Foreign Assistance: Donation of U.S. Planting Seed to Russia in  
1999 Had Weaknesses (09-MAR-00, NSIAD-00-91).			 
								 
Pursuant to a congressional request, GAO provided information on 
weaknesses in the donation of U.S. planting seed to Russia in	 
1999, focusing on: (1) how the seed was procured in the United	 
States; (2) how seeds were distributed and monitored in Russia;  
and (3) what the process was for selling the seed and		 
distributing the proceeds to agricultural development		 
institutions.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   NSIAD-00-91					        
    ACCNO:   163508						        
  TITLE:     Foreign Assistance: Donation of U.S. Planting Seed to    
             Russia in 1999 Had Weaknesses                                    
     DATE:   03/09/2000 
  SUBJECT:   Agricultural assistance				 
	     Federal aid to foreign countries			 
	     Foreign aid programs				 
	     International agreements				 
	     International food programs			 
	     International relations				 
	     Prices and pricing 				 
	     Sole source procurement				 
	     Russia						 
	     USDA Food for Progress Program			 

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GAO/NSIAD-00-91

A

Report to the Ranking Minority Member, Subcommittee on Agriculture, Rural
Development and Related Agencies, Committee on Appropriations, House of

Representatives

March 2000 FOREIGN ASSISTANCE

Donation of U. S. Planting Seed to Russia in 1999 Had Weaknesses

GAO/ NSIAD- 00- 91

Letter 3 Appendix Appendix I: Distribution of U. S. Planting Seed in Russia
24 Tabl es Table 1: Price of Seed in United States and Russia and Deposits
of

Seed Proceeds 16 Table 2: Disbursement of Seed Proceeds to Credit Fund and
Seed

Institutes as of December 1999 19 Table 3: Distribution of Corn Seed by
Region According to the Food

Aid Agreement, the Workplan, and the Travel Matrix 25 Table 4: Distribution
of Pea Seed by Region According to the Food

Aid Agreement, the Workplan, and the Travel Matrix 26 Table 5: Distribution
of Carrot, Beet, and Onion Seed by Region

According to the Food Aid Agreement and Russian Distributing Agent 27

Abbreviations

USDA U. S. Department of Agriculture

National Security and International Affairs Division

Lett er

B- 284700 March 9, 2000 The Honorable Marcy Kaptur Ranking Minority Member
Subcommittee on Agriculture, Rural Development

and Related Agencies Committee on Appropriations House of Representatives

Dear Madam Kaptur: In 1999, the United States donated 15,000 metric tons of
planting seed (mainly corn and pea seed) to Russia under the Food for
Progress agreement. 1 The seed donation (with commodity and transportation
costs of $21. 7 million) was part of a $1. 2 billion program of concessional
sales and donations of agricultural commodities to Russia. The seed donation
represented 2 percent of the overall program cost and was the first time

that the U. S. Department of Agriculture had provided planting seed in a
food aid agreement to any country. Under the Food for Progress program
agreement, the donated seeds were to be sold in Russia at market prices, and
the proceeds were to be deposited in a special account and then disbursed to
selected Russian seed institutes and a rural credit cooperative.

The inclusion of planting seed in the agreement was supported by the U. S.
Department of Agriculture's Foreign Agricultural Service and others as a
means to aid Russian farmers faced with seed shortages, improve Russian
agricultural productivity, and promote market development for U. S. planting
seed in Russia. The program was also viewed as an opportunity for the U. S.
Department of Agriculture to test the viability of including planting

seed in food aid programs. 1 The Food for Progress Act, 7 U. S. C. 1736o,
authorizes the U. S. Department of Agriculture's Commodity Credit
Corporation to finance the sale and exportation of agricultural commodities
on credit terms, or on a grant basis, to support developing countries and
countries that are emerging democracies and have made commitments to
introduce or expand free enterprise elements in their agricultural
economies. The act was amended in 1992 to include the independent states of
the former Soviet Union as eligible countries under the program.

As part of your request to review the overall food aid agreement, you asked
a series of questions regarding the design and implementation of the seed
donation program. To address these questions, we examined (1) how the seed
was procured in the United States, (2) how seeds were distributed and
monitored in Russia, and (3) what the process was for selling the seed and
distributing the proceeds to agricultural development institutions.

Results in Brief Under time pressure to buy and ship the seed to Russia to
meet planting dates, U. S. Department of Agriculture officials procured the
seed through a

noncompetitive, sole source contract for $21.7 million. This decision forced
the United States to donate the seed to Russia rather than finance its sale
with a concessional loan. Procurement officials in the U. S. Department of

Agriculture did not have time to develop expertise on the technical aspects
of international seed shipments nor did they have access to independent
sources of price information before entering into negotiations with the sole
source contractor.

Seed distribution in Russia did not follow the original plans, and reasons
for changes were not fully documented. Some deliveries of corn and pea seed
were verified by U. S. government monitors, but the regional distribution of
the other vegetable seeds was not confirmed, and there is conflicting
information about what happened to these seeds. Also, some

seed arrived in the regions too late to be planted. Monitoring reports show
that two common complaints from Russian producers were a lack of technical
information on seed types and delivery of seed that was not appropriate for
local growing conditions.

The sale of the donated seed to regional wholesalers and government agencies
in Russia raised about $2.6 million (about one- eighth of what was paid to
the sole source contractor that procured and shipped the seed to Russian
ports). According to Department of Agriculture officials, they used a
methodology for determining fair, wholesale market prices for U. S. food

aid commodities in Russia, but we found scant documentation of how this
methodology was used to set prices for the donated U. S. planting seed.
Also, the prices for the donated U. S. seed were substantially lower than
prices for corn and vegetable seed reported by some private companies in
Russia. The distribution of the proceeds from the sale of seeds generally
followed the original plan. While there were some delays in the payment for

seeds, all the expected proceeds have been deposited into a special account
in Russia, and most of the funds were distributed to four seed research
institutions and a rural credit cooperative fund.

