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[Senate Hearing 114-74]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 114-74

                 AMERICAN FOOD AID: WHY REFORM MATTERS

=======================================================================

                                HEARING

                               BEFORE THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 15, 2015

                               __________

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                COMMITTEE ON FOREIGN RELATIONS         

                 BOB CORKER, TENNESSE, Chairman        
JAMES E. RISCH, Idaho                BENJAMIN L. CARDIN, Maryland
MARCO RUBIO, Florida                 BARBARA BOXER, California
RON JOHNSON, Wisconsin               ROBERT MENENDEZ, New Jersey
JEFF FLAKE, Arizona                  JEANNE SHAHEEN, New Hampshire
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
DAVID PERDUE, Georgia                TOM UDALL, New Mexico
JOHNNY ISAKSON, Georgia              CHRISTOPHER MURPHY, Connecticut
RAND PAUL, Kentucky                  TIM KAINE, Virginia
JOHN BARRASSO, Wyoming               EDWARD J. MARKEY, Massachusetts
              Lester E. Munson III, Staff Director        
           Jodi B. Herman, Democratic Staff Director        

                              (ii)        

                            C O N T E N T S

                              ----------                              
                                                                   Page

Cardin, Hon. Benjamin L., U.S. Senator from Maryland, opening 
  statement......................................................     2
Coons, Hon. Christopher A., U.S. Senator from Delaware, statement     4
Corker, Hon. Bob, U.S. Senator from Tennessee, opening statement.     1
Esposito, Dina, Director of the Office of Food for Peace, United 
  States Agency for International Development, Washington, DC....     4
    Prepared statement...........................................     6
Mercier, Stephanie, senior policy and advocacy adviser, Farm 
  Journal Foundation, Alexandria, VA.............................    31
    Prepared statement...........................................    33
    Responses to questions submitted for the record by Senator 
      David Perdue...............................................    68
Ray, David, vice president for policy and advocacy, CARE USA, 
  Washington, DC.................................................    20
    Prepared statement...........................................    22
    Responses to questions submitted for the record by Senator 
      David Perdue...............................................    71
Smith, Vincent, AEI visiting scholar, professor of economics, 
  Department of Agricultural Economics and Economics, Montana 
  State University, Bozeman, MT..................................    25
    Prepared statement...........................................    27
    Responses to questions submitted for the record by Senator 
      David Perdue...............................................    67

              Additional Material Submitted for the Record

Written statements submitted by:
    Rev. David Beckmann, president, Bread for the World..........    48
    The U.S. Maritime Industry...................................    50
    Mercy Corps..................................................    52
    Gawain Kripke, policy director, Oxfam America, Washington, DC    54
    Save the Children............................................    57
    Dr. Carolyn Woo, president and chief executive officer of 
      Catholic Relief Services...................................    63

                                 (iii)

  

 
                          AMERICAN FOOD AID: 
                           WHY REFORM MATTERS

                              ----------                              

                       WEDNESDAY, APRIL 15, 2015

                                       U.S. Senate,
                            Committee on Foreign Relations,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:33 a.m., in 
room SD-419, Dirksen Senate Office Building, Hon. Bob Corker 
(chairman of the committee) presiding.
    Present: Senator Corker, Gardner, Perdue, Cardin, Shaheen, 
Coons, Murphy, and Kaine.

             OPENING STATEMENT OF HON. BOB CORKER, 
                  U.S. SENATOR FROM TENNESSEE

    The Chairman. The Foreign Relations Committee will come to 
order.
    I want to welcome our witness. I understand there may be 
circumstances where you may need to depart. We are just glad 
you are here. If you need to leave in 2 minutes, leave. I 
understand that there may be something occurring that will 
cause that. So please, just whatever makes you comfortable.
    I am glad to be here with our outstanding ranking member, 
who I have enjoyed working with so much. And I am glad we are 
having this hearing today on something that is so important to 
people around the world.
    I do not normally read opening statements. I think I may do 
it. We have been sort of focused on another issue for a while, 
but I think people know that since 1954, U.S. international 
food aid programs have helped to feed over 3 billion people and 
promote food security in over 150 countries. Most U.S. food aid 
is provided through Food for Peace, which is currently funded, 
on average, at $1.6 billion annually. Over the past 5 years, 
U.S. food aid has helped 56 million people, on average, per 
year.
    Today's hearing will provide the committee with an update 
on the current operations of the program, including the 
challenges it faces while responding to increasingly dangerous 
emergencies.
    This increasingly challenging global environment has 
illustrated to Congress the need for greater flexibility in how 
Food for Peace operates. The law requires that 100 percent of 
the food aid to be delivered be U.S.-purchased commodities, and 
50 percent of that is to be shipped on U.S.-flagged vessels.
    While recent reforms in the farm bill provide some 
administrative funds to be used for such things as locally and 
regionally purchased food aid and/or food vouchers, this 
limited flexibility must be executed in tandem with U.S.-
purchased commodities. The cargo and commodity preferences 
create inefficiencies that undermine our ability to get maximum 
impact in addressing poverty and suffering from our U.S. food 
aid dollars.
    In some cases, where U.S. national security interests are 
at stake, like in Syria and other regions in conflict, U.S. 
food aid plays an important role in U.S. policy and engagement. 
These interventions would not be possible if we relied on U.S.-
purchased commodities.
    Increasing flexibility in the Food for Peace program would 
provide up to $444 million in savings, allowing the United 
States 
to reach as many as 12 million more starving people, up to 2\1/
2\ months faster in some cases.
    Again, I think this just jumps out at us, that self-imposed 
limitations--I am tired, I have not had a lot of sleep. I will 
just say that the special interests that capture this program 
cause people around the world to starve.
    While the impact of reforming U.S. food aid overseas is 
profound, the domestic implications are minor, as food aid only 
contributes 1.41 percent to net farm income and 0.86 percent to 
agriculture exports.
    I have joined forces with my friend and colleague, Senator 
Coons, by authorizing with him the Food for Peace Reform Act. 
We are seeking to increase the flexibility of our food aid 
programs and are looking to our witnesses today to illustrate 
why reform to the program matters.
    For many around the globe we are not yet reaching but 
could, it is a matter of life and death.
    Again, we thank you for being here. I look forward to 
turning to Senator Cardin and maybe Senator Coons, who has been 
such a champion.
    But I hope that out of this hearing, something is going to 
occur where we will do the things necessary to make sure that 
our U.S. dollars help those people that today, as we sit here 
in this comfort, are starving because of special interests here 
in our own Nation.
    With that, Senator Cardin.

       OPENING STATEMENT OF THE HON. BENJAMIN L. CARDIN, 
                   U.S. SENATOR FROM MARYLAND

    Senator Cardin. Senator Corker, first of all, thank you for 
convening this hearing.
    Yesterday, this committee dealt with a very visible issue 
of national security, and that is preventing Iran from becoming 
a nuclear weapon state. Today, we are dealing with another 
issue of national security, but it is not quite as visible as 
the possibility of a nuclear Iran.
    I think we all understand that extremists get their 
strength from people who are desperate and have little hope. 
And when you are hungry, you are desperate.
    So this is an issue, as I see it, of national security. It 
also, of course, is an issue of what this country stands for, 
the values of America, what this country has been, a leader 
worldwide in promoting the right values.
    So I welcome this hearing. I thank Senator Corker, I thank 
Senator Coons, for their leadership in bringing forward reform 
of our food aid and the Food for Peace program so that we can 
do more with the resources that we have.
    Senator Corker pointed out the incredible record that this 
country has had since 1954. Three billion people have benefited 
from U.S. programs in 150 countries. That is an incredible 
record.
    But let me give you one that we are not proud about. Since 
2009, the Food for Peace program has lost about 37 percent of 
its funding, in spite of the fact that the international need 
has grown. Today, 805 million people are estimated to be 
chronically hungry; and 51.2 million people have been displaced 
by conflict. So the needs today are greater, and the resources 
are less.
    The United States has provided international leadership. 
Because I represent the Senate at the United Nations, along 
with Senator Johnson, I have had the opportunity to be up at 
the United Nations to talk about the millennium development 
goals and discuss where we have been successful. But to get 
people out of poverty and hunger is an international effort.
    These millennium development goals are working. But U.S. 
leadership is critically important.
    So we have to do a better job with Food for Peace. And the 
legislation that the two of you have brought forward is about 
using our money more efficiently. It has been estimated that we 
could serve as many as 8 million to 12 million more people with 
the same amount of resources, if we reform the system--8 
million to 12 million. I know numbers. You do not see numbers. 
You could have all those people here today. I think it would be 
a very visible reminder that we have to do a better job, and it 
really could have a major impact on our goals and on our 
national security.
    I do want to give a word of caution. There are serious 
issues that have to be resolved, if we are going to be able to 
move this legislation forward. We have concerns in the maritime 
industry. We have concerns with U.S. agriculture. We have 
concerns by the partnerships with our NGOs, dealing with 
lockbox and monetization and other issues. These are legitimate 
concerns, and we are going to have to work through that.
    But, Mr. Chairman, if we can work through the nuclear 
review agreement, this should be a piece of cake. We should be 
able to get this done.
    So I look forward to hearing from our witnesses. I would 
ask unanimous consent that I can put statements in the record 
from Catholic Relief Services, which is headquartered in 
Baltimore, MD; the U.S. Maritime Industry; and Bread for the 
World.
    The Chairman. Without objection.

[Editor's note.--The statements mentioned above can be found in 
the ``Additional Material Submitted for the Record'' section at 
the end of this hearing.]

    The Chairman. I am glad that these entities that have so 
much to do with this program will have a chance. I know we 
tried to accommodate additional witnesses. But anyway, I am 
glad you made that statement.
    I wonder if Senator Coons would like to make an opening 
comment.

            STATEMENT OF HON. CHRISTOPHER A. COONS, 
                   U.S. SENATOR FROM DELAWARE

    Senator Coons. Thank you, Chairman Corker. I will be brief.
    I just want to thank Ranking Member Cardin and you, 
Chairman Corker, for continuing to bring forward a spirit of 
bipartisanship and a focus on important and difficult issues.
    Out of yesterday's markup, I continue to be optimistic we 
can tackle all sorts of big challenges.
    Food aid reform is one that has eluded any significant 
progress for a long time. As you have both cited, it has made 
enormous impacts around the world. It has fed billions of 
people over decades.
    But the twin challenges we face are how to make this 
program more efficient so that it reaches more people, so that 
it does the best we can with taxpayer dollars. Yet how do we 
sustain food aid so that we do not, by making changes that 
pursue efficiency, suddenly wake up and realize we have lost 
half or two-thirds of the funding, and in reaching to feed 8 
million to 12 million more, ultimately end up feeding fewer? 
That is the political Rubik's Cube that we need to work 
together to solve.
    There is no doubt. There have been studies from GAO to 
George Mason to nonprofit groups. There is no doubt the current 
system is inefficient, and it wastes a significant amount both 
of the commodity and costs. But the core question is, Can we 
make it both more efficient and more sustainable? I really look 
forward to working with both of you to achieve that goal.
    Thank you for this hearing today.
    The Chairman. Thank you. And I think people should know, 
for the record, one of the reasons that we are having this 
hearing today is a commitment that was made to Senator Coons, 
as we closed out last year, that we would deal with this issue. 
So I thank him for his leadership.
    Our first witness is director Dina Esposito, as long as she 
is here, from the USAID Office of Food for Peace. Director 
Esposito manages the Food for Peace program, which responds to 
acute food insecurity by providing in-kind food aid locally and 
regionally procured food aid, food vouchers, and cash transfers 
to millions of people affected by conflict and natural 
disasters annually.
    In addition, it also supports interventions in critical 
areas such as nutrition, health, agriculture, and livelihood to 
address the underlying causes of poverty and hunger among the 
poorest of the poor with development food aid.
    Thank you for being here and sharing your thoughts. Please 
take however long you wish to share those thoughts. Then we 
will have questions. Thank you very much.

STATEMENT OF DINA ESPOSITO, DIRECTOR OF THE OFFICE OF FOOD FOR 
  PEACE, UNITED STATES AGENCY FOR INTERNATIONAL DEVELOPMENT, 
                         WASHINGTON, DC

    Ms. Esposito. Chairman Corker, Ranking Member Cardin, and 
distinguished members of the committee, thank you for inviting 
me today to testify on the administration's efforts to 
modernize and improve the U.S. food aid programs. We appreciate 
the opportunity to share how USAID's Office of Food for Peace 
is working to make our food assistance programs more efficient 
and effective in a changing world.
    We likewise recognize and appreciate your bipartisan 
interest in modernizing food assistance as expressed in your 
recently introduced Food for Peace Reform Act.
    I first started in humanitarian aid work back in the early 
1990s. At that time, I had the opportunity to visit with 
refugees and displaced persons in many hotspots around the 
world. Today, as the Food for Peace director, I am still 
visiting troubled spots.
    While the circumstances are equally tragic, and our 
commitment just as constant, I am struck by just how different 
our response options now are. Expanding markets, new 
technologies, and other innovations make the world a different 
place.
    But these opportunities are accompanied by new challenges. 
Today, more people are affected by conflict and natural 
disasters than any time since World War II. And the cost of 
traditional food aid is rising, making it increasingly 
difficult to meet even minimum levels of global need.
    Given these factors, and an overall constrained budget 
environment, further reforming U.S. food aid programs to 
advance our humanitarian, economic, and national security 
interests make sense. Our reform proposals build on a clear 
evidence base of the last 5 years, as well as bipartisan 
efforts, dating from President Bush's initial calls for reform 
after the food price crisis in 2008. Those calls laid the 
groundwork for Food for Peace's emergency food security 
program. This initiative established in 2010 through the 
international disaster assistance account supports local and 
regional procurement and targeted cash and voucher-based food 
assistance.
    Our data confirms the analysis undertaken by the Government 
Accountability Office that food purchased locally and 
regionally is more cost-efficient. For Africa, it is, on 
average, 34 percent more efficient than shipping food aid from 
the United States. Response time is also faster. U.S. in-kind 
food commodities can take 4 to 6 months to reach beneficiaries 
while food purchased closer to those in need can cut that time 
in half.
    I want to provide two real-world examples of how 
flexibility in our food assistance programs is making a 
difference. More than 10 million Syrians are displaced today, 
and 4 million are refugees in neighboring countries, including 
Lebanon and Jordan. Most do not live in camps. They live in the 
towns and cities of these middle-income countries where 
commerce is active and grocery stores accessible.
    To address this vast and complex crisis, donors, led by the 
United States, are supporting a food assistance debit card so 
refugees can buy food in local markets. The debit card not only 
provides greater choice and dignity to those war victims but, 
as importantly, eases the pressure on host communities by 
supporting local merchants and adding jobs through expanded 
businesses. Meeting life-saving needs in this way contributes 
to the stability of U.S. allies in this troubled region.
    After a natural disaster, responding rapidly can mean the 
difference between life and death. Following Hurricane Haiyan 
in the Philippines, we responded with the purchase of local 
food stocks that reached storm victims within days of the 
event. Six weeks later, U.S. food commodities prepositioned in 
the region arrived, followed by more food from the United 
States.
    Growing our ability to always respond with the right tool 
at the right time led to the administration's fiscal year 2014 
food aid reform proposal. While the proposed reforms were not 
adopted, the 2014 farm bill did give Food for Peace 7 percent 
increased flexibility. This reform alone helped us to reach 
some 600,000 additional beneficiaries last year. But we could 
do so much more.
    Food for Peace regularly finds opportunities to improve 
efficiencies. Just recently, we saved $4 million in the 
Democratic Republic of Congo by buying food locally as part of 
our relief response. With greater flexibility, we would have 
purchased even more locally, generating an additional $12 
million in savings.
    Missed opportunities like these are why the President's 
fiscal year 2016 budget once again includes a request for 
reform of food aid programs.
    I must emphasize that reform does not equal no U.S. in-kind 
food. Last year, for example, the United States provided 
120,000 tons of U.S. food to South Sudan when conflict cut off 
millions and markets were not functioning, pulling that country 
back from the brink of famine. This was the right tool at the 
right time, which is what food aid reform is all about.
    I would be remiss if I did not close by saying that we at 
the USAID Office of Food for Peace are proud to be managing the 
resources so generously provided by the American people to 
alleviate hunger and suffering overseas.
    I also want to recognize our many stakeholders who make 
this work possible and honor those who risk their lives to 
deliver assistance to hungry people around the world.
    Thank you again for your continued commitment to ending 
global hunger. I look forward to your questions.
    [The prepared statement of Ms. Esposito follows:]

