Foreign Assistance: Multiple Challenges Hinder the Efficiency
and Effectiveness of U.S. Food Aid (02-OCT-07, GAO-08-83T).						 
                                                                 
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-08-83T					        
    ACCNO:   A76929						        
  TITLE:     Foreign Assistance: Multiple Challenges Hinder the
Efficiency and Effectiveness of U.S. Food Aid 							 
     DATE:   10/02/2007 
  SUBJECT:   Agricultural industry
             Agricultural programs
             Appropriated funds
             Cost analysis
             Federal aid to foreign countries
             Food and drug legislation
             Food relief programs
             Food supply
             Foreign aid programs
             International food programs
             International relations
             Program evaluation
             Program management
             Public assistance programs
             Quality control
             UN World Food Program
 
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GAO-08-83T



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Testimony: 

Before the Subcommittee on Agriculture, Rural Development, Food and 
Drug Administration, and Related Agencies, Committee on Appropriations, 
House of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 10:00 a.m. EDT: 

October 2, 2007: 

Foreign Assistance: 

Multiple Challenges Hinder the Efficiency and Effectiveness of U.S. 
Food Aid: 

Statement of Thomas Melito, Director: 

International Affairs and Trade: 

GAO-08-83T: 

GAO Highlights: 

Highlights of GAO-08-83T, a testimony before the Subcommittee on 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies, Committee on Appropriations, House of Representatives 

Why GAO Did This Study: 

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. 

What GAO Found: 

Multiple challenges hinder the efficiency of U.S. food aid programs by 
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 projectsï¿½monetizationï¿½is 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. 

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

This image is of a line chart showing the relation between the U.S. 
dollars spent on program funding (U.S. dollars in millions), and the 
metric tons of food delivered (in thousands). The bottom of of the 
chart labels the years 2002 through 2006, and specific countries of 
major emergencies: Afghanistan and southern Africa in 2002, Iraq in 
2003, Sudan, Ethiopia, and Eritrea, in 2005, and Sudan and Horn of 
Africa in 2006. 

[See PDF for image] 

Source: GAO analysis of USAID and ISDA data. 

[End of figure] 

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. 
Furthermore, 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. 

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. In general, USAID, USDA, and DOT found 
our recommendations to be helpful and have created an interagency 
Executive Working Group to identify actions to address them. However, 
USDA disagreed with some of our analysis. 

[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-83T]. 

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Thomas Melito (202) 512-9601 
([email protected]). 

[End of section] 

Madam Chair 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.[Footnote 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.[Footnote 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.[Footnote 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. 

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: 

* 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. 

* 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. 

* 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. 

* 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 prepositioned food commodities in Lake 
Charles (Louisiana) and Dubai (United Arab Emirates) until August 2007 
and continues this practice in San Jacinto Port (Texas) and Djibouti 
(East Africa). 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: 

* 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. 

* 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. 

* 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. 

* 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. 

As required by law,[Footnote 4] DOT, USAID, and USDA reported the 
actions they have taken or begun to take to address our 
recommendations, in written statements to congressional committees. 
These actions included the creation of an interagency Executive Working 
Group to identify ways to respond to several issues we raise in our 
report. DOT stated that it strongly supported the transportation-
related initiatives we recommended. USAID outlined actions it is 
considering, has initiated, or intends to take on each of our nine 
recommendations. Although USDA disagreed with some of our analysis, it 
cited efforts in progress that it believes address the issues raised in 
our report. 

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,[Footnote 5] 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. 

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.[Footnote 6] 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. 

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;[Footnote 7] these 
programs serve a range of objectives, including humanitarian goals, 
economic assistance, foreign policy, market development, and 
international trade.[Footnote 8] (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.[Footnote 9] 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.[Footnote 10] 

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.[Footnote 11] 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. 

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).[Footnote 12] 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.[Footnote 13] 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.[Footnote 14] 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. 

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,[Footnote 15] and KCCO is implementing a 
new transportation bid process.[Footnote 16] 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. As of August 2007, USAID had closed the warehouses that it 
had been operating in Lake Charles and Dubai; it is now operating out 
of San Jacinto Port (Texas) and 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. 

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,[Footnote 17] 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. 

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.[Footnote 
18] 

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.[Footnote 19] 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. 

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.[Footnote 20] 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.[Footnote 21] 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.[Footnote 22] 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. 

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.[Footnote 23] 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.[Footnote 24] 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. 

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 directed our 
recommendations--have submitted written statements to congressional 
committees, as required by law, to report actions they have taken or 
begun to take to address our recommendations. In May 2007, these 
agencies established an interagency Executive Working Group to identify 
ways to respond to several of our recommendations. DOT stated that it 
strongly supported the transportation-related initiatives we 
recommended, noting that they offer the potential to help U.S. agencies 
achieve efficiencies and reduce ocean transportation costs while 
supporting the U.S. merchant fleet. USAID outlined actions it is 
considering, has initiated, or intends to take to address each of our 
nine recommendations. USDA stated that in general it found our 
recommendations to be helpful and cited some of its ongoing efforts to 
improve its food aid programs. However, USDA questioned some of our 
conclusions that it believed were the result of weaknesses in our 
methodology. For example, USDA does not agree that the current practice 
of monetization as a means to generate cash for development projects is 
an inherently inefficient use of resources. We maintain that it is an 
inherently inefficient use of resources because it requires food to be 
procured, shipped, and eventually sold, and the revenues from 
monetization may not recover shipping, handling, and other costs. 
Furthermore, U.S. agencies do not electronically collect data on 
monetization revenues, without which their ability to adequately 
monitor the degree to which revenues cover costs is impeded. We stand 
by our conclusions and recommendations, which are 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. 