This report contains recommendations to the Secretary of Agriculture for
improving future seed donations through (1) increased communication and
planning by the U. S. Department of Agriculture, (2) changes in the
implementation and monitoring of seed distribution to regions in Russia, (3)
better documentation of pricing decisions, and (4) an evaluation of U. S.
seed performance in Russia.

Background In 1999, the United States provided Russia, through a combination
of donations and concessional sales, with over 3 million tons of grains,
meats, oilseeds, and other U. S. farm commodities with a total cost
(including freight) of over $1.2 billion. The U. S. food assistance package
was designed, in part, to respond to one of the worst Russian grain harvests
in over 40 years combined with the effects of a severe financial crisis in
August 1998. At the same time, U. S. Department of Agriculture (USDA)
officials pointed out that government support of the export of large amounts
of agricultural commodities was a means of helping U. S. farmers in a period
of surplus and low prices. U. S. food aid to Russia was provided through
three programs: Public Law

480 Title I, Section 416( b), and Food for Progress. 2 Agreements under
these programs are negotiated and administered by USDA's Foreign
Agricultural Service. Another agency of USDA, the Farm Service Agency, is
responsible for supplying commodities for the Section 416( b) and Food for
Progress programs. The Title I program regulations require that purchases of
commodities for the program be made through a publicly advertised,

competitive bid process, 3 while Food for Progress regulations permit, under
certain circumstances, procurement of commodities through a sole source
contract. 4 2 The Title I program makes U. S. agricultural commodities
available through long- term credit at low interest rates. Section 416( b)
provides for overseas donations of surplus commodities owned by USDA's
Commodity Credit Corporation. The Food for Progress program provides
agricultural commodities on credit terms or on a grant basis to countries
that are emerging democracies and have made commitments to introduce or
expand free enterprise elements into their agricultural economies. 3 7 U. S.
C. 1736a( a)( 2), 7 C. F. R. 17. 5. 4 See 41 U. S. C. 253( c), 48 C. F. R.
6. 3.

The seed donation to Russia was part of a Food for Progress agreement that
included donations of pork and dried milk powder. The seed program was
significant in that it was the first time that planting seed was included in
any U. S. food aid agreement. Unlike the bulk commodities that generally
make up food aid programs, planting seed is not a homogeneous commodity that
can be used in any country. To perform well, planting seed must be of high
quality in terms of seed purity and adequate germination rates, but most
importantly, the seed must be appropriate for the growing

conditions where it is planted. Corn seed in particular varies by the Food
and Agriculture Organization's maturity group, 5 which determines when seed
should be planted and when it can be harvested for grain. Corn that does not
fully mature into grain can be harvested to be processed into

silage and used as animal feed. 6 Under the Food for Progress program
agreement, the donated seeds were to be sold in Russia at prices agreed upon
by the two governments, taking into account factors such as prevailing
market prices in Russia. The

proceeds from the sale of the seed were to be deposited in a special account
administered by the Russian Ministry of Agriculture. The agreement sets out
the disbursement of funds to special projects- 50 percent to fund a rural
credit cooperative and 50 percent distributed among five Russian seed
research institutes. All proceeds from the sale of other food aid
commodities were to be used to support the Russian pension

fund. The Food for Progress agreement also required that the government of
Russia develop a “workplan” indicating, among other things, the
projected distribution, estimated time lines, projected point of sale, and
buyers of the commodities, including seeds. The agreement includes
provisions for monitoring the arrival and distribution of seeds and
documentation of the deposit and disbursement of sales proceeds. A bilateral
working group 7 5 “The maturity group” is the Food and
Agriculture Organization's internationally recognized classification of corn
seed by the length of the growing season needed for corn to produce grain.

6 The feeding value of silage from immature corn depends partly on the
degree of maturity at harvest. Also, corn hybrids that have high grain
yields do not necessarily produce the highest quality silage. 7 The working
group consisted of four U. S. officials, including the U. S. Minister
Counselor for Agricultural Affairs, and representatives from various Russian
ministries and

representatives of the distributing agents.

was established to meet on a regular basis to coordinate, resolve issues,
and recommend changes to the workplans and establish the selling prices for
the food aid commodities. Procurement of

The availability of planting seed in the United States influenced the
Planting Seed in the

amounts and varieties of seed sent to Russia. The seed was procured in the
United States through a noncompetitive, sole source contract. When United
States

entering into negotiations with the sole source contractor, procurement
officials did not have independent sources of price information or technical
expertise. USDA paid the contractor a price that included freight and other
costs; therefore, procurement officials can only estimate the average price

paid for the seed. Types and Quantities of In a letter dated November 4,
1998, the Russian government requested a Seed Donated to Russia

large donation of seed- almost 100,000 tons of corn, sunflower, and other
seeds. 8 Also, due to the short Russian growing season, Russian officials
requested that corn seeds be early maturing varieties. Foreign Agricultural
Service officials, in consultation with the American Seed Trade Association,
determined that this request was too large for the United States to supply.
Also, estimates of the availability of early maturing corn seed varieties
were much smaller than the amount of corn seed requested

by Russia. After discussions, the two governments reached an understanding
in December 1998 on a 15,000- ton package; the request for corn and
vegetable seed closely adhered to the trade association's estimates of
planting seed stocks in the United States- 14,000 tons of corn seed and
1,000 tons of vegetable seed. Due to the large proportion of late maturing
corn seed varieties included in the donation, the expectation was

that the corn seed would not produce grain but rather be grown for silage. 8
The request listed some seeds by variety and, in the case of corn seed,
maturity and company name of hybrid. The request required that all imported
seed be officially registered.