                  Prepared Statement of Dina Esposito

                              introduction
    Chairman Corker, Ranking Member Cardin, and distinguished members 
of the committee, thank you for inviting me today to testify on the 
United States Agency for International Development's (USAID) efforts to 
modernize and improve U.S. food aid programs. We appreciate the 
opportunity to share how USAID's Office of Food for Peace (FFP) is 
working to make our food assistance programs more efficient and 
effective in a changing world. We likewise recognize and appreciate 
your bipartisan interest, as expressed in the recently introduced Food 
for Peace Reform Act, to see food aid modernized.
    I first started in humanitarian aid work in 1989 and in the early 
1990s I had the opportunity to visit with refugees and displaced 
persons in many hotspots around the world, including in places like 
Liberia, Mozambique, South Sudan, and Somalia. Today as the USAID/FFP 
Director I am still visiting trouble spots and while the circumstances 
are equally tragic, I am always struck by just how different the 
response options available to us are--the use of electronic food 
vouchers and mobile money to deliver assistance, new technology to 
better identify beneficiaries, satellite imagery to confirm public 
works projects are completed--the world is a different place.
    USAID is the largest provider of food assistance in the world and 
we are seeking to maintain our leadership role--to be the best at what 
we do--by evolving our programs with the times. So today I would like 
to share with you the evolution of food aid and how evidenced-based 
learning can improve our programs. I also want to highlight how we are 
currently using the flexibility provided through the International 
Disaster Assistance account and how the critical reforms in the 2014 
farm bill are enabling USAID to reach more people quickly and cost-
effectively. These reforms serve as the basis for USAID to continue to 
pursue additional flexibility in food crises to use the right tool at 
the right time.
                     looking back, looking forward
    In 1954, President Eisenhower created the Food for Peace program to 
ship surplus U.S. food to the developing world and to countries still 
recovering from World War II. For over 60 years, the Food for Peace 
Title II program has allowed the United States to live up to its 
historic mission to alleviate hunger around the world. Through the 
generosity of the American people we have fed billions of the world's 
neediest people--perhaps the largest and longest running expression of 
humanity ever seen. This has been--and continues to be--possible 
through the incredible partnership with American farmers, implementing 
partners, maritime industry partners, and Congress. While we look back 
on these American achievements with pride, we must also recognize that 
the world has changed. New opportunities and challenges are presented 
to us.
    Some of the countries that have received title II U.S. food and 
other foreign assistance, such as the Republic of Korea, have developed 
strong economies and become important U.S. trade partners. Foreign 
direct investment now exceeds development assistance in many of the 
poorest regions of the world and there is steady economic growth in 
remote parts of the globe, including in many places where we have 
historically shipped United States food aid. People can now use cell 
phones to receive emergency transfers and humanitarian workers can 
access local banks and food markets to buy and transfer aid to those in 
need in a way that fosters greater local economic activity and may help 
to reduce the severity of food crises and their underlying causes.
    At the African Union Summit in June, African leaders committed to 
ending hunger and halving poverty on their continent by 2025 and 
building resilience to climate-related events, like droughts. USAID/
Food for Peace's programs support the United States Government's lead 
initiative in this area, Feed the Future. As part of this effort, 
USAID's programs seek to decrease hunger by increasing both 
agricultural production and the incomes of smallholder women and men in 
areas with high malnutrition and poverty rates who rely on this sector 
for their livelihoods.
Rising costs and growing needs
    Within the changing global landscape, the role of United States in-
kind commodity food aid is changing. Strong commercial demand for 
United States food means that commercial exports have risen 
dramatically. And food aid has declined as an overall share of United 
States food exports, representing less than one-half of one percent of 
the total value today and an even smaller share of overall U.S. 
agricultural production. USAID shipped over 3 million tons of in-kind 
aid in 2003, as compared to just over 1 million last year--in large 
part due to the rising costs of delivering food aid and the complex 
nature of many food security crises.
    While we are getting less for our dollar with United States in-kind 
food assistance the need for emergency food assistance is higher than 
ever as a record number of civil conflicts and natural disasters 
continue to threaten the livelihoods of the poorest men, women, and 
children around the globe.
    The U.N. High Commissioner for Refugees reported last year that 
more than 51 million people are displaced today by conflict--more than 
at any time since World War II. The numbers are staggering--for every 
one person who returned home last year, four more were displaced; 3 
million new refugees fled their countries in the last 3 years--half of 
them children; and there are now 33 million conflict-affected people 
still inside their home borders--more than 5 million of them displaced 
in just the last few years. The places generating these grim statistics 
are familiar to you--Syria, Iraq, South Sudan, the Central African 
Republic, Somalia, to name a few.
    Coupled with these conflict drivers of hunger, the increasing 
frequency and volatility of extreme weather events, slow or stagnant 
economic growth, and high food prices are impacting millions more. 
Drought in Central America, and East and West Africa has deepened 
hunger across these regions and in Asia extreme storms inflict 
devastation in places like Vanuatu and the Philippines. At the same 
time, the Ebola epidemic in West Africa is fueling hunger by disrupting 
agriculture and other sectors, pushing millions already living on the 
edge deeper into poverty.
    The U.N. Food and Agriculture Organization (FAO) estimates that 
today more than 800 million people go to bed hungry; one in five 
children is stunted--meaning their physical and cognitive development 
has been impaired by lack of proper nutrition; and every 7 seconds a 
child dies from hunger related causes.
                   investing in our global prosperity
    There has been enduring bipartisan support for United States 
leadership in combating hunger not only because it is the right thing 
to do, but because that response is also part of our arsenal to advance 
the security and prosperity of the United States.
    Fragile states, shrinking economies, and extreme poverty are not 
fertile ground for American businesses seeking foreign markets. And 
there is an emerging consensus that food insecurity joins with other 
factors to worsen instability in societies. Lack of access to food can 
trigger conflict and civil unrest as it did in more than 48 countries 
around the world during the food price crisis in 2008. Hunger can drive 
competition for water and land (food production resources) as we have 
seen in parts of Africa, and a vicious cycle can emerge of food 
insecurity driving conflict, which in turn further deepens food 
insecurity. Displacement and hunger driven by chronic poverty and 
recurrent crises can give incentives to individuals--including 
unemployed or underemployed youth--to join rebellions, criminal gangs, 
or extremist groups. Struggling families often take desperate measures 
as they seek to cope: men migrate in search of work, women may be 
vulnerable to trafficking or other forms of exploitation, girls are 
pulled out of school, children take to the streets to beg, and families 
begin to disintegrate.
    Against the backdrop of a changing environment offering new options 
for aid delivery, a growing number of people affected by conflict and 
natural disasters, the rising costs of traditional food aid, and the 
tight budget environment the United States faces today--reforming U.S. 
food aid programs is a logical step to advance our economic and 
national security interests.
    The President's FY16 proposal for reform, which requests a modest 
increase in our ability to provide food assistance not tied to 
procurement of United States food, would allow us to reach some 2 
million additional people in food crises without 
an increase in budget. It also allows us to provide that assistance 
through means 
that promote growth and help the world's most vulnerable emerge from a 
cycle of extreme poverty and instability.
                     rationale for food aid reform
Gaining speed, saving money, improving recovery after emergencies
    The Government Accountability Office (GAO) in a 2009 report found 
that purchasing food locally and regionally, rather than shipping it 
from the United States, is more cost-effective and greatly shortens 
delivery times.\1\ For example, the study showed that buying food in 
Africa and Asia was 34 percent and 20 percent less expensive, 
respectively, than shipping food aid from the United States.\2\ Studies 
by Dr. Chris Barrett of Cornell University show significant cost 
savings for many foods--such as bulk grains or pulses (lentils, peas, 
and beans)--ranging from 53 percent savings for the less expensive, 
local cereals to 25 percent for pulses.\3\
    Response time is also generally faster and in an emergency, speed 
can mean the difference between life and death. The GAO found that food 
aid from the United States typically takes 4 to 6 months to reach 
beneficiaries while locally and regionally purchased food can reach 
those in need as much as 11-14 weeks sooner. The GAO found that 
shipping food from the United States to sub-Saharan Africa took 100 
days longer than local or regional procurement. Moreover, having the 
option to use cash-based responses allows us to plan better because 
response times are shortened, particularly in cases where harvest 
conditions form the basis for needs.
    It is true that the United States has improved in-kind food aid 
response times in recent years through prepositioning of food supplies. 
Today, at any one time, up to 60,000 tons of U.S. food stocks are in 
our prepositioning supply chain. This innovation has been invaluable. 
It does, however, add to overall costs and has certain constraints that 
limit its effectiveness. Limited shelf life for some commodities, 
repeated fumigations to keep commodities stored safely, uncertainty 
over what commodities will be needed where, and the appropriateness of 
an in-kind response, are all factors we must consider as we store food.
    Speed and cost efficiency are not the only reasons we seek more 
flexibility. In some cases, giving a disaster survivor a food voucher 
or targeted cash transfer can reinforce economic recovery, support 
local farmers, generate jobs, reduce tensions, and create good-will 
toward the displaced for those hosting them and reinforce their 
appreciation for the American people and their generosity. At the same 
time, those receiving aid are accessing a more nutritious diet, 
including local fruits and vegetables, and have the dignity of choice 
to select items familiar to them and their families.
Ending monetization for sustainable development
    I have been speaking almost exclusively about how food aid reform 
improves our emergency humanitarian responses. I would like to turn for 
a moment to our development efforts. USAID/Food for Peace administers 
5-year development projects in many parts of the world to address the 
underlying causes of food insecurity. These programs are a vital part 
of USAID's agenda to build resilience in communities facing chronic 
poverty and recurrent crises, such as droughts and storms. For 
instance, in areas prone to drought, we train farmers to prevent soil 
erosion and conserve water so that they can increase their yields 
during dry periods. We teach mothers how to prepare healthy foods for 
their children and improve their access to nutritious foods to counter 
malnutrition. We facilitate better livestock management and help them 
diversify how they make a living, all so that they are better prepared 
to bounce back and are less reliant on humanitarian assistance when a 
crisis hits.
    USAID/Food for Peace partners provide in-kind food to communities 
on the ground, while also carrying out development activities that 
address the underlying causes of food insecurity. Before the historic 
changes in the 2014 farm bill, we were limited under title II to fund 
these activities by buying food in the United States, shipping it 
overseas, and selling it so that we had local currency on hand to run 
the projects (i.e., monetization). According to a 2011 GAO study, USAID 
lost on average 24 cents on the dollar for monetization because on 
average it costs us more to buy and ship food than we can recover when 
we resell it abroad. According to the GAO this inefficiency meant that 
USAID ``lost'' $91 million through the monetization process over just 
the 3 year period analyzed.\4\
    Having cash resources directly available means that USAID can 
simply provide partners with the resources they need to implement 
development activities, rather than burdening them with higher staff 
requirements and costs to implement the complicated and inefficient 
monetization process, freeing up time as well as valuable dollars that 
can be invested elsewhere. Last year, thanks in large part to the 
