
shifted from a non-emergency to an emergency focus. In fiscal year
2005, the United States directed approximately 80 percent or $1.6
billion of its $2.1 billion expenditure for international food aid
programs to emergencies. In contrast, in fiscal year 2002, the
United States directed approximately 40 percent or $678 million of
its $1.7 billion food aid expenditure to emergency programs (see
fig. 1).
Figure 1: Emergencies Represent an Increasing Share of U.S. Food
Aid Funding from Fiscal Year 2002 to Fiscal Year 2005
^a These data represent all food aid programs administered by
USAID and USDA.
U.S. Food Aid Is Delivered Through Multiple Programs with
Multiple Mandates
U.S. food aid is funded under four program authorities and
delivered through six programs administered by USAID and USDA,^7
which serve a range of objectives including humanitarian goals,
economic assistance, foreign policy, market development and
international trade (see app. I).^8 The largest program, Public
Law (P.L.) 480 Title II, is managed by USAID and averaged
approximately 74 percent of total in-kind food aid allocations
over the past 4 years, most of which funded emergency programs
(see fig. 2). In addition, P.L. 480, as amended, authorizes USAID
to preposition food aid both domestically and abroad with a cap on
storage expenses of $2 million per fiscal year.
Figure 2: Average Shares of Total Funding for U.S. International
Food Aid by Program Authority from Fiscal Year 2002 to Fiscal Year
2006 (Dollars in millions)
^aThis includes the Bill Emerson Humanitarian Trust.
U.S. food aid programs also have multiple legislative and
regulatory mandates that affect their operations. One mandate that
governs U.S. food aid transportation is cargo preference, which is
designed to support a U.S.-flag commercial fleet for national
defense purposes. Cargo preference requires that 75 percent of the
gross tonnage of all government-generated cargo be transported on
U.S.-flag vessels. A second transportation mandate, known as the
"Great Lakes Set Aside," requires that up to 25 percent of Title
II bagged food aid tonnage be allocated to Great Lakes ports each
month.^9 Other mandates require that a minimum of 2.5 million
metric tons of food aid be provided through Title II programs, and
that of this amount, a "sub-minimum" of 1.825 million metric tons
be provided for non-emergency programs.^10 (For a summary of
congressional mandates for P.L. 480, see app. I.)
Multiple U.S. Government Agencies and Stakeholders Participate
in U.S. Food Aid Programs
U.S. food aid programs involve multiple U.S. government agencies
and stakeholders. For example, USAID and USDA administer the
programs, USDA's Kansas City Commodity Office (KCCO) manages the
purchase of all commodities, and the U.S. Maritime Administration
(MARAD) of DOT is involved in supporting their ocean transport on
U.S. vessels. These and other government agencies coordinate food
aid programs through the Food Assistance Policy Council, which
oversees the Bill Emerson Humanitarian Trust, an emergency food
reserve.^11 Other stakeholders include donors, implementing
organizations such as WFP and NGOs, agricultural commodity groups,
and the maritime industry. Some of these stakeholders are members
of the Food Aid Consultative Group, which is led by USAID's Office
of Food for Peace and addresses issues concerning the
effectiveness of the regulations and procedures that govern food
assistance programs.
Multiple Challenges Hinder the Efficiency of Delivery of U.S. Food
Aid
Multiple challenges reduce the efficiency of U.S. food aid,
including logistical constraints that impede food aid delivery and
reduce the amount, timeliness, and quality of food provided. While
agencies have tried to expedite food aid delivery in some cases,
the majority of food aid program expenditures is on logistics, and
the delivery of food from vendor to village is generally too
time-consuming to be responsive in emergencies. Factors that
increase logistical inefficiencies include uncertain funding and
inadequate planning; transportation contracting practices that
disproportionately increase risks for ocean carriers (who then
factor those risks into freight rates); legal requirements; and
inadequate coordination to systematically track and respond to
logistical problems, such as food spoilage or contamination. While
U.S. agencies are pursuing initiatives to improve food aid
logistics, such as prepositioning food commodities, their
long-term cost effectiveness has not yet been measured.
Food Aid Procurement and Transportation are Costly and Time-
Consuming
Transportation costs represent a significant share of food aid
expenditures. For the largest U.S. food aid program (Title II),
approximately 65 percent of expenditures are on inland
transportation (to the U.S. port for export), ocean
transportation, in-country delivery, associated cargo handling
costs, and administration. According to USAID, these non-commodity
expenditures have been rising in part due to the increasing number
of emergencies and the expensive nature of logistics in such
situations. To examine procurement costs (expenditures on
commodities and ocean transportation)^12 for all U.S. food aid
programs, we obtained KCCO procurement data for fiscal years 2002
through 2006. KCCO data also suggest that ocean transportation has
been accounting for a larger share of procurement costs with
average freight rates rising from $123 per metric ton in fiscal
year 2002 to $171 per metric ton in fiscal year 2006 (see fig.
3).^13 Further, U.S. food aid ocean transportation costs are
relatively expensive compared with those of some other donors. WFP
transports both U.S. and non-U.S. food aid worldwide at reported
ocean freight costs averaging around $100 per metric ton--
representing less than 20 percent of its total procurement
costs.^14 At current U.S. food aid budget levels, every $10 per
metric ton reduction in freight rates could feed about 1.2 million
more people during a typical hungry season.^15
Figure 3: U.S. Food Aid Ocean Transportation Costs
Note: Total procurement costs include commodity and ocean
transportation costs. Costs incurred to transport the cargo to the
U.S. port for export are included in the commodity and ocean
transportation costs, dependent on contract terms.
Delivering U.S. food aid from vendor to village is also a
relatively time-consuming task, requiring on average 4 to 6
months. Food aid purchasing processes and example time frames are
illustrated in figure 4. While KCCO purchases food aid on a
monthly basis, it allows implementing partners' orders to
accumulate for 1 month prior to purchase in order to buy in scale.
KCCO then purchases the commodities, receives transportation
offers, and awards transportation contracts over the following
month. Commodity vendors bag the food and ship it to a U.S. port
for export during the next 1 to 2 months.^16 After an additional
40 to 50 days for ocean transportation to Africa, ^17 for example,
the food arrives at an overseas port, where it is trucked or
railroaded to the final distribution location over the next few
weeks. While agencies have tried to expedite food aid delivery in
some cases, the entire logistics process often lacks the
timeliness required to meet humanitarian needs in emergencies and
may at times result in food spoilage. Additionally, the largest
tonnages of U.S. food aid are purchased during the months of
August and September. Average tonnages purchased during the fourth
quarter of the last 5 fiscal years have exceeded those purchased
during the second and third quarters by more than 40 percent.
Given a 6-month delivery window, these tonnages do not arrive in
country until the end of the peak hungry season (from October
through January in southern Africa, for example) in most cases.^18
^3Food security exists when all people at all times have both physical and
economic access to sufficient food to meet their dietary needs for a
productive and healthy life.
^4In-kind food aid usually comes in two forms: non-processed foods and
value-added foods. Non-processed foods consist of whole grains such as
wheat, corn, peas, beans, and lentils. Value-added foods consist of
processed foods that are manufactured and fortified to particular
specifications, and include milled grains such as cornmeal and bulgur, and
fortified milled products such as corn soy blend (CSB) and wheat soy blend
(WSB).
^5WFP relies entirely on voluntary contributions to finance its
humanitarian and development projects, and national governments are its
principal source of funding. More than 60 governments fund the
humanitarian and development projects of WFP.
^6WFP defines emergencies as "urgent situations in which there is clear
evidence that an event or series of events has occurred which causes human
suffering or imminently threatens human lives or livelihoods and which the
government concerned has not the means to remedy; and it is a demonstrably
abnormal event or series of events which produces dislocation in the life
of a community on an exceptional scale."