Given the need to import seed immediately, Russia effectively waived the
requirement that all seed varieties imported be registered (a process that
can take up to 3 years). To overcome a Russian phytosanitary quarantine,

the United States agreed to procure corn seed that was from the 1997 or
earlier crop cycle. 9 These agreements facilitated the importation of the
donated seed but did not apply to commercial imports of U. S. corn seed,
which were and still are subject to quarantine and registration
requirements.

The donation of vegetable seed (pea, carrot, beet, and onion seed) totaled
1,000 tons. The quantity of pea seed supplied was 960 tons. USDA also
planned to send 10 tons of onion, 10 tons of beet, and 20 tons of carrot

seed. However, the seed brokerage contracted to procure the seed discovered
that it could supply just over 2 tons of onion seed. USDA documents show
that the U. S. agricultural counselor in Moscow communicated with Russian
officials and they agreed that the shortfall should be made up with
additional carrot seed.

Time Frame Limited In December 1998, while the United States was negotiating
the types and Options for Procurement amounts of seed to be sent to Russia,
the Foreign Agricultural Service

received an unsolicited proposal from an international seed brokerage that
outlined various cost scenarios for the exportation of seed to Russia. The
seed brokerage, based in the United States, had commercial ties to a Russian
seed importer, and through this contact the brokerage became aware of the
Russian request for seed and of the need to import the seed quickly.
According to Foreign Agricultural Service officials, they consulted

with seed industry officials to identify other potential suppliers but found
no alternatives.

9 Phytosanitary measures pertain to protecting plants from pests and
diseases. Russia quarantines corn seed of U. S. origin to prevent the spread
of Stewart's Wilt, a bacterial disease affecting corn in the United States.
While transmission of Stewart's Wilt via seed is extremely rare, the Russian
authorities believed that this risk would be further reduced by using seed
that had been stored for at least 1 year.

By the end of December 1998, time had already become a limiting factor in
the seed procurement and shipment process. Ideally, according to seed
industry officials, the seed should have been procured and sent to Russia by
the beginning of 1999 to permit timely distribution to producers. 10 USDA
procurement officials stated that they generally need at least 4 to 6 weeks
to prepare and carry out a competitive bid process to procure and transport
a commodity to the point of export. Also, since USDA had never procured
seeds for a food aid program, officials stated that they would have needed
additional time in order to develop a set of procedures taking into account
the special technical requirements for international seed shipments. Given

these circumstances, USDA decided to procure the seed through a sole source
contract with the seed brokerage. Procurement Decision

Initially the seed program was planned as a sale of seed to Russia under the
Necessitated Program Title I program. However, since the Title I program
requires that the Change

commodity be procured through a competitive bidding process by U. S.
suppliers, the decision to procure the seed through a sole source contract
meant that the seed had to be provided under the Food for Progress program.
Thus, instead of selling the seed to Russia, the United States donated the
seed. Procurement officials informed us that this was the first time that a
sole source contract had been used to procure agricultural commodities under
the Food for Progress program. USDA Unprepared for

Procurement officials at the Farm Service Agency were not well prepared
Negotiations With Sole to negotiate with the sole source contractor. They
had no independent Source Contractor sources of prices and were unaware how
technical specifications could impact the value of seed. 11 Procurement
officials generally carry out a price

discovery process and market analysis of available supplies to prepare
solicitations for bids to procure commodities through a competitive process.
However, in the case of planting seed for Russia in 1999, officials

say they only had time to call one agricultural supply dealer and inquire 10
According to Foreign Agricultural Service officials, farmers in Russia need
to have their pea seed planted no later than March and their corn seed
planted no later than April. 11 For example, procurement officials were
unaware during negotiations that Russia had requested seed from 1997 and
earlier and that the price for corn seed generally declines in price the
older the production year. Also, they were unaware that prices for vegetable
seed vary substantially depending on whether the seed is a hybrid or an
open- pollinating variety.

about wholesale corn seed prices; they did not gather information on the
prices of vegetable seed.

The contract with the seed brokerage established a maximum price of $1, 625
per metric ton of corn seed, 12 the same price suggested in its unsolicited
proposal. Procurement officials informed us that they accepted the
brokerage's price for corn seed because they had had little time to gather
independent price information. In the case of vegetable seed, the

contract did not specify a maximum price, but in the justification for sole
source procurement, the Farm Service Agency estimated the expected cost of
vegetable seed to be about $5,000 per ton. USDA Gained Limited

In justifying the use of sole source procurement, USDA officials Experience
From the 1999 emphasized that the seed donation was to be used as a test to
determine

Seed Donation the effectiveness of providing seed under foreign aid programs
in the future

and to develop expertise to conduct future procurement. 13 Procurement
officials worked with the contractor to learn about the special technical
requirements of international seed shipments and developed procedures to
procure seeds through competitive bids in the future. USDA failed to use the
procurement process to learn more about the prices

of corn and vegetable seed. The sole source contract did not require that
the contractor provide a breakout of the price charged to USDA into the cost
of seed and other costs. USDA does not know the price at which the
contractor procured the seed from U. S. suppliers. 12 The price included
germination testing, transportation to port in Russia, and an $80
contracting fee. 13 USDA officials have stressed that the sole source
procurement of planting seed was due to special circumstances and is
unlikely to be repeated. USDA has implemented a competitive bid process for
the procurement of seed for export to Russia in the year 2000.

While procurement officers from USDA's Farm Service Agency observed the
solicitation and reception of bids for corn seed (but not for vegetable
seed) by the sole source contractor, they did not take advantage of the

experience to gather detailed information on prices for the corn seed. 14
Procurement officials did not observe if prices varied depending on
maturity, year of production, or size of bid. This information could have
been valuable for estimating and planning for future procurement of seed.
The contractor did not share price information with us, citing the
confidentiality of proprietary information.