Madam Chair 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. 

[End of section] 

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: 

Program; 

Program: Total budget[A]; 
P.L. 480: Title I: $30 million; 
P.L. 480: Title II: $1,706.9 million; 
P.L. 480: Title III: 0[B]; 
Food for Progress: $207.8 million; 
McGovern-Dole Food for Education 
and Child Nutrition: $97 million; 
Section 416(b): $20.8 million[C]. 

Program: Managing agency; 
P.L. 480: Title I: USDA; 
P.L. 480: Title II: USAID; 
P.L. 480: Title III: USAID; 
Food for Progress: USDA; 
McGovern-Dole Food for Education 
and Child Nutrition: USDA[D]; 
Section 416(b): USDA. 

Program: Year established; 
P.L. 480: Title I: 1954; 
P.L. 480: Title II: 1954; 
P.L. 480: Title III: 1954; 
Food for Progress: 1985; 
McGovern-Dole Food for Education 
and Child Nutrition: 2003; 
Section 416(b): 1949. 

Program: Description of assistance; 
P.L. 480: Title I: Concessional sales of agricultural commodities; 
P.L. 480: Title II: Donation of commodities to meet emergency and 
nonemergency needs; commodities may be sold in-country for development 
purposes; 
P.L. 480: Title III: Donation of commodities to governments of least 
developed countries; 
Food for progress: Donation or credit sale of commodities to developing 
countries and emerging democracies; 
McGovern-Dole Food for Education and Child Nutrition: Donation of 
commodities and provision of financial and technical assistance in 
foreign countries; 
Section 416(b): Donations of surplus commodities to carry out purposes 
of P.L. 480 (Title II and Title III) and Food for Progress programs. 

Program: Type of assistance; 
P.L. 480: Title I: Nonemergency; 
P.L. 480: Title II: Emergency and nonemergency; 
P.L. 480: Title III: Nonemergency; 
 for progress: Emergency and nonemergency; 
McGovern-Dole Food for Education and Child Nutrition: Nonemergency; 
Section 416(b): Emergency and nonemergency. 

Program: Implementing partners; 
P.L. 480: Title I: Governments and private 
entities; 
P.L. 480: Title II: World Food Program and NGOs; 
P.L. 480: Title III: Governments; 
Food for progress: Governments, agricultural trade organizations, 
intergovernmental organizations, NGOs, and cooperatives; 
McGovern-Dole Food for Education and Child Nutrition: Governments, 
private entities, intergovernmental organizations; 
Section 416(b): See implementing partners for Title II, Title III, and 
Food for Progress programs. 

Source: GAO analysis based on USAID and USDA data. 

[A] Budget data are for fiscal 2006. USDA data represent programmed 
funding, while USAID data represent appropriated funds as of August 
2006. 

[B] This program has not been funded in recent years. 

[C] This 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. 

[D] USDA administers this program as stipulated by law, which states 
that the President shall designate one or more federal agencies. 

[End of table] 

[End of section] 

Footnotes: 

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

[2] While 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. 

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

[4] 31 U.S.C. 720 requires the head of a federal agency to submit a 
written statement of actions taken on GAO recommendations to the Senate 
Committee on Homeland Security and Governmental Affairs and the House 
Committee on Government Reform not later than 60 calendar days from the 
date of the report, and to the House and Senate Committees on 
Appropriations with the agency's first request for appropriations made 
more than 60 calendar days after that date. 

[5] In-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). 

[6] WFP 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. 

[7] The 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 ï¿½ 1701 et seq.); the Food for 
Progress Act of 1985, as amended, 7 USC ï¿½ 1736o; section 416(b) of the 
Agricultural Act of 1949, as amended, 7 USC ï¿½ 1431; and the Farm 
Security and Rural Investment Act of 2002 (P.L. 107-171). 

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

[9] As 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. 

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

[11] These figures exclude prices for nonfat dry milk and vegetable 
oil. 

[12] U.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. 

[13] The 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. 

[14] GAO 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. 

[15] P.L. 480 authorizes USAID to preposition food aid both 
domestically and abroad with a cap on storage expenses of $2 million 
per fiscal year. 

[16] In the prior two-step system, during a first procurement round, 
commodity vendors bid on contracts and ocean carriers indicated 
potential freight rates. Carriers provided actual rate bids during a 
second procurement round once the location of the commodity vendor had 
been determined. In the new one-step system, ocean carriers will bid at 
the same time as commodity vendors. 

[17] In 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. 

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

[19] According 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. 

[20] USAID 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. 

[21] To 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. 

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

[23] Food 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. 

[24] In 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.

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