Foreign Assistance: Various Challenges Limit the Efficiency and  
Effectiveness of U.S. Food Aid (24-MAY-07, GAO-07-905T).	 
                                                                 
The United States is the largest global food aid donor, 	 
accounting for over half of all food aid supplies to alleviate	 
hunger and support development. Since 2002, 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 
food commodities per year. Despite growing demand for food aid,  
rising business and transportation costs have contributed to a 52
percent decline in average tonnage delivered between 2001 and	 
2006. These costs represent 65 percent of total emergency food	 
aid, highlighting the need to maximize its efficiency and	 
effectiveness. This testimony is based on a recent GAO report	 
that examined some key challenges to the (1) efficiency of U.S.  
food aid programs and (2) effective use of U.S. food aid.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-905T					        
    ACCNO:   A69906						        
  TITLE:     Foreign Assistance: Various Challenges Limit the	      
Efficiency and Effectiveness of U.S. Food Aid			 
     DATE:   05/24/2007 
  SUBJECT:   Cost analysis					 
	     Food relief programs				 
	     Foreign aid programs				 
	     Freight transportation rates			 
	     International food programs			 
	     Logistics						 
	     Monitoring 					 
	     Risk assessment					 
	     Strategic planning 				 
	     Transportation costs				 
	     Government agency oversight			 
	     Policies and procedures				 
	     Program costs					 
	     Timeliness 					 
	     UN World Food Program				 

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GAO-07-905T

   

     * [1]Summary
     * [2]Background

          * [3]Countries Provide Food Aid through In-kind or Cash Donations
          * [4]Most U.S. Food Aid Goes to Africa, with Nonemergency Funding
          * [5]U.S. Food Aid Is Delivered through Multiple Programs with Mu

     * [6]Multiple Challenges Hinder the Efficiency of U.S. Food Aid P

          * [7]Various Logistical Factors Increase Delivery Costs and Lengt

               * [8]Prepositioning and New Transportation Bid Process Could
                 Impr

          * [9]Monetization Is an Inefficient, Expanding Practice and Agenc

     * [10]Various Challenges Reduce the Effective Use of Food Aid

          * [11]Challenging Operating Environments Have Hindered Implementat
          * [12]Impediments to Improving Nutritional Quality Reduce the Bene
          * [13]U.S. Agencies Do Not Sufficiently Monitor Food Aid Programs

     * [14]Conclusions
     * [15]GAO Contact and Staff Acknowledgments
     * [16]GAO's Mission
     * [17]Obtaining Copies of GAO Reports and Testimony

          * [18]Order by Mail or Phone

     * [19]To Report Fraud, Waste, and Abuse in Federal Programs
     * [20]Congressional Relations
     * [21]Public Affairs

Committee on Foreign Affairs, Subcommittee on Africa and Global Health,
House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery
Expected at 2:30 p.m. EDT
Thursday, May 24, 2007

FOREIGN ASSISTANCE

Various Challenges Limit the Efficiency and Effectiveness of U.S. Food Aid

Statement of Thomas Melito, Director
International Affairs and Trade

GAO-07-905T

Mr. Chairman and Members of the Subcommittee:

I am pleased to appear 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, the largest U.S. food aid program, Title II
of Public Law 480, benefited over 70 million people through emergency and
development-focused projects. However, about 850 million people in the
world are currently undernourished--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, poverty, and natural disasters around the
world. Despite the growing demand for food aid, rising transportation and
business costs have contributed to a 52 percent decline in average tonnage
delivered from 2001 to 2006.^2 For the largest U.S. food aid program,
these noncommodity costs now account for approximately 65 percent of
program expenditures, highlighting the need to maximize the efficiency and
effectiveness of U.S. food aid.

My testimony is based on a report that we issued on April 13, 2007.^3
Today, I will focus on the need to (1) increase the efficiency of U.S.
food aid programs in terms of the amount, timeliness, and quality of food
provided; and (2) ensure the effectiveness of U.S. food aid so that it
reaches the most vulnerable populations and does not cause negative market
impact. We define efficiency as the extent to which a program is
acquiring, protecting, and using its resources in the most productive
manner. We define effectiveness as the extent to which U.S. food aid
programs are being used to achieve their goals and objectives.

^1According to FAO's 2006 The State of Food and Agriculture report,
conditions in Asia have improved while those in Africa have worsened.

^2While we acknowledge that commodity prices also affect tonnage, there
has been no clear trend in total average commodity prices for food aid
programs from fiscal years 2002 through 2006.