Distribution and The distribution of U. S. planting seed did not follow the
original plan; Monitoring of Seed in distributing agents changed, regions
received different amounts of seed than scheduled, and some seed arrived too
late to be planted. While Russia

changes were permitted under the program, documentation for the reasons for
changes is not complete. Some deliveries of corn and pea seed were verified
by U. S. government monitors, but they did not observe the regional

distribution of any of the carrot, onion, and beet seed. There is
conflicting information about the status of these vegetable seeds. Monitors
reported that regional recipients complained about the large number of corn

varieties included in deliveries and the absence of detailed labeling and
technical guidelines for the seed. There was no formal evaluation of the
performance of the U. S. planting seed, as required by the Food for Progress
agreement.

Seed Distributing Agents The criteria used to choose distributing agents in
Russia were unclear. Changed Initially, the Russian government selected a
seed import firm to receive the

seed, transport it to regions, and sell it to regional recipients. No
explicit reason was given for the choice of this distributor, but according
to the Foreign Agricultural Service, the company was an experienced seed
importer in Russia. Also, representatives of the American Seed Trade
Association said that the firm had the technical knowledge and distribution
infrastructure to successfully distribute seed.

14 Because seeds are a commercially available product, the Truth in
Negotiations Act does not require suppliers to share price information with
the government (41 U. S. C. 254b (b)( 1)( B)). However, USDA could have
required such information as a condition of its contract with the broker. 18
U. S. C. 1905 prohibits federal employees from disclosing such confidential
proprietary information, except as authorized by law.

Just prior to the arrival of the first seed shipment, the Russian government
changed agents, and all of the corn and pea seed was distributed and sold by
the same former state agency (Roskhleboproduct) that distributed the food
and feed grain commodities sent by the United States. The carrot, beet, and
onion seed was sold to a state agency (Rossortsemovosch) that was then made
responsible for distributing it to the regions. 15 Foreign Agricultural
Service officials noted that the nomination of the agent and internal
distribution was the responsibility of the government of Russia, not of the
U. S. government. According to these officials, the original agent did not
want to comply with certain requirements to participate in the program, and
the agent voluntarily withdrew from participating.

The Food for Progress agreement stated that in order to promote the
participation of the private sector in the seed program, an organization of
private farmers would receive 3,000 tons of corn seed to sell to members.
According to Foreign Agricultural Service officials, the farmer cooperative
voluntarily withdrew from the seed program before the seed arrived in Russia
because it did not have adequate transportation to distribute the seed. Corn
and Pea Seed

According to the Food for Progress agreement, the U. S. planting seed was
Distribution to Regions to be sent to regions identified as needy, which
were listed in an attachment

Differed From Plans to the agreement. The Russian distributing agent
submitted a “workplan,”

approved by the bilateral working group, which contained some changes in the
original delivery locations and seed amounts. Foreign Agricultural Service
officials then tracked each shipment's arrival to port, planned

delivery to regions, regional buyers, and which arrivals and deliveries were
checked by a Foreign Agricultural Service monitor. (See app. I for a
comparison of distribution according to the original distribution plan, the
workplan, and delivery documentation.)

15 The distributing agents' documents show that all of the seed was sold to
public food processors, state agencies, and private seed companies. These
entities resold the seed or used it for production, but there is no
documentation of the final recipients of the seed.

For corn seed, deliveries to the regions differed from both the original
distribution plan and the workplan. We could not find documentation in the
bilateral working group minutes showing discussion and approval of most of
these changes. Foreign Agricultural Service monitoring reports 16 confirm
the delivery of 72 percent of the corn seed in the regions. One delivery to
Tartarstan arrived too late for planting and, according to Foreign
Agricultural Service officials in Moscow, 700 metric tons are being stored
in the region for planting in the spring of the year 2000.

Pea seed deliveries were also different from plans, but discussion and
approval of these changes are documented in official correspondence from the
Russian distributing agent to U. S. embassy officials in Moscow.

Vegetable Seed Deliveries Over 40 tons of carrot, beet, and onion seed were
delivered to Moscow and

Not Confirmed sold to a state agency, Rossortsemovosch, that, according to
the workplan,

would sell the seed to regions with the approval of Russia's Ministry of
Agriculture. The bilateral working group minutes contained no record of
further discussions concerning the distribution plan for these seeds nor did
the Foreign Agricultural Service monitor the arrival or verify the
distribution or sale of this seed. The importing agent, Roskhleboproduct,
informed a representative of the

seed brokerage that procured and shipped the seed that the vegetable seed
had arrived too late for planting. However, Rossortsemovosch submitted a
report that shows only a small amount of seed remains unplanted and stored
in the regions (tables 3 to 5 in app. I show the reported distribution of
this seed). The information in Rossortsemovosch's report on the delivery and
status of the seed has not been verified.

Performance of U. S. The Food for Progress agreement included a provision
that USDA and

Planting Seed in Russia Russian officials carry out an assessment of the
performance of the

planting seed, including germination and yields. A formal report has not
been produced, and there has been no attempt to systematically gather 16
Foreign Agricultural Service monitors tracked commodity shipments and
produced Compliance Review Reports as a result of selected monitoring visits
to Russian ports or regions (oblasts). When they conducted monitoring visits
in the regions, they were supposed to verify the recipient, the kind and
amounts of commodities received, and the commodity selling price and buyer.
Monitors did not necessarily see the commodity, but verified distribution
data through examination of shipping documents and receipts.

information on yields or other performance measures. However, all seed was
tested for germination rates prior to shipment. Only seed meeting
international standards was sent to Russia. In addition, USDA partially
funded travel expenses of representatives of the American Seed Trade
Association and the U. S. contractor that visited Russian pea farms,
canneries, and a few farms producing silage using U. S. corn seed. The trip

reports submitted to USDA reported generally favorable results. We found no
reports on the performance of the vegetable seed.

