Alliance for Food Aid

**WRITTEN TESTIMONY OF ELLEN S. LEVINSON**

**President, Levinson & Associates and**

**EXECUTIVE DIRECTOR, THE ALLIANCE FOR FOOD AID**

**Before the**

**COMMITTEE ON AGRICULTURE**

**SUBCOMMITTEE ON SPECIALTY CROPS, RURAL DEVELOPMENT, AND FOREIGN
AGRICULTURE PROGRAMS**

**UNITED STATES HOUSE OF REPRESENTATIVES**

**May 10, 2007**

Mr. Chairman, thank you for this opportunity to testify before the
Subcommittee, today, on U.S. food aid programs. My name is Ellen
Levinson and I am testifying today as the Executive Director of the
Alliance for Food Aid (AFA or "Alliance"). The Alliance is comprised of
15 private voluntary organizations and cooperatives (jointly called
"PVOs") that operate humanitarian and development assistance programs in
130 countries, are partners in USDA and USAID food aid programs, and
conduct both emergency and non-emergency food aid programs.

The members range from some of the largest charitable organizations in
the United States that implement a wide variety of projects all over the
world to smaller organizations that specialize in particular regions of
the world or have expertise in particular types of programs. What they
have in common is that they focus their efforts on communities that lack
the wherewithal to meet their basic food needs on a regular and
sustainable basis. They use participatory methods that emphasize local
initiative, provide technical assistance and training, and focus on
building local capacity, institutions and leaders. Most of our members
also conduct emergency programs, as well, where food aid is needed to
save lives and help people regain their health and strength.

Mr. Chairman, we thank the Congress for its unrelenting support of food
aid over the years. Food aid is our nation's principal program
supporting food security in the developing world. It contributes to
meeting the Millennium Development Goal of cutting hunger in half by
2015 and is critical for saving lives in the face of disaster. Some
improvements and upgrades are needed in administrative programmatic
procedures and greater efficiencies can be built into procurement and
transportation procedures. However, most important for the 2007 Farm
Bill is assuring predictable levels for both chronic and emergency needs
in order to support good program planning and implementation and to
reverse the downward trend in multi-year developmental programs.

The Alliance has three core recommendations for the 2007 Farm Bill --

-   Assure adequate amounts of food aid are available from the Bill
    Emerson Humanitarian Trust and it is available to respond quickly in
    the face of food shortages, civil unrest, and other crises.

-   Increase resources for multi-year programs that improve the food
    security, health and welfare of populations that suffer from chronic
    hunger by (1) making available at least 1,200,000 MT of food aid
    each year for Title II non-emergency programs that promote food
    security and protect against the erosion of health and incomes,
    and (2) lifting the transportation cap on Food for Progress so
    500,000 MT can be provided to developing countries that are
    implementing reforms in the agricultural economies.

-   Improve administrative procedures through early program approvals,
    spreading out procurement throughout the year, improving product
    quality oversight, and requiring the submission of annual reports
    from administrative agencies that include information about program
    targeting and implementation, including monetization and
    distribution results.

**Role of PVOs in Food Aid**

Identifying populations in need is part of the initial program planning
process for PVOs. Alliance members use data from nationwide and regional
surveys provided by recipient countries, the United Nations, and other
recognized sources. Such data may include mortality rate of children
under the age of five, infant mortality rates, prevalence of
malnutrition among children, percentage of people living under the
poverty line, susceptibility to drought, and prevalence of disease, such
as HIV/AIDS.

Once areas of greatest need are pinpointed, PVOs meet with local
administrators and community groups to determine what types of services
are already being provided, which services are lacking, and the types of
interventions that would be most helpful. They use focus groups, rapid
surveys, and other methods to narrow down the target population to those
with greatest need. To avoid stigma programs often target the community
and not just particular households and individuals. The next step is
working with local partners to design and implement programs. For your
reference, Attachment A summarizes the program planning and approval
process for PL 480 Title II non-emergency programs for FY 2007.

PVOs are audited according to US Government requirements and have
well-established mechanisms for monitoring and reporting on the use of
commodities from the point of departure from the US to the ultimate
recipient. In the case of monetization or if funds have been provided
for program support, itemized records of the bidding process, funds
generated and use of such funds are maintained and provided in regular
reports to USAID and USDA. They also keep records to assess the ultimate
impact of the program on the intended beneficiaries. Value is added to
programs by strengthening the management capabilities of local
institutions and building community capacity; providing a network of
contacts and relationships linking people overseas with Americans;
encouraging entrepreneurship and private sector development; and
creating programs that have lasting benefits.

**Why Change is Needed**

Food security is negatively affected by a wide range of issues,
including poor agricultural productivity; high unemployment; low and
unpredictable incomes; remoteness of farm communities; susceptibility to
natural disasters, civil unrest and instability; wide discrepancies
between the well-off and the poor; chronic disease; and lack of basic
health, education, water and sanitation services. Thus, rather than just
distributing food to needy people, US food aid has evolved into a
multi-faceted program that addresses the underlying causes of hunger and
poverty. This mixture of food and support for local development is the
program's strength and was reinforced in the 2002 Farm Bill. However,
the Administration was given wide berth to set priorities and waive
requirements, which has taken food aid down a different road than
anticipated in 2002.

Policy changes over the past five years have essentially reduced overall
food aid levels (particularly by eliminating Section 416 surplus
commodities and Title I appropriations), shrunk development-oriented
programs to 42% their 2001 levels (according to an April 2007 GAO
report) , and exposed the lack of contingency planning for food
emergencies. While the 2002 Farm Bill called for increased levels of PL
480 Title II development programs to 1,875,000 metric tons, instead
these programs were reduced and are now about 750,000 metric tons.

The 2002 Bill also called for upgrades and improvements in governmental
management and information systems, but instead the level of programming
has become less predictable; program priorities and proposal review
processes have become more opaque; the "consultative" nature Food Aid
Consultative Group process has deteriorated; Title II procedures are
making it more difficult for PVOs to access funding; and commodity
quality control systems have not been renovated to modern standards.