^3GAO, Foreign Assistance: Various Challenges Impede the Efficiency and
Effectiveness of U.S. Food Aid, [22]GAO-07-560 (Washington, D.C.: Apr. 13,
2007).

In preparing this testimony, we relied on our completed review of the
efficiency and effectiveness of U.S. food aid. To address our objectives,
we analyzed food aid procurement and transportation data provided by the
U.S. Department of Agriculture's (USDA) Kansas City Commodity Office
(KCCO); reviewed food aid proposals and funding data provided by USDA and
the U.S. Agency for International Development (USAID); conducted
interviews with U.S. agencies, U.S.- and foreign-flag ocean carriers,
nongovernmental organizations (NGO), freight forwarders, and agricultural
commodity groups; conducted fieldwork in Rome, Ethiopia, Kenya, and
Zambia; and visited ports in Texas, South Africa and Kenya, as well as
prepositioning sites in Louisiana and Dubai. We also discussed our
preliminary findings with a roundtable of 15 food aid experts and
practitioners. We conducted the work for our report and this testimony
between May 2006 and March 2007 in accordance with generally accepted
government auditing standards.

Summary

Multiple challenges in logistics combine to hinder the efficiency of U.S.
food aid programs by reducing the amount, timeliness, and quality of food
provided. Specific factors that cause inefficiencies in food aid delivery
include the following:

           o Insufficiently planned food and transportation procurement,
           reflecting uncertain funding processes, that increases food aid
           delivery costs and time frames. Difficulty in timing food
           procurement and transportation to avoid commercial peaks in demand
           often results in higher prices than if such purchases were more
           evenly distributed throughout the year.

           o Ocean transportation 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
           logistical problems occurring at the load port or costly delays at
           destination when the port or implementing organization is not
           ready to receive the 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 U.S. 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 and delivery problems. For
           example, while food spoilage has been a long-standing concern,
           USAID and USDA lack a shared, coordinated system to systematically
           track and respond to food quality complaints.

           To enhance the efficiency of food aid delivery, U.S. agencies have
           taken measures to improve their ability to provide food aid on a
           more timely basis. For example, 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
           continuing 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 faster in an emergency, their long-term
           cost-effectiveness has not yet been measured. Despite such
           initiatives to improve the process of delivering food aid, the
           current practice of using food aid as a means to generate cash for
           development projects--monetization--is an inherently inefficient
           use of resources. Monetization entails not only the costs of
           procuring, transporting, and handling food, but also the costs of
           marketing and selling it to generate cash for funding development
           projects. Furthermore, NGOs must maintain the expertise necessary
           to sell and market food aid abroad, which diverts resources from
           their core missions. In addition, U.S. agencies do not collect or
           maintain data electronically on the revenues generated from
           monetization. The absence of such electronic data impedes the
           agencies' ability to adequately monitor the degree to which
           monetization revenues can cover the costs.

           Various challenges limit the effective use of food aid to
           alleviate hunger. Given limited food aid resources and increasing
           emergencies, ensuring that food aid 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 in recipient countries. Specific
           factors that impede the effective use of food aid include the
           following:

           o Challenging operating environments characterized by poor
           infrastructure and lack of physical safety and security, which
           restrict access to populations in need and cause delays. For
           example, we recently reported that frequent violence has hampered
           the ability of implementing organizations to access parts of the
           Darfur region of Sudan to provide food and other assistance to
           vulnerable populations.

           o Insufficient coordination among key stakeholders, resulting in
           disparate estimates of food needs. For example, separate
           assessments by host governments, WFP, and NGOs have resulted in
           significantly different estimates of food needs and numbers of
           intended recipients, resulting in delays in donor assistance until
           the various stakeholders reach agreement on these estimates.

           o Difficulties in identifying the most vulnerable groups and
           understanding the causes of their vulnerability. For example, it
           has been challenging for implementing organizations to determine
           the causes of chronic food insecurity--such as poor health and
           water quality, in addition to lack of food--and provide
           appropriate assistance.

           o Resource constraints that adversely affect the timing and
           quality of assessments, as well as the quantity of food and other
           assistance. U.S. food aid funding available to conduct assessments
           in advance of program implementation is limited. Furthermore, in
           cases where recipients do not receive sufficient complementary
           assistance, they may be forced to sell part of their food rations
           to buy other basic necessities and, therefore, may not get the
           full health benefits of food aid.