Foreign Agricultural Service monitors in Russia reported widespread
complaints about the delivery of too many corn seed varieties and the
absence of labels giving technical guidance for planting or cultivation. For
example, one regional buyer in Omsk had received 463 metric tons of corn
seed with 25 to 30 different hybrids. None of the bags contained written
technical specifications of the corn seed or explanations of the seed
treatment. Several recipients visited by representatives from the U. S. seed
industry complained about the inclusion of late maturing corn hybrids that
are

inappropriate for growing conditions in their region. Also, producers
requested that subsequent programs include other types of seeds. USDA sent a
team to Russia in September of 1999 to assess Russian food needs for the
coming year. No assessment was made of the need for seed, but USDA did
report that the Russian Ministry of Agriculture was estimating a 1- million
ton deficit of planting seed for the year 2000. We could not find estimates
of the regions where seed deficits are highest or

the types of seed in critical shortage.

Sale of U. S. Seeds in The sale of the donated seed to regional wholesalers
and government Russia and Distribution agencies in Russia raised about $2.6
million (about one- eighth of what was paid to the sole source contractor
that procured and shipped the seed to of Proceeds

Russian ports). The Food for Progress agreement required the bilateral
working group to establish prices for U. S. commodities shipped to Russia,
including seeds. 17 However, we found scant documentation of the process
used to determine the price of U. S. seed in Russia. While USDA officials
said that the low price at which U. S. planting seed was sold was due to
special factors in Russia, we found that prices charged for the donated U.
S.

seed were substantially lower than prices reported for corn and vegetable
seed by some private companies in Russia. By January 2000, all regions had
paid for the seed they received. However, some payments were made with
substantial delays. Similarly, disbursements of the proceeds from the sale
of seeds to a rural credit cooperative and five seed institutes were also

delayed. About 80 percent of the funds have been disbursed. Prices Paid for
Donated U. S.

The prices at which the U. S. planting seed were sold varied between
Planting Seed in Russia

one- ninth and one- half of the per ton cost of procuring and shipping the
seed to Russia (see table 1 for a comparison of procurement and shipping
costs in the United States versus the selling price in Russia). Foreign
Agricultural Service officials established a methodology for determining
prices of U. S. food aid commodities that consisted of (1) an initial
proposal by Russian authorities, 18 (2) a check by U. S. officials of price
information

available from other sources, and (3) a discussion and a final determination
of the prices approved by the bilateral working group. However, scant
documentation can be found for the use of this methodology for setting the

price of corn, pea, and vegetable seed. 17 The agreement specified that
factors to be considered in the price determination were to include world
price levels, prevailing market prices in the regions where the seeds were
to be sold, and commodity quality specifications. The price estimates made
by the working group were to be finalized only after approval by the
Minister- Counselor for Agricultural Affairs at the U. S. embassy in Moscow.

18 According to a senior Russian official, the goal in establishing a price
was to identify a “golden middle”- a price low enough so that
the U. S. commodities would be sold quickly, but high enough so that it
would not undercut domestic prices and hurt domestic producers.

Table 1: Price of Seed in United States and Russia and Deposits of Seed
Proceeds U. S. procurement

Sale price Total procurement

Total deposit to special costs (dollars per

In Russia (dollars Price ratio

Cost (dollars in account (dollars in Seed type

metric ton) a per metric ton) b U. S.: Russia

thousands) thousands) b

Corn $1, 442 $160 9: 1 $20, 218 $2, 243 Pea 1, 023 240 5: 1 982 230 Carrot
14, 214 2, 800 5: 1 392 78 Beet 5, 825 3, 200 2: 1 58 32 Onion 21, 800 4,
000 5: 1 52 10

Total $21,702 $2, 593

a U. S. price includes various costs, including transportation to St.
Petersburg, Russia. b Exchange rate of 25 rubles per U. S. dollar.

Source: USDA's Foreign Agricultural Service. In February 1999, the
distributing agent submitted a workplan for seed, including suggested prices
for the U. S. planting seed. However, some of the prices actually charged to
regional buyers for the various types of seed differ substantially from
those suggested prices. In the minutes of the bilateral working group, there
are references to U. S. counterproposals for

seed prices, but no supporting documentation has been provided by the
Foreign Agricultural Service. Other documents indicate that U. S. officials
tried to raise the price of pea seed 33 percent, from $240 per ton to $320
per

ton, but the distributor said that the proposed change came too late. There
was no documentation of why U. S. officials wanted to change the price.
Accounting documents show that $240 per ton of pea seed was deposited in the
special account.

Price of Donated U. S. Seed It is difficult to establish a market price for
U. S. corn seed in Russia, since Substantially Lower Than commercial imports
from the United States are prohibited due to

Commercial Prices quarantine rules. However, we found that private seed
firms reported

substantially higher sale prices for corn seed, both Russian and imported
seed from Europe. The multinational firms that import corn seed into Russia
reported prices for western European seed between $1, 300 and $1, 500 per
metric ton, including taxes. These same firms said that imported corn seed
from neighboring countries such as Hungary and Yugoslavia costs
approximately $500 to $600 per metric ton. They also estimated that domestic
Russian corn seed, generally of lower quality, costs

approximately $300 to $400 per ton after taxes and other fees.

The donated U. S. corn seed was sold at the ruble equivalent of $160 per
metric ton to regional recipients. USDA monitors reported that after
including taxes and distribution costs, the corn seed price paid by Russian
agricultural producers for the U. S. seed was about $220 per metric ton.
Thus, the sale price for U. S. corn seed is below the price range for corn
seed reported to us by private firms. In addition, a representative from a
Russian association of private

vegetable and flower seed producers said that the selling prices of U. S.
vegetable seed were substantially lower than prices for similar seed in
Russia.

U. S. Officials Said That USDA officials who participated in the bilateral
working group said that Market Conditions Dictated

market conditions justified the low selling price of U. S. corn and
vegetable Low Selling Prices seeds. According to these officials, Russian
farmers had no access to credit and thus did not have cash available to buy
expensive production inputs like imported seed and fertilizer.