Meanwhile, the world's efforts to meet the Millennium Development Goal
of cutting hunger in half by 2015 is far from reach -- the number of
people suffering from chronic hunger [increased]{.underline} from 1996
to 2004 from under 800 million to 842 million \-- and international
appeals for emergency food aid are under-funded. While US food aid alone
cannot resolve this sad and complex problem, it is a critical component
of an international food security strategy and is particularly effective
in countries with chronic food deficits and for vulnerable, low-income
populations.

Several food aid statutes set tonnage minimums -- to assure that food is
provided in times of high prices. These requirements are important, but
they need to be updated and supported by sufficient appropriations.

Finally, Doha Round international trade negotiators, the Food Aid
Convention and the UN Food and Agriculture Organization all have
particular roles in international food aid policies and procedures. They
are examining the use of food aid by donors and are looking critically
at certain modalities and methodologies, including in-kind food aid,
monetization and non-emergency programs. While US programs are typically
well-focused and food security oriented, this is often unclear or
misrepresented to others. As the largest donor in the world, Americans
should be proud of their food aid program. It is critical that
government agencies collect and make available sufficient information to
show how these programs work and their impact.

With these factors and trends in mind, we offer recommendations to
improve the quality and predictability of food aid, and to assure the
United States has a plan and effective methods to address both chronic
and emergency needs.

**PL 480 Title II -- the Core US Food Aid Program**

***1. Administrative Upgrades: Adequate Funding at the Start of the
Fiscal Year, Predictable Tonnage Levels, Early Program Approvals, and
Sufficient Reporting:***

Administered by the US Agency for International Development (USAID),
Title II provides food aid donations for development programs and
emergency needs through "eligible organizations," which are PVOs and the
UN World Food Program. The law sets a minimum commodity level for the
program of 2,500,000 MT, of which 1,875,000 MT is for non-emergency
programs that address chronic hunger.

From FY 1999 through FY 2002, the Section 416 surplus commodity program
provided significant amounts of food aid, and much of it was for
emergencies. This was a source of supplemental funding for the Title II
program. As the attached funding chart shows, availability of Section
416 surplus commodities was phased out starting in FY 2002. While Title
II funding increased over the same period and enough is provided to meet
the 2,500,000 MT minimum commodity level set by law, this increase has
been insufficient to make up fully for the loss of Section 416
commodities. Current funding levels are not maintaining adequate levels
for both emergency and non-emergency requirements. This has resulted in
cutbacks in developmental food aid programs, uncertainty about the
levels of food aid each year and increased reliance on supplemental
appropriations to fill gaps in emergencies.

The Government Accountability Office (GAO) noted in a recent report that
cost savings of 12-14% percent may be possible if commodity orders could
be spread out more evenly throughout the program year, rather than
"bunched" toward the end of the year. A variety of factors contribute to
the "bunching" of commodity orders, including piecemeal appropriations,
unreliable levels and late program approvals. From the perspective of
implementing organizations, these practices have also created a series
of other unfavorable consequences: commodity distribution and sales
overseas cannot be well planned when dates of delivery are not reliable
or when commodities are not made available throughout the year. This
causes concern about the potential for disrupting commercial markets and
having the food arrive at the wrong time in the program cycle.

While some emergencies, such as sudden natural disasters and outbreak of
civil war, cannot be predicted in advance and can occur any time during
a fiscal year, other emergency needs are ongoing and can be factored
into the regular budget request and appropriations process. For example,
areas such as the Horn of Africa that are prone to drought, flooding,
locusts or other natural disasters are monitored through a variety of
early warning systems. Other emergencies, such as the ongoing conflict
in Sudan, are expected to continue until the source of the problem is
resolved. Because the Administration does not ask for adequate funding
to meet these anticipated emergency needs, funds have been withheld from
the nonemergency programs for several months as USAID adjusts its budget
and waits to see if there will be supplemental funding.

As a result, there are gaps in food aid deliveries for both emergency
and nonemergency programs, PVOs must cover local costs while programs
are on hold and some programs are, de facto, cut back. Later in the
year, the Administration often receives supplemental appropriations for
the extra emergency needs or uses commodities from the Bill Emerson
Humanitarian Trust. Because the actual amounts needed are not requested
upfront as part of the regular budget cycle and the Administration only
uses the Trust as a "last resort," commodity orders are concentrated in
the last months of the fiscal year.

The Alliance has several recommendations for improving the reliability
and timeliness of food aid programs.

-   Assure that minimum tonnages are taken seriously and incorporated
    into USAID's planning and budgeting. Our recommendation for a
    1,200,000 MT "safebox" for non-emergency programs, described under
    point 2, would help to achieve this goal.

-   Require USAID to approve non-emergency programs and commodity levels
    two months in advance of the beginning of the fiscal year. This
    would allow the first commodity orders to be placed in time for
    delivery during the first few months of the fiscal year. Since all
    agreements are subject to appropriations, early approval would not
    override the budget process. In addition, the Title II account holds
    extra funds at the end of each fiscal year that are typically
    carried over and these funds can be used to secure the early orders.

-   While we recognize that the Committee on Agriculture may not be in
    the position to effect this change, on-time appropriations and
    sufficient appropriations at the beginning of the fiscal year would
    allow orderly program planning and more timely and efficient
    delivery of commodities throughout the year, without program
    disruptions. When adequate sums are available, more commodities can
    be pre-positioned off-shore for more timely deliveries if an
    emergency arises. The procurement can be spread out throughout the
    year, which will allow USDA to plan its procurement to get the best
    prices possible for commodity and inland transport.

-   As described later in our testimony, clarify that the Trust should
    be used rather than curtailing developmental food aid programs to
    shift the funds to emergencies.

    With these procedures, commodity ordering and delivery would be more
    reliable, which agricultural processors are seeking so they can plan
    their inventories, which PVOs are seeking so the commodity arrives
    when needed, and which saves money because commodity purchases and
    shipping can be spread out throughout the year rather than spiking
    during the last three months of the year.