           Impediments to improving the nutritional quality of U.S. food aid,
           including a lack of an interagency mechanism to update food aid
           products and specifications, may result in recipients not
           receiving the most nutritious or appropriate food. For example,
           although U.S. agencies have undertaken some measures to improve
           the nutritional quality of food aid, such as updating food aid
           product specifications with fortification enhancements, they have
           not fully addressed some key concerns. Finally, USAID and USDA do
           not sufficiently monitor food aid programs, particularly in
           recipient countries, due to limited staff, competing priorities,
           and restrictions on the use of food aid resources. For example,
           although USAID had some non-Title II-funded staff assigned to
           monitoring, it had only 23 Title II-funded staff assigned to
           missions and regional offices in 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 accomplishing their goals of
           getting the right food to the right people at the right time.

           Our report made recommendations to the Administrator of USAID, the
           Secretary of Agriculture, and the Secretary of Transportation to
           work to improve the efficiency of U.S. food aid delivery,
           including instituting measures to (1) improve food aid logistical
           planning, (2) modernize transportation contracting practices, (3)
           update reimbursement methodologies to minimize the cost impact of
           cargo preference regulations on food aid transportation
           expenditures, (4) track and resolve food quality complaints
           systematically, and (5) develop an information collection system
           to track monetization revenues and costs. Further, to improve the
           effective use of food aid, we recommended that the Administrator
           of USAID and the Secretary of Agriculture also work to (1) enhance
           the reliability and use of needs assessments; (2) determine ways
           to provide adequate nonfood resources, when appropriate; (3)
           develop a coordinated interagency mechanism to update food aid
           specifications and products; and (4) improve monitoring of food
           aid programs.

           In commenting on the draft of our report, DOT stated that it
           supports the transportation initiatives we highlighted. While
           recognizing that improvements can be made, USAID and USDA did not
           directly respond to our recommendations but disagreed with some of
           our analysis.
			  
			  Background
			  
			  Countries Provide Food Aid through In-kind or Cash Donations, with
			  the United States the Largest Donor

           Countries provide food aid through either in-kind donations or
           cash donations. In-kind food aid is food procured and delivered to
           vulnerable populations,^4 while cash donations are given to
           implementing organizations to purchase food in local, regional, or
           global markets. U.S. food aid programs are all in-kind, and no
           cash donations are allowed under current legislation. However, the
           administration has recently proposed legislation to allow up to 25
           percent of appropriated food aid funds to purchase commodities in
           locations closer to where they are needed.
			  
^4In-kind food aid usually comes in two forms: nonprocessed foods and
value-added foods. Nonprocessed foods consist of whole grains like 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).

           Other food aid donors have also recently moved from providing
           primarily in-kind aid to more or all cash donations for local
           procurement. Despite ongoing debates as to which form of
           assistance are more effective and efficient, the largest
           international food aid organization, the United Nations (UN) World
           Food Program (WFP), continues to accept both.^5 The United States
           is both the largest overall and in-kind provider of food aid to
           WFP, supplying about 43 percent of WFP's total contributions in
           2006 and 70 percent of WFP's in-kind contributions in 2005. Other
           major donors of in-kind food aid in 2005 included China, the
           Republic of Korea, Japan, and Canada.
			  
			  Most U.S. Food Aid Goes to Africa, with Nonemergency Funding
			  Declining

           In fiscal year 2006, the United States delivered food aid through
           its largest program to over 50 countries, with about 80 percent of
           its funding allocations for in-kind food donations going to
           Africa, 12 percent to Asia and the Near East, 7 percent to Latin
           America, and 1 percent to Eurasia. Of the 80 percent of the food
           aid funding going to Africa, 30 percent went to Sudan, 27 percent
           to the Horn of Africa, 18 percent to southern Africa, 14 percent
           to West Africa, and 11 percent to Central Africa.

           Over the last several years, funding for nonemergency U.S. food
           aid programs has declined. For example, in fiscal year 2001, the
           United States directed approximately $1.2 billion of funding for
           international food aid programs to nonemergencies. In contrast, in
           fiscal year 2006, the United States directed approximately $698
           million for international food aid programs to nonemergencies.
			  
^5WFP relies entirely on voluntary contributions to finance its
humanitarian and development projects, and national governments are its
principal source of funding. More than 80 countries fund the humanitarian
and development projects of WFP.

           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;^6
           these programs serve a range of objectives, including humanitarian
           goals, economic assistance, foreign policy, market development,
           and international trade.^7 (For a summary of the six programs, see
           app. I.) The largest program, P.L. 480 Title II, is managed by
           USAID and represents approximately 74 percent of total in-kind
           food aid allocations over the past 4 years, mostly to fund
           emergency programs. The Bill Emerson Humanitarian Trust, a reserve
           of up to 4 million metric tons of grain, can be used to fulfill
           P.L. 480 food aid commitments to meet unanticipated emergency
           needs in developing countries or when U.S. domestic supplies are
           short.^8 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
			  
^6The 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).