^7The authority for these U.S. international food aid programs is provided
through P.L. 480 (the Agricultural Trade Development and Assistance Act of
1954, as amended, 7 USC S 1701 et seq.); the Food for Progress Act of
1985, as amended, 7 USC S 1736o; section 416(b) of the Agricultural Act of
1949, as amended, 7 USC S 1431; and the Farm Security and Rural Investment
Act of 2002 (P.L. 107-171). Funding sources for U.S. international food
assistance other than these six USAID- and USDA-administered food aid
programs include (1) International Disaster and Famine Assistance funds
and (2) State's Bureau of Population, Refugees, and Migration. (See app. I
for a description of these sources of funding.)
^8See GAO, Food Aid: Experience of U.S. Programs Suggests Opportunities
forImprovement, [32]GAO-02-801T (Washington, D.C.: June 4, 2002).
^9P.L. 104-239, 110 Stat. 3138. See GAO, Maritme Security Fleet: Many
Facors DetermineImpact of Potential Limts on Food Aid Shipments,
[33]GAO-04-1065 (Washington, D.C.: Sept. 13, 2004).
^10Due to increasing emergency food aid needs, USAID has not met this
sub-minimum requirement since 1995 and has regularly requested and
received a waiver from Congress.
^11The Bill Emerson Humanitarian Trust, a reserve of up to 4 million
metric tons of grain, can be used to help fulfill P.L. 480 food aid
commitments to meet unanticipated emergency needs in developing countries
or when U.S. domestic supplies are short. The Secretary of Agriculture
authorizes the use of the Trust in consultation with the Food Assistance
Policy Council, which includes senior USAID representatives. The Trust, as
presently constituted, was enacted in the 1998 Africa Seeds of Hope Act
(P.L. 105-385) and replaced the Food Security Wheat Reserve of 1980.
^12Inland transportation costs are included in commodity and ocean
transportation contracts.
^13In addition to rising fuel prices and greater global demand for
shipping, one factor contributing to the rise in freight rates is the
rising share of U.S. tonnage sent to Africa, which had a slightly higher
average cost of $180 per metric ton in 2006.
^14World Food Program, WFP in Statistics, July, 2006 and Review of
Indirect Support CostsRate, Report WFP/DB/A.2006/6-C1 (Rome, Italy: May
2006).
^15In this testimony, we use USAID's estimate that 1 metric ton can feed
approximately 1,740 people per day. Given that the current average U.S.
program cost for 1 metric ton of food aid is $585, if that average cost
had been reduced by $10 per metric ton through a reduction in ocean
transportation freight rates, the fiscal year 2006 food-aid budget could
have funded an additional 62,500 metric tons--enough to feed approximately
1.2 million people for a typical peak hungry season lasting 3 months.
^16KCCO data suggest that there is some variation in the time required
from the contract award date until the commodity reaches a U.S. port for
export. For example, for fiscal years 2002 through 2006, this time period
varied from less than 30 days for several shipments to more than 90 days
for several others.
^17Ocean transportation time frames may include loading and unloading of
vessels.
^18GAO has previously reported on the poor timing of food aid delivery.
See Famine in Africa Improving U.S. Response Time for Emergency Reief,
[34]GAO/NSIAD-86-56 (Washington, D.C.: Apr. 3, 1986).
Figure 4: An Example of a U.S. Food Aid Purchase and Its Delivery from
Vendor to Village
Various Factors Cause Inefficiencies in Food Aid Logistics
Food aid logistics are costly and time-consuming for a variety of reasons.
First, uncertain funding processes for emergencies can result in bunching
of food aid purchases, which increases food and transportation costs and
lengthens delivery time frames. Many experts, officials, and stakeholders
emphasized the need for improved logistical planning. Second,
transportation contracting practices--such as freight and payment terms,
claims processes and time penalties--further increase ocean freight rates
and contribute to delivery delays. A large percentage of the carriers we
interviewed strongly recommended taking actions to address these
contracting issues. Third, legal requirements such as cargo preference can
increase delivery costs. Although food aid agencies are reimbursed by DOT
for certain transportation expenditures, the sufficiency of reimbursement
levels varies. Fourth, when food delivery problems arise, such as food
spoilage or contamination, U.S. agencies and stakeholders lack adequately
coordinated mechanisms to systematically track and respond to complaints.
Funding and Planning Processes Increase Costs and Lengthen Time Frames
Uncertain funding processes, combined with reactive and insufficiently
planned procurement, increase food aid delivery costs and time frames.
Food emergencies are increasingly common and now account for 80 percent of
USAID program expenditures. To respond to sudden emergencies--such as
Afghanistan in 2002, Iraq in 2003, Sudan, Eritrea, and Ethiopia in 2005,
and Sudan and the Horn of Africa in 2006--U.S. agencies largely rely on
supplemental appropriations and the Bill Emerson Humanitarian Trust (BEHT)
to augment annual appropriations by up to a quarter of their budget.
Figure 5, for example, illustrates that USAID supplemental appropriations
have ranged from $270 million in fiscal year 2002 and $350 million in
fiscal year 2006 to over $600 million in fiscal years 2003 and 2005.
Agency officials and implementing partners told us that the uncertainty of
whether, when, and at what levels supplemental appropriations would be
forthcoming hampers their ability to plan both emergency and non-emergency
food aid programs on a consistent, long-term basis and to purchase food at
the best price. Although USAID and USDA instituted multi-year planning
approaches in recent years, according to agency officials, uncertain
supplemental funding has caused them to adjust or redirect funds from
prior commitments.
Figure 5: Funding for U.S. Food Aid Programs, Annual and Supplemental
Appropriations, Fiscal Year 2002 to Fiscal Year 2006 (Dollars in millions)
Agencies and implementing organizations also face uncertainty about the
availability of Bill Emerson Humanitarian Trust funds. As of January 2007,
the Emerson Trust held about $107.2 million in cash and about 915,350
metric tons of wheat valued at $133.9 million--a grain balance that could
support about two major emergencies based on an existing authority to
release up to 500,000 metric tons per fiscal year and another 500,000 of
commodities that could have been, but were not, released from previous
fiscal years. Although the Secretary of Agriculture and the USAID
Administrator have agreed that the $341 million combined value of
commodity and cash currently held in the trust is more than adequate to
cover expected usage over the period of the current authorization, the
authorization is scheduled to expire on September 30, 2007. Resources have
been drawn from the Emerson Trust on 12 occasions since 1984. For example,
in fiscal year 2005, $377 million from the trust was used to procure
700,000 metric tons of commodities for Ethiopia, Eritrea, and Sudan.
However, experts and stakeholders with whom we met noted that the trust
lacks an effective replenishment mechanism--withdrawals from the trust
must be reimbursed by the procuring agency or by direct appropriations for
reimbursement, and legislation establishing the Emerson Trust capped the
annual replenishment at $20 million.^19
Inadequately planned food and transportation procurement reflects the
uncertainty of food aid funding. As previously discussed, KCCO purchases
the largest share of food aid tonnage during the last quarter of each
fiscal year. This "bunching" of procurement occurs in part because USDA
requires 6 months to approve programs and/or because funds for both USDA
and USAID programs may not be received until mid-fiscal year (after OMB
has approved budget apportionments for the agencies) or through a
supplemental appropriation. USAID officials stated that they have reduced
procurement bunching through improved cash flow management.^20 Although
USAID has had more stable monthly purchases in fiscal years 2004 and 2005,
food aid procurement in total has not been consistent enough to avoid the
higher prices associated with bunching. Higher food and transportation
prices result from procurement bunching as suppliers try to smooth
earnings by charging higher prices during their peak seasons and as food
aid contracts must compete with commercial demand that is seasonally high.
According to KCCO data for fiscal years 2002 through 2006, average
commodity and transportation prices were each $12 to $14 per metric ton
higher in the fourth quarter than in the first quarter of each year.^21
Procurement bunching also stresses KCCO operations and can result in
costly and time-consuming congestion for ports, railways, and trucking
companies.
While agencies face challenges to improving procurement planning given the
uncertain nature of supplemental funding in particular, stakeholders and
experts emphasized the importance of such efforts. For example, 11 of the
14 ocean carriers we interviewed reported that reduced procurement
bunching could greatly reduce transportation costs. When asked about
bunching, agency officials, stakeholders and experts suggested the
following potential improvements:
^19Additionally, Congress can appropriate funds to augment the Trust. The
Emergency Wartime Supplemental Appropriations Act, 2003 (Pub. L. 108-11)
appropriated $69 million for that purpose.