reforms in the farm bill, providing cash to partners rather than 
monetizing food aid allowed FFP to save $21 million and reached an 
additional 570,000 people.
                    food aid reform progress to date
    Calls for food aid reform date back to the second Bush 
administration and it was ultimately the food price crisis of 2008, 
with millions of people suddenly unable to feed their families and 
civil unrest rapidly following the sudden price spikes, that led to 
Congress providing USAID with supplemental funds for food assistance 
interventions such as the local and regional purchase of commodities 
for the first time. In 2010, the administration requested and received 
funding for emergency food assistance in the base appropriation of the 
International Disaster Assistance (IDA) account, authorized through the 
Foreign Assistance Act. USAID used these funds to establish the 
Emergency Food Security Program (EFSP) to buy food locally and 
regionally and to provide targeted cash transfers or food vouchers so 
that people in food crises could buy food directly in local markets. At 
the same time, we put in place practices to ensure oversight and limit 
any potential for fraud or misuse of funds. This can range from the use 
of biometric identification practices to post-distribution monitoring 
that ensures food assistance is reaching the intended beneficiaries.
    We prioritize these limited resources for programs where United 
States in-kind food aid cannot arrive in time or when other forms of 
food assistance are more appropriate, efficient, or cost-effective--
such as in Syria. We did detailed analyses of a number of our 2012 EFSP 
programming and found results consistent with the GAO and Cornell 
University data on cost-savings, saving on average 33 percent by buying 
food locally and regionally compared to shipping similar commodities 
from the United States.
    In the FY 2014 Budget request, President Obama proposed reforms to 
shift funding from title II into State/Foreign Operations foreign 
assistance accounts, mainly IDA and Development Assistance (DA). Under 
the proposal, up to 45 percent of IDA resources could be used for 
interventions such as local and regional purchases, cash transfers, and 
food vouchers. The USAID/FFP development programs would have been 
funded with Development Assistance funds, ending the need for 
monetization. We estimated that efficiencies gained from this proposal 
would have allowed us to reach an estimated 4 million additional people 
without an increase in funding for food aid.
    While the proposed reforms were not adopted, USAID continued to 
press for reform through subsequent budget requests, as well as during 
the reauthorization of the farm bill. The 2014 farm bill advanced 
meaningful reform, offering USAID for the first time new flexibilities 
that increased the limited amount of cash available to support title II 
programs by seven percent to reduce monetization, purchase food locally 
and regionally, and help disaster victims access food in their local 
markets.
    The administration's FY 2015 and FY 2016 title II budget proposals 
build on these past proposals and achievements and seeks an additional 
25 percent of the $1.4 billion requested in title II funding for 
flexible food assistance programming. We estimate this will enable 
USAID to reach an additional 2 million emergency beneficiaries.
Why more flexibility is needed
    The need for additional flexibility is clear. Despite these 
critical improvements to the title II program and the additional IDA 
resources that USAID/FFP has received over the past several years, much 
of the IDA has been needed has to meet the exponentially increasing 
needs in Syria. USAID/FFP now spends some $500 million a year to help 
meet the needs of more than 10 million Syrian displaced persons and 
refugees in the region. And let us be clear--without these flexible 
funds, we would not be able to feed people inside Syria and would have 
great difficulty feeding those displaced within the region, 
particularly where refugees are dispersed within host communities. 
Similar to our title II budget, our IDA budget for emergency food 
assistance for the rest of the world has remained stable since 2010, 
even as needs have grown in places like Sudan, the Central African 
Republic, northern Nigeria, and Ukraine. With regard to the new 
flexible funding in the farm bill, we have prioritized its use first 
and foremost to largely end monetization above the current statutory 
minimum required for the development programs.
    With the cash flexibility we have, we still miss opportunities to 
run faster, more efficient, and effective emergency programs. Just this 
week we have learned that congestion in the port in Cameroon has 
disrupted the offloading of United States food, which in turn will 
delay its arrival in Chad, where refugees from the Central African 
Republic and Sudan are in need of emergency food assistance. And we 
have learned that increased global demand for United States sorghum 
will preclude our ability to buy this staple commodity for our programs 
over the next 4 months. Additional funds for local and regional 
procurement would not only help mitigate these kinds of unforeseen 
events, it would also allow us to help more of those in desperate need.
    I want to emphasize that even as we seek additional flexibility, 
the majority of the title II request is for in-kind food. USAID will 
continue to need United States commodity food aid. Last year, for 
example, a large-scale in-kind food response was exactly the right 
response in South Sudan when conflict cut off millions and markets were 
not functioning. USAID provided nearly 120,000 metric tons to help save 
lives and pull South Sudan back from the brink of famine. With 3.5 
million people projected to face extreme food insecurity by June, 
United States in-kind commodities will continue to be a critical part 
of USAID's response there. During the Sahelien drought of 2012 United 
States food arrived at the height of the lean season when markets were 
not well stocked; we provided just over 209,000 metric tons of United 
States food for that response. The President's FY 2016 proposal 
envisions continued need for United States in-kind food, both 
traditional commodities as well as United States manufactured 
specialized products to treat malnutrition, known as ``blended'' and 
``ready to use'' foods. Many parts of the world do not manufacture 
these specialized nutrition products and they are playing an 
increasingly critical role in the prevention and treatment of 
malnutrition, especially for children.
             how food for peace uses existing flexibilities
    I would like to share some examples of programs we have funded with 
the flexibility provided through the new farm bill and the IDA funding. 
From assisting refugees to responding to typhoons, food aid reform has 
allowed us to tailor our assistance to be more efficient, accountable, 
and responsive to local needs.
Syria
    Since the onset of the Syrian crisis, USAID has provided more than 
$1.4 billion to respond to the needs of refugees as well as those 
impacted by conflict inside Syria. In the past, the Assad regime turned 
away United States food shipments, and regime and extremist attacks 
make it impossible to provide United States-branded food products. In 
response, our partners procure commodities regionally for prepackaged 
food parcels for individuals and flour for bakeries to help feed more 
than 4.8 million people inside Syria. We are also supporting a debit 
card approach to provide food assistance to more than 2 million Syrian 
refugees in neighboring countries. Most Syrian refugees are not in 
camps but live in host communities widely dispersed geographically, 
many of them in towns and cities where markets are available. By 
providing a debit card with a prepaid sum, refugees can go to the 
market and choose a variety of foods, including fresh fruits and 
vegetables. The debit card not only drastically simplifies the 
distribution of food and provides greater choice, better nutrition, and 
dignity to Syrian refugees, but also eases the pressure on host 
countries by supporting their local economies. According to the U.N. 
World Food Programme (WFP), the food voucher program has created 1,300 
new jobs and injected approximately $1 billion into the economies of 
Lebanon, Jordan, Turkey, Egypt, and Iraq since the program began. This 
also helps reduce the stress on host communities and build and sustain 
community support for refugees as the situation in Syria continues to 
deteriorate.
    Last year, I had an opportunity to visit with a Syrian woman at a 
refugee camp in Turkey. She explained how the daily visit to the market 
helped to normalize what is not at all a normal situation. She fled her 
seaside town and a comfortable stone-built home where she lived with 
her two sons and their wives. Now she lives in a tent, sharing showers 
and other facilities with hundreds of others. The ability to shop on a 
daily basis and prepare foods familiar to her helps her get through the 
day.
    Market-based approaches to reaching refugees and displaced people 
are increasingly preferred throughout the world and other major donors 
have modernized their food aid, adopting this approach. Current funding 
flexibilities would preclude the United States from shifting toward 
this approach for other refugee populations, including in Kenya and 
Ethiopia where these new methods are being brought to scale.
Philippines
    In response to Super-Typhoon Haiyan in the Philippines in 2013 we 
used both United States in-kind food and cash-based assistance: we 
airlifted United States specialized foods that served as daily meal 
replacements for those who lost their homes, and we provided an 
immediate cash grant that allowed the U.N. and the Government of 
Philippines to tap into local rice stocks and distribute them within 5 
days of the storm. Six weeks later, this help was supplemented by U.S. 
in-kind food--mostly rice--which arrived from prepositioned stocks in 
the region. And in the recovery phase, when markets had begun to 
function again, we supported a cash transfer program that allowed 
survivors to begin to access local markets again and revive local 
economic activity in the hardest hit areas. Had that storm happened at 
the end of the fiscal year when our limited pool of flexible funds was 
expended, our response would have been less timely, less effective, and 
more costly.
Kenya
    In Kenya, we are using a variety of tools to build the resilience 
and address the emergency food assistance needs of the between 1 and 4 
million Kenyans each year who do not have enough food during the lean 
season just before the harvest. In remote areas where people do not 
have easy access to markets, we provide in-kind food aid to meet needs. 
For those who can access markets in semiarid counties, we use 
electronic cash transfers for food purchases to avoid disrupting 
functioning markets and to support livelihoods. We are also providing 
farmers with the tools and know-how to increase their agricultural 
production, even during tough times.
    Ndeli Samuel, a widow with four children, is training with other 
community members to learn new farming techniques that will save water 
when irrigating crops in the arid zones. In return, she receives a U.S. 
in-kind food ration for her participation because local markets are not 
accessible. Ndeli's training workshop was one of more than 700 
resilience projects that USAID's implementing partner is undertaking to 
help farmers adopt simple but effective technologies to improve water 
and land use in the tough climate of Kenya's drylands. Ndeli says she 
is now ready to graduate and teach this technique to others in her 
community. She now grows enough crops for her family and is selling the 
rest to her neighbors. Here cash resources are critical so that we can 
help farmers buy better farming tools and train them in the farming 
techniques that helped Ndeli and her family increase their food 
security. These efforts are critical to USAID's resilience agenda, 
which seeks to help the world's most vulnerable build adaptive 
capacities so that they can mitigate and bounce back from droughts, 
conflict, and other risks they face.
                               conclusion
    Be it relief or development, USAID's food assistance programs are 
evolving based on years of experience, evidence-based learning and a 
willingness to innovate to assure hunger needs and United States 
interests are met in some of the world's toughest places. In our 60th 
anniversary year, we look back with pride at all that has been 
accomplished and look ahead, clear-eyed and focused, on the challenging 
work today's crises present to us. As part of USAID's mission to end 
extreme poverty and promote resilient, democratic societies, we are 
committed to continuing to find ways to work smarter and better so we 
can effectively and efficiently combat hunger around the globe. The 
President's food aid reform agenda furthers these goals.
    I would be remiss if I did not close by saying that we in USAID/
Food for Peace are proud to be entrusted with these resources and 
leading global humanitarian efforts to reach those most in need of food 
assistance. Our goal is to remain the best at what we do. We recognize 
our many partners who make this work possible and honor those who risk 
their lives or have lost their lives in their mission to deliver 
assistance to hungry people around the world.
    We are proud to be carrying out this lifesaving work on behalf of 
the American people and appreciate the longstanding bipartisan 
congressional support for the mission of ending global hunger.
    Thank you again for this opportunity to testify about why we have 
prioritized food aid reform as an agency and an administration. I look 
forward to your questions.