^7See GAO, Food Aid: Experience of U.S. Programs Suggests Opportunities
for Improvement, [24]GAO-02-801T  (Washington, D.C.: June 4, 2002).

^8As of January 2007, the Bill Emerson Humanitarian Trust held about
$107.2 million in cash and about 915,350 metric tons of wheat valued at
$133.9 million. The Food Assistance Policy Council--including
representatives from USDA, USAID, and other key government
agencies--oversees the trust. The Secretary of Agriculture authorizes the
use of the trust in consultation with the Food Assistance Policy Council.

^9P.L. 104-239, 110 Stat. 3138. See GAO, Maritime Security Fleet: Many
Factors Determine Impact of Potential Limits on Food Aid Shipments,
[25]GAO-04-1065  (Washington, D.C.: Sept. 13, 2004).

           Multiple Challenges Hinder the Efficiency of U.S. Food Aid
			  Programs

           Multiple challenges in logistics hinder the efficiency of U.S.
           food aid programs by reducing the amount, timeliness, and quality
           of food provided. While in some cases agencies have tried to
           expedite food aid delivery, most food aid program expenditures are
           for logistics, and the delivery of food from vendor to village is
           generally too time-consuming to be responsive in emergencies.
           Factors that increase logistical costs and lengthen time frames
           include uncertain funding processes and inadequate planning, ocean
           transportation contracting practices, legal requirements, and
           inadequate coordination in tracking and responding to food
           delivery problems. While U.S. agencies are pursuing initiatives to
           improve food aid logistics, such as prepositioning food
           commodities and using a new transportation bid process, their
           long-term cost-effectiveness has not yet been measured. In
           addition, the current practice of selling commodities to generate
           cash resources for development projects--monetization--is an
           inherently inefficient yet expanding use of food aid.
			  
			    Various Logistical Factors Increase Delivery Costs and Lengthen
				 Time Frames

           Inadequately planned food and transportation procurement increases
           food aid delivery costs and time frames. U.S. agencies bunch their
           procurement, purchasing the largest share of food aid tonnage
           during the last quarter of each fiscal year, in part because USDA
           requires 6 months to approve programs and because USDA and USAID
           may not receive funding until the middle of a fiscal year (after
           the Office of Management and Budget has approved budget
           apportionments for the agencies or through a supplemental
           appropriation). 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 seasonally high commercial demand.
           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.^10 Although USAID has improved its cash flow
           management to achieve more stable monthly purchases in fiscal
           years 2004 and 2005, total food aid procurement has not been
           consistent enough to avoid the higher prices associated with
           bunching.
			  
           Ocean transportation contracting practices--such as freight and
           payment terms, claims processes, and time penalties--further
           increase ocean freight rates and contribute to delivery delays.
           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. For example, food aid transportation contracts often hold
           ocean carriers responsible for logistical problems occurring at
           the load port or costly delays at destination when the port or
           implementing organization is not ready to receive the cargo. Ocean
           carriers factor these costs into their freight rates, driving up
           the cost of food aid.
			  
^10These figures exclude prices for nonfat dry milk and vegetable oil.			  

           Legal requirements governing food aid procurement can also
           increase delivery costs and time frames, with program impacts
           dependent on the sufficiency of associated reimbursements. In
           awarding contracts, KCCO must meet various legal 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 known as the
           ocean freight differential (OFD).^11 The total annual value of
           this cost differential between U.S.- and foreign-flag carriers
           averaged $134 million from fiscal years 2001 to 2005. DOT
           reimbursements have varied from $126 million in fiscal year 2002
           to $153 million in fiscal year 2005.^12 However, USAID officials
           expressed concern that the OFD calculations do not fully account
           for the additional costs of shipping on older U.S. vessels or for
           contracts that did not receive a bid from a foreign carrier.
           Finally, USAID and DOT officials have not yet agreed on whether
           cargo preference applies to shipments from prepositioning sites.

           U.S. agencies and stakeholders do not coordinate adequately to
           respond to food and delivery problems when they arise. For
           example, while food spoilage has been a long-standing concern,
           USAID and USDA lack a shared, coordinated system to track and
           respond to food quality complaints.^13 Having disparate quality
           complaint tracking mechanisms that monitor different levels of
           information, KCCO, USDA and USAID are unable to determine the
           extent of and trends in food quality problems. In addition,
           because implementing organizations track food quality concerns
           differently, if at all, it is difficult for them to coordinate to
           share concerns with each other and with U.S. government agencies.
           For example, since WFP--which accounts for approximately 60
           percent of all U.S. food aid shipments--independently handles its
           own claims, KCCO officials are unable to track the quality of food
           aid delivery programwide. 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.
			  