^20USAID has taken steps to improve its management of (1) committed and
anticipated cash outflows for development and emergency programs,
prepositioning, and other accounts; and (2) anticipated cash inflows from
annual and supplemental budgets, DOT reimbursements, and other carryover
accounts. However, according to a KCCO study, though both USDA and USAID
experience an upsurge in purchasing at the end of the year (particularly
in September), USDA's is more pronounced.
^21These figures exclude prices for non-fat dry milk and vegetable oil.
o Improved communication and coordination. KCCO and WFP
representatives suggested that USAID and USDA improve coordination
of purchases to reduce bunching. KCCO has also established a
web-based system for agencies and implementing organizations to
enter up to several years' worth of commodity requests. However,
implementing organizations are currently only entering purchases
for the next month. Additionally, since the Food Aid Consultative
Group (FACG) does not include transportation stakeholders, DOT
officials and ocean carriers strongly recommended establishing a
formal mechanism for improving coordination and transportation
planning.
o Increased flexibility in procurement schedules. USAID expressed
interest in an additional time slot each month for food aid
purchases. Several ocean carriers expressed interest in shipping
food according to cargo availability rather than through pre-set
shipping windows that begin 4 weeks and 6 weeks after each monthly
purchase. Although KCCO has established shipping windows to avoid
port congestion, DOT representatives believe that carriers should
be able to manage their own schedules within required delivery
time frames.
o Increased use of historical analysis. DOT representatives,
experts, and stakeholders emphasized that USAID and USDA should
increase their use of historical analysis and forecasting to
improve procurement. USAID has examined historical trends to
devise budget proposals prepared 2 years in advance, and it is now
beginning to use this analysis to improve timing of procurement.
However, neither USAID nor USDA has used historical analysis to
establish more efficient transportation practices, such as
long-term agreements commonly used by DOD.^22 Furthermore, WFP is
now using forecasting to improve purchasing patterns through
advanced financing but is unable to use this financing for U.S.
food aid programs due to legal and administrative constraints.
Transportation Contracting Practices Increase Delivery Costs and
Contribute to Delays
Transportation contracting practices are a second factor
contributing to higher food aid costs. DOT officials, experts, and
ocean carriers emphasized that commercial transportation contracts
include shared risk between buyers, sellers, and ocean carriers.
In food aid transportation contracts, risks are disproportionately
placed on ocean carriers, discouraging participation and resulting
in expensive freight rates.^23 Examples of costly contracting
practices include:
o Non-commercial and non-standardized freight terms. Food aid
contracts define freight terms differently than commercial
contracts and place increased liability on ocean carriers.^24 For
example, food aid contracts hold ocean carriers responsible for
logistical problems such as improperly filled containers that may
occur at the load port before they arrive. Food aid contracts also
hold ocean carriers responsible for logistical problems such as
truck delays or improper port documentation that may occur at the
discharge port after they arrive. Further, several carriers
reported that food aid contracts are not sufficiently
standardized. Although USAID and USDA created a standard contract
for non-bulk shipments, contracts for bulk shipments (which
currently account for 63 percent of food aid tonnage delivered)
have not yet been standardized. To account for risks that are
unknown or outside their control, carriers told us that they
charge higher freight rates.
o Impractical time requirements. Food aid contracts may include
impractical time requirements, although agencies disagree on how
frequently this occurs. Although USAID officials review contract
time requirements and described them as reasonable, they also
indicated that transportation delays are a common result of poor
carrier performance and the diminishing number of ocean carriers
participating in food aid programs.^25 Several implementing
organizations also complained about inadequate carrier
performance. WFP representatives, for example, provided several
examples of ocean shipments in 2005 and 2006 that were more than
20 days late. While acknowledging that transportation delays
occur, DOT officials indicated that some contracts include time
requirements that are impossible for carriers to meet. For
example, one carrier complained about a contract that required the
same delivery date for four different ports. When carriers do not
meet time requirements, they must pay costly penalties. Carriers
reported that they review contracts in advance and, where time
requirements are deemed implausible, factor the anticipated
penalty into the freight rate.^26 While agencies do not
systematically collect data on time requirements and penalties
associated with food aid contracts, DOT officials examined a
subset of contracts from December 2005 to September 2006 and
estimated that 13 percent of them included impractical time
requirements. Assuming that the anticipated penalties specified in
the contracts analyzed were included in freight rates, food aid
costs may have increased by almost $2 million (monies that could
have been used to provide food to an additional 66,000
beneficiaries).
o Lengthy claims processes. Lengthy processes for resolving
transportation disputes discourage both carriers and implementing
organizations from filing claims. According to KCCO officials,
obtaining needed documentation for a claim can require several
years and disputed claims must be resolved by the Department of
Justice. USAID's Inspector General reported that inadequate and
irregular review of claims by USAID and USDA has also contributed
to delayed resolution.^27 Currently, KCCO has over $6 million in
open claims, some of which were filed prior to fiscal year 2001.
For ocean carriers, the process is burdensome and encourages them
to factor potential losses into freight rates rather than pursue
claims. Incentives for most implementing organizations are even
weaker given that monies recovered from claims reimburse the
overall food aid budget rather than the organization that
experienced the loss.^28 According to KCCO and WFP officials,
transportation claims are filed for less than 2 percent of cargo.
However, several experts and implementing organizations suggested
that actual losses are likely higher. In 2003, KCCO proposed a new
administrative appeals process for ocean freight claims that would
establish a hearing officer within USDA and a 285-day timeframe.
While DOT and some carriers agreed that a faster process was
needed, DOT officials suggested that the process for claims review
should include hearing officers outside of USDA to ensure
independent findings. To date, KCCO's proposed process has not
been implemented.
o Lengthy payment time frames and burdensome administration.
Payment of food aid contracts is slow and paperwork is
insufficiently streamlined. When carriers are not paid for several
months, they incur large interest costs that are factored into
freight rates. While USDA now provides freight payments within a
few weeks, several ocean carriers complained that USAID often
requires 2 to 4 months to provide payment. USDA freight payments
are timelier due to a new electronic payment system, ^29 but USAID
officials said this system is too expensive, so they are
considering other payment options. In addition, a few carriers
suggested that paperwork in general needs streamlining and
modernization. The 2002 Farm Bill required both USDA and USAID to
pursue streamlining initiatives that the agencies are in the
process of implementing. KCCO officials indicated that they are
updating food aid information technology systems (to be in place
in fiscal year 2009).
Through structured interviews, ocean carriers confirmed the cost
impact of food aid transportation contracting practices. For
example, 9 (60 percent) and 14 (100 percent) of the carriers
reported that "inefficient claims processes" and "liabilities
outside the carriers' control" increase costs, respectively. To
quantify the impact, two carriers estimated that non-standardized
freight terms increase costs by 5 percent (about $8 per metric
ton) while another carrier suggested that slow payment increases
costs by 10 percent (about $15 per metric ton). Over 70 percent of
the carriers strongly recommended actions to address contracting
practices.
Legal Requirements Can Increase Delivery Costs and Time Frames
Legal requirements governing food aid procurement are a third
factor that can increase delivery costs and time frames, with
program impacts dependent on the sufficiency of associated
reimbursements. In awarding contracts, KCCO must meet various
procurement requirements such as cargo preference and the Great
Lakes Set Aside. Each requirement may result in higher commodity
and freight costs. Cargo preference laws, for example, require 75
percent of food aid to be shipped on U.S.-flag carriers, which are
generally more expensive than foreign-flag carriers by an amount
that is known as the ocean freight differential (OFD). The total
annual value of this cost differential between U.S.- and
foreign-flag carriers averaged $134 million from fiscal years 2001
to 2005. Additionally, since only a relatively small percentage of
cargo can be shipped on foreign-flag vessels, agency and port
officials believe that cargo preference regulations discourage
foreign-flag participation in the program and result in delays
when a U.S.-flag carrier is not available. DOT officials emphasize
that USAID and USDA receive reimbursements for most if not all of
the total OFD cost--DOT reimbursements varied from $126 million in
fiscal year 2002 to $153 million in fiscal year 2005. ^30 However,
USAID officials expressed concern that the OFD calculations do not
fully account for the costs of cargo preference or the
uncertainties regarding its application. For example, OFD
reimbursements do not account for the additional costs of shipping
on U.S.-flag vessels that are older than 24 years (approximately
half of these vessels) or shipments for which a foreign-flag
vessel has not submitted a bid.^31 USAID officials estimate that
the actual cost of cargo preference in fiscal year 2003 exceeded
the total OFD cost by about $50 million due to these factors.