----------------
End Notes

    \1\ GAO, International Food Assistance: Local and Regional 
Procurement Can Enhance the Efficiency of United States Food Aid, But 
Challenges May Constraint is Implementation, June 2009.
    \2\ GAO, 2009, 16.
    \3\ Lentz, E., Barrett, C. B., & Gomez, M. I, ``The Impacts of 
Local and Regional Procurement of U.S. Food Aid: Learning Alliance 
Synthesis Report.''
    \4\ GAO, ``International Food Assistance: Funding Development 
Projects Through the Purchase, Shipment, and Sale of U.S. Commodities 
Is Inefficient and Can Cause Adverse Market Impacts,'' June 2011.

    The Chairman. Thank you. Thank you very much for what you 
and your staff do on behalf of our country. It is deeply 
appreciated.
    Just to begin, what would be the implications for U.S. 
national security if you did not have the flexibility that you 
now have in Syria and in the region in delivering aid, and you 
had to rely solely on U.S. commodities?
    Ms. Esposito. Senator Corker, the Syrian example is a great 
one. I tried to describe in my testimony just how important it 
is to assuring that we are helping our allies address the 
tensions that can arise when so many people arrive in the 
country, stressing water services, social services. We have a 
very politically unstable situation, obviously. By providing 
this kind of assistance, we can help mitigate additional, 
further insecurity.
    In Lebanon, for example, one in four persons is now a 
refugee. To put that in perspective, proportionally, that is 
like 80 million people coming to the United States in just a 
few years' time with little or no resources. So you can imagine 
the kind of tremendous stress that puts our allies under.
    So this is part of our toolkit, part of our effort to 
mitigate instability within the region.
    The Chairman. So, critics of us not purchasing food created 
in the United States say that it increases the chance of using 
unsafe food.
    In the places where we have been able to use local and 
regional food, has this been a problem?
    Ms. Esposito. Senator Corker, I just want to underscore how 
seriously we take this issue. Whether we are using in-kind 
United States food or locally procured food, food safety 
standards are rigorously followed.
    Food safety standards of recipient countries must be met. 
We require testing for human pathogens and toxins. During the 
last 4 years, there have been no reports of unsafe food with 
regard to our local or regional procurement.
    We are, though, remaining vigilant. We are expanding our 
commodity management training for all of our partners, and we 
have reissued our commodity management guide, which is relevant 
whether we are using in-kind food or locally and regionally 
procured food.
    The Chairman. So if I hear you correctly, that allegation 
is a hoax.
    Ms. Esposito. We have no reports of unsafe food.
    The Chairman. Okay.
    Critics of reform also claim that cash-based programs 
transfer cash from the United States to corrupt governments, 
but we know that the aid is being provided directly to 
beneficiaries. So can you discuss this issue for us?
    Ms. Esposito. Thank you, Senator.
    The in-kind food program, the voucher program, these 
programs are implemented by the same trusted partners who have 
been implementing in-kind food aid for the last 60 years.
    You are right, we do not give any of our title II food 
assistance to governments. Our partners assess need 
independently. They target based on that need. They register 
people to be sure we can monitor who is getting the aid. We are 
relying on established financial institutions, including banks, 
to help with our transfers. And we have a series of new 
technologies that allow us to ensure that the resources are 
going to the people who need it the most.
    So for example, the debit card program in Jordan and 
Turkey, we are able to track every item purchased in the 
grocery store because it is scanned with a barcode just like 
here, and we do not pay the vendors until we are sure that the 
funds were used properly.
    So there are a lot of new ways, new tools, that we have 
available to us to mitigate the risk of unintended use for 
these resources.
    The Chairman. So generally speaking, that criticism is a 
hoax. [Laughter.]
    Ms. Esposito. Whether in-kind or locally or regionally 
procured, we do all we can to ensure that there are no 
unintended uses of our resources.
    The Chairman. I am sure there are examples, minor examples. 
But generally speaking, that is not the case.
    Ms. Esposito. That is correct.
    The Chairman. So we are the only major developed country in 
the world that still provides the bulk of our food aid through 
domestic commodities.
    Ms. Esposito. Yes, Senator.
    The Chairman. I think that kind of speaks for itself.
    I just would like to know, does this make it more difficult 
for us to coordinate with other multilateral agencies and other 
donors in really hard-hit areas like Haiti, for example, in 
dealing with making sure that people have food when they need 
it?
    Ms. Esposito. Senator, the coordination really varies from 
country to country, and it depends on the context. So in some 
circumstances, there is certainly room for different 
approaches, depending on the nature of the problem.
    I think the real challenge comes for our partners when 
other donors are requiring or asking for one modality, and we 
are, in turn, asking for different modality. So running dual 
types of platforms can be extremely complex for our partners. 
But it is very, very context specific.
    The Chairman. So the other developed countries like us that 
care deeply about making sure that people have food, they have 
more flexibility. We are sort of locked in.
    Ms. Esposito. That is right. And they will press those 
partners to do the work in the most efficient way possible.
    The Chairman. So as the perceived most innovative free 
nation in the world, we are really behind the rest of the world 
when it comes to feeding the poor. Is that correct?
    Ms. Esposito. Senator, we are a global leader in food 
assistance, and we are very proud of that leadership role. But 
we think that we could be more effective if we had additional 
flexibility.
    The Chairman. Listen, thank you for being here, and I look 
forward to the questions from our distinguished ranking member.
    Senator Cardin. First of all, I join the chairman in 
thanking you for your incredible service to this country and to 
our global goals. It is a challenge because the world is never 
staying still and the challenges in the countries you are 
working in become very difficult at times, and you are still 
able to move forward. So we thank you very much for that.
    Food aid cargo helps sustain U.S. commercially flagged 
fleets. There are concerns that if we change cargo preference, 
we may not be able to sustain the national defense sealift 
capabilities our military needs without significant additional 
Federal expenditures.
    So how do you intend to balance the efficiency issues that 
you are trying to get in the food program with ensuring that we 
have adequate sealift capacity?
    Did I stump you?
    Ms. Esposito. Could you repeat the question, please?
    Senator Cardin. Yes. Using U.S.-flagged vessels not only 
helps U.S. industry, but also helps the Department of Defense 
to have sealift capacity in the case of a national need. If you 
reduce the amount of food being shipped by U.S.-flagged 
vessels, it requires additional commitments by the Department 
of Defense to make sure that we have sealift capacity available 
in the case of emergency.
    So how do you balance to make sure that the U.S. food 
program is contributing to our ability to be ready in the event 
of need by merchant marines?
    Ms. Esposito. Thank you, Senator, for clarifying the 
question.
    The Department of Defense has released a statement 
supporting the President's fiscal year food aid reform proposal 
and its ability to improve our humanitarian responses. The 
Department of Defense stated that the proposal will actually 
not impact U.S. maritime readiness or its ability to crew surge 
fleet.
    Senator Cardin. That is not consistent with the information 
I have received, so I would appreciate if you could clarify 
that in specifics. I would be very interested to get a 
commitment from the Department of Defense that they would not 
be seeking additional resources to meet those needs.
    If that is the case, I think we should have that on the 
record--that they can maintain their sealift capacity--because 
that is not consistent with other information that we have 
received.
    Ms. Esposito. Thank you, Senator. We can share the 
statement from the Department of Defense, but I, certainly, 
cannot speak on behalf of the Department of Defense.
    Senator Cardin. Let me go to my second point and that is 
that it is critically important that we are working with the 
international community. We cannot do this alone. But the U.S. 
Government cannot do it without our NGO partners. They provide 
a great deal of the help here. Yet, our NGO partners have 
concern about the legislation that is pending.
    If we, on one hand, increase the government efficiencies 
but lose our private partners, the end result is less 
availability of food aid globally through the U.S. players.
    So again, we still have concerns from the NGO community. 
How do you intend to resolve those issues?
    Ms. Esposito. Senator, we are open to dialogue with all the 
partners, be it maritime, our PVO partners to find the best way 
forward, so that we can find common ground and have a 
sustainable platform for this program moving forward.
    With regard to flexibility, my perception is that there is 
actually great opportunity and have been new opportunities for 
PVO partners with the flexibility that we are garnering. We see 
an expansion of PVO responses in emergencies. They normally do 
not like to handle large commodity-based programs, but they 
have a lot of agility when it comes to these new types of 
approaches, local and regional procurement, electronic 
transfers.
    So in Syria, for example, more than $100 million of our 
emergency money is going to PVOs to help with that response. In 
Haiti last year, we had both drought and hurricane and the 
entire emergency response was mounted on a PVO platform.
    With regard to development, the flexibility we have 
garnered so far has eliminated the practice of monetization, 
which is this practice of buying food in the United States, 
shipping it overseas, and selling it.
    I have heard just unanimous appreciation from that.
    Senator Cardin. There is no question there is reform here 
that they support. But, bottom line, there is still opposition 
because they believe it takes away their ability to fund their 
programs, that they need the flexibility. I think we have to 
work with the NGO community to resolve those issues.
    I want to get to one other question, which is pretty 
fundamental. When I first came to the U.S. Congress in 1987, we 
could not pass a foreign aid bill. There are many reasons we 
could not do it, but there was a lack of support among the 
American people in understanding the role that we play in 
international development assistance as part of our national 
security budget. That was part of it.
    But we did not advertise well that the fact that most of 
the foreign aid is American-produced products. And when that 
got better understood, we got more support. And we have strong 
support for this program because U.S. agriculture says, look, 
we are selling our products. We are selling them to the 
government. The government is then using it for international 
development assistance. So it is a win-win situation. And it 
acts, in many respects, as a countercyclical problem for 
American farmers. Now we are saying we are going to cut that 
back.
    How do you intend to be able to maintain the strong support 
that we have in this country from the agricultural community 
when fewer American farm products are going to be used for 
development assistance?
    Ms. Esposito. Senator, thank you for that question. I 
think, as we all know, the agricultural products in the United 
States have been the backbone of the aid program for 60 years. 
We expect that they will continue to be key partners in future 
operations.
    I mentioned the South Sudan program, and there are many 
others where we will continue to require American in-kind food 
aid.
    But I would point out that because of rising food and fuel 
prices and the cost of doing business, there has actually 
already been a very significant decline in the amount of food 
that is used in the relief programs. So today we actually 
represent less than 1 percent of the total food that is shipped 
overseas.
    And there is such a strong commercial demand right now. And 
we actually compete with those commercial demands when we buy 
our food. So for example, we heard even just last week that we 
are not going to be able to buy sorghum or we should not expect 
to buy sorghum in the United States over the next 4 months 
because global demand is so high that there is just a lack of 
availability of that.
    So on the one hand, I would like to think that U.S. farmers 
will see that they will continue to play a vital role and that 
the American people will see that by doing this program more 
efficiently and more effectively, we continue to meet our 
national security and humanitarian interests.
    Senator Cardin. Thank you.
    The Chairman. Thank you, Senator.
    Senator Gardner.
    Senator Gardner. Thank you, Mr. Chairman.
    And thank you to the director for being here this morning.
    I am a little nervous. I see that Senator Coons has stepped 
out. I have been following him at every single meeting today so 
far. I do not know what I am missing, so I hope you will let me 
know, if his staff is here, if there something I should be at.
    But I do want to thank the director for the opportunity to 
be here. I have a couple questions for you. I came in halfway 
through your testimony, so I want to maybe ask some things that 
you covered in that.
    In your testimony, you state that while we are getting less 
for our dollar with the United States in-kind food assistance 
and the need for food assistance, it talks about we are getting 
less for our dollar with U.S. in-kind food assistance.
    What do you mean by that statement? Are you talking about 
price? You are talking about commodity prices?
    Ms. Esposito. Thank you, Senator, for the question.
    So as an example, in the early 2000s, it used to cost us 
$400 a ton to buy, ship, and program a ton of food overseas. 
Today, it is more than $1,200.
    Senator Gardner. The first number was?
    Ms. Esposito. $400.
    Senator Gardner. $400, now it is $1,200.
    Ms. Esposito. Correct.
    Senator Gardner. And what is a ton of food. You are not 
just referring to peas, lentils, beans? What you are referring 
to when you say a ton of food?
    Ms. Esposito. So it is an average cost, but it does include 
grains, peas, as you said, lentils, and vegetable oil are the 
primary basket that we ship.
    Senator Gardner. But usually no produce kinds of things?
    Ms. Esposito. Correct.
    Senator Gardner. Apples.
    Ms. Esposito. Correct.
    Senator Gardner. And that is because of the shipping and 
the long shipping times.
    Ms. Esposito. That is correct, Senator.
    Senator Gardner. Now will that change a little bit because 
you have some prices down? I think winter wheat is $4.97 a 
bushel in Byers, CO, today. Corn is down to its probably pre-
2007 levels in some places. That changes up and down. It ebbs 
and flows.
    Ms. Esposito. That is correct.
    Senator Gardner. The study that you cite in your testimony 
by Dr. Barrett at Cornell talks about buying food in Africa and 
Asia. It was 34 percent and 20 percent less expensive, 
respectively.
    Did that study take into account perhaps farm programs 
within those countries that may or may not provide certain 
subsidies to their farmers that they do not here, just out of 
curiosity?
    Ms. Esposito. I do not have the specific countries, 
Senator. I do know that they are extremely poor countries in 
Africa. And to my knowledge, there are not farm subsidy 
programs in those countries.
    Senator Gardner. Okay, so you are not talking about buying 
it for us to use there. We are talking about helping them build 
a sustainable base of agriculture. That is what you are talking 
about.
    Ms. Esposito. That is correct.
    Senator Gardner. Okay. I wanted to make sure that is what 
it was talking about and not simply saying that we are buying 
it to subsidize.
    Let us say lentils, what percentage of U.S. production does 
U.S. food aid represent for the in-kind side of Food for Peace?
    Ms. Esposito. Senator, thank you for the question.
    I am not sure about lentils per se, but altogether, it is 
less than 1 percent of our----
    Senator Gardner. But it is not 50 percent. We are talking 
about a very small fraction of U.S. production. I would think 
that an economist would not argue that you are driving and 
setting the market price. I would not think that that is the 
case.
    So giving you the flexibility that you need to provide more 
specific or a better form of aid, if that means displacing some 
kind of in-kind production, it would be better for you and 
better for our partners, correct?
    Ms. Esposito. Yes, Senator.
    Senator Gardner. Thank you.
    And then I may have missed this in your testimony, is there 
a balance and does it change year by year between in-kind 
contributions of U.S. aid and cash assistance? How do you 
prepare for that? I mean, does it depend country by country, 
situation by situation?
    Ms. Esposito. Senator, it is very context-specific. So we 
discussed the Syria example where it would not be appropriate 
to use the in-kind food. On the other hand, in South Sudan, and 
in the Sahelian countries during drought, we use substantial 
sums of food.
    So food aid reform does not mean necessarily it is always 
going to be exactly the same amount every year, the balance. 
But we do think it is going to give us the flexibility to get 
the right tool at the right time.
    Senator Gardner. It does mean flexibility. Yes, very good. 
Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    I know you were not feeling particularly well when you came 
in. I hope the response you got today makes you feel a little 
bit better. We, certainly, thank you for being here.
    I do want to make a comment, which may generate the need 
for a response from others, but it is not USAID's job to ensure 
that our military policy and sealift capacity is met, is it?
    Ms. Esposito. No, sir.
    The Chairman. That is sort of a DOD problem, is it not?
    Ms. Esposito. Yes, Senator.
    The Chairman. I would just say, look, I realize we have 
some sensibilities that will have to be dealt with. I would 
hope that the reason Americans, whether they are in the 
agriculture business or the maritime business or whatever, or 
the NGO business, especially the NGO business, would support us 
making changes because other people will not starve.
    I would hope that people would support this because it is 
an important American value. And I hope that as we move through 
this, in spite of the fact that, let us face it, people make a 
living off U.S. programs, in some cases to the adversity of 
people who are starving, I would hope we would figure out a way 
to first prioritize the great work that you are doing and this 
American value that exists for this program. So thank you.
    I think there may be a response.
    Senator Cardin. Thank you, Mr. Chairman. You got my 
attention, you did.
    I strongly support our food program and our development 
assistance programs. I always have. And I would like to see a 
larger share of the budget and have said that publicly and will 
continue to support that.
    I also want to make sure that every dollar we spend is used 
in the most efficient way. So I agree with the chairman on that 
point. We cannot justify inefficiencies in any of our programs. 
So I agree with you.
    But I regret that many Americans do not share our view of 
the importance of development assistance and instead say that 
we have not taken care of problems at home. You have to do that 
first.
    We do both, and we could do a better job at both. But our 
success in these programs depends upon broad support. And the 
issues that are being raised with the U.S.-flagged vessels, 
with the NGO community's partnerships, and dealing with the 
agricultural community, are sensitive issues that I know the 
chairman understands and ones I think we need to be sensitive 
to as we try to pass a reform bill.
    That was my only reason for raising it, but I want to have 
more efficiencies in the programs. We have broad support for 
the reforms that are in your proposal by all sectors of the 
stakeholders.
    And what I said originally, I think this is an area where 
we should be able to try to get together on.
    The Chairman. And, as you mentioned, coming in, I am sure, 
that based on what has happened over the last week, we, 
certainly, should be able to deal with this.
    I would say that one of the things that would hit a chord, 
I think with every American, is using even the same dollars 
that we are spending--the same dollars that we are spending--to 
reach millions more to make sure they are not starving. And 
with the passage of this legislation, we, certainly, could make 
that happen.
    Senator Gardner. Thank you, Mr. Chairman. I think it goes 
back to some of the questions I was asking.
    In the House of Representatives, I represented a district 
that was the 11th most-agricultural district out of 435 
districts. Colorado has some of the highest wheat- and corn-
producing counties in the Nation. Growing up in an implement 
dealership, I never remember farmers coming in and saying, 
well, you know, USAID is doing this or that to the program, 
therefore, I think market prices are going to be dropping 
today, or we are really going to do well because of it. The 
talk was what we can continue to do to help our partners.
    So I think flexibility is key, knowing that it is not about 
what price is, it is not about the affected market is going to 
do that day because of a program, because you are talking about 
1 percent or less of a commodity, and maybe more in some cases, 
but you are not talking about a market-setting kind of rate. So 
that should not be a part of the conversation.
    What ought to be a part of the conversation is giving the 
tools, the flexibility, and the resources we need to best 
provide our neighbors around the world with the aid they need 
so they can grow up with more opportunity instead of less.
    The Chairman. Very good. Thank you.
    Thank you. Goodbye. [Laughter.]
    Okay, we will now turn to our witnesses on the second 
panel. Our first witness is Mr. David Ray, vice president for 
policy and advocacy at CARE USA. Mr. Ray has over 20 years of 
experience working at CARE USA. Founded in 1945, it is one of 
the largest and oldest humanitarian aid organizations focused 
on fighting global poverty.
    CARE USA is an important implementing partner of the Food 
for Peace program and was an early adopter of some of the food 
aid programs we are discussing today.
    I thank you for allowing my daughter to intern with you in 
Tanzania years ago. It had a huge impact on her life. I thank 
you.
    Our second witness is Dr. Vincent Smith, professor of 
economics at the Montana State University and visiting scholar 
at the American Enterprise Institute. Dr. Smith's research 
includes an examination of agricultural science policy, 
domestic and world commodity markets, risk management, and 
agricultural trade policy. He has authored nine books and 
monographs, and published over 100 articles on agriculture and 
other policy and economic issues.
    Our third witness is Dr. Stephanie Mercier, a senior policy 
adviser at the Farm Journal Foundation. Prior to that, Dr. 
Mercier--am I pronouncing it correctly?--was a chief economist 
at the Senate Agriculture Committee from 1997 to 2011. Thank 
you for your service here. She was involved in several reform 
efforts made to the Food for Peace program.
    With that, I will recognize Dr. Ray.
    Thank you all for being here. We look forward to your 
testimony and your assistance in helping us navigate these 
issues. Thank you.