***2. A Safebox for Developmental Food Aid Programs:***

**Establish a safebox for Title II non-emergency programs that assures
1,200,000 metric tons will be made available each for non-emergency
Title II programs each fiscal year. This amount would not be subject to
waiver.**

Section 204(a)(2) of PL 480 directs USAID to make available 1,875,000
metric tons of commodities for Title II non-emergency programs each
fiscal year. The law permits USAID to waive this minimum after the
beginning of the fiscal year if there are insufficient requests for
programs or the commodities are needed for emergencies. This implies
that USAID should seek proposals for the full non-emergency minimum
tonnage and only waive the minimum under extraordinary circumstances.
Instead, months in advance of each fiscal year USAID acknowledges that
non-emergency programs will be limited to about 750,000 MT and does not
make the minimum tonnage available.

We therefore recommend only allowing USAID to waive up to 675,000 MT of
the non-emergency minimum tonnage level, which would assure that USAID
makes available at least 1,200,000 MT each year for multi-year food for
development programs -- reestablishing America's commitment to help
those suffering from chronic malnutrition and hunger. This is less than
the minimum tonnage required under law for these programs (1,875,000
MT), but more than the amount USAID is actually providing (750,000 MT).

Programs that address the underlying causes of chronic hunger include
mother-child health care, agricultural and rural development, food as
payment for work on community infrastructure projects, meals in schools
and take-home rations to encourage school attendance, and programs
targeting HIV/AIDS-affected communities. Chronic hunger leads to high
infant and child mortality and morbidity, poor physical and cognitive
development, low productivity, high susceptibility to disease, and
premature death.

Reducing these programs has been counterproductive, as developmental
food aid helps improve people's resilience to droughts and economic
downturns. Giving people the means to improve their lives also provides
hope for a better future and helps stabilize vulnerable areas. Valuable
expertise of PVOs to help these communities and to respond to food
crises is being lost as they must stop their food aid activities, leave
their local partners and lose their strategic networks in these
vulnerable areas. Giving people the means to improve their lives also
provides hope for a better future and helps stabilize vulnerable areas.

We also note with alarm that due to budget constraints, in 2006 USAID
established a policy to limit non-emergency food aid to fewer countries
in order to "focus" the remaining resources. Under this policy,
non-emergency programs are being phased out in 17 countries and cutback
in others and programs will be allowed in only 15-18 selected countries.
Concentrating food aid resources in areas where there is high prevalence
of food insecurity and vulnerability is appropriate and was anticipated
in the USAID Food for Peace Strategic Plan, 2006-2010. However, the
current policy eliminates too many areas where chronic hunger is
prevalent and was driven by the decision to reduce the budget for
non-emergency programs. Many poor, vulnerable populations will be
excluded from receiving food aid, even though their needs are as
compelling as those populations that will be served. The capacity of
PVOs to serve populations in non-eligible countries will be lost, making
it more difficult to respond effectively at the early signs of an
emerging food crisis, which runs counter to the intent of the Strategic
Plan.

The two examples below are in phase out countries, Bolivia and Kenya.
They show how food aid programs are often conducted in areas where
poverty, unpredictable or unfavorable climate, and remoteness have made
it very difficult for people to improve their lives without help from
the outside. These programs leverage resources and create benefits
beyond the targeted recipients, increasing the impact per dollar spent.

***Bolivia:*** Adventist Development and Relief Agency International
(ADRA), Food for the Hungry (FH) and several other PVOs are conducting
multi-faceted, 6-year programs in Bolivia using food distribution
(corn-soy blend, lentils, green peas, soy-fortified bulgur, wheat-soy
blend and flour) and proceeds generated from the monetization of flour
to support individual, community and municipal efforts to overcome
development constraints and to enhance household food security.

In the targeted rural areas over 70% of the population live in poverty
and infant mortality rates are 116 per 1000 births. These communities
must rely on their own agricultural production as they are remotely
located, have poor roads and lack transportation.

The current PVO programs focus on addressing their lack of access to
markets, health care, schools and social services by increasing
production and incomes and improving nutrition among vulnerable groups.
Food aid is distributed (1) for Maternal and Child Health and Nutrition
(pregnant and lactating mothers, infants and children under five, the
most critical stages for cognitive and physical growth) and (2) in
conjunction with training and technical assistance for improved
agricultural production, diversified crops to improve the diet, and
marketing of agricultural products. Concurrent activities included
increasing access to clean water, improving health and sanitation
practices, natural resource management, building greenhouses, and
improving marketing roads and irrigation systems.

In FH's midterm evaluation (2006, three years after the program began,
compared to 2002 baseline data), they found a 35% decrease in chronic
malnutrition in children (height/weight or "stunting") and household
incomes had increased by 270% or more. The direct beneficiaries of the
FH program, alone, were 212,292 people and indirectly, 410,000 people
benefited. Because of program efficiencies and FH's ability to raise
more matching funds after the program began, the number of beneficiaries
was 283% greater than originally planned.

***Kenya.*** A World Vision Title II program in Kenya targeted 1528
pastoralist families in the Turkana region, an arid environment that is
plagued by recurring droughts. Before the program, these families were
dependent on emergency food aid nearly every year.

Some of the commodities provided were distributed as payment for
participation in training and for working on projects that improved
irrigation infrastructure, cultivation techniques and land management.
Other commodities were sold through open tenders and the funds generated
supported the food for work projects. Within 6 years, even though there
had been droughts in between, income increased from a baseline of \$235
per year to \$800 per year, families could afford to send their children
to school, and the communities no longer depended on relief. In fact,
the program was turned over to the participants and they have spread
their knowledge to 475 other farmer families.

PVOs were hoping to replicate this successful model in other areas of
Kenya where pastoralists are still dependent on emergency rations nearly
every year. However, USAID is phasing out non-emergency projects in
Kenya as part of a larger effort to limit the scope of developmental
food aid programs. Meanwhile, Kenya remains a recipient of emergency
food aid and pastoralists are particularly at risk.

Reports accompanying appropriations bills for the past 5 years admonish
the Administration to meet the Title II non-emergency minimum tonnage
and to rely on the Bill Emerson Humanitarian Trust for urgent needs.
However, this language has had no perceivable effect. This follows the
general trend indicated in a recent GAO's report -- from 2001 to 2006
developmental food aid fell by 42%.