Finally, USAID and DOT officials have not yet agreed on whether
cargo preference applies to shipments from prepositioning sites.
Inadequate Coordination Limits Agencies� and Stakeholders�
Response to Food Delivery Problems
U.S. agencies and stakeholders do not coordinate adequately to
respond to food and delivery problems when they arise. USAID and
USDA lack a shared, coordinated system to systematically track and
respond to food quality complaints, and food aid working groups
and forums are not inclusive of all stakeholders.^32 Food quality
concerns have been long-standing issues provoking the concern of
both food aid agencies and the U.S. Congress.^33 In 2003, for
example, USAID's Inspector General reported some Ethiopian
warehouses in poor condition, with rodent droppings near torn bags
of corn soy blend (CSB), rainwater seepage, pigeons flying into
one warehouse, and holes in the roof of another. Implementing
organizations we spoke with also frequently complained about
receiving heavily infested and contaminated cargo. For example, in
Durban, South Africa we saw 1,925 metric tons of heavily infested
cornmeal that arrived late in port because it had been erroneously
shipped to the wrong countries first. This food could have fed
over 37,000 people. When food arrives heavily infested, NGOs hire
a surveyor to determine how much is salvageable for human
consumption or for use as animal feed, and destroy what is deemed
unfit.
When such food delivery problems arise, U.S. agencies and food aid
stakeholders face a variety of coordination challenges in
addressing them. For example:
o KCCO, USDA and USAID have disparate quality complaint tracking
mechanisms that monitor different levels of information. As a
result, they are unable to determine the total quantity of and
trends in food quality problems. In addition, because implementing
organizations track food quality concerns differently, if at all,
they cannot coordinate to share concerns with each other and with
U.S. government agencies. For example, since WFP--which accounts
for 60 percent of U.S. food aid shipments--independently handles
its own claims, KCCO officials are unable to track the quality of
food aid delivery program-wide. Agencies and stakeholders have
suggested that food quality tracking and coordination could be
improved if USAID and USDA shared the same database and created an
integrated food quality complaint reporting system.
o Agency country offices are often unclear about their roles in
tracking food quality, creating gaps in monitoring and reporting.
For example, USAID has found that some missions lack clarity on
their responsibilities in independently verifying claims stemming
from food spoilage, often relying on the implementing organization
to research the circumstances surrounding losses. One USAID
country office also noted that rather than tracking all food
quality problems reported, it only recorded and tracked commodity
losses for which an official claim had been filed. Further, in
2004, the Inspector General for USAID found that USAID country
offices were not always adequately following up on commodity loss
claims to ensure that they were reviewed and resolved in a timely
manner. To improve food quality monitoring, agencies and
stakeholders have suggested updating regulations to include
separate guidance for complaints, as well as developing a secure
website for all agencies and their country offices to use to track
both complaints and claims.
o When food quality issues arise, there is no clear and
coordinated process for seeking assistance, creating costly delays
in response. For example, when WFP received 4,200 metric tons of
maize in Angola in 2003 and found a large quantity to be wet and
moldy, it did not receive a timely response from USAID officials
on how to handle the problem. WFP incurred $176,000 in costs in
determining the safety of the remaining cargo, but was later
instructed by USAID to destroy the whole shipment. WFP claims it
lost over $640,000 in this case, including destruction costs and
the value of the commodity. Although KCCO established a hotline to
provide assistance on food quality complaints, KCCO officials
stated that it was discontinued because USDA and USAID officials
wanted to receive complaints directly, rather than from KCCO.
Nevertheless, agencies and stakeholders have suggested that
providing a standard questionnaire to implementing organizations
would ensure more consistent reporting on food quality issues.
While Agencies Have Taken Steps to Improve Efficiency, Their
Costs and Benefits Have Not Yet Been Measured
To improve timeliness in food aid delivery, USAID has been
prepositioning commodities in two locations and KCCO is
implementing a new transportation bid process. Prepositioning
enabled USAID to respond more rapidly to the 2005 Asian tsunami
emergency than would have been otherwise possible. KCCO's bid
process is also expected to reduce delivery time frames and ocean
freight rates. However, the long-term cost effectiveness of both
initiatives has not yet been measured.
Prepositioning and Transportation Procurement Could Improve
Timeliness
USAID has prepositioned food aid on a limited basis to improve
timeliness in delivery.^34
USAID has used warehouses in Lake Charles (Louisiana) since 2002
and Dubai (United Arab Emirates) since 2004 to stock commodities
in preparation for food aid emergencies and it is now adding a
third site in Djibouti, East Africa. USAID has used prepositioned
food to respond to recent emergencies in Lebanon, Somalia, and
Southeast Asia, among other areas. Prepositioning is beneficial
because it allows USAID to bypass lengthy procurement processes
and to reduce transportation timeframes. USAID officials told us
that diverting food aid cargo to the site of an emergency before
it reaches a prepositioning warehouse further reduces response
time and eliminates storage costs.^35 When the 2005 Asian tsunami
struck, for example, USAID quickly provided 7,000 metric tons of
food to victims by diverting the carrier at sea, before it reached
the Dubai warehouse. According to USAID officials, prepositioning
warehouses also offer the opportunity to improve logistics when
USAID is able to begin the procurement process before an emergency
occurs, or if it is able to implement long-term agreements with
ocean carriers for tonnage levels that are more certain.^36
Despite its potential for improved timeliness, prepositioning has
not yet been studied in terms of its long-term cost effectiveness.
Table 1 shows that over fiscal years 2005 and 2006, USAID
purchased about 200,000 metric tons of processed food for
prepositioning (about 3 percent of total food aid tonnage),
diverted about 36,000 metric tons en route, and incurred contract
costs of about $1.5 million for food that reached the warehouse
(averaging around $10 per metric ton). In addition to contract
costs, ocean carriers generally charge higher freight rates for
prepositioned cargo to account for additional cargo loading or
unloading, additional days at port, and additional risk of damage
associated with cargo that has undergone extra handling. USAID
officials have suggested that average freight rates for
prepositioned cargo could be $20 per metric ton higher.
Table 1: USAID Tonnage and Costs for Prepositioning, Fiscal Year
2005 to Fiscal Year 2006
Lake Charles Dubai
Tonnage purchased for prepositioning sites 99,630 MT 100,520 MT
o Tonnage shipped to prepositioning site 99,630 MT 64,606 MT
o Tonnage diverted before reaching 0 MT 35,644 MT
prepositioning site
Contract costs for storage and cargo handling $839,380 $715,668
services
Source: USAID.
In addition to costs of prepositioning, agencies face several
challenges to their effective management of this program,
including the following:
o Food aid experts and stakeholders expressed mixed views on the
appropriateness of current prepositioning locations.^37 Only 5 of
the 14 ocean carriers we interviewed rated existing sites
positively and most indicated interest in alternative sites. KCCO
officials and experts also expressed concern with the quality of
the Lake Charles warehouse and the lack of ocean carriers
providing service to that location. For example, many carriers
must move cargo by truck from Lake Charles to Houston before
shipping it, which adds as much as an extra 21 days for delivery.
o Inadequate inventory management increases risk of cargo
infestation. KCCO and port officials suggested that USAID had not
consistently shipped older cargo out of the warehouses first.