STATEMENT OF DAVID RAY, VICE PRESIDENT FOR POLICY AND ADVOCACY, 
                    CARE USA, WASHINGTON, DC

    Mr. Ray. Chairman Corker, Ranking Member Cardin, members of 
the committee, thank you for the invitation to testify here 
today. I am David Ray, vice president of CARE, a global 
humanitarian organization.
    As you mentioned, Senator, CARE was founded in 1945, when 
22 American organizations sent what became known as care 
packages to the starving survivors of World War II. CARE's work 
now stretches across 90 countries, reaching more than 72 
million people in 2014.
    CARE has been a partner of the Food for Peace program for 
the past 60 years. While we are proud to be part of this great 
effort, even good programs can be made better. CARE has been a 
longtime champion of reforming title II funding to make it more 
flexible, effective, and efficient.
    In fact, we believe in food aid reform so strongly that we 
put it over our own pocketbook. In 2006, CARE voluntarily ended 
our participation in open market monetization, the practice of 
purchasing commodities here; shipping them to developing 
countries; and then selling them, often at a loss, in order to 
generate funds for development programs. This decision has cost 
CARE more than $45 million annually in Federal funding since 
that time.
    While the proceeds of monetization can be put to good use, 
a GAO report estimated that monetization results in an average 
loss of more than $.30 on the dollar. Research has shown that 
open-market monetization also risks destabilizing local markets 
by flooding them with low-priced U.S. commodities.
    In fact, it was this potential to undermine the very small-
scale farmers and communities we serve that prompted CARE to 
transition away from open market monetization.
    Since that time, CARE has called for an end to the legal 
requirement to monetize, and we continue to push to make U.S. 
food aid programs more flexible, efficient, and effective.
    Experience has shown us that while sending U.S. food is 
sometimes the appropriate thing to do, there are often more 
effective responses to crises. The cost of buying U.S. 
commodities and shipping them on U.S.-flagged vessels has 
proven to be as much as 30 to 50 percent higher than purchasing 
food locally or regionally, and it can take as much as three 
times longer to get food to the people who need it most.
    Our point is this: Regulations governing the food aid 
program, with few exceptions, tie organizations like CARE to 
using one tool--U.S. commodities. It is like telling a 
carpenter, here is your toolbox but you can only use your 
screwdriver. Practitioners need flexible funding to use the 
right tools for the right jobs, whether it is cash transfers, 
vouchers, local or regional purchase, and/or efficiently 
transported U.S. commodities.
    For example, CARE is working in Haiti to establish a 
country-led food voucher programs targeting the poorest 10 
percent of the population. CARE's program called Kore Lavi, 
which translates to ``Support Life,'' provides eligible 
participants with vouchers to buy locally produced staple and 
fresh foods. It also distributes four to five U.S. commodities 
to supplement the diets of pregnant and lactating women and 
children under the age of 2 who are in the critical thousand 
days window.
    The program does four main things. First, it allows the 
most vulnerable to access locally produced fresh and staple 
foods and badly needed nutritional support, and to do so with 
dignity. Second, it allows participants to save their scarce 
resources, $500,000 so far, with the top two savings 
expenditures being school and medical fees. Third, it builds up 
the overall economy by creating demand for local farmers' 
products. Fourth, it reinforces the Haitian financial system as 
vendors receive payments through their formal banking accounts 
or through partner microfinance institutions.
    Accountability is insured by providing participants with 
hologram imprinted identification cards, complete with their 
thumbprint, picture, and a unique ID number. There is oversight 
on what foods are sold, and there are in-person reporting 
stations for persons to report concerns or complaints.
    Finally, because Kore Lavi was designed and implemented in 
partnership with the Haitian Government, the program is setting 
the ground for a sustainable assistance program that can be 
country-led and country-run in the future.
    While Kore Lavi uses a mix of vouchers and in-kind 
commodities, there are times when only vouchers or commodities 
are needed. But U.S. commodities are just one tool in our 
toolbox, a tool that is not always appropriate and should not 
continue to be the required method of response for title II 
emergency and nonemergency programs.
    In conclusion, Mr. Chairman, Ranking Member, CARE 
recommends that Congress increase the amount of flexible 
funding provided within title II to improve the cost-
effectiveness of programs, enabling them to reach more people, 
save more lives, all at no additional cost to the taxpayer.
    I thank the committee for its time, and I look forward to 
answering your questions.
    Thank you.
    [The prepared statement of Mr. Ray follows:]

                    Prepared Statement of David Ray

    Chairman Corker, Senator Cardin, members of the committee, thank 
you for the invitation to testify here today and for the opportunity to 
present CARE's perspectives and experiences on international food aid 
reform. My name is David Ray, and I serve as the Vice President for 
Policy and Advocacy at CARE USA, a humanitarian organization that 
fights poverty and its causes around the world.
    CARE traces its roots back to 1945, when 22 American organizations 
combined forces to rush emergency food rations in the form of ``CARE 
Packages'' to the starving survivors of World War II in Europe. Since 
that time, CARE's work has evolved and now stretches across 90 
countries, reaching more than 72 million people in 2014. Last year, 
CARE's humanitarian projects supported more than 2.6 million people's 
access to quality food and improved nutritional well-being in 37 
countries prone to, or affected by, conflict and disasters.
    Ensuring that our Nation's international food aid programs achieve 
success at reducing hunger around the world is a critical challenge for 
all of us, and CARE shares your commitment to combating hunger by 
providing effective and accountable programming wherever it is needed.
                    food aid reform and care's story
    CARE has been a proud partner of the Food for Peace program for 60 
years-- 
a program with the explicit goal of combating world hunger and 
malnutrition and their causes, and promoting broad-based, equitable and 
sustainable development. CARE's work, together with the U.S. Government 
and implementing partners, has helped to save countless lives, and 
protect and improve the health and well-being of millions of people 
living on the edge of disaster.
    And while CARE is proud to be a part of this great effort, even 
great programs can be made better. This is why CARE recommends that 
Congress increase the amount of flexible funding available through 
Title II ``Food for Peace'' funding--so that food aid dollars can be 
more effective and reach more people.
    CARE's mission is to provide lasting, equitable, and sustainable 
development, which is guided by the needs and participation of the 
communities we serve. It's these principles, along with our nearly 70 
years of experience, which inform our advocacy on international food 
aid reform and our implementation of food aid programs.
    In 2006, CARE made the decision to voluntarily be the first, and 
only, NGO to end the practice of open-market monetization--a decision 
that cost CARE at least $45 million in federal funding every year. For 
those who are unfamiliar, open-market monetization is the practice of 
purchasing commodities here in the United States, shipping those 
commodities overseas, and then selling them--often at a loss--in order 
to generate funds for development programs. While the work of the 
resulting programs can be helpful, it is an inefficient practice. A GAO 
report estimated that monetization results in an average loss of 30 
cents on the dollar.
    Beyond being far less efficient than the logical alternative of 
simply providing cash to fund food security programs, open-market 
monetization is fraught with risk including the destabilization of 
local markets by flooding them with low priced U.S. commodities. It was 
this potential to undermine the very small-scale farmers and 
populations that we are aiming to serve, along with the need to stretch 
every dollar, which prompted CARE to transition away from open-market 
monetization. As of 2009, CARE no longer participates in, or takes any 
proceeds from, open-market monetization. Currently, CARE confines its 
use of monetized food aid to state-sponsored a relief program in 
Bangladesh that has a guaranteed return rate and involves targeted 
distribution in conjunction with the host government.
    But, beyond the practice of monetization, CARE's experience has 
shown that taxpayer dollars for emergency and nonemergency U.S. food 
aid have the potential to go even further and to be even more 
effective.
    Simply put, decades of experience has shown us that sending U.S. 
food is sometimes the appropriate thing to do, and sometimes it is not. 
Shipping food from the United States to developing countries is slow, 
expensive, and sometimes unpredictable. The cost of using U.S. 
commodities has shown to be significantly higher, in many cases 30-50 
percent higher than alternative untied food aid purchased locally or 
regionally, and it can take as much as three times longer to get food 
to the people who need it most. CARE has seen the evidence showing that 
when U.S. commodities suffer untimely deliveries or are poorly 
targeted, it can have unintended, and sometimes harmful, economic 
consequences.
    Moreover, U.S. commodities are often simply not enough to 
effectively address acute and chronic hunger. Practitioners need 
flexibility in food aid funding so that they can use a variety of tools 
to provide appropriate emergency and nonemergency responses that 
contribute to recovery, enhanced resilience and long-term development. 
For CARE, its partners, and other food aid actors, flexibility means 
having the option to use the right tools--whether it is cash transfers, 
vouchers, local/regional purchase, and/or efficiently transported U.S. 
commodities.
    Our point is this: regulations governing the food aid program, with 
few exceptions, tie organizations like CARE to using one tool: U.S. 
commodities. It's like telling a carpenter, here's your tool box but 
you can only use your screwdriver to build my house.
    Decisions about whether to distribute vouchers, to local or 
regionally purchase food, or to use food secured in the United States 
should be based on three factors: (1) Local market conditions; (2) the 
local or regional availability of food in sufficient quantities; and 
(3) the quality of that local food to meet local needs. Where markets 
work well, and food is locally available, cash transfers or vouchers 
are generally the most efficient. When food is locally available but 
markets do not function well, direct distribution of local or 
regionally purchased food is likely to be the most appropriate option, 
and where food is not locally or regionally available in sufficient 
quantity and quality, shipping food may be called for. If malnutrition 
is a critical issue, and foods available on the local market are not 
adequate to meeting nutrition needs, foods may need to be imported. In 
other instances a mix of these responses may be required.
                  kore lavi: an example of flexibility
    Recently, incremental food aid reforms in the 2014 farm bill took a 
step in the right direction by providing some increased flexibility in 
title II funding. These reforms have been leveraged with the cash-based 
Community Development Fund and the Emergency Food Security Program--
both of which are outside of the title II programming and funded 
through the State-Foreign Operations Appropriations bill. As a result 
of this leveraging, we are beginning to show what untied, flexible food 
aid funding can do.
    Using flexible funding out of the Community Development Fund and 
leveraging U.S. commodities provided through title II nonemergency 
support, CARE has established a promising voucher program in Haiti that 
is building the capacity of the Haitian Government and local markets to 
help support the most vulnerable and chronically malnourished members 
of the community.
    As you know, the levels of poverty and food insecurity in Haiti 
have been long-standing, and were only intensified by the devastating 
2010 earthquake. Currently, 60 percent of the Haitian population lives 
on less than $1.25 a day.
    CARE's program, called Kore Lavi (which translates to ``Life 
Support''), is targeting the bottom 10 percent of the Haitian 
population living below that $1.25 a day poverty line. The program is 
providing them with a mix electronic vouchers to buy locally produced 
staple foods and paper vouchers for the weekly purchase of fresh foods. 
Kore Lavi--as with all of CARE's voucher or cash transfer programs--was 
designed and is being implemented with strict commitment to oversight, 
accountability, and country ownership. In addition, there is visible 
USAID branding throughout the program, so that participants know where 
this assistance came from.
    One the most important points of effectiveness and account ability 
in project design comes with the practice of identifying who needs 
services the most and who can participate in the program. CARE, along 
with a consortium of partners, has worked with the Haitian Ministry of 
Social Affairs to set up, populate, update, and run a database system 
of eligible participants, who were identified through an on-the-ground 
census that was executed by CARE and its partners. Both the composition 
of the food that the vouchers can redeem, along with their overall 
value ($25 USD, which covers approximately 30 percent of monthly 
dietary needs) was also decided in conjunction with the Haitian 
Government and in consideration of local market capacities.
    The identified eligible participants were then provided hologram-
imprinted identification cards complete with their thumb print, 
picture, and a unique identification number. This card can be taken to 
a participating vendor, often located in remote areas, on a monthly 
basis in order to receive their choice of a mix of six locally produced 
staple foods (corn, rice, millet beans, wheat, lentils, oil). There are 
strict vendor-limitations to only sell locally produced staple foods in 
order to rebuild market demand and support local agricultural 
production. Staple food vendors use mobile phones to access the 
participant database to verify the recipient, and to report what 
locally produced staple foods were provided. Once the transaction is 
verified, the vendor can redeem their payment through their formal bank 
account--a practice which is also helping to build up the Haitian 
financial system.
    A similar system is also used by participants for the purchase of 
fresh foods at local markets through the use of time-limited and color-
coded paper vouchers 
can be used throughout the month. Small-scale vendors of fresh foods, 
who are often women, are identified as a Kore Lavi vendor with a wide-
brimmed hat and a branded ID badge (the hat enables illiterate 
consumers to identify these vendors). Because these small-scale vendors 
often do not have mobile phones or bank accounts, CARE has partnered 
with local microfinance institutions to provide same day vendor payment 
for the used paper vouchers--thus allowing for these small-scale 
vendors to meet their own food needs. Since CARE believes that 
accountability should run both ways, there are in-person reporting 
stations at each market for participants and vendors to report 
complaints and have their questions answered.
    In addition to the electronic and paper vouchers, a special focus 
has been put on identifying and reaching vulnerable pregnant and 
lactating women, and children under the age of 2 who are in the 
critical 1,000 days window. These women and children are also eligible 
to receive additional rations of fortified U.S. commodities to help 
ensure their nutritional needs are met while still enabling them to 
access local, fresh foods.
    Kore Lavi is now in its second year, and so far the program has 
reached approximately 125,000 chronically hungry individuals and has 
partnered with 387 vendors. Some program participants have accumulated 
savings with the money they have not spent as a result of using the 
vouchers. As of now, this collective savings amounts to approximately 
$500,000 through 20-cent deposits, with the top two savings 
expenditures going to pay for school and medical fees. In short, Kore 
Lavi supports participants' food security, allows them to participate 
in a formal market, save their scarce resources, and exercise their 
sense of dignity by being able to make their own food choices. In turn, 
local farmers are able to receive a fair price for their products, 
participate in a stronger market, and meet the needs of their 
community.
    It is important to note that the participant database developed by 
Kore Lavi is in the process of being transitioned over to the Haitian 
Government, so that capacity is fully developed to maintain and update 
the database in the future. The end goal of the program is to 
transition the whole process over the Haitian Government. Because Kore 
Lavi was designed and is being implemented in conjunction with the 
Haitian Government, the program is laying the groundwork for a 
sustainable country-led assistance program that can be county-run in 
the future.
    This is the type of work than can be done with funding flexibility 
food aid funding--work that not only addresses immediate needs, but 
builds a brighter future.
    And, this is the kind of flexibility that CARE would like to see 
baked into title II funding, instead of having to patch together small-
scale solutions due to the constraints of tied aid.
                               conclusion
    Kore Lavi is just one example of the type of programming that could 
be scaled up, replicated, or expanded with untied, flexible food aid 
funding. By taking advantage of the small amount of flexible funding 
currently available, Kore Lavi does not rely on monetization, therefore 
allowing CARE to support local businesses and ensure that taxpayer 
dollars are stretched as far as possible.\1\
    While Kore Lavi uses a mix of vouchers and in-kind commodities, 
there are circumstances when a voucher-only approach is appropriate, 
and there are times when U.S. commodities are needed. In instances like 
South Sudan, where markets are broken and local/regional food is not 
available, in-kind food aid is valuable when it arrives on time and 
reaches the people who need it most. This is also the case for programs 
like Kore Lavi, where locally produced fortified foods are not 
available but badly needed for pregnant and lactating women. But, U.S. 
commodities are just one type of blunt instrument--an instrument that 
is not always appropriate and should not continue to be the required 
method of response for title II emergency and nonemergency programs.
    In conclusion, although current law provides authority for limited 
cash assistance, CARE recommends that Congress increase the amount of 
flexible cash assistance provided within title II programs and consider 
new strategies on how best to make those resources available. Not only 
would this substantially improve the cost-effectiveness of both 
emergency and nonemergency programs, it would also result in more 
people being reached, more lives being saved, and more sustainable 
solutions to hunger and poverty.
    Mr. Chairman, members of the ommittee, I thank you for your time 
and I look forward to answering your questions.