The contractor that procured the seed pointed out that additional factors
affected the price of corn seed in Russia. Although the U. S. corn seed was
of extremely high quality and similar to seed imported from Europe in terms
of germination rates and technological investment, the U. S. seed was not
destined for grain production. Because most of the U. S. corn seed was not
appropriate for growing grain in Russia's colder and drier conditions, it
was used to produce silage, a product of lower value than grain. This
lowered the value of U. S. seed in Russia. In addition, Foreign Agricultural
Service officials said that U. S. corn seed was sent to augment low Russian

domestic stocks, not to compete with imported seed and thus was priced
closer to the price of Russian corn seed.

Multinational firms selling corn seed in Russia confirmed that the sale of
U. S.- donated corn seed did not adversely affect their sales, in part
because sales of high- quality corn seed from Western Europe had already
dwindled to near zero due to the economic crisis in Russia. However, a
representative of the Association of Russian Independent Seed Companies

said that the sale of cheap vegetable seed adversely affected Russian
vegetable seed firms because the U. S. seed was cheaper and nearly identical
to seed produced in Russia.

Deposits to the Special The regional recipients that purchased the seed from
the distributing agent Account Delayed were required to make full payment no
later than 120 days after delivery to

port in Russia, which meant that the first deposits should have been made by
June 14 and the last completed by July 31. 19 However, by August 11, 1999,
only $1 million of the expected $2.6 million had been transferred to the
special account. According to documents, the Russian Ministry of

Agriculture suspended other food aid shipments and federal financing to two
regions that had not paid in full for seed by the end of September 1999. In
December 1999, one region still owed $212,016 for corn seed. Payments for
the U. S. seed by all regions were completed by January 2000.

Disbursements of Funds to The disbursements of funds to seed institutes and
the rural credit fund Seed Institutes and Rural were also delayed. The first
disbursements of proceeds from the sale of Credit Fund Also Delayed

seeds took place in July 1999, but as of October 1999, only 40 percent of
the expected funds had been disbursed. By December 8, 78 percent of the
funds had been disbursed.

By the end of 1999, three of the four regional seed institutes had received
funds (see table 2 for a breakdown of disbursements). According to the U. S.
Agricultural Counselor in Moscow, disbursements to the seed institutes,
including the Rice Seed Institute, will be completed pending final approval
from Washington, but no date for disbursement has been set.

19 U. S. seed arrived in port beginning in March and ending in April.

Table 2: Disbursement of Seed Proceeds to Credit Fund and Seed Institutes as
of December 1999

Dollars in thousands

Planned Institute disbursement Received Balance

Rural Credit Fund $1, 296 $1,017 $278 Vavilov Institute 1, 036 814 223 Seed
Breeding Institute 65 55 10 Williams Feed Institute 65 55 10 Corn I nstitute
65 55 10 Rice Institute 65 0 65

Tot al a $2, 592 $1,995 $596 a Totals may not add up due to rounding.
Source: USDA's Foreign Agricultural Service.

Documents show that three of the seed institutes planned to use the funds to
pay for tractors, machinery parts, infrastructure repair, and modernization.
When we interviewed officials from the Vavilov Institute and Williams Feed
Institute, both of which are seed breeding and research centers, they said
that the money would be used at the institutes for purchasing farm
equipment. The Rural Credit Cooperative Development Fund has used the funds
to extend loans to private farmer cooperatives through a program called the
Russian- American Lending Program.

Conclusions Officials in the Farm Service Agency were not well prepared to
enter into negotiations to procure seed. As a result, there is little
assurance that the price paid was the lowest possible. Whether buying
through a sole source contract or a competitive bidding process, procurement
officials must develop expertise on the technical aspects of supplying seed
and have

access to independent sources of available supply and price information for
the type of seed to be purchased.

USDA did not provide Russian farmers with adequate and timely technical
information about the donated U. S. seed, reducing potential performance of
the seed. Also, improper matching of seed type to local growing conditions
may have diminished the contribution of the program to Russian agricultural
productivity. Although the bilateral working group had established
procedures for setting the prices of food aid commodities in

Russia, we found inadequate documentation of the price determination process
for seeds, making it difficult to conclude if the prices charged were
reasonable. Evaluation of seed performance can provide information to be
used in the design of future seed donation programs.

Recommendations In order to more effectively prepare for future government
sales or donations of U. S. planting seed, we recommend that the Secretary
of Agriculture

direct the Foreign Agricultural Service to share information on bilateral
discussions of seed sales or donations in a timely manner with the Farm
Service Agency in order to facilitate open and competitive procurement

of seed and direct the Farm Service Agency to identify independent and
reliable sources of technical expertise to provide assistance in evaluating
seed varieties, and testing, and to provide information on the U. S. seed

industry. Furthermore, to improve the management of the distribution and
sale of future donations of seed to Russia, we recommend that the Secretary
of Agriculture direct the Foreign Agricultural Service to establish an
effective monitoring system to verify receipt of seed to the

regions and the status of unplanted seed (to ensure it is stored in
appropriate conditions to maintain its quality), establish methods of
distributing U. S. seed to match (to the extent possible) the growing
conditions in the recipient regions in Russia, put Russian language labels
on seed packages and include more information about the seed to producers at
the time of distribution, fully document the price discovery process for U.
S. seed in Russia, and carry out an evaluation of seed performance with the
goal of analyzing

the results to improve future seed donation programs. Agency Comments We
obtained oral comments on a draft of this report from USDA's Foreign
Agricultural Service and Farm Service Agency. Officials from both agencies

said that they thought the report was generally fair, accurate, and
constructive. While both agencies regard the seed donation program as
successful, they generally agreed with our recommendations and are in the
process of implementing these changes to the year 2000 program.