***3. Maximize use of the Section 202(e) Support Funds:***

**Make 10% of the Title II program level available for Section 202(e)
support funds and allow these funds to be used to support complementary
activities associated with food aid programs.**

Section 202(e) funds are provided by USAID to Title II eligible
organizations to support (A) the establishment of new programs and (B)
specific administrative, management, personnel and internal
transportation and distribution costs associated with carrying out
programs in foreign countries. The law provides no less than 5 and no
more than 10% of "funds made available in each fiscal year" under Title
II for these purposes. The Alliance proposes the following changes:

-   Allow Section 202(e) funds to be used to cover costs for
    development-related activities conducted under a Title II program by
    an eligible organization. Monetization is often used for these
    purposes and Section 202(e) is not sufficient or intended to replace
    monetization. However, monetization is not appropriate in all target
    countries and in some countries the ability to monetize varies
    year-to-year based on the market situation. Thus, flexibility is
    needed so Section 202(e) funds may be used for activities that
    monetization funding often supports, such as materials, technical
    assistance and training for agricultural, materials for mother-child
    health care, and food-for-work infrastructure programs.

-   Allow USAID to provide funds to eligible organizations to improve
    methodologies, such as needs assessments for identifying target
    populations and monitoring and reporting on the impact of
    monetization and other aspects of their programs. These are
    activities that will benefit program implementation overall and are
    not associated with one particular program.

-   Provide not less than 10% of total Title II funding for Section
    202(e) purposes. Currently, the law allows between 5 and 10% of
    Title II funds for this purpose, but when developing its 202(e)
    allocations, USAID does not want to overshoot the 10% maximum. USAID
    therefore limits 202(e) use to about 7-8% of the regular
    appropriations level; as it cannot predict how much money may be
    provided later in the year through supplemental appropriations,
    carry in funds, or maritime reimbursement. As a result, about 5-6%
    of the Title II program level is being provided for Section 202(e)
    (approximately \$90 million) Setting a minimum of 10% of total
    funding provided from all sources will provide the additional funds
    needed for meeting costs associated with program implementation and
    improving program methodologies.

Before the early 1990's, when most non-emergency food aid was provided
to Latin America and Asia, there were other ways to obtain support
funds. For example, the Government of India contributed to some
large-scale Title II food for education and early childhood development
programs. In some countries, such as Bolivia and Bangladesh, proceeds
generated from sales of commodities under government-to-government PL
480 Title III programs were available.

However, Title III programs were phased out more than a decade ago, so
those funds are no longer available. Now, most Title II food aid is
provided to sub-Saharan Africa, where the infrastructure is poorly
developed. While non-emergency programs can be coordinated with
recipient country developmental or food security plans, the governments
themselves generally do not provide direct financial or logistical
support. Instead, they look to the PVO to fill gaps in areas of poor
coverage. Thus, over the past 10 years PVOs have relied, primarily, on
monetization to generate funds to cover program costs and, secondly, on
Section 202(e) funds.

***4. Update Food Quality Systems and Product Formulations:***

**Title II funds should be provided to bring the food aid quality
enhancement project to completion over the next 3-4 years.**

Both the quality and formulation of food aid products are crucial to
delivering safe, wholesome products to undernourished populations,
particularly vulnerable groups such as infants and young children, women
of child-bearing age and people living with HIV/AIDS. Formulations for
the value-added products used in Title II have been static for decades
and food aid distribution overseas has sometimes been disrupted due to
quality concerns. Through private funding, SUSTAIN (a non-profit that
provides technical assistance for food systems and was referenced in the
2002 Farm Bill), has made progress to address these issues in a
scientific, systematic and impartial manner. As neither USDA nor USAID
has provided funding to support these reforms, if necessary, we support
the use of Title II funds for this purpose.

**Assure Timely Use of the Bill Emerson Humanitarian Trust**

**To maintain the Trust as a contingency reserve for emergencies
replenish the Trust with \$60 million per year until it is full and
assure it is available to respond to emergencies in a timely manner and
without interfering with the provision of Title II non-emergency
programs each year.**

Administered by USDA, the funds and commodities in the Bill Emerson
Humanitarian Trust (BEHT or "Trust") are needed to supplement P.L. 480
Title II when there are urgent humanitarian food aid needs. The
commodities are provided by the Trust and CCC covers the ocean freight
and delivery costs. The Trust can hold up to 4 million metric tons or
cash equivalent, but currently only holds about 915,000 metric tons of
wheat and \$107,000,000 (which is available to buy commodities when
needed). Because a diversity of commodities is needed for emergencies,
it is best for the Trust to be replenished with funds that can be used
to procure the appropriate commodities when needed.

Two mechanisms need to be improved to make the Trust more readily
available for emergencies: the "trigger" for releasing commodities and
the level of reimbursement. We urge you to make the needed changes in
the 2007 Farm Bill.

***Trigger:*** Section 302(c)(1)(c) of the Bill Emerson Humanitarian
Trust Act states that a waiver of the Title II non-emergency minimum
tonnage is not a prerequisite for the release of commodities from the
Trust. Nonetheless, the Administration has taken the stance that it will
only use the Trust commodities as a last resort after all other avenues,
including the Title II waiver, are considered. This may partially be
driven by the 500,000 metric ton limitation on BEHT tonnage that can be
provided in any fiscal year, although if the Trust is not used one year
the 500,000 metric tons for that year can be added to future year
releases. Another reason may be the term "unanticipated" emergencies,
which is how the BEHT Act refers to releases for international
humanitarian crises versus "emergencies," which is how the BEHT Act
refers to releases in case of short supply of a commodity. Thus, we have
several recommendations for fixing the language.

First, create safebox for 1,200,000 metric tons (about \$600 million
total cost) for Title II non-emergency programs that cannot be waived.
This takes away the confusion about whether the waiver is used before
the Trust can be accessed. Second, eliminate the part of the Trust that
refers to "short supply," as it is a vestige of a time when food aid was
considered "surplus" and is outdated now that the Trust can hold funds.
Third, change the terminology and allow commodities or funds to be
released when there are emergency food aid needs. And, forth, allow up
to 1,000,000 metric tons to be released in any fiscal year.