^11U.S.-flag rates are subject to DOT's Fair and Reasonable Rate
guidelines, which take into account operating and capital costs, cargo
handling costs, and depreciation. See 46 C.F.R. 382.3.

^12The Food Security Act of 1985 requires DOT to reimburse food aid
agencies for a 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.

^13GAO uses the term food quality to refer 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.	

             Prepositioning and New Transportation Bid Process Could Improve
				 Efficiency,   but Their Related Long-term Costs and Benefits
				 Have Not Yet Been Measured
		  
           To improve timeliness in food aid delivery, USAID has
           prepositioned food aid on a limited basis,^14 and KCCO is
           implementing a new transportation bid process.^15 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 site
           in Djibouti, East Africa. Prepositioning is beneficial because it
           allows USAID to bypass lengthy procurement processes and to reduce
           transportation time frames. 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. However, agencies face several
           challenges to their effective management of this program. For
           example, inadequate inventory management increases the risk of
           cargo infestation, and limited monitoring and evaluation funds
           constrain USAID's oversight capacity. Regarding KCCO's
           transportation bid process, KCCO expects this new system to cut 2
           weeks from procurement time frames and to reduce cargo handling
           costs as cargo loading becomes more consolidated. However, the
           long-term cost-effectiveness of both prepositioning and the new
           bid process have not yet been measured.
			  
^14P.L. 480 authorizes USAID to preposition food aid both domestically and
abroad with a cap on storage expenses of $2 million per fiscal year.

^15In 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 one-step system, ocean carriers will bid at the
same time as commodity vendors.	

           Monetization Is an Inefficient, Expanding Practice and
			  Agencies' Lack of Electronic Data Impedes Their Monitoring
			  Ability
		  
           The current practice of selling commodities as a means to generate
           resources for development projects--monetization--is an inherently
           inefficient yet expanding use of food aid. Monetization entails
           not only the costs of procuring, shipping, and handling food, but
           also the costs of marketing and selling it in recipient countries.
           Furthermore, the time and expertise needed to market and sell food
           abroad requires NGOs to divert resources from their core missions.
           However, the permissible use of revenues generated from this
           practice and the minimum level of monetization allowed by the law
           have expanded. The monetization rate for Title II nonemergency
           food aid has far exceeded the minimum requirement of 15
           percent,^16 reaching close to 70 percent in 2001 but declining to
           about 50 percent in 2005.

           Despite these inefficiencies, U.S. agencies do not collect or
           maintain data electronically on monetization revenues, and the
           lack of such data impedes the agencies' ability to fully monitor
           the degree to which revenues can cover the costs related to
           monetization. USAID used to require that monetization revenues
           cover at least 80 percent of costs associated with delivering food
           to recipient countries, but this requirement no longer exists.
           Neither USDA nor USAID was able to provide us with data on the
           revenues generated through monetization. These agencies told us
           that the information should be in the results reports, which are
           in individual hard copies and not available in any electronic
           database.
			  
			  Various Challenges Reduce the Effective Use of Food Aid

           Various challenges to implementation, improving nutritional
           quality, and monitoring reduce the effectiveness of food aid
           programs in alleviating hunger. Since U.S. food aid assists only
           about 11 percent of the estimated hungry population worldwide, it
           is critical that donors and implementers use it effectively by
           ensuring that it reaches the most vulnerable populations and does
           not cause negative market impact. However, challenging operating
           environments and resource constraints limit implementation efforts
           in terms of developing reliable estimates of food needs and
           responding to crises in a timely manner with sufficient food and
           complementary assistance. Furthermore, some impediments to
           improving the nutritional quality of U.S. food aid, including lack
           of interagency coordination in updating food aid products and
           specifications, may prevent the most nutritious or appropriate
           food from reaching intended recipients. Despite these concerns,
           USAID and USDA do not sufficiently monitor food aid programs,
           particularly in recipient countries, as they have limited staff
           and competing priorities and face legal restrictions on the use of
           food aid resources.
			  
^16In 1990, Congress increased the minimum monetization rate to 10 percent
and the permissible use of monetized revenues was expanded to include
broad development purposes, including agricultural development. In 1996,
the minimum monetization level was further increased to 15 percent for
non-emergency Title II.