USAID officials emphasized that inventory management has been
improving but that limited monitoring and evaluation funds
constrain their oversight capacity.^38 For example, the current
USAID official responsible for overseeing the Lake Charles
prepositioning stock was able to visit the site only once in
fiscal year 2006--at his own expense.
o Agencies have had difficulties ensuring phytosanitary
certification for prepositioned food because they do not know the
country of final destination when they request phytosanitary
certification from APHIS.^39 According to USDA, since
prepositioned food is not imported directly from a U.S. port, it
requires either a U.S.-reissued phytosanitary certificate or a
foreign-issued phytosanitary certificate for re-export. USDA
officials told us they do not think that it is appropriate to
reissue these certificates, as once a food aid shipment leaves the
United States, they cannot make any statements about the
phytosanitary status of the commodities, which may not meet the
entry requirements of the country of destination. USDA officials
are concerned that USAID will store commodities for a considerable
period of time during which their status may change, thus making
the certificate invalid. Although USDA and USAID officials are
willing to let foreign government officials issue these
certificates, U.S. inspection officials remain concerned that the
foreign officials might not have the resources or be willing to
recertify these commodities. Without phytosanitary certificates,
food aid shipments could be rejected, turned away, or destroyed by
recipient country governments.
o Certain regulations applicable to food aid create challenges for
improving supply logistics. For example, food aid bags must
include various markings reflecting contract information, when the
commodity should be consumed, and whether the commodity is for
sale or direct distribution. Marking requirements vary by country
(some require markings in local language), making it difficult for
USAID to divert cargo. Also, due to the small quantity of total
food aid tonnage (about 3 percent) allocated for the
prepositioning program, USAID is unable to use the program to
consistently purchase large quantities of food aid earlier in the
fiscal year.
New Transportation Bid Process Could Reduce Procurement Time
Frames
In addition to prepositioning, KCCO is implementing a new
transportation bid process to reduce procurement time frames and
increase competition between ocean carriers. In the prior two-step
system, during a first procurement round, commodity vendors bid on
contracts and ocean carriers indicated potential freight rates.
Carriers provided actual rate bids during a second procurement
round, once the location of the commodity vendor had been
determined. In the new 1-step system, ocean carriers will bid at
the same time as commodity vendors. KCCO expects the new system to
cut 2 weeks from the procurement process and potentially provide
average annual savings of $25 million in reduced transportation
costs. KCCO also expects this new bid process will reduce cargo
handling costs as cargo loading becomes more consolidated. When
asked about the new system, many carriers reported uncertainty as
to what its future impact would be, while several expressed
concern that USDA's testing of the system had not been
sufficiently transparent.
Various Challenges Prevent Effective Monitoring of Food Aid
Despite the importance of ensuring the effective use of food aid
to alleviate hunger, U.S. agencies' efforts to monitor food aid
programs are insufficient. Limited food aid resources make it
important for donors and implementers to ensure that food aid
reaches the most vulnerable populations, thereby enhancing its
effectiveness. However, USAID and USDA do not sufficiently monitor
food aid programs, particularly in recipient countries, due to
limited staff, competing priorities, and legal restrictions in use
of food aid resources.
U.S. Agencies Do Not Sufficiently Monitor Food Aid Programs
Although USAID and USDA require implementing organizations to
regularly monitor and report on the use of food aid, these
agencies have undertaken limited field-level monitoring of food
aid programs. Agency inspectors general have reported that
monitoring has not been regular and systematic, and that in some
cases intended recipients have not received food aid or the number
of recipients could not be verified. Our audit work also indicates
that monitoring has been insufficient due to various factors
including limited staff, competing priorities, and restrictions in
use of food aid resources.
USAID and USDA require NGOs and WFP to conduct regular monitoring
of food aid programs. USAID Title II guidance for multi-year
programs requires implementing organizations to provide a
monitoring plan, which includes information such as the percentage
of the target population reached, as well as mid-term and final
evaluations of program impact. USDA requires implementing
organizations to report semi-annually on commodity logistics and
the use of food. According to WFP's agreement with the U.S.
government, WFP field staff should undertake periodic monitoring
at food distribution sites to ensure that commodities are
distributed according to an agreed-upon plan. Additionally, WFP is
to provide annual reports for each of its U.S.-funded programs.
In addition to monitoring by implementing organizations, agency
monitoring is important to ensure targeting of food aid is
adjusted to changes in conditions as they occur, and to modify
programs to improve their effectiveness, according to USAID
officials. However, various USAID and USDA Inspectors General
reports have cited problems with agencies' monitoring of programs.
For example, according to various USAID Inspector General reports
on non-emergency programs in 2003, while food aid was generally
delivered to intended recipients, USAID officials did not conduct
regular and systematic monitoring.^40 One such assessment of
direct distribution programs in Madagascar, for example, noted
that as a result of insufficient and ad hoc site visits, USAID
officials were unable to detect an NGO reallocation of significant
quantities of food aid to a different district that, combined with
late arrival of U.S. food aid, resulted in severe shortages of
food aid for recipients in a USAID-approved district. The
Inspector General's assessment of food aid programs in Ghana
stated that the USAID mission's annual report included data, such
as number of recipients, that were directly reported by
implementing organizations without any procedures to review the
completeness and accuracy of this information over a 3-year
period. As a result, the Inspector General concluded, the mission
had no assurance as to the quality and accuracy of this data.
Limited Staff Constrain Monitoring of Food Aid Programs in
Recipient Countries
Limited staff and other demands in USAID missions and regional
offices have constrained their field-level monitoring of food aid
programs.^41 In fiscal year 2006, although USAID has some
non-Title II staff assigned to monitoring, it had only 23 Title
II-funded staff assigned to missions and regional offices in just
10 countries to monitor programs costing about $1.7 billion in 55
countries.^42 For example, USAID's Zambia mission had only one
Title-II funded foreign-national and one U.S.-national staff to
oversee $4.6 million in U.S. food aid funding in fiscal year 2006.
Moreover, the U.S.-national staff only spent about one-third of
his time on food aid activities and two-thirds on the President's
Emergency Plan for AIDS Relief program.
USAID regional offices' monitoring of food aid programs has also
been limited. These offices oversee programs in multiple
countries, especially where USAID missions lack human-resource
capacity. For example, USAID's East Africa regional office, which
is located in Kenya, is responsible for oversight in 13 countries
in East and Central Africa, of which 6 had limited or no capacity
to monitor food aid activities, according to USAID officials.^43
This regional office, rather than USAID's Kenya mission, provided
monitoring staff to oversee about $100 million in U.S. food aid to
Kenya in fiscal year 2006.^44 While officials from the regional
office reported that their program officers monitor food aid
programs, according to an implementing organization official we
interviewed, USAID officials visited the project site only 3 times
in 1 year. USAID officials told us that they may have multiple
project sites in a country and may monitor selected sites based on
factors such as severity of need and level of funding. In another
case, monitoring food aid programs in the Democratic Republic of
Congo (DRC) from the USAID regional office had been difficult due
to poor transportation and communication infrastructure, according
to USAID officials. Therefore, USAID decided to station one
full-time employee in the capital of the DRC to monitor U.S. food
aid programs that cost about $51 million in fiscal year 2006.
Limited Resources and Restrictions in Their Use Further Constrain
Monitoring Efforts
Field-level monitoring is also constrained by limited resources
and restrictions in their use. Title II resources provide only
part of the funding for USAID's food aid monitoring activities and
there are legal restrictions on the use of these funds for
non-emergency programs. Other funds, such as from the agency's
overall operations expense and development assistance accounts,
are also to be used for food aid activities such as monitoring.
However, these additional resources are limited due to competing
priorities and their use is based on agency-wide allocation
decisions, according to USAID officials. As a result, resources
available to hire food aid monitors are limited. For example,
about 5 U.S.-national and 5 foreign-national staff are responsible
for monitoring all food aid programs in 7 countries in the
Southern Africa region, according to a USAID food aid regional
coordinator. Moreover, because its operations expense budget is
limited and Title II funding only allows food monitors for
emergency programs, USAID relies significantly on Personal
Services Contractors (PSCs) --both U.S.-national and
foreign-national hires--to monitor and manage food aid programs in
the field.^45 For example, while PSCs can use food aid project
funds for travel, USAID's General Schedule staff cannot.