***Replenishment:*** Currently, the Trust may be replenished either
through a direct appropriation or by capturing \$20 million of funds
reimbursed to CCC from PL 480 as repayment for previous use of the
Trust. The Administration has never requested a direct appropriation,
but Congress provided \$67 million for replenishment as part of the FY
2003 Iraq supplemental appropriations act. In addition, USDA has twice
captured \$20 million from PL 480 reimbursements. Thus, the Trust now
holds \$107,000,000. This amount plus the 915,000 MT of wheat held in
storage makes up the total value of the Trust, which is about 1,500,000
metric tons in wheat equivalent prices. To bring the Trust to its full 4
MMT wheat-equivalent level, we urge that the \$20 million be raised to
\$60 million per year.

**Expand Food for Progress**

**Increase the Food for Progress to 500,000 metric tons for programs
that improve private sector agricultural, food and marketing systems in
developing countries that are implementing market reforms.**

The Food for Progress Act directs USDA through the Commodity Credit
Corporation (CCC) to provide a minimum of 400,000 metric tons of
commodities each year to developing countries that are introducing
market reforms and supporting private sector development. These programs
may be implemented by PVOs, the World Food Program and recipient country
governments. The amount actually provided through CCC falls short of
400,000 metric tons because there is a cap on the amount of funds that
CCC can provide for delivering the commodities and administering the
programs overseas.

USDA has authority to use PL 480 Title I funds in addition to the CCC
funds to implement Food for Progress programs. In FY 2006, about 75
percent of Title I funds were used for this purpose. As no funds were
appropriated for Title I in FY 2007, and the Administration seeks no
funding in FY 2008, this means a cut in funding in Food for Progress.

Many poor, developing countries are undergoing economic reform and,
therefore, the demand for Food for Progress programs is great. Forty-six
different PVOs apply for Food for Progress programs. For FY 2007, 100
proposals were submitted by PVOs and 16 by governments, but only 11 new
proposals were approved and 3 other programs were provided second year
funding.

We therefore recommend increasing the minimum to 500,000 metric tons and
assuring that this amount is available for proposals submitted by PVOs.
To accommodate the additional tonnage the amount available for
transporting the commodities would have to be lifted or increased.

***Example: International Relief & Development (IRD), Azerbaijan***

Commodities: 10,000 MT soybean meal; Total value: 2,125,467 (one year)

Beneficiaries: 26,899

IRD targeted Ganja, Goranboy, and Khanlar in western Azerbaijan, because
in these regions there is a high concentration of internally-displaced
persons (IDPs), the level of unemployment is close to 70%, and the local
farmers and IDPs are poor and are not able to support their basic needs.
Soybean meal monetization was chosen because of shortages of feed grains
in the country. IRD trained farmers in crop and livestock production and
market development and distributed small grants to start-up local
businesses. HIV/AIDS awareness was also conducted in the targeted
communities.

Results:

-   Business development classes were provided for 1,532 farmers, in the
    town of Ganja and four local regions (Kahnlar, Geranboy, Samukh and
    Zakatala). As a result, farmers submitted business proposals to IRD,
    and IRD funded 106 of them.

-   IRD published two leaflets, "Raising chickens in your backyard" and
    "Chicks' diseases and their prevention"; five handbooks on various
    agricultural topics: "Recommendations for sheep keepers",
    "Recommendations for cattle keepers", "Recommendations for
    beekeepers", and "Recommendations for chicken keepers".

-   The total number of people who benefited from the small grants was
    26,899. The farmers and small entrepreneurs formed several groups
    that were eligible for receiving grants. Recipients included 16
    cattle breeding groups, 22 women poultry groups, 38 sheep breeding
    groups, two women geese groups, 19 agro-service groups, two
    harvesting groups, and seven beekeeping groups. Within a year,
    monthly income of beneficiaries at least doubled. Each of the 19
    agro-service groups received approximately \$5,090 and in the first
    year members provided services in their communities valued at
    \$46,421.

**Monetization's Continued Contribution**

**Monetization is an important component of food aid programs and we
support its continued use where appropriate, based on market analysis.**

Monetization is the sale of commodities in net food-importing,
developing countries and the use of proceeds in projects that improve
local food security. It can have multiple benefits and is appropriate
for low-income countries that must depend on imports to meet their
nutritional needs. Limited liquidity or limited access to credit for
international purchases can make it difficult for traders in these
countries to import adequate amounts of foodstuffs and monetization is
particularly helpful in such cases. In all cases, the proceeds are used
to support food security efforts or the delivery of food in the
recipient country.

Monetization can also be an effective vehicle to increase small-scale
trader participation in the local market and financial systems, can be
used to address structural market inefficiencies, and can help control
urban market price spikes. The commodity can also be integrated into
agricultural processing operations, helping to establish and expand feed
mills, fortified foods, and other locally-important products. For
example, International Relief & Development used bulk wheat and soy
flour provided through Food for Progress to establish small noodle
production plants in Cambodia and the soy-fortified products were
incorporated into school feeding programs. ACDI/VOCA used soybean meal
donated by USDA to help reestablish the feed industry in Indonesia after
the economic crisis. Both of these activities expanded local enterprise,
increased jobs, and had a long-lasting food security benefit.

Market analysis is an important element of all food aid programs, but is
more extensive for monetization programs. A "Bellmon Determination" is
required for both monetization and distribution to make sure the
commodities chosen will not interfere with local production and
marketing and that there is adequate storage for the commodities
provided. Commodities chosen for monetization are not locally produced,
are produced in small amounts or are available only during certain times
of the year. Therefore, the likelihood of creating local disincentives
to production is small. However, some countries in a region have linked
markets, so the analysis must also consider inter-country trade. For
example, there is a Bellmon analysis that covers all the countries in
West Africa.

