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

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

[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. ***