Restrictions in the use of Title II resources for monitoring
non-emergency programs further reduce USAID's monitoring of these
programs.
USDA administers a smaller proportion of food aid programs than
USAID, and its field-level monitoring of food aid programs is more
limited than for USAID-funded programs. In March 2006, USDA's
Inspector General reported that USDA's Foreign Agricultural
Service (FAS) had not implemented a number of recommendations made
in a March 1999 report on NGO monitoring. Furthermore, several
NGOs informed GAO that the quality of USDA oversight from
Washington, D.C. is generally limited in comparison to oversight
by USAID. USDA has fewer overseas staff who are usually focused on
monitoring agricultural trade issues and foreign market
development. For example, the agency assigns a field attache--with
multiple responsibilities in addition to food aid monitoring--to
U.S. missions in some countries. However, FAS officials informed
us that in response to past USDA Inspector General and GAO
recommendations, a new monitoring and evaluation unit has been
established recently with an increased staffing level to monitor
the semiannual reports, conduct site visits, and evaluate
programs.
Without adequate monitoring from U.S. agencies, food aid programs
are vulnerable to not effectively directing limited food aid
resources to those populations most in need. As a result, agencies
may not be sufficiently accomplishing their goals of getting the
right food to the right people at the right time.
Objectives, Scope, and Methodology
To address these objectives, we analyzed food aid procurement and
transportation data provided by USDA's KCCO and food aid budget
data provided by USDA, USAID and WFP. We determined that the food
aid data obtained was sufficiently reliable for our purposes. We
reviewed economic literature on the implications of food aid on
local markets and recent reports, studies, and papers issued on
U.S. and international food aid programs. We conducted a
structured interview of the 14 U.S.- and foreign-flag ocean
carriers that transport over 80 percent of U.S. food aid tonnages.
We supplemented our structured interview evidence with information
from other ocean carriers and shipping experts. In Washington,
D.C., we interviewed officials from USAID, USDA, the Departments
of State (State), DOD, DOT, and the Office of Management and
Budget (OMB). We also met with a number of officials representing
NGOs that serve as implementing partners to USAID and USDA in
carrying out U.S. food aid programs overseas; freight forwarding
companies; and agricultural commodity groups. In Rome, we met with
officials from the U.S. Mission to the UN Agencies for Food and
Agriculture, the UN World Food Program headquarters, and FAO. We
also conducted field work in three countries that are recipients
of food aid--Ethiopia, Kenya, and Zambia--and met with officials
from U.S. missions, implementing organizations, and relevant host
government agencies in these countries and South Africa. We
visited a port in Texas from which food is shipped; two food
destination ports in South Africa and Kenya; and two sites in
Louisiana and Dubai where U.S. food may be stocked prior to
shipment to destination ports. For the countries we visited, we
also reviewed numerous documents on U.S. food aid, including all
the proposals that USDA approved from 2002 to 2006 for the food
aid programs it administers, and approximately half of the
proposals that USAID approved from 2002 to 2006 for the food aid
programs it administers.^46 Finally, in January 2007, we convened
a roundtable of 15 experts and practitioners including
representatives from academia, think tanks, implementing
organizations, the maritime industry, and agricultural commodity
groups to further delineate, based on GAO's initial work, some key
challenges to the efficient delivery and effective use of U.S.
food aid and to explore options for improvement. We took the
roundtable participants' views into account as we finalized our
analysis of these challenges and options. We conducted our work
between April 2006 and March 2007 in accordance with generally
accepted U.S. government auditing standards.
Conclusions
U.S. international food aid programs have helped hundreds of
millions of people around the world survive and recover from
crises since the Agricultural Trade Development and Assistance Act
(P.L. 480) was signed into law in 1954. Nevertheless, in an
environment of increasing emergencies, tight budget constraints,
and rising transportation and business costs, U.S. agencies must
explore ways to optimize the delivery and use of food aid. U.S.
agencies have taken some measures to enhance their ability to
respond to emergencies and streamline the myriad processes
involved in delivering food aid. However, opportunities for
further improvement in such areas as logistical planning and
transportation contracting remain. Moreover, inadequate
coordination among food aid stakeholders has hampered ongoing
efforts to address some of these logistical challenges. Finally,
U.S. agencies' lack of monitoring leaves U.S. food aid programs
vulnerable to wasting increasingly limited resources, not putting
them to their most effective use, or not reaching the most
vulnerable populations on a timely basis.
In a draft report that is under review by U.S. agencies, we
recommend that to improve the efficiency of U.S. food aid--in
terms of amount, timeliness, and quality--USDA, USAID, and DOT
work together and with stakeholders to
o improve food aid logistical planning through cost-benefit
analysis of supply-management options, such as long-term
transportation agreements and prepositioning--including
consideration of alternative methods, such as those used by WFP;
o modernize transportation contracting procedures to include, to
the extent possible, commercial principles of shared risks,
streamlined administration, and expedited payment and claims
resolution;
o seek to minimize the cost impact of cargo preference regulations
on food aid transportation expenditures by updating implementation
and reimbursement methodologies to account for new supply
practices, such as prepositioning, and potential costs associated
with older vessels or limited foreign-flag participation; and
o establish a coordinated system for tracking and resolving food
quality complaints.
To optimize the effectiveness of food aid, we recommend that USAID
and USDA improve monitoring of food aid programs to ensure proper
management and implementation.
^22Several years ago, USAID asked DOD to calculate the cost for a sample
set of food aid shipments using long-term transportation agreements
managed by DOD. This analysis indicated a lack of potential savings.
However, DOD and DOT officials subsequently found that the analysis
contained flaws and they recommend that a new analysis be conducted. DOD
officials suggested that USAID conduct a pilot program using DOD's
Universal Service Contract. DOT officials indicated that cost savings
could be realized if USAID were to manage its own contracts, and that they
had offered to assist USAID in doing so. DOT also provided examples of
contracts that would not discourage cargo consolidation or reduce
competition.
^23Various factors distinguish food aid shipments from commercial
shipments, making freight rates between these activities not directly
comparable. Nonetheless, KCCO data suggest that average food aid freight
rates from the Gulf of Mexico to Djibouti, East Africa were over $150 per
ton in 2006. Average commercial freight rates for grain shipments from
these ports were about one-third the price at $55 per ton.
^24International commercial terms (InCo terms) are internationally
accepted terms defining responsibilities of exporters and importers in
shipments. InCo terms define free alongside ship ("FAS"), for example, as
a contract where cargo is placed at the load port under the seller's
responsibility and any vessel loading charges, freight, and other costs
incurred including "detention and demurrage" (costs for detaining vessel
or equipment at a discharge port longer than specified in the contract)
are the buyer's responsibility. For food aid programs, FAS contracts
specify that cargo is loaded and discharged at the carrier's time, risk,
and expense.
^25We reported in 2004 that, between fiscal years 1999 and 2003, there was
an annual average of 108 U.S.-flag vessels participating in U.S. food aid
programs (see [36]GAO-04-1065 ). According to DOT estimates, fewer than 90
U.S.-flag vessels participated in food aid programs in fiscal year 2006.
Due to fleet changes, USAID officials estimate that there are now even
fewer U.S.-flag vessels available to carry U.S. food aid.
^26Various stakeholders questioned whether penalties are effective. USAID
officials emphasized that penalties are their most practical tool to
compel ocean carrier performance because FAR regulations make it very
difficult to suspend carriers from participating in food aid programs due
to poor performance.
^27See USAID, Office of Inspector General Report No. 4-663-04-002-P
(Washington, D.C.: Nov. 21, 2003).
^28WFP handles food aid claims independently through an insurance program.
^29This system is entitled "PowerTrack" and is also currently used by DOD.
According to DOD, PowerTrack has provided the government with visibility
of payment history, reduced administrative and handling costs and
expedited vendor payments. However, ocean carriers are responsible for
paying transaction fees and USAID officials believe these fees - which are
a percentage of the contract value -may be too expensive for large
contracts. They are researching whether they can find a similar service
with a fixed transaction fee.