----------------
End Notes

    \1\ The Haitian Government specifically requested no monetization 
for this program. This request was consistent with findings of a 
Bellmon Analysis study, which also indicated that food aid monetization 
would be very problematic within the local economy. Therefore, CARE 
would have been unable to implement programs to address food security 
without use of limited flexible funding that is leveraged outside of 
title II, through the Community Development Fund.

    The Chairman. Thank you very much.
    Dr. Smith.

STATEMENT OF VINCENT SMITH, AEI VISITING SCHOLAR, PROFESSOR OF 
ECONOMICS, DEPARTMENT OF AGRICULTURAL ECONOMICS AND ECONOMICS, 
             MONTANA STATE UNIVERSITY, BOZEMAN, MT

    Dr. Smith. Chairman Corker, Ranking Member Cardin, members 
of the committee, thank you so much for inviting me to speak 
with you today on this important issue.
    From their inception, U.S. emergency and other food aid 
programs have accomplished a great deal in alleviating hunger, 
malnutrition, morbidity and mortality among the world's most 
desperately poor people. However, they simply have not been 
nearly as efficient and effective as they can be and should 
have been in providing the aid that mitigates the adverse 
effects of hunger and malnutrition among millions of children 
and adults.
    A wide range of academic analyses that have already been 
cited and government reports are remarkably consistent in 
drawing the following conclusions about the current U.S. food 
aid program.
    First, the current practice of using monetization to fund 
NGO programs is highly wasteful and inefficient, yielding less 
than $.70 of usable funds for every tax dollar expended. Many 
NGOs deserve to have their food and food-security-related 
programs funded, but the programs should be funded directly and 
efficiently with appropriate oversight about how the funds are 
used, to ensure they are effective and efficient programs.
    Second, agricultural cargo preference is an exceptionally 
financially costly way of shipping food from the United States 
to the ports of entry in the regions where the aid is needed. A 
conservative estimate is that it increases the cost of shipping 
food on average under food aid programs by 46 percent, about 
$150 million a year in 2006 dollars, never mind current 
dollars.
    As a result, the U.S. Government spends more on shipping 
food than on purchasing the food delivered, according to the 
GAO. In comparison, Canada in 2012, for example, used 70 
percent of its food aid funds for food and only 30 percent for 
administration and transportation. Canada uses local sourcing, 
for example, and does not, to my knowledge, involve 
monetization.
    Further, in combination with the current requirement that 
food aid be mainly sourced from the United States, the cargo 
preference requirement significantly contributes to otherwise 
unnecessary delays up to 2 months, as the chairman noted, in 
delivering emergency food aid. The impacts of these delays 
themselves have severe adverse effects, particularly on the 
morbidity status of children and their long-run ability to be 
productive citizens.
    Agriculture cargo preference have been justified by private 
maritime interests as providing essential support and 
maintenance for a U.S. maritime fleet that can provide military 
prepared support vessels in time of war. The overwhelming 
weight of the empirical evidence, not just from DOD but from 
other studies, is that cargo preference as applied to food aid 
makes very little effective contribution to maintaining the 
military preparedness of the U.S. maritime fleet through 
providing additional mercantile fleet capacity that can be used 
by the Department of Defense.
    Current estimates indicate that fewer than 11 relatively 
small ships and less than 500 sailors are affected by the 
foreign aid program. Those numbers are estimates and subject to 
question by everybody, but they are ballpark pretty accurate.
    Maritime interests have also made a related claim that 
food-aid-related cargo preference creates many thousands of 
high-paying jobs that has a large effect on the U.S. economy, 
both by expanding the U.S. Merchant Marine Service and 
decreasing port service activities. Adding 500 jobs is not 
having a big impact on the economy, with apologies to 
everybody. And parenthetically, the funds being used for those 
jobs are being diverted from other activities that would 
generate economic activity, too.
    The net effect of these programs on the economy is close to 
zero. I would be tempted to say negative, but then I would be a 
bigoted economist and I cannot say that.
    A related important humanitarian concern is the food 
carried mainly under cargo preferences is mainly carried by old 
and slow ships, and that is probably contributing to the delay 
in delivering food from the United States.
    The clear primary beneficiaries of cargo preference are the 
private maritime interests that largely support that program, 
particularly the companies that own the vessels. Many of these 
vessels would have been decommissioned as noncompetitive, both 
in intracoastal transportation and international 
transportation, were it not for the food aid program, at least 
that is the evidence that appears to come from the George Mason 
study that was referred to earlier and by the work by Bageant, 
Barrett, and Lentz.
    Finally, I would like briefly to discuss the issues 
associated with local and regional sourcing of food aid. 
Permitting complete flexibility or as much flexibility as 
possible for USAID and other government food programs to 
locally and regionally source emergency aid and other forms of 
food aid is clearly a much more cost-effective way and faster 
method of delivering the needed aid than requiring sourcing 
from the United States.
    That is not to say that no food will be sourced from the 
United States. Processed food is clearly optimally sourced 
right now from the United States in many contexts, 
particularly, for example, in relation to peanut butter and 
products like that.
    The humanitarian impacts of allowing substantial 
flexibility in sourcing food, as has already been discussed in 
this session, are very substantial. A minimum estimate of 2 to 
4 million people, and a maximum estimate of 8 million to 10 
million people, would benefit by reallocating the funds to more 
flexible sourcing.
    At the same time, permitting local sourcing will have no 
measurable economic impacts on income of U.S. farmers or the 
overall performance of the agriculture sector. In fact, if 
anything, having more money to buy food aid food in the form of 
wheat and corn, which wheat and corn is a global market, 
actually would enhance global demand for those foods. That 
would actually be of more benefit--although a minuscule 
benefit, it must be said--to the corn growers of Iowa and the 
wheat growers of Colorado and Montana.
    In summary, ending these practices would generate 
tremendous benefits in terms of improving humanitarian aid, and 
they would benefit the United States in many domains--
economically, politically, and in terms of the good will that 
we would accumulate around the world that is so important to 
all of our efforts to sustain a democratic and productive 
society.
    Thank you, sir.
    [The prepared statement of Dr. Smith follows:]

               Prepared Statement of Dr. Vincent H. Smith

    Chairman Corker, Ranking Member Cardin, and distinguished members 
of the committee, thank you for the opportunity to testify today about 
the future of U.S. food aid programs. I am honored to be invited to 
discuss these programs, their importance, and the need to reform them.

                                Summary

    The central goal of any government program should be to meet the 
program's core objectives as efficiently and effectively as possible. 
From their inception, U.S. Emergency and other Food Aid Programs have 
accomplished a great deal in alleviating hunger, malnutrition, 
morbidity, and mortality among the world's most desperately poor 
populations. However, they have not been nearly as efficient and 
effective as they can be and should have been in providing aid that 
mitigates the adverse effects of hunger and malnutrition of children 
and adults.
    This has especially been, and continues to be, the case with 
respect to emergency food aid. A plethora of academic analyses and 
government reports (including a long sequence of General Accountability 
Office reports) have been remarkably consistent in drawing the 
following conclusions about the current U.S. food aid program.

    1. The current practice of monetization (allowing NGOs to sell food 
aid food shipped from the U.S. in local markets and use the proceeds to 
fund their aid-related programs) is highly wasteful and inefficient. 
Many NGOs deserve to have their food aid and food security related 
programs funded, but the programs should be funded directly with 
appropriate oversight about how the funds are used to ensure they are 
effective and efficient.

    2. Agricultural Cargo Preference (ACP) is an exceptionally 
financially costly way of shipping food aid from the United States to 
the ports of entry in the regions where the aid is needed. Worse, in 
combination with the current requirement that food aid be mainly 
sourced from the U.S., the cargo preference requirement significantly 
contributes to otherwise unnecessary delays in delivering emergency 
food aid. The impacts of these delays have themselves had severe 
adverse effects on, especially, morbidity and mortality rates among 
children.

    3. Agricultural Cargo Preference has been justified by Maritime 
interests as providing essential support for the maintenance of a U.S. 
maritime fleet (including both ships and sailors) that will be 
essential for providing military preparedness needed to support the 
effective defense of the country in time of war.
    The overwhelming weight of the empirical evidence is that ACP makes 
no, or at best minimal, effective contribution to maintaining the 
military preparedness of the United States through providing additional 
relevant and useable mercantile fleet capacity (in terms of both 
sailors and ships) for DOD purposes. In other words, the evidence makes 
nonsense of the claim that ACP plays any critical role with respect to 
U.S. military preparedness.

    4. Maritime interests have also made a related claim that ACP 
creates many thousands of high paying jobs and has large effects on the 
U.S. economy, both by expanding the U.S. merchant marine service and 
increasing port service activities as well as through what are called 
``multiplier effects.''
    A recent U.S. Department of Defense estimate of the direct marine 
service effects is that ACP increases the employment of sailors in the 
U.S. mercantile marine fleet by between 375 and 495 jobs a year. Those 
jobs cost the taxpayer an estimated annual average additional outlay 
about $100,000 per job over an above what would be otherwise be spent 
to transport U.S. food aid from the United States to the destinations 
where the food is needed. These are funds that annually, under the 
current food aid programs, are directly reallocated from providing food 
aid to over 2 million very poor people a year.
    A related further important humanitarian concern is that food 
carried under cargo preference by U.S.-flag ships is typically carried 
on old and slow ships (which adds to the labor and other costs incurred 
through the cargo preference program), delaying the delivery of the 
emergency food aid to the children and adults who need it. Barrett and 
Lentz (2014) point out that such delays result in increased 
malnutrition and morbidity among, perhaps especially, children.
    Almost no ``multiplier effects'' or broader economy-wide impacts 
derive from these maritime jobs, in part because they simply involve 
the reallocation of government funds from one use to another use, and 
in part because some of the international maritime sailor's income is 
inevitably directly spent in foreign economies. In addition, in any 
case, multiplier impacts associated with new government spending are 
relatively small (multipliers are almost never estimated to be larger 
than about 1.8).

    5. The primary beneficiaries of the agricultural cargo preference 
mandate are the private shipping companies, whose vessels are approved 
for and used to carry food aid shipments under the ACP. Effectively, 
ACP is a straightforward and relatively wasteful form of corporate 
welfare that imposes substantial humanitarian costs on some of the 
poorest and most desperately in-need families and children in the world 
by reducing the effectiveness of U.S. Food Aid programs.

    6. Permitting complete flexibility, or as much flexibility as 
possible, for USAID and other government food aid programs to locally 
and regionally source emergency and other forms of food aid is a more 
cost-effective and faster method of delivering the needed aid than 
requiring sourcing from the United States. The humanitarian impacts of 
allowing substantial flexibility in souring food aid have consistently 
been estimated be very substantial, reducing nutrition deficiency 
related morbidity and mortality for an average of over 4 million 
children and adults on an annual average basis.
    At the same time, permitting local and regional sourcing will have 
no measurable economic impacts on the incomes of U.S. farmers or the 
overall performance of the U.S. agricultural sector. Paradoxically, for 
many of the crops raised by U.S. producers and used as food aid--such 
as corn, wheat, and rice--if anything a shift to local and regional 
sourcing will have positive, rather than negative, effects on the 
prices they receive for their crops. The reason: these are crops traded 
in global markets and a more efficient use of U.S. food aid funds will 
increase global use and demand for those crops, albeit in very modest 
amounts relative to the global production of wheat, corn, rice, and 
other food aid commodities.
           agricultural cargo preference: issues and evidence
    The following issues are central to any assessment of agricultural 
cargo preference as the policy is applied to U.S. emergency and other 
food aid:
    (a). Does the U.S. cargo preference program as applied to U.S. food 
aid programs have a substantial and adverse impact on the cost of 
delivering food aid to the people who desperately need that aid?
    (b). Does the food aid related U.S. agricultural cargo preference 
program in any substantive way enhance the military preparedness of the 
United States by expanding the capacity of the private U.S. merchant 
marine service to support U.S. military efforts in other countries?
    (c). Who are the primary beneficiaries of the government revenues 
that have to be spent as a result of the food aid related U.S. cargo 
preference program? Is this just corporate welfare in disguise?
    (d). Does the food aid related U.S. cargo preference program have 
substantive positive impacts on the U.S. economy either through job 
creation within the U.S. mercantile marine or by creating additional 
economic activity?

    (a). Does the U.S. cargo preference program as applied to U.S. food 
aid programs have a substantial and adverse impact on the cost of 
delivering food aid to the people who desperately need that aid?
    The evidence on the impact of cargo preference on the delivery 
costs of U.S. food is unambiguous and large and is derived from 
multiple analyses by different sources. Perhaps the most careful 
academic study to date, by Bageant, Barrett and Lentz (2010), using 
conservative assumptions about the nature of the U.S. Department of 
Transportation Marine Administration data available on food aid 
shipping costs, estimates that food shipped on U.S.-flagged cargo 
preference vessels costs 46 percent more than shipping the same aid at 
competitive rates. A more recent independent study by a research group 
at George Mason University obtained very similar estimates.
    Quite stunningly, in fiscal year 2012 (October 1, 2011 to September 
30, 2012) the General Accountability Office (2014) reported that 45 
percent of Food for Peace funds was spent on food aid transportation 
while only 40 percent of those funds was spent on food aid. In 
contrast, for example, Canada spends 70 percent of its food aid budget 
on food aid (Barrett and Lenz, 2014). While part of the reason for the 
exceptional proportion of total U.S. Food for Peace program outlays 
allocated to transportation is the current mandate to source most food 
aid from the U.S. rather than from local or regional markets closer to 
the areas of need, the impact of the cargo preference requirement on 
those costs, conservatively estimated to be about $150 million a year, 
is also substantial.