However, Foreign Agricultural Service officials disagreed with the
recommendation that a more effective monitoring system needs to be
implemented for future programs since, in their opinion, the monitoring
system for the 1999 program was extremely effective- over 70 percent of
deliveries were monitored, and no seed was reexported. They noted that this
system was never intended to monitor the distribution of seed beyond the
first buyer, and, in the case of carrot, onion, and beet seed, to the
purchasing agent in Moscow.

We agree that Foreign Agricultural Service monitors collected documentation
of the deliveries of a majority of the corn and pea seed to the regions.
However, this system does not guarantee that the seed was not

reexported. Also, the monitoring system was supposed to verify workplans and
any amendments to the plans but in practice rarely did so. In addition, the
monitoring system did not confirm that unplanted seed would be

properly stored for later distribution. While we agree that the monitoring
system was designed only to follow distribution to the first buyer in the
regions, the first buyer of carrot, onion, and beet seed was changed.
Instead of going to multiple regions, the seed was delivered to one state
agency, Rossortsemovosch, in Moscow. This meant that since the Foreign
Agricultural Service only verified delivery to the first buyer, it did not
independently confirm the delivery of carrot, beet, and onion seed to
regions. As a result, we feel our recommendation is appropriate.

Officials also said that our report did not fully describe the context
surrounding the procurement of seed in the United States. First, Farm
Service Agency procurement officials agreed that time limitations reduced
their ability to undertake market research on seed prices in the United
States. However, they emphasized that, even with more time, they would not
have conducted extensive inquiries, in part, out of concern that this might
increase the cost of the seeds to be procured. Second, a Foreign

Agricultural Service official stated that the decision to procure the seed
through a sole source contract was not the only factor influencing the
decision to donate, rather than sell, the seed to Russia. This official said
that there was also concern about the impact of an additional $23 million

loan on Russia's already large external debt obligations. We agree that
extensive market inquiries by government procurement officials could lead to
speculation in commodity markets and price changes. However, we note that
contacting one corn seed dealer did not provide the minimum information
necessary for effective negotiation with

the sole source contractor. We also agree that officials may have

considered the impact of the sale of seed on Russia's debt, but food aid
program restrictions on the use of sole source procurement required USDA to
donate the seed.

The Foreign Agricultural Service and the Farm Service Agency also provided
some technical comments and additional information with regard to
distribution of seed, monitoring, and deposits to the special account. Where
appropriate, we have incorporated these comments and that information into
our report. Scope and To examine how the seed sent to Russia was procured,
we reviewed

Methodology documentation provided by the Foreign Agricultural Service and
also

interviewed senior Foreign Agricultural Service officials who participated
in the food aid agreement negotiation process. We examined the process used
to procure seeds donated to Russia in 1999 by reviewing documents

provided to us by the Farm Service Agency and interviewing officials
responsible for procurement of food aid commodities. We also interviewed the
sole source contractor that procured and shipped the seed and
representatives from the American Seed Trade Association. To examine how
seeds were distributed and monitored in Russia, we reviewed the distribution
plans included in the Food for Progress agreement, the workplan provided by
the distributing agent, and

documents used by the Foreign Agricultural Service to track and monitor
deliveries. Our staff interviewed the principal distributing agent in Russia
and reviewed documents submitted by the distributing agents in Russia. To
examine how the seed was monitored and evaluated, we reviewed the minutes of
the bilateral working group, reports produced by Foreign Agricultural
Service monitors, and reports submitted to USDA by officials from the U. S.
seed industry and the contractor. We also interviewed officials from the
American Seed Trade Association and the sole source contractor that visited
Russia.

To examine the process for selling the U. S. seed in Russia, we interviewed
Foreign Agricultural Service officials that participated in the bilateral
working group in Russia (including the current and former General Sales
Managers of the Foreign Agricultural Service and the current and former U.
S. Agricultural Minister Counselors in Moscow). We also reviewed the minutes
of the bilateral working group and correspondence between U. S. and Russian
government officials. In addition, we interviewed officials from several
multinational seed companies that sell corn and vegetable

seed in Russia, and representatives of a private Russian seed importer and
of an association of vegetable seed producers in Russia.

To examine how the proceeds from the sale of seed were distributed to
agricultural development institutions, we reviewed documentation provided by
the Foreign Agricultural Service, the government of Russia, the Vavilov Seed
Institute, and administrators of the Rural Credit Cooperative Fund. We
interviewed officials from the Foreign Agricultural Service and the
government of Russia who provided additional detailed information. We also
visited and interviewed officials at the Vavilov Seed Institute and the
Williams Feed Institute and also interviewed officials administering the
Rural Credit Cooperative Fund in Russia.

We conducted our review from November 1999 to February 2000 in accordance
with generally accepted government auditing standards. As arranged with your
office, unless you publicly announce the contents earlier, we plan no
further distribution of this report until 30 days after its issue date. At
that time we will send copies to interested congressional committees and the
Honorable Dan Glickman, the Secretary of Agriculture. We will also make
copies available to other interested parties upon request.

Please contact me at (202) 512- 4128 if you or your staff have any questions
regarding this report. Phillip Thomas and Samantha Roberts made significant
contributions to this report.

Sincerely yours, Susan S. Westin, Associate Director International Relations
and Trade Issues

Appendi x I

Distribution of U. S. Planting Seed in Russia A distribution plan for corn
and vegetable seed was included as an attachment to the Food for Progress
agreement signed in February 1999. The distributing agent, Roskhleboproduct,
a former state agency, developed a workplan for the distribution of the seed
according to region. The workplan also identified the “first-
buyer” (the firm or government agency in the region that was to
receive and pay for the seed). According to

the agreement, any changes to this workplan had first to be requested by the
bilateral working group and approved by the U. S. Minister- Counselor for
Agricultural Affairs. A third document, a travel matrix, tracked the arrival
in port and expected

delivery to regions for all commodity shipments. Tables 3 to 5 summarize the
distribution of the seed according to the distribution plan included in the
agreement, the workplan and the travel matrix. Some seed arrived too late to
be planted. Those amounts are found in the column “stored.”