^30The Food Security Act of 1985 requires DOT to reimburse food aid
agencies for the portion of the OFD cost and for ocean transportation
costs that exceed 20 percent of total program costs. Reimbursement
methodologies are governed by a 1987 interagency memorandum of
understanding. According to DOT officials, the OFD cost was relatively low
in fiscal year 2005 due to high global demand for freight services and
relatively high foreign-flag freight rates. These factors raised ocean
transport costs as a percentage of program costs, however, such that DOT's
total reimbursement was higher as well.
^31USAID and USDA are required to apply cargo preference regulations for
vessels of any age. However, total OFD costs are based on an average OFD
for vessels that are 24 years or younger. USAID officials argue that the
cost difference between U.S.-flag and foreign-flag rates is larger for
older vessels. Further, since opportunities for foreign-flag participation
are limited, USAID argues that they are not reimbursed for the higher cost
of shipping on a U.S.-flag vessel when foreign-flag bids are not received.
Using KCCO data, we found that 14 percent of food aid commodity requests
in fiscal year 2005 received no foreign-flag bid.
^32Food quality pertains to the degree of food spoilage, infestation,
contamination and/or damage that can result from factors such as
inadequate fumigation, poor warehouse conditions, and transportation
delays.
^33In a report accompanying H.R. 5522, the 2007 Department of State,
Foreign Operations, and Related Programs Appropriations Act, the Senate
Foreign Relations Committee stated its concern for reports that food aid
distribution overseas had been disrupted, suspended and in some instances
rejected due to quality concerns, and supported efforts by USAID and other
agencies to investigate these concerns. S. Rept. 109-277, p. 61. GAO has
also reported on food quality issues. See Foreign Assistance: US. Food Aid
Program to Russia Had Weak Internal Controls, [37]GAO/NSIAD/AIMD-00-329 .
(Washington, D.C.: Sept. 29, 2000).
^34P.L. 480 authorizes USAID to preposition food aid both domestically and
abroad with a cap on storage expenses of $2 million per fiscal year.
^35Purchases for the Lake Charles prepositioning site must reach the
warehouse and may not be diverted in advance.
^36USAID representatives suggested they might consider pursuing a
long-term transportation agreement for prepositioned tonnage to Djibouti.
KCCO officials suggested that, as part of such a program, earlier
purchases of food could also reduce commodity prices.
^37USAID chooses prepositioning locations based on three factors: (1)
storage and warehouse costs; (2) technical criteria such as the port's
plan of operations and personnel capacity, and the frequency of service
provided by ocean carriers; and (3) past performance.
^38USAID is considering building inventory management into warehouse
contracts and establishing standard operating procedures.
^39A phytosanitary certificate is a document required by many states and
foreign countries for the import of non-processed, plant products. As
specified by the importing country or state, exported products must meet
various plant health requirements pertaining to pests, plant diseases,
chemical treatments and weeds.
^40USAID Inspector General, Aud of USAID/Madagascar's Distributon of PL
480 Tile IINon-Emergency Asssance in Suppor of its Direct Food Aid
Distribution Program, 2003. See also Audit of USAID/Ghana's Distribution
of P.L. 480 Title II NonEmergency Asssance in Suppor of Its Drect Food Aid
Disrbution Program, 2003; and Audit ofUSAID/Ethiopia's Dsrbution of P.L.
480 Title II Non-Emergency Asssance in Support ofIts Drect Food Ad
Disrbution Program, 2003.
^41As part of the 2002 Farm Bill, the Congress directed USAID to
streamline program management as well as procedures and guidelines,
including "information collection and reporting systems by identifying
critical information that needs to be monitored and reported on by
eligible organizations." In its report to the Congress in 2003, USAID
identified actions to help achieve legislative directives, which included
a re-examination of its staffing and human resources requirements to
ensure timeliness and efficiency, especially due to the workload imposed
by a $1.4 billion Title II program. However, USAID did not conduct a
systematic assessment of its workload and staffing requirements for the
Office of Food for Peace to determine appropriate levels to monitor its
operations in over 50 countries.
^42In addition to Title II-funded positions, USAID missions and regional
offices have positions that are funded through other sources such as
development assistance or operating budgets for these offices. Although
these staff in this positions may monitor food aid programs, they would
also be responsible for monitoring other programs.
^43In 2005, USAID's East Africa regional office had oversight
responsibilities for $1.3 billion in food aid distributed in the region,
including about $377 million from the Bill Emerson Humanitarian Trust to
meet emergency needs in Ethiopia, Eritrea, and Sudan.
^44In contrast, while USAID's mission in Ethiopia also comes under the
purview of USAID's East Africa regional office, it has its own staff to
monitor its food aid programs. Specifically, 2 U.S.-national and 4
foreign-national staff manage and monitor U.S. food aid programs in
Ethiopia, funded at $143 million in 2006.
^45USAID hires U.S. and foreign nationals under personal service contracts
to complement its workforce of U.S. foreign service and civil service
personnel. These personal service contractors, or PSCs, serve in USAID's
overseas offices or missions and are generally considered to be more
cost-effective by the agency.
^46USDA administers Public Law (P.L.) 480 Title I, Food for Progress,
Section 416(b), and the McGovern-Dole International Food for Education and
Child Nutrition programs. USAID administers P.L. 480 Title II.
Agency Comments and Our Evaluation
USAID, USDA, and DOT provided oral comments on a draft of this
statement and we incorporated them as appropriate. We also
provided DOD, State, FAO, and WFP an opportunity to offer
technical comments that we have incorporated as appropriate.
Mr. Chairman and Members of the Committee, this concludes my
prepared statement. I would be pleased to answer any questions
that you may have.
GAO Contact and Staff Acknowledgments
Should you have any questions about this testimony, please contact
Thomas Melito, Director, at (202) 512-9601 or [email protected]
. Other major contributors to this testimony were Phillip Thomas
(Assistant Director), Carol Bray, Ming Chen, Debbie Chung, Martin
De Alteriis, Leah DeWolf, Mark Dowling, Etana Finkler, Kristy
Kennedy, Joy Labez, Kendall Schaefer, and Mona Sehgal.
Appendix I: Program Authorities and Congressional Mandates
The United States has principally employed six programs to deliver
food aid: P.L. 480 Titles I, II, and III; Food for Progress;
McGovern-Dole Food for Education and Child Nutrition; and Section
416(b). Table 2 provides a summary of these food aid programs by
program authority.
Appendix I: Program Authorities and Congressional Mandates
Table 2: U.S. Food Aid by Program Authority
P.L. 480
McGovern-Dole
Food for
Education and Section
Program Title I Title II Title III Food for Progress Child Nutrition 416(b)
Total $20 million $1,668 0^b $195.1 million $89.5 million $76.3
funding million million^c
allocation^a
Managing USDA USAID USAID USDA USDA^d USDA
agency
Year 1954 1954 1954 1985 2003 1949
established
Description Concessional Donation of Donation of Donation or Donation of Donations of
of sales of commodities commodities credit sale of commodities and surplus
assistance agricultural to meet to commodities to provision of commodities
commodities emergency and governments developing financial and to carry out
non-emergency of least countries and/or technical purposes of
needs; developed emerging assistance in P.L. 480
commodities countries democracies foreign countries (Title II and
may be sold Title III)
in-country and Food for
for Progress
development programs
purposes
Type of Non-emergency Emergency and Non-emergency Emergency and Non-emergency Emergency and
assistance non-emergency non-emergency non-emergency
Implementing Governments World Food Governments Governments, Governments, See
partners and private Program and agricultural private entities, implementing
entities NGOs trade and partners for
organizations, intergovernmental Title II,
intergovernmental organizations Title III,
organizations, and Food for
NGOs, and Progress
cooperatives programs
Source: GAO analysis based on USAID and USDA data.
aFunding data are for fiscal year 2005. USDA data represents programmed
funding, while USAID data represents appropriated funds.
bThis program has not been funded in recent years.
cThis program is currently inactive due to the unavailability of
government-owned commodities. Because it is permanently authorized, it
does not require reauthorization under the Farm Bill.
dUSDA administers this program as stipulated by law, which states that the
President shall designate one or more federal agencies.