    (b). Does the food aid related U.S. agricultural cargo preference 
program in any substantive way enhance the military preparedness of the 
United States by expanding the capacity of the private U.S. merchant 
marine service to support U.S. military efforts in other countries?
    The empirical evidence is also surprisingly clear on this issue. 
Cargo preference for food aid does little or nothing to increase the 
ability of the private companies that form the U.S. Maritime Service to 
provide services to the Department of Defense (DOD) in time of a major 
war. That is, applying cargo preference requirements to food aid 
shipments has no effective impact on the military preparedness of the 
United States. Two relatively recent detailed analysis of registration 
(Bageant, Barrett and Lentz, 2010; George Mason University, 2015) have 
concluded that the overwhelming majority of U.S.-flagged ships approved 
for transporting foreign aid under the cargo preference mandate do not 
meet the criteria established by the Department of Defense for a 
mercantile ship to be viable for military purposes (only 17 of 61 ships 
appeared to meet the DOD criteria in 2006). Tellingly, most of the 
ships fail on to meet the DOD criteria on two important grounds: they 
are too old and they cannot be readily used as roll-on/roll-off or 
liner container ships (they are bulk carriers or tankers) (Button, et 
al, 2015). Employment effects associated with the food aid cargo 
preference mandate are also very modest.
    The program is estimated by the Department of Defense to increase 
employment in the mercantile marine by between about 350 and 495 
sailors with U.S. citizenship. In terms of the potential contribution 
of these individuals to the military preparedness of the United States, 
when compared to the numbers of navy personnel who leave the U.S. Navy 
and Coastguard each year (well in excess of 30,000), many of whom can 
be rapidly retrained to serve as mercantile marine support personnel, 
these numbers are very modest. The estimated additional cost to the 
Federal Government of hiring these additional 350-495 sailors is 
approximately $100,000 per sailor (Bageant, et al, 2010; Button, et al, 
2014).
    Additional so-called ``multiplier effects'' almost certainly do not 
exist for two reasons. First, allocating the funds in other ways would 
have similar initial employment effects in term of numbers of jobs for 
U.S. citizens (though not in the mercantile marine service) and, 
second, multiplier effects are, in fact, much smaller than indicated 
some recent mercantile marine industry supported studies, recently 
reviewed by Button, et al (2015), have claimed. In the context of an 
economy that is enjoying some growth, a multiplier effect of one may be 
too small, but a multiplier effect of two is almost surely much too 
large, and one of 8.6 (a number used in one study of the employment 
effects of agricultural cargo preference program) is simply the product 
of a lively imagination.

    (c). Who are the primary beneficiaries of the government revenues 
that have to be spent as a result of the food aid related U.S. cargo 
preference program? Is this just corporate welfare in disguise?
    The older U.S.-flag ships typically used for carrying cargo 
preference food aid have been estimated to have much higher operating 
costs than U.S.-flag ships used to transport goods between U.S. ports 
because, as they have aged and become slower, these ships become much 
more expensive to run in terms energy efficiency, labor requirements, 
and other costs associated with maintaining them (Button, et al; 
Bageant, et al). These additional costs associated with the U.S.-
flagged older ships mean that they would almost surely not be 
competitive with other carriers in almost any other market (including 
ocean-based transshipment between U.S. ports that requires cargo 
preference carriage by U.S.-flag ships).
    Thus, one reasonable interpretation of the food aid cargo 
preference program is that it allows the companies who own those ships 
to continue to make profits from them (Bageant, et al; Barrett and 
Lentz; Button, et al.). Effectively, therefore, the primary 
beneficiaries of the food aid cargo preference program are the 
companies that own the U.S.-flag ships that carry those cargos. Some of 
the U.S. registered shipping companies, several of which appear to be 
owned and controlled through holding companies by large foreign-based 
multinationals, seem to exist primarily because that is the way through 
which those companies can access economic profits from the food aid 
cargo preference program. Without that program, those older ships, 
which apparently do not meet the DOD criteria for militarily useful 
vessels, would otherwise be decommissioned.

    (d). Does the food aid related U.S. cargo preference program have 
substantive positive impacts on the U.S. economy either through job 
creation within the U.S. mercantile marine or by creating additional 
economic activity?
    Any employment effects are trivial and, in fact, it is not clear 
that they are positive. Allocating the approximately $100,000 per 
mercantile marine job elsewhere in the U.S. economy could well have 
larger employment effects, depending on where the funds were allocated. 
The central public policy issue has nothing to do with employment per 
se, but with whether the food aid component of the cargo preference 
program increases military readiness in any substantive way. The answer 
provided by independent assessments of the program is consistently that 
such is not the case.
            local and regional sourcing: issues and evidence
    The evidence is unambiguous. As Lentz and Barrett (2014) and 
previous studies have consistently reported (for example, GAO, 2009; 
Barrett and Maxwell, 2005) local and regional sourcing result in 
substantial cost savings. Equally importantly, economically efficient 
sourcing from optimal suppliers and locations substantially reduces the 
time taken to deliver emergency food aid to where it is needed, 
dramatically reducing the morbidity and mortality effects on the target 
populations (Lentz and Barrett).
    A politically relevant question is whether allowing for complete 
flexibility in sourcing food aid would adversely affect U.S. farmers. 
Most food aid involves commodities traded on global markets such as 
corn and wheat. To the extent that food aid reform, crucially including 
a shift to local and regional sourcing, will enable the U.S. Government 
annually to purchase 50 to 60 percent more food aid with any given food 
aid budget (Lentz and Barrett), the impact will be to increase global 
annual demand for crops such as corn and wheat.
    Clearly, the net effect would therefore be to increase average 
prices received by U.S. and other farmers for those commodities. It is 
important to emphasize, however, that for commodities like corn, wheat, 
and rice, U.S. food aid makes up very small proportions of total world 
consumption and therefore any price effects would essentially be 
unobservable. Even for small acreage commodities like peas and lentils, 
impacts on prices received by U.S. farmers as a result of food aid 
purchases appear to be very small. For processed commodities like 
peanut butter, it currently appears that the U.S. remains the optimal 
source for obtaining food aid. Hence economic impacts on U.S. 
agriculture from ending the U.S. sourcing mandate are likely to be very 
small and, in terms of prices received by U.S. farmers could be 
beneficial (although miniscule in size).
                      the practice of monetization
    Monetization, the practice of shipping U.S. food to foreign 
destinations to be sold by nongovernment agencies in commercial markets 
to obtain cash to be used for other aid related projects, is simply a 
waste of resources (see, for example, GAO, 2011; Lentz and Barrett, 
2014). The practice results in the NGOs obtaining 70 to 75 cents for 
every dollar of tax funds used in the monetization process. A much more 
effective use of such funds would be simply to provide the NGOs with 
grants to accomplish the relevant aid related objectives. 
Unequivocally, to ensure that such funds are used for the intended 
purposes, USAID and USDA would have to carefully monitor their use, but 
such monitoring is already needed in the context of the monetization 
process.
References
    Bageant, E.R., C.B. Barrett and E. C. Lentz. ``Food Aid and Cargo 
Preference.'' Applied Economic Perspectives and Policy, 4, 2010, 624-
641.
    Barrett, C., and E C. Lentz. ``Highway Robbery on the High Seas.'' 
The Hill, May 30, 2014.
    Barrett, C.B., and D.G. Maxwell. ``Food Aid After Fifty Years: 
Recasting Its Role.'' London, Routledge, 2005.
    Button, K., W. Ferris, and P. Thomas. ``The Political Economy of 
Shipping Food Aid Under the Cargo Preference Regime.'' School of Public 
Policy, George Mason University, MS-3B1, 2015.
    George Mason University. ``Impact of Government Food Aid Reforms on 
the U.S. Shipping Industry: Preliminary Results.'' 2015.
    Lentz, E.C., and C.B. Barrett. ``The Negligible Welfare Effects of 
the International Food Aid Provisions in the 2014 Farm Bill.'' Choices, 
3rd Quarter, 2014.
    U.S. AID. ``Food Aid Reform: Behind the Numbers.'' Fact Sheet, 
2013.
    U.S. Government Accountability Office. ``International Food 
Assistance: Local and Regional Procurement Can Enhance the Efficiency 
of U.S. Food Aid but Challenges May Constrain Its Implementation.'' 
2009. GAO-09-570.
    U.S. Government Accountability Office. ``International Food 
Assistance: Funding Development Projects Through the Purchase, Shipment 
and Sale of U.S. Commodities is Inefficient and Can Cause Adverse 
Market Impacts.'' 2011, GAO-11-636, Washington DC.
    U.S. Government Accountability Office. ``International Food Aid 
Prepositions Speeds Delivery of Emergency Food Aid But Additional 
Monitoring of Time Frames and Costs is Needed.'' 2014, GAO-14-277, 
Washington DC.

    The Chairman. Thank you, Doctor.
    Dr. Mercier.

  STATEMENT OF STEPHANIE MERCIER, SENIOR POLICY AND ADVOCACY 
        ADVISER, FARM JOURNAL FOUNDATION, ALEXANDRIA, VA

    Dr. Mercier. Mr. Chairman, Ranking Member Cardin, members 
of the committee, thank you for holding this hearing today on 
the critical topic of U.S. international food aid. I appreciate 
the opportunity to provide testimony on this matter.
    I am Stephanie Mercier and I serve as the senior policy and 
advocacy adviser for the Farm Journal Foundation. The 
foundation has not taken a formal position on this issue, so 
this testimony reflects my views alone. I also would like to 
note that I worked as a consultant for a number of humanitarian 
NGOs over the last few years as well.
    I worked on food aid policy issues for about the last 18 
years, primarily as part of my portfolio on the Democratic 
staff of the Senate Agriculture Committee between 1997 and 
2011. In that role, I helped to lead the committee's work on 
the trade title in two farm bills, in 2002 and 2008, and we 
were able to make modest reforms in the direction of improved 
efficiency and flexibility for the title II program in both 
bills.
    Those modest reforms were continued in the 2014 farm bill 
passed in February of last year. The reforms to the Food for 
Peace program proposed in the bill introduced by the chairman 
and Senator Coons in February would take a giant stride further 
down that path.
    In the 2002 farm bill, Congress first began to recognize 
that the traditional mode of U.S. assistance did not always 
offer the optimal response. This approach consists of 
purchasing and shipping U.S.-sourced commodities after a 
natural disaster or conflict had already occurred and people 
were already going hungry. In that bill, Congress authorized 
USAID to set up prepositioning warehouses that allowed them to 
hold commodities that could be quickly dispatched when 
emergencies arose.
    Congress expanded the authority for prepositioning in the 
2008 farm bill, allowing USAID to establish additional sites. 
The bill also increased its share of title II funding that 
could be used to cover certain types of nonfood expenses from 
around 5 percent previously to a maximum of 13 percent.
    The other major milestone in the 2008 farm bill was the 
establishment of a pilot program to test whether or not 
efficiency gains might be available from allowing U.S. 
resources to be used to purchase food locally or regionally, 
rather than insist on always being U.S.-sourced commodities.
    Independent studies of that LRP pilot found that buying 
locally was less expensive for most commodities and that the 
food on average delivered in about half the time as it took for 
food that was sourced and shipped from the United States.
    The 2014 farm bill moved that dial on reform further. It 
raised the share of title II funds that could be used to cover 
nonfood expenses from 13 to 20 percent, and expanded the 
category of eligible expenses. That legislation also authorized 
the standing LRP program for up to $80 million dollars annually 
to be run by USDA in part as a complement to the school feeding 
program that they operate.
    To augment the limited flexibility available under current 
Food for Peace rules, USAID established the Emergency Food 
Security Program, or EFSP, in 2010. It was designed to utilize 
LRP and other cash-based mechanisms under the broad authority 
of the Foreign Assistance Act, giving them some ability to 
tailor the U.S. response to the variety of circumstances under 
which international food assistance is needed.
    There has been a lot of reference to Syria already in this 
hearing. I think that is a perfect example of how flexibility 
can be used to great advantage.
    I would like to point out, however, that there is no need 
to assume that the legislation that Senators Corker and Coons 
introduced would necessarily turn title II into an entirely 
cash-based program. We know from the results of the pilot 
program that there are some commodities--vegetable oil, in 
particular--that are actually cheaper to produce and ship from 
the United States than they are to buy locally through 
recipient countries.
    We also know that there will always be some situations 
where the problem is simply that there is not enough food in 
the local area. For those beneficiaries, sourcing U.S. food and 
shipping it is still going to be the best solution.
    In its early years, the Food for Peace program was an 
important component of U.S. agriculture policy. In 1957, in 
fact, it was estimated that U.S. food had accounted for about 
30 percent of all U.S. ag exports. Today, however, food aid 
shipments account for less than 1 percent of total ag exports.
    While U.S. farmers continue to take justifiable pride in 
providing food for hungry people, this program is no longer 
really viewed by most in agriculture as a key engine of 
economic growth for their industry.
    For the last several decades, the United States has been 
the leading provider of humanitarian food assistance around the 
world, and that is a status we must maintain. However, that 
assistance is still delivered primarily by a mechanism that was 
appropriate for the market environment of the 1950s but no 
longer adequately meets the needs of the people the program is 
intended to serve.
    It is past time for U.S. food aid to enter the 21st 
century. Congress should allow USAID to provide the type of 
assistance that can be tailored to the complex environment 
where hungry people around the world are often found.
    Thank you for the opportunity to testify, and I am ready to 
answer any questions you might have.
    [The prepared statement of Dr. Mercier follows:]