             Challenging Operating Environments Have Hindered Implementation
				 of Food Aid Programs in Recipient Countries
			  
           Difficult operating environments characterized by poor
           infrastructure and concerns about physical safety and security
           have impeded access to the most vulnerable populations and caused
           delays in providing food aid, especially in conflict zones. We
           recently reported that ongoing violence and an increase in attacks
           on humanitarian staff in the Darfur region of Sudan limited the
           ability of implementing organizations to access parts of the
           region and provide food and other assistance to vulnerable
           populations including internally displaced persons. As a result,
           approximately 460,000 people in northern Darfur were cut off from
           emergency food aid in July 2006, and 355,000 people were still not
           receiving food aid in August 2006, according to UN sources.^17

           Insufficient coordination among key stakeholders and use of
           noncomparable methods has resulted in disparate assessments of
           food needs and numbers of recipients. For example, according to an
           NGO official in Zambia, the Zambian government and NGOs conducted
           two parallel but separate assessments in 2005 that resulted in
           significantly different estimates. This discrepancy led to a
           6-month delay in declaring an emergency while the difference in
           assessment results was resolved.

           Accurately identifying vulnerable populations and the causes of
           their vulnerability has been difficult due to the complexity of
           factors--such as poverty, environmental degradation, and
           disease--that contribute to food insecurity.^18 For example,
           donors and implementers misdiagnosed the cause of the 2005 food
           crisis in Niger as a lack of food availability, when in fact it
           was caused by other factors such as health, water, and sanitation
           problems, according to WFP and USAID assessments. As a result,
           although the crisis reached emergency proportions in February
           2005, donors did not respond until May 2005 and recipients did not
           receive food until August 2005. The request for aid was revised 7
           times in the interim because insufficient understanding of the
           causes of the crisis initially led to a disagreement between the
           recipient government and WFP on how to respond to the situation.

^17GAO, Darfur Crisis: Progress in Aid and Peace Monitoring Threatened by
Ongoing Violence and Operational Challenges, [26]GAO-07-9  (Washington,
D.C.: Nov. 9, 2006).

^18According to WFP officials in southern Africa, identifying people with
HIV/AIDS who need food aid has been very difficult because the social
stigma associated with the disease may discourage intended recipients from
getting tested for it. It is also difficult to assess whether
deterioration in health is due to hunger or the disease itself.			  

           Limitations on the amount and use of cash resources have adversely
           affected the quality and timing of assessments, particularly for
           Title II-funded programs. U.S. agencies provide very limited or no
           resources to conduct assessments prior to the implementing
           organizations' submission of proposals requesting food aid.^19
           This is because requests for cash for materials or activities
           related to U.S. food aid funding, such as assessments, must
           accompany requests for food commodities. Since cash is in effect
           tied to requests for commodities, the U.S. government cannot
           provide assistance for activities such as needs assessments that
           may enhance the use of food aid but may not require commodities at
           the same time.

           Resource constraints have also limited the quantity of food and
           other complementary assistance that is provided to intended
           recipients.^20 In 2003, we reported that due to the lack of
           adequate donor funding in Afghanistan, food rations to refugees
           and internally displaced persons were reduced to a third of the
           original planned amount, and program implementation was delayed by
           up to 10 weeks in some cases.^21 During our field work, we found
           instances where insufficient complementary assistance to meet
           basic needs in addition to food has also limited the benefits of
           food aid to recipients. For example, people with HIV/AIDS
           receiving food aid in Wukuru, Ethiopia, informed us that they sold
           part of their food rations to pay for other basic necessities
           because they lack other assistance or income.
			  
^19USAID provides NGOs limited funding through institutional
capacity-building grants that are not directly linked to proposals
requesting food for projects. Additionally, in some cases, USAID has
provided resources other than Title II to undertake assessments and data
collection efforts.

^20To ensure that limited food aid resources are targeted to areas where
they are most needed, USAID identified 15 priority countries in 2006 for
nonemergency or development programs. According to USAID officials,
focusing resources on the most vulnerable countries will help to build
their resilience and ensure that food aid will be less necessary in the
future.

^21GAO, Foreign Assistance: Lack of Strategic Focus and Obstacles to
Agricultural Recovery Threaten Afghanistan's Stability, [27]GAO-03-607 
(Washington, D.C.: June 2003).

           Impediments to Improving Nutritional Quality Reduce the Benefits
			  of Food Aid

           Some impediments to improving nutritional quality further reduce
           the effectiveness of food aid. Although U.S. agencies have made
           efforts to improve the nutritional quality of food aid, the
           appropriate nutritional value of the food and the readiness of
           U.S. agencies to address nutrition-related quality issues remain
           uncertain. Further, existing interagency food aid working groups
           have not resolved coordination problems on nutrition issues.
           Moreover, USAID and USDA do not have a central interagency
           mechanism to update food aid products and their specifications.^22
           As a result, vulnerable populations may not be receiving the most
           nutritious or appropriate food from the agencies, and disputes may
           occur when either agency attempts to update the products.
			  