In addition to these programs, resources for U.S. food aid can be provided
through other sources, which include the following:
o International Disaster and Famine Assistance funds, designated
for famine prevention and relief, as well as mitigation of the
effects of famine by addressing its root causes. Over the past 3
years, USAID has programmed $73.8 million in famine prevention
funds. Most of these funds have been programmed in the Horn of
Africa, where USAID officials told us that famine is now
persistent. According to USAID officials, experience thus far
demonstrates that one of the advantages of these funds is that
they enable USAID to combine emergency responses with development
approaches to address the threat of famine. Approaches should be
innovative and catalytic, while providing flexibility in assisting
famine-prone countries or regions. Famine prevention assistance
funds should generally be programmed for no more than 1 year and
seek to achieve significant and measurable results during that
time period. Funding decisions are made jointly by USAID's
regional bureaus and the Bureau for Democracy, Conflict and
Humanitarian assistance, and are subject to OMB concurrence and
congressional consultations. In fiscal year 2006, USAID programmed
$19.8 million to address the chronic failure of the pastoralist
livelihood system in the Mandera Triangle--a large, arid region
encompassing parts of Ethiopia, Somalia, and Kenya that was the
epicenter of that year's hunger crisis in the Horn of Africa. In
fiscal year 2005, USAID received $34.2 million in famine
prevention funds for activities in Ethiopia and six Great Lakes
countries. The activities in Ethiopia enabled USAID to intervene
early enough in the 2005 drought cycle to protect the
livelihoods--as well as the lives--of pastoralist populations in
the Somali Region, which were not yet protected by Ethiopia's
Productive Safety Net program. In fiscal year 2004, the USAID
mission in Ethiopia received $19.8 million in famine prevention
funds to enhance and diversify the livelihoods of the chronically
food insecure.
o State's Bureau of Population, Refugees, and Migration (PRM),
which provides limited amounts of cash to WFP to purchase food
locally and globally in order to remedy shortages in refugee
feeding pipeline breaks. In these situations, PRM generally
provides about 1 month's worth of refugee feeding needs--PRM will
not usually provide funds unless USAID's resources have been
exhausted. Funding from year to year varies. In fiscal year 2006,
PRM's cash assistance to WFP to fund operations in 14 countries
totaled about $15 million, including $1.45 million for
humanitarian air service. In addition, PRM also funds food aid and
food security programs for Burmese refugees in Thailand. In fiscal
year 2006, PRM provided $7 million in emergency supplemental
funding to the Thailand-Burma Border Consortium, most of which
supported food-related programs. PRM officials told us that they
coordinate efforts with USAID as needed.
Table 3 lists congressional mandates for the P.L. 480 food aid
programs and the target for fiscal year 2006.
Table 3: Congressional Mandates for P.L. 480
Mandate Description FY 2006 target
Minimum Total approved metric tons programmed 2.5 million MT
under Title II
Subminimum Metric tons for approved non-emergency 1.875 million
programs MT
Monetization Percentage of approved non-emergency 15%
Title II programs that are
monetization programs
Value-added Percentage of approved non-emergency 75%
program commodities that are
processed, fortified, or bagged
Bagged in the United Percentage of approved non-emergency 50%
States whole grain commodities that are
bagged in the United States
Source: GAO analysis, based on USAID data.
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Accuracy and Credibility Could Be Enhanced, [39]GAO-07-24 .
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Improvement, [43]GAO-02-801T . (Washington, D.C.: June 4, 2002).
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Chaenges for Successful Impementaton, [44]GAO-02-328 .
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[49]GAO/NSIAD-97-44 . (Washington, D.C.: Nov. 1996).
Food Security: Factors That Could Afec Progress Toward Meeting
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Mar. 1999).
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. (Washington, D.C.: July 31, 1996).
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[52]GAO/GGD-95-68 . (Washington, D.C.: June 26, 1995).
Foreign Ad: Actions Taken to Improve Food Aid Management,
[53]GAO/NSIAD-95-74 . (Washington, D.C.: Mar. 23, 1995).
Marime Indusry: Cargo Preference Laws Esmated Costs and Effecs,
[54]GAO/RCED-95-34 . (Washington, D.C.: Nov. 30, 1994).
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[55]GAO/NSIAD-95-35 . (Washington, D.C.: Nov. 23, 1994).
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May 5, 1994).
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Food Aid: Management Improvements Are Needed to Achieve Program
Objectives, [61]GAO/NSIAD-93-168 . (Washington, D.C.: July 23,
1993).
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Programs and the U.S. Merchant Marine, [62]GAO/NSIAD-90-174 .
(Washington, D.C.: June 19, 1990).
Status Report on GAO's Reviews on P.L. 480 Food Aid Programs,
[63]GAO/T-NSIAD-90-23 . (Washington, D.C.: Mar. 21, 1990).
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Highlights of [71]GAO-07-616T , a testimony before the Chairman and
Ranking Minority Member, Senate Committee on Agriculture, Nutrition, and
Forestry
March 2007
FOREIGN ASSISTANCE
U.S. Agencies Face Challenges to Improving the Efficiency and
Effectiveness of Food Aid
The United States is the largest provider of food aid in the world,
accounting for over half of all global food aid supplies intended to
alleviate hunger. Since the 2002 reauthorization of the Farm Bill,
Congress has appropriated an average of $2 billion per year for U.S. food
aid programs, which delivered an average of 4 million metric tons of
agricultural commodities per year. Despite growing demand for food aid,
rising business and transportation costs have contributed to a 43-percent
decline in average tonnages delivered over the last 5 years. For the
largest U.S. food aid program, these costs represent approximately 65
percent of total food aid expenditures, highlighting the need to maximize
the efficiency and effectiveness of food aid. To inform Congress as it
reauthorizes the 2007 Farm Bill, GAO examined some key challenges to the
(1) efficiency of delivery and (2) effective monitoring of U.S. food aid.
[72]What GAO Recommends
In a draft report that is under review by U.S. agencies, GAO recommends
that the Administrator of USAID and the Secretaries of Agriculture and
Transportation work together to enhance the efficiency and effectiveness
of U.S. food aid, by instituting measures to improve logistical planning,
transportation contracting, and monitoring of food aid programs, among
other actions.
Multiple challenges combine to hinder the efficiency of delivery of U.S.
food aid by reducing the amount, quality, and timeliness of food provided.
These challenges include (1) funding and planning processes that increase
delivery costs and lengthen time frames; (2) transportation contracting
practices that create high levels of risk for ocean carriers, resulting in
increased rates; (3) legal requirements that can result in the awarding of
food aid contracts to more expensive service providers; and (4) inadequate
coordination between U.S. agencies and food aid stakeholders in
systematically addressing food delivery problems, such as spoilage. U.S.
agencies have taken some steps to address timeliness concerns. USAID has
been stocking or prepositioning food commodities domestically and abroad
and USDA has implemented a new transportation bid process, but the
long-term cost effectiveness of these initiatives has not yet been
measured.
Selected Trends in U.S. Food Aid, Fiscal Years 2002 to 2006
Given limited food aid resources and increasing emergencies, ensuring that
food reaches the most vulnerable populations--such as poor women who are
pregnant or children who are malnourished--is critical to enhancing its
effectiveness. However, USAID and USDA do not sufficiently monitor the
effectiveness of food aid programs, particularly in recipient countries,
due to limited staff, competing priorities, and restrictions in the use of
food aid resources. For example, although USAID has some non-Title
II-funded staff assigned to monitoring, it had only 23 Title II-funded
staff assigned to missions and regional offices in just 10 countries to
monitor programs costing about $1.7 billion in 55 countries in fiscal year
2006. As a result of such limitations, U.S. agencies may not be
sufficiently accomplishing their goals of getting the right food to the
right people at the right time.
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