As the potential disincentive effect of food aid is oft cited, but
little researched, one study worth noting is by Abdulai, Barrett
and Hoddinott \[October 2005\], which looks at disincentive effects of
food aid provided in Ethiopia, the largest food aid recipient country in
Africa over the 10-year review period. It received food for distribution
and monetization.  The study found no disincentive effect and note on
page 1701 of the article: "In rural Ethiopia, simple test
statistics...suggest that the disincentive effects of food aid on
household behaviors are many, large in magnitude and statistically
significant. *However*, when we take into account household
characteristics...\--that can affect behaviors and on which food aid is
commonly targeted---many of these adverse effects vanish.  In fact,
there is some suggestion in these data that food aid leads to increases
in labor supply to agriculture, wage work, and own business activities."

Save the Children and World Vision prepared a review of the PVO
monetization programs under Title II, covering 6 commodities in 30
countries and 48 programs from 2001-2005. They found that the commodity
choice and quantities avoided competing with local production and
marketing and therefore diminished potential disincentive effects.  As
the commodity levels provided were small in comparison to needs and
required imports, the potential for commercial import disruption was
also small.

***Example: Africare's PL 480 Title II Development Program in Guinea***

Africare began implementation of a five-year *Guinea Food Security
Initiative (GnFSI)* in the Prefecture of Dinguiraye in the Upper Region
of Guinea in September 2000. This program represents an expansion of a
very successful first phase program (1995 -- 2000). This multi-sector
program is currently operating in 50 of 84 districts of the Prefecture
providing support to a population of 107,750 people.

Africare's program focuses on decreasing post-harvest storage losses,
improving the nutritional status of children under the age of five, and
increasing the capacity of District Development Committees to understand
and address the challenges to food availability, access and utilization.
Dinguiraye is an area that prior to Africare's intervention, received no
outside assistance and limited support from its own governmental
ministries. Chronic malnutrition of under-5 children was in excess of
50% and the amount of food available to households was adequate for less
than four months per year.

The program's positive impacts due to the introduction of improved
storage techniques include adding a month to post-harvest storage
without damage to commodities, and doubling the months when adequate
food is available in the households.

Working with the Ministry of Health, Africare's nutritional program
reduced chronic malnutrition rates from 50% to 21% and the number of
caretakers of under-5 children that participate in growth monitoring,
food demonstrations and guided health discussions increased to more than
90% of the population. The prospective for these activities to continue
under the auspices of the Ministry of Health is strong, because they are
low cost and very popular with the beneficiaries themselves. More
importantly, the target population has had an active role in improving
the methodology by which more nutritious foods are identified and made
available.

The financial resources for the program are generated by monetization of
Title II food commodities (approximately 4,600 MT's of vegetable oil
during FY 05 for Africare and two other PVOs)**.** This innovative
program promotes private sector development and broadening of local
markets, both for producers and consumers, independently of the food
security activities funded with the sales proceeds.

Vegetable oil was chosen for monetization because little is produced in
country. The amount imported for monetization was small in comparison to
import needs, which minimizes the likelihood of interfering with
commercial imports. Further, vegetable oil availability is concentrated
in the main city, not the outlying areas. Africare therefore arranged
for the sales to reach the outlying areas through the sale of small lots
to multiple buyers.

Africare worked with the Guinean government and private sector to
increase the involvement of small-scale distributors to have access to
vegetable oil, which is usually sold at the high end of the local
market. A consequence has been the increased distribution of vegetable
oil throughout the country, outside of the capital and principal urban
markets to key rural areas that had never been served. Cost recovery was
at or above local prices and averaged about 87% of the full cost of US
procurement and shipping. This methodology included private sector sales
techniques (e.g. closed tender bids, bank guarantees reflecting local
interest rates and payment of required taxes by the buyer), and
generated the following benefits:

1.  Higher prices received from the buyers compared to if it was just
    sold to regular importers, which translates into a larger amount of
    sales proceeds to support the development activity.

2.  Increased sophistication and understanding of commercial business
    practices by the private sector, especially the small-scale operator
    who was often unable to participate in these types of transactions
    (or even the formal financial system).

3.  Increased availability of high quality commodities throughout the
    national market.

***Example: Joint Aid Management Processing Plants in Africa, USDA
Programs***

One Alliance member, Joint Aid Management, is a Christian humanitarian
organization based in South Africa that focuses on nutrition programs in
schools and for the needy, assistance to orphans and vulnerable
children, water and sanitation, skills development and community
training. It established food processing plants to produce corn soya
blend and other blended and fortified foods for use in its nutrition
programs, including sales to the UN World Food Program and distribution
through their own programs. While much of the food it uses is locally
procured, it also participates in USDA food aid programs, processing
donated commodities that are then used for nutrition programs. This is
one of the ways that food aid programs allow the creative use of
monetization to support local processing while also contributing to
targeted food security programs.

**Pilot Program for Local/Regional Purchase**

**We recommend a field-based, pilot program for local purchases for
famine prevention and relief.**

In-kind food aid continues to be the most dependable and important
source of food aid. Commodities committed by and sourced directly from
donor countries, which have more than adequate production to meet their
domestic needs, is required to assure that sufficient levels food aid
are available each year. However, there are situations where purchases
closer to the area of need could provide more timely response, diversity
of the food basket, and benefits to local agricultural development.

Members of the Alliance were under the impression that Title II gives
broad discretion to the Administrator of USAID under section 202(a) to
provide commodities under any terms or conditions deemed necessary for
an emergency. Therefore, we assumed local purchase was already possible,
albeit not meant to be used on a regular basis. However, we understand
that USAID interprets this section differently.

The Administration has proposed to provide up to 25% of Title II funds
for local or regional purchase for emergencies. Many of the areas where
food aid is delivered need additional commodities from imports to meet
their needs and there may little room to expand on the local/regional
purchase, considering the large amounts that the UN World Food Program
is already procuring. Therefore, we recommend assuring adequate US
commodities are assured to meet the minimum tonnages under Title II and
to add a field-based pilot program for local purchase.

While PVOs have experience using privately-raised funds and, to a
limited degree, USAID International Disaster and Famine Assistance
account funds for local purchases, information from these programs has
not been systematically collected and therefore is inadequate to use for
developing appropriate methodologies and best practices for future
programs. Thus, as part of the 2007 Farm Bill we recommend a pilot
program for local purchases for famine prevention and relief --

\(1\) Within recipient countries or nearby low-income countries,

\(2\) In cases where the procurement is likely to expedite the provision
of food aid,

\(3\) Where the procurement will support or advance local agricultural
production and marketing, and

\(4\) Conducted by PVO implementing partners that have experience with
food aid programming in the recipient countries and are fully audited
according to US Government regulations.