			  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, that in some cases
           intended recipients have not received food aid, or that 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 legal
           restrictions on the use of food aid resources. In fiscal year
           2006, although USAID had some non-Title II-funded staff assigned
           to monitoring, it had only 23 Title II-funded USAID staff assigned
           to missions and regional offices in 10 countries to monitor
           programs costing about $1.7 billion in 55 countries.^23 USDA
           administers a smaller proportion of food aid programs than USAID
           and its field-level monitoring of food aid programs is more
           limited. Without adequate monitoring from U.S. agencies, food aid
           programs may not effectively direct limited food aid resources to
           those populations most in need. As a result, agencies may not be
           accomplishing their goal of getting the right food to the right
           people at the right time.
			  
^22Food aid commodity specifications include specific requirements that
the commodity vendor must follow to meet USDA's contracts for producing
and delivering the commodities. The specifications contain standards
relating to the quality, appearance, and delivery of the product;
conditions under which it is to be grown or produced; explicit
descriptions regarding its nutrient content; and details of the inspection
process.

^23In 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
staff in these positions may participate in monitoring food aid programs,
they also administer other development assistance programs.

           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 remain to ensure that limited resources for
           U.S. food aid are not vulnerable to waste, are put to their most
           effective use, and reach the most vulnerable populations on a
           timely basis.

           To improve the efficiency of U.S. food aid--in terms of its
           amount, timeliness, and quality--we recommended in our previous
           report that the Administrator of USAID and the Secretaries of
           Agriculture and Transportation (1) improve food aid logistical
           planning through cost-benefit analysis of supply-management
           options; (2) work together and with stakeholders to modernize
           ocean transportation and contracting practices; (3) 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;
           (4) establish a coordinated system for tracking and resolving food
           quality complaints; and (5) develop an information collection
           system to track monetization transactions.

           To improve the effective use of food aid, we recommended that the
           Administrator of USAID and the Secretary of Agriculture (1)
           enhance the reliability and use of needs assessments for new and
           existing food aid programs through better coordination among
           implementing organizations, make assessments a priority in
           informing funding decisions, and more effectively build on lessons
           from past targeting experiences; (2) determine ways to provide
           adequate nonfood resources in situations where there is sufficient
           evidence that such assistance will enhance the effectiveness of
           food aid; (3) develop a coordinated interagency mechanism to
           update food aid specifications and products to improve food
           quality and nutritional standards; and (4) improve monitoring of
           food aid programs to ensure proper management and implementation.

           DOT, USAID, and USDA--the three U.S. agencies to whom we direct
           our recommendations--provided comments on a draft of our report.
           These agencies--along with the Departments of Defense and State,
           FAO, and WFP--also provided technical comments and updated
           information, which we have incorporated throughout the report as
           appropriate. DOT stated that it strongly supports the
           transportation initiatives highlighted in our report, which it
           agrees could reduce ocean transportation costs. USAID stated that
           we did not adequately recognize its recent efforts to
           strategically focus resources to reduce food insecurity in highly
           vulnerable countries. Although food security was not a research
           objective of this study, we recognize the important linkages
           between emergencies and development programs and used the new
           USAID Food Security Strategic Plan for 2006-2010 to provide
           context, particularly in our discussion on the effective use of
           food aid. USDA took issue with a number of our findings and
           conclusions because it believes that hard analysis was lacking to
           support many of the weaknesses that we identified. We disagree.
           Each of our report findings and recommendations was based on a
           rigorous and systematic review of multiple sources of evidence,
           including procurement and budget data, site visits, previous
           audits, agency studies, economic literature, and testimonial
           evidence collected in both structured and unstructured formats.

           Mr. Chairman and Members of the Subcommittee, 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 

           The United States has principally employed six programs to deliver
           food aid: Public Law (P.L.) 480 Titles I, II, and III; Food for
           Progress; the McGovern-Dole Food for Education and Child
           Nutrition; and Section 416(b). Table 1 provides a summary of these
           food aid programs.