Table 3: Distribution of Corn Seed by Region According to the Food Aid
Agreement, the Workplan, and the Travel Matrix Corn Seed (metric tons)

Travel matrix delivery Region Agreement Workplan

amount Stored

Bryansk oblsat 300 124 Chelyabinsk oblast 1, 600 3,000 2, 986 Chuvashiya
oblast 100 Kaluga oblast 200 Khakassiya Republic 780 782 Kemerovo oblast 289
Kurgan oblast 283 Mari El Republic 100 60 59 Mordovia Republic 1, 000 1,020
1, 001 Moscow oblast 500 Nizhniy Novgorod 1,000 Novosibirsk oblast 1,053
Omsk oblast 1,520 1, 585 Orel oblast 1, 000 Ryazansk oblast 2,000 480 457
Smolensk oblast 200 Tartarstan Republic 4, 000 5,000 4, 703 700 Tula oblast
1, 200 480 516 Tyumen oblast 600 Vladimir oblast 200 180 174

Total 14, 000 12,520 14,014 700

Sources: U. S. Department of Agriculture's (USDA) Foreign Agricultural
Service, government of Russia, and Roskhleboproduct.

Table 4: Distribution of Pea Seed by Region According to the Food Aid
Agreement, the Workplan, and the Travel Matrix

Pea Seed (metric tons) Travel matrix Region Agreement Workplan delivery
amount

Belgorod oblast 100 100 120 Kabardino- Balkaria 120 Krasnodar Kray 510 560
480 Mordovia Republic 200 200 180 Ryazansk oblast 50 50 Yaroslavl oblast 50
50 Tartarstan Republic 50 Severnaya Ossatia 60

Total 960 960 960

Sources: USDA's Foreign Agricultural Service, government of Russia, and
Roskhleboproduct.

Carrot, Onion, and There was no separate workplan outlining the regional
distribution of Beet Seed

carrot, onion, and beet seed. According to the workplan, Roskhleboproduct
was to sell all the carrot, onion, and beet seed to Rossortsemovosch, a
state agency located in Moscow charged with the distribution and sale of the
seed to firms and producers in the Moscow region and other regions in
Russia. Rossortsemovosch provided information on distribution to the regions
and storage of seeds.

Table 5: Distribution of Carrot, Beet, and Onion Seed by Region According to
the Food Aid Agreement and Russian Distributing Agent

Carrot Beet Onion Region Agreement Delivered Stored Agreement Delivered
Stored Agreement Delivered Stored

Altay Kray 0.3 0. 3 0.1 Amur oblast 0.4 0. 5 0.2 0. 5 0.1 Arkhangelsk oblast
0.2

Astrakhan 0. 2 0. 5 Bashkortostan 1. 0 0. 3 0. 5 Belgorod oblast 0.5 0. 1
0.5 0. 2 0. 3 Bryansk oblast 0.5 1. 0 0. 5 0. 4 Buryatiya Republic 0. 2

Chita oblast 0. 2 0. 5 0. 2 0. 1 Chelyabinsk oblast 1.0

Chuvashiya oblast 2.7 2. 4 Dagestan Republic 0. 3 1.5 0. 4 0.5 0. 1 Irkustsk
oblast 0.5 Ivanovsk oblast 0.4 0. 5 0.1 KabardinoBalkaria 0. 4

Kaliningrad oblast 0.5 0. 1 0.5 0. 1

Kemerovo oblast 0. 4 1. 0 Khabarovsk Kray 0. 4

Kostroma oblast 0.4 0. 2 Krasnodar Kray 0.5 Krasnoyarsk Kray 0.4 1. 0 0.4 0.
2 0.5

Kurgan oblast 0. 4 0. 5 0.2 Kurskaya 0.4 0. 1 0.5 Leningrad oblast 1. 5 0. 5
Lipetsk oblast 0. 4 Mordovia Republic 0. 4 0.4

Continued

Carrot Beet Onion Region Agreement Delivered Stored Agreement Delivered
Stored Agreement Delivered Stored

Moscow oblast 1.0 12. 8 1. 5 0.5 2. 2 1.0 Nizhniy Novgorod 0. 4 0. 5 0. 4

Novograd oblast 0. 4 Novosibirsk oblast 0.4 1. 0

Omsk oblast 0. 4 2. 0 0. 3 0. 5 1.0 0. 3 Orenburg oblast 0. 4 Penza oblast
0. 4 1. 0 Perm oblast 0.4 0. 3 0.6 Primorskiy Kray 0. 4 0. 3 Pskov oblast 0.
3 0. 1 0.1 Rostov oblast 0. 5 Ryazan oblast 0.4 0. 1 Sakhalin oblast 0.2
Samara oblast 0.3 Saratov oblast 0. 5 0. 5 Smolensk oblast 0. 4 Sverdlovsk
oblast 1.0 1. 0 0.4 2. 0 0.6 0. 3

Ta mb o v o b l a s t 0 . 6 0.6 Ta r t a r s t a n Republic 0.6

Tula oblast 0.4 0. 5 Vladimir oblast 0. 4 Volgogrod oblast 0.6 2. 0 0.4 1. 0
0. 4 Vologod oblast 0. 3 1. 5 0. 2 1. 1 Yakutia 0. 2 Uliyanovsk oblast 0.5
0. 6

Tot al a 19. 0 27.6 4. 8 10. 0 8.9 1. 0 10. 0 2.4 0

Continued from Previous Page a Totals may not add up due to rounding.

Sources: USDA's Foreign Agricultural Service, government of Russia, and
Rossortsemovosch.

(711471) Lett er

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Appendix I

Appendix I Distribution of U. S. Planting Seed in Russia

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Appendix I Distribution of U. S. Planting Seed in Russia

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Appendix I Distribution of U. S. Planting Seed in Russia

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Appendix I Distribution of U. S. Planting Seed in Russia

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