To assure that accepted practices for food aid programs are followed and
to identify appropriate methodologies and best practices for future
programs, each PVO implementing a pilot program shall:

(1) Prior to implementing a local purchase program, conduct an analysis
    of the potential impact of the purchase on the agricultural
    production, pricing and marketing of the same and similar
    commodities in the country and localities where the purchase will
    take place and where the food will be delivered;

(2) Incorporate food quality and safety assurance measures and analyze
    and report on the ability to provide such assurances;

(3) Collect sufficient data to analyze the ability to procure, package
    and deliver the food aid in a timely manner;

(4) Collect sufficient data to determine the full cost of procurement,
    delivery and administration; and

(5) Monitor, analyze and report on the agricultural production,
    marketing and price impact of the local/regional purchases.

**McGovern-Dole Food for Education**

The McGovern-Dole Program provides incentives for poor families to send
their children to school. Requiring an appropriation of no less than
\$100,000,000 each year will give certainty that funds are available for
multi-year programs. These types of programs used to be included in
Title II, but with the establishment of McGovern-Dole in 2002, such
programs under Title II are being phased out. Increased funding would
allow more multi-year programs, improve program impact, and allow
broader use of the authority in the law to support both educational
programs and programs for children under the age of five, which is when
malnutrition can have its most devastating impact on child development.

**Eliminate Objectives that Link Food Aid to Expansion of Export
Markets**

Policies and programs for U.S. and other international food aid should
be established and operated based on the food security needs of
recipient countries and vulnerable populations rather than donor country
objectives to expand its export markets. In practice, US food aid
programs do not include objectives to expand US markets and their
success is not measured on this basis, but there are provisions in
current law that state market expansion as an objective. Changes are
needed to correct this problem: (1) Eliminate the statement in the
preamble to PL 480 that it is the policy of the United States to use
food aid to "develop and expand export markets for United States
agricultural commodities." (2) In PL 480 Title I, eliminate the priority
for countries that "have the demonstrated potential to become commercial
markets for competitively priced United States agricultural commodities"
and other references to using Title I for market development purposes.

**Conclusion:**

In conclusion, Mr. Chairman, we can see the many benefits US food aid
programs are now creating for poor communities, improving incomes,
living conditions and nutrition and sowing the seeds for a promising
future.

Thank you for supporting these life-giving programs. I would be pleased
to answer any questions you may have.

*Attachments:*

# Attachment A, PL 480 Title II Program Request and Approval Process, FY 2007

# Attachment B, PL 480 and Section 416(b) Title II Funding Chart, 2001-2008 

**ATTACHMENT A**

**ALLIANCE FOR FOOD AID**

**Summary of PVO/Cooperative ("Cooperating Sponsor") Proposal Planning
Process**

**for PL 480 Title II Multi-Year Assistance Programs (MYAPs) for FY
2007**

**(These are commonly called "non-emergency" or "development"
programs.)**

**FY 2007 Title II Proposal Time Line:**

***February 22, 2006 \-- Title II Draft FY 2007 MYAP Guidelines for
Cooperating Sponsors*** (CSs) were provided for submitting new program
proposals. The Guidelines list 8 evaluation criteria that will be used
for grading proposals.

The Guidelines state that activities must fit within the Food for Peace
(FFP) Strategic Plan 2006-2010, which focuses on reducing food
insecurity in vulnerable populations and is available on the USAID/FFP
website. A variety of activities may fall under this overall objective,
such as natural resource management, income security and social
services, community development, agriculture development,
employment-labor-training, food and nutrition, disaster prevention and
relief. Proposals must clearly describe each objective, its rationale
and implementation plan, and the method for tracking and measuring
impact.

There is a section in the Guidelines called "legislative mandates for
type of commodity, programming and program size," but no mention is made
of the 1,875,000 metric ton minimum requirement for non-emergency
programs. No information is provided about the amount of funding
available or the tonnage level available for MYAPs. However,
simultaneously, the USAID FFP Office issued a ***"priority country
plan"*** that made clear that there would be little, if any additional
commodity available overall and it the amount available for all
non-emergency programs would be approximately 750,000 MT (\$350
million).

***The priority country plan*** was introduced at meetings between the
FFP Office and CSs. USAID informed CSs that for FY 2007, new programs
will only be accepted in 15 "priority countries," while for FY 2006
there were 32 countries. Multi-year programs that were underway in the
17 countries not on the priority list would be phased out over the next
2-3 years, requiring changes in many of the already-approved program
plans.

CSs were advised to check with the USAID Missions in each country and
the USAID/Food for Peace Office (FFPO) to find out how much commodity
would be available. However, the amount available was not clear in any
case, as USAID kept adjusting the levels downward over the next 6
months.

***May 1, 2006, a final set of Guidelines was published,*** which were
similar to the February 22 draft, but specifically reference the
"priority country plan" for phasing out 17 countries and identifying the
15 countries where programs will be allowed.

***May 15, 2006 \-- Proposals are due.*** \[They were originally due on
March 15^th^, but this was extended to May 15^th^.\]

***September 11, 2006 \-- 120 days after proposal submission and
according to the law, the deadline for USAID/FFP to send approval or
disapproval letters to CSs.*** Disapproval letters must include reasons
and what needs to be corrected to be eligible. In the past, the CS and
FFP would discuss the outstanding issues in a disapproval letter and
after clarification, the proposal was often approved. An approval letter
does not guarantee a program agreement will be signed. A Transfer
Authorization (TA) must be signed before a CS can "call forward" (order)
commodities and receive funds under the agreement.

**CS Program Planning (typically starts 4 months or more before
submission)**

1.  ***Decision to write proposal.*** CS headquarters and country office
    staff discuss whether a Title II program would be appropriate for a
    particular country. CS staff meets with the FFP representative at
    the USAID Mission in the recipient country or regional office to
    determine the Mission's views about Title II programs and whether
    the USAID Mission received notice from USAID/FFP that non-emergency
    (e.g. multi-year) food aid will be made available for that country.
    A CS will also confer with other CSs operating in the country.