Table 1: 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         $30 million  $1,706.9     0^b           $207.8 million    $97 million       $20.8        
budget^a                   million                                                        million^c    
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    governments   developing        financial and     to carry out 
                           and          of least      countries and     technical         purposes of  
                           nonemergency developed     emerging          assistance in     P.L. 480     
                           needs;       countries     democracies       foreign countries (Title II    
                           commodities                                                    and Title    
                           may be sold                                                    III) and     
                           in-country                                                     Food for     
                           for                                                            Progress     
                           development                                                    programs     
                           purposes                                                                    
Type of       Nonemergency Emergency    Nonemergency  Emergency and     Nonemergency      Emergency    
assistance                 and                        nonemergency                        and          
                           nonemergency                                                   nonemergency 
Implementing  Governments  World Food   Governments   Governments,      Governments,      See          
partners      and private  Program and                agricultural      private entities, implementing 
              entities     NGOs                       trade             intergovernmental partners for 
                                                      organizations,    organizations     Title II,    
                                                      intergovernmental                   Title III,   
                                                      organizations,                      and Food for 
                                                      NGOs, and                           Progress     
                                                      cooperatives                        programs     

Source: GAO analysis based on USAID and USDA data.

^aBudget data are for fiscal 2006. USDA data represent programmed funding,
while USAID data represent appropriated funds as of August 2006.

^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.

(320510)

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Highlights of [35]GAO-07-905T , a testimony before the Chairman, House
Committee on Foreign Affairs, Subcommittee on Africa and Global Health

May 24, 2007

FOREIGN ASSISTANCE

Various Challenges Limit the Efficiency and Effectiveness of U.S. Food Aid

The United States is the largest global food aid donor, accounting for
over half of all food aid supplies to alleviate hunger and support
development. Since 2002, 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 food commodities per year. Despite growing demand
for food aid, rising business and transportation costs have contributed to
a 52 percent decline in average tonnage delivered between 2001 and 2006.
These costs represent 65 percent of total emergency food aid, highlighting
the need to maximize its efficiency and effectiveness. This testimony is
based on a recent GAO report that examined some key challenges to the (1)
efficiency of U.S. food aid programs and (2) effective use of U.S. food
aid.

[36]What GAO Recommends

GAO recommended that the Administrator of the U.S. Agency for
International Development (USAID) and the Secretaries of the U.S.
Department of Agriculture (USDA) and the Department of Transportation
(DOT) enhance the efficiency and effectiveness of U.S. food aid by
improving logistical planning, transportation contracting, and monitoring,
among other actions. DOT supports the transportation initiatives GAO
highlighted. While recognizing that improvements can be made, USAID and
USDA did not directly respond to GAO's recommendations but disagreed with
some of GAO's analysis.

Multiple challenges hinder the efficiency of U.S. food aid programsby
reducing the amount, timeliness, and quality of food provided. Factors
that cause inefficiencies include (1) insufficiently planned food and
transportation procurement, reflecting uncertain funding processes, that
increases delivery costs and time frames; (2) ocean transportation and
contracting practices that create high levels of risk for ocean carriers,
resulting in increased rates; (3) legal requirements that result in
awarding of food aid contracts to more expensive service providers; and
(4) inadequate coordination between U.S. agencies and food aid
stakeholders in tracking and responding to food and delivery problems.
U.S. agencies have taken some steps to address timeliness concerns. USAID
has been stocking or prepositioning food 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. The current
practice of using food aid to generate cash for development
projects--monetization--is also inherently inefficient. Furthermore, since
U.S. agencies do not collect monetization revenue data electronically,
they are unable to adequately monitor the degree to which revenues cover
costs.

Selected Trends in U.S. Food Aid, Fiscal Years 2002 through 2006

Numerous challenges limit the effective use of U.S. food aid. Factors
contributing to limitations in targeting the most vulnerable populations
include (1) challenging operating environments in recipient countries; (2)
insufficient coordination among key stakeholders, resulting in disparate
estimates of food needs; (3) difficulties in identifying vulnerable groups
and causes of their food insecurity; and (4) resource constraints that
adversely affect the timing and quality of assessments, as well as the
quantity of food and other assistance. Further, some impediments to
improving the nutritional quality of U.S. food aid may reduce its benefits
to recipients. Finally, U.S. agencies do not adequately monitor food aid
programs due to limited staff, competing priorities, and restrictions on
the use of food aid resources. As a result, these programs are vulnerable
to not getting the right food to the right people at the right time.

References

Visible links
  22. http://www.gao.gov/cgi-bin/getrpt?GAO-07-560
  23. [email protected]
  24. http://www.gao.gov/cgi-bin/getrpt?GAO-02-801T
  25. http://www.gao.gov/cgi-bin/getrpt?GAO-04-1065
  26. http://www.gao.gov/cgi-bin/getrpt?GAO-07-9
  27. http://www.gao.gov/cgi-bin/getrpt?GAO-03-607
  http://www.gao.gov/
  35. http://www.gao.gov/cgi-bin/getrpt?GAO-07-905T
*** End of document. ***