2.  ***Proposal preparatory work.*** A team is developed to work on the
    proposal, which may in HQ and field staff as well as consultants.
    The skill sets include: (a) Ability to conduct a Bellmon analysis
    (e.g. to determine which commodities can be provided as food aid
    without having a negative impact on the local market or creating a
    disincentive to local production and to assure availability of
    adequate storage). Bellmons may be conducted through the USAID
    mission or in conjunction with other CSs working in the recipient
    country. (b) Technical skills in collecting baseline data, assessing
    nutritional and other information indicative of food security
    status, and knowledge of program interventions. (c) Country-specific
    knowledge and relationships.

3.  ***Needs assessment.*** Identify the target population and needs
    broadly by available nationwide data and more specifically through a
    variety of techniques such as informant interviews, focus groups and
    weighing children. Collected data are combined with information and
    input from the USAID Mission, national and local governments,
    community-based groups and others to determine (a) which areas and
    populations the project will target and (b) what information to
    collect in the baseline survey (which, if the proposal is approved,
    is updated at the project start-up when the detailed implementation
    plan is developed.) Baseline survey data may include percentage of
    children under age 5 with stunting or underweight (the primarily
    measures of poor nutrition), adequacy of household food supplies,
    agricultural productivity and sales, and other indicators of food
    security. These indicators are also measured at intervals during the
    5-year tenure of the typical program. Comparisons of baseline data
    to mid-term or final data are used to determine whether the program
    is making the progress intended, whether adjustments are needed in
    methodologies and to measure impact.

4.  ***Develop the core elements of the proposal.*** Compile all data
    collected and begin to determine the following:

    a.  **Activities** that will address the constraints to food
        security, e.g. the situations and risks that threaten
        availability of food (such as the types and amounts of food
        available in local markets during different times of the year),
        access to food (such as household income levels), and
        utilization of food (such as the degree of
        malnutrition/under-nutrition among children and women of
        reproductive age). As 100% monetization programs are no longer
        allowed, even if these types of programs are considered well
        suited to the needs, they cannot be proposed. Typically, a mix
        of monetization and commodity distribution activities are
        selected to achieve identified objectives.

    b.  **Commodity choice and frequency** **of deliveries** is based on
        the local context (what are people eating that is also available
        from the US or what is needed to supplement diets), market
        analysis (what is appropriate to provide considering local
        market availability and conditions -- reflected by the Bellmon
        analysis), and what other organizations may be distributing or
        monetizing. In addition, a nutritional analysis (i.e. number of
        calories and other nutrients in the food basket) is conducted
        based on the proposed commodities for distribution versus the
        nutritional value of the current typical food intake of the
        target population.

    c.  **Coordination of monetization with other CSs.** Sometimes CSs
        conduct monetization jointly and each of their corresponding
        proposals will have the same description of the monetization
        process. The commodity for monetization is determined based on
        the usual marketing requirements (e.g. patterns of commercial
        imports of the same or similar commodities) determined by USDA
        and the Bellmon Determination (e.g. identification of
        commodities that can be provided that will not interfere with
        local production and marketing and for which adequate storage is
        available) conducted by CSs and in some cases the USAID Mission.

    d.  An **Initial Environmental Estimate** is prepared, which
        accounts for potential environmental hazards the project may
        encounter and conforms to USAID/FFP Guidelines.

    e.  The **program implementation plan** that will be used, including
        the evaluation and monitoring methodology and impact indicators
        that will be measured.

5.  ***Prepare a rough draft and present it to the USAID Mission*** for
    feedback to ensure that the program continues to be in line with the
    USAID Mission objectives.

6.  ***Finalize proposal***. This is often done at HQ and includes:

    a.  Collect **letters of support** from the USAID Mission, local
        government, relevant non-governmental organizations and other
        entities that are counterparts in the project and are important
        for sustainability or may provide services such as supervision
        and/or storage for commodities.

    b.  Prepare the **Annual Estimated Requirements (AER)**, which
        reflects the commodities and tonnage levels for each activity
        and schedule of delivery, is the basis for "call forwards"
        (commodity orders) and must be approved by the USAID Mission.

    c.  Complete and **submit the proposal** in accordance with USAID
        Guidelines, which are available on the USAID/Food for Peace
        website.

7.  ***Approval and call forwards***. The signing of the Transfer
    Authorization (TA) by USAID is the official approval of the program.
    Then, the CS is permitted to send call forwards for commodities
    based on the approved AER through the electronic Commodity Tracking
    System, which is monitored by FFP and USDA. Prior to the 4^th^ of
    each month, FFP informs a CS whether its call forward is accepted or
    denied. If approved, it will be included in that month's USDA/KCCO
    commodity purchase. Once the call forward is approved, typically the
    freight forwarder for the CS becomes engaged in monitoring USDA
    commodity procurement; tendering for shipping; seeking
    USAID/Transportation approval for the freight fixture and whether it
    is flagged US or foreign (based on lowest landed cost of the
    commodity and freight combined and 75% cargo preference); and
    tracking the loading at US port and the vessel's progress until the
    commodities are delivered to the destination port. Specific
    regulations govern the tendering, awarding and contracts for ocean
    freight.

8.  ***The CS's responsibility for the commodity begins when the
    commodity crosses ship's tackle as it is being loaded at US port.***
    The CS has a marine survey conducted at the delivery port to assess
    any losses or damages. The survey must be submitted to USDA and used
    as the basis for any claims against the vessel owner. The CS is
    responsible for receiving and using the commodity according to the
    terms of its agreement with USAID.

9.  ***Monitoring progress against baseline data is required throughout
    the tenure of the program and annual reports are submitted to USAID
    with information about the levels received and used, monetization,
    progress to date and estimated requirements for the upcoming
    year.*** In addition, evaluations are conducted mid-term and at the
    end of each program and PVOs are subject to OMB Circular A-133 audit
    requirements for non-governmental organizations.