              Prepared Statement of Dr. Stephanie Mercier

    Mr. Chairman, Ranking Member Cardin, members of the committee, 
thank you for holding this hearing today on the critical topic of 
international food assistance that the United States provides to hungry 
people around the world. I appreciate the opportunity to provide 
testimony on this matter.
    I am Stephanie Mercier, the Senior Policy and Advocacy Adviser for 
the Farm Journal Foundation. The Foundation has not taken a formal 
position on the issue of food aid reform, so any opinions expressed in 
my testimony are mine alone. In the last 3 years, I have also served as 
a consultant to a number of humanitarian NGOs who support reform of 
U.S. food aid programs. That group includes CARE, which is represented 
on this panel by Mr. David Ray, their Vice President for Policy and 
Advocacy, as well American Jewish World Service, Bread for the World, 
and Oxfam America, among others.
    I have worked on food aid policy issues for about 18 years, 
primarily as part of my portfolio as chief economist for the Democratic 
staff of the Senate Agriculture Committee between 1997-2011. In that 
role, I helped to lead the committee's efforts in crafting provisions 
of the trade title in the 2002 and 2008 farm bills, and we were able to 
make modest reforms in the direction of improved efficiency and 
flexibility of the Title II ``Food for Peace'' program in both bills. 
Those modest reforms were continued in the 2014 farm bill passed in 
February of last year. The reforms to the Food for Peace program 
proposed in the bill introduced by the chairman and Senator Coons in 
February would take a giant stride further down that path.
    In the 2002 farm bill, Congress first began to recognize that the 
traditional mode of U.S. assistance under the title II program, which 
consisted of purchasing and shipping U.S.-sourced commodities after a 
natural disaster or conflict had already occurred and people were going 
hungry, did not always offer the optimal response. Implementing 
partners reported struggling to avoid so-called pipeline breaks, during 
the period when the affected area had insufficient food and U.S. 
commodity food aid had not yet arrived. In that bill, Congress 
authorized the U.S. Agency for International Development (USAID) to set 
up warehouses to hold food aid commodities that could be quickly 
dispatched when emergencies arose. This greater degree of flexibility, 
called prepositioning, enabled the Agency to reduce the time needed to 
deliver assistance.
    Congress expanded authority for prepositioning in the 2008 farm 
bill, allowing USAID to establish additional sites. The bill also 
increased the share of title II funding that can be used to cover 
certain types of nonfood expenses under Section 202(e) of the Food for 
Peace Act, from around 5 percent to a maximum of 13 percent. That 
initial bump-up in the 202(e) percentage allowed USAID to provide more 
cash resources to implementing partners, reducing the sale of 
commodities in fragile, often poorly functioning markets, a process 
called monetization, by about 10 percentage points. Monetization has 
traditionally been used to cover the nonfood components of nonemergency 
projects. Both provisions improved the efficiency of the program, by 
reducing the delivery time for food aid substantially and the cost of 
running development programs under title II. A recent GAO study found 
that using commodities stored at prepositioning warehouses cut delivery 
time for emergency aid by about 2 months compared to shipping directly 
from the United States.
    The other major milestone in the 2008 farm bill was the 
establishment of a pilot program intended to test, in a rigorous way, 
what gains in efficiency might be available from allowing U.S. 
resources to be used to purchase food closer to where the beneficiaries 
are actually located, in the local area if possible or from neighboring 
countries if that is the closest surplus area. The legislation provided 
$60 million in mandatory funds for USDA to run this local and regional 
procurement, or LRP pilot program. Independent studies on the results 
of the LRP pilot found that buying locally was less expensive for most 
categories of commodities. Local purchases of unprocessed grain were on 
average 35 percent less costly, and averaged 31 percent less for 
unprocessed pulse crops such as peas and lentils. In addition, it was 
almost always more expeditious to buy locally instead of buying and 
shipping U.S.-sourced commodities for food aid. The emergency projects 
under the pilot program had an average response time of 56 days, as 
opposed to 130 days needed for comparable U.S.-sourced commodities to 
arrive at their destinations.
    The 2014 farm bill moved the dial on reform further, raising the 
share of title II funds that can be used to cover nonfood expenses from 
13 to 20 percent, and expanding the category of eligible expenses. The 
legislation also authorized a standing LRP program (for up to $80 
million annually) to be run by USDA in part as a complement to the 
McGovern-Dole international school feeding program. The new program has 
yet to receive funding, although the President's FY16 budget proposed 
$20 million for that purpose.
    To augment the limited flexibility available under current Food for 
Peace Program rules, USAID established the Emergency Food Security 
Program (EFSP) in 2010. It was designed to utilize LRP and other cash-
based mechanisms under the broad authority of the Foreign Assistance 
Act. USAID now has some ability to tailor the U.S. response to the 
variety of circumstances under which international food assistance is 
needed. The steps USAID has taken in recent years have allowed the 
Agency to reduce the need of implementing organizations to monetize 
U.S. commodities under title II development projects around the world, 
except to meet the overall monetization minimum requirement of 15 
percent that remains in effect. GAO studies in recent years indicated 
that monetization transactions often generated proceeds that were 76 
percent or less of what was originally spent on the commodity in the 
United States.
    This flexibility has also been crucial to addressing emergencies in 
places like Syria over the last few years, where it is almost 
impossible to safely provide U.S. food as assistance, so they have used 
cash assistance or food vouchers instead. However, there are some 
situations, such as in the Democratic Republic of Congo or the Central 
African Republic, where flexible resources would be helpful but are not 
available because of the limitations in place. S. 525 would expand that 
flexibility by a significant margin--I understand that USAID has 
estimated that the bill's increased flexibility would enable them to 
help about 12 million more recipients annually, which would amount to a 
33-percent increase in the reach of the program compared to FY13 
estimates.
    I would like to point out, however, that there is no need to assume 
that this legislation would necessarily turn the title II program into 
an entirely cash-based program. We know from the results of the LRP 
pilot program I described earlier that there are some commodities that 
are cheaper to produce and ship from the United States than to purchase 
locally in recipient countries. This was broadly the case for vegetable 
oil, which on average costs $100 less per ton to buy and ship from the 
United States than it did to procure the same product locally. In 
general, the more highly processed the commodity was, the smaller the 
difference in cost between U.S.-sourced and foreign-sourced products. 
The pilot also showed that it was cheaper to buy a range of food aid 
commodities from the United States and ship to nearby destinations in 
Central and Latin America than to buy locally.
    We also know that there will always be some situations where the 
problem is simply inadequate food for those in need in the targeted 
region. For those beneficiaries, sourcing U.S. food will remain the 
best solution. In South Sudan, for example, there has been insufficient 
food locally to feed the population since the most recent outbreak of 
civil conflict there in December 2013. As a result, USAID has provided 
more than $530 million in title II food aid targeting 3.2 million 
people over the past year and a half. No EFSP resources have been used 
there, because there's little food available in the region.
    The Food for Peace program has been around for a long time--the 
program celebrated its 60th anniversary last summer, and it is 
estimated to have helped more than 3 billion people over that period. 
However, like every other U.S. agricultural policy, it needs to be 
modernized to better reflect the current market and policy environment 
as well as make use of advancements in knowledge and practice about the 
best approach to addressing acute and chronic food insecurity.
    In its early years, the Food for Peace Program was an important 
component of U.S. agricultural trade policy--in 1957, it is estimated 
that U.S. food aid accounted for about 30 percent of all U.S. 
agricultural exports. Today, food aid shipments account for less than 1 
percent of total U.S. agricultural exports. In fiscal 2014, U.S. food 
aid shipments totaled less than 1 million tons, due in large part to a 
combination of high commodity and transportation costs. While U.S. 
farmers continue to take pride in providing food for hungry people, 
this program is no longer viewed by the most in the agriculture sector 
as a key engine for expanding U.S. agricultural trade.
    Another source of inefficiency in the current food aid program is 
the requirement that 50 percent of all U.S. food aid be shipped on 
U.S.-flagged vessels, otherwise known as agricultural cargo preference. 
One recent study by two economists from Cornell University estimated 
that shipping on U.S.-flagged vessels in 2006 was 46 percent more 
expensive than using foreign-flagged shipping. Until recently, the cost 
of that inefficiency was largely borne by the U.S. Department of 
Transportation, which was required to reimburse the food aid agencies 
for at least a portion of the additional costs associated with 
utilizing U.S-flagged shipping. However, the reimbursement requirement 
was repealed as part of the Bipartisan Budget Act of 2013, and now 
those additional costs mean that fewer hungry people can be fed with 
the same level of food aid resources.
    If preserving military useful sealift capacity is the goal of 
agricultural cargo preference, it seems to me there are a lot more 
efficient ways to provide that support than by diverting resources 
intended to help the poorest people in the world. The Department of 
Transportation maintains a roster of 60 U.S.-flagged vessels which 
receive a direct annual subsidy under the Maritime Security Program 
(MSP) to be ready to be activated in a military emergency. However, a 
recent analysis conducted by a team at George Mason University found 
that fewer than half of the U.S.-flagged vessels which carried U.S. 
food aid during the period of 2011-13 were actually included in the 
MSP, and those ships carried only 18 percent of the food aid moved on 
U.S.-flagged ships on a volume basis. The other U.S.-flagged ships 
carrying food aid were not eligible for the MSP during that period 
because either they were too old or did not have the right type of 
shipping capacity.
    Some have raised concerns about the quality of food that might be 
purchased locally or regionally with U.S. resources under a flexible 
food assistance program such as S. 525 would create. I anticipate that 
implementing partners would be required to monitor the quality of the 
food they distribute whether it is procured in the United States or 
abroad, as has been the case with other LRP activities conducted by the 
U.S. Government. In the 2008 farm bill, specific requirements for 
quality testing were written into the statutory language for the LRP 
pilot program. The study on the pilot reported few problems in meeting 
those requirements, with only a few defaults on contracts due to 
quality problems with the delivered commodities, and the rejected 
commodities had to be replaced at no cost to the program. The Annual 
Program Statement (APS) under which applications are made for both 
title II emergency food aid and EFSP resources requires that food 
products procured locally or regionally must meet the recipient 
country's food safety standards, and if no standards exist, they must 
meet international Codex Alimentarius standards instead.
    For the last several decades, the United States has been the 
leading provider of humanitarian food assistance around the world, a 
position we can all take pride in. However, that assistance is still 
delivered primarily by a mechanism that was appropriate for the market 
environment at the time that the Food for Peace program was established 
60 years ago, but no longer adequately meets the needs of the people 
the program is intended to serve. It is past time for U.S. food aid 
policy to enter the 21st century--Congress should allow USAID and USDA 
to provide the type of assistance that can be tailored to the complex 
environments where hungry people around the world are often found.

    The Chairman. Thank you all for your testimony. I think you 
have all been most helpful. There are not many Americans, I 
realize, who watch these kinds of panels, but this panel is 
selected jointly by Republicans and Democrats, and it is 
amazing to me that the message is exactly the same by the 
panelists.
    I want to ask a few questions and then make a statement, 
and then turn to our ranking member.
    Dr. Smith, it is my understanding, if I heard you 
correctly, that 70 percent to 75 percent of the ships moving 
food aid are not militarily useful. Is that correct?
    Dr. Smith. The evidence in a study by Bageant, Barrett, and 
Lentz shows that approximately 70 percent of the vessels that 
move food aid are too old and/or are of a not particularly 
useful type for the Department of Defense to use in sealift 
capacity. Bulk carriers, for example, and tankers are not the 
ideal vessels.
    Many of the vessels used in food aid are over the age that 
the Department of Defense identifies as being a reasonable age 
for shipping, and they tend to be the older, slow vessels. 
There really is an argument, and there is, certainly, lots of 
anecdotal evidence, that these ships are actually brought in to 
the marine fleet services of the companies that use them, these 
70 percent of them that are not eligible, in order to take 
advantage of the food aid program reimbursements, which tend to 
be relatively large. These are not vessels, many of them, that 
would be competitive in any other way.
    So effectively, this becomes a corporate welfare program 
for a limited number of companies, some of whom are primarily 
foreign-owned through holding companies.
    The Chairman. It is my understanding that that number 
actually could be as much as 40 percent foreign-owned. Is that 
correct?
    Dr. Smith. That is the estimate in the literature, yes.
    The Chairman. Yes. So to go down the same path we did with 
our former witness, first of all, food aid certainly is not 
designed for national security. But the fact that this actually 
has significant effect on our national security again is a 
total hoax. Is that correct? Let me say, mostly a hoax, okay? 
[Laughter.]
    Dr. Smith. Distinguished Chairman, I want to respond in a 
British House of Cards way: You might say that. Perhaps I could 
not.
    The Chairman. I have not seen House of Cards, but I 
understand they say those kinds of things.
    Dr. Smith. If I may, there is a related issue. The related 
issue is that there is a fairly rapid growth in the 
intracoastal shipping that requires cargo preference for U.S. 
boats. There is growth there. The recent George Mason study 
shows that.
    That growth far exceeds, on an annual basis, any loss of 
capacity that might be associated with moving cargo preference 
away from food aid cargoes.
    So if you think about it this way, there are events 
occurring within that sector that have offsetting effects that 
are not related to food aid that are related to the cargo 
preference requirements for shipping from one U.S. port to 
another.
    That is an important point. The 450 sailors I mentioned in 
my testimony, those are real people. And a legitimate question 
for the committee would be, would those people that lose their 
jobs? The answer is there is growth in shipping, in terms of 
the amount of product being carried? So it seems very unlikely 
that a change in the way in which food aid has to be shipped 
would cause sailors en masse, those 450 sailors, to all lose 
their jobs or perhaps any of them to lose their jobs. And that 
matters because these are real people.
    The Chairman. Well, based on the amount of money we are 
blowing, I think you said we are spending more on shipping than 
on food.
    Dr. Smith. That is the GAO report evidence, yes.
    The Chairman. These 450 folks could be sent to Tahiti and 
supported for the rest of their lives better than any of us, 
and we would still be saving huge amounts of money. So I think 
we can figure out a way to deal with that.
    Dr. Smith. Well, if you send them to Montana, Senator, that 
would help our population.
    The Chairman. Very good.
    This is for everybody. In recent years, some countries in 
Africa have received U.S. food aid in the form of U.S. 
commodities for several years in a row. Do you think this has 
hampered some recipients' ability to recover from the shock of 
the initial disaster that they faced? This is for all of you, 
briefly.
    Dr. Mercier. Thank you, Mr. Chairman, for the question. I 
think probably there are a number of reasons why some of these 
countries may be facing multiple years of need for assistance. 
Some of the times it is continuing civil conflict. Sometimes it 
is continued bad weather.
    But I think the fact that they may even be becoming 
dependent on U.S. food may be hampering their ability to take 
steps in their own lives that would help them adjust to the 
changes. So I suspect that the presence of that food every year 
is also hampering the ability of local markets to adjust and 
recover from the disaster.
    So in some ways, I think it does contribute.
    Dr. Smith. You have to weigh the benefits and the costs. 
For an economist to say that is in an inevitable thing, I know.
    But the benefits are that you keep people going. And there 
are adjustment processes that have to take place.
    The evidence on the impact, the econometric, the 
statistical evidence on the impact of food aid supplies on 
local prices is that those effects are, if there, very small in 
most cases. That is what the data says. That is the data-driven 
evidence. So that would be my comment in this context.
    So that speaks to the likelihood of adversely affecting the 
development and production of food by smallholder farmers 
around the world.
    Mr. Ray. As the only noneconomist on the panel, I will just 
speak from the point of view of an operational NGO. Our 
experience, certainly, suggests, if we had more flexibility, 
that kind of support could be provided in ways that actually 
helps to rebuild economies, that helps to build self-sustaining 
market systems in ways that help people recover more quickly 
and more thoroughly.
    The Chairman. Listen, again, I want to thank Senator 
Cardin, Senator Coons, Senator Kaine, Senator Gardner, who was 
here earlier. I think that we have an opportunity here to work 
together to solve this problem.
    I will say that I wish every American could have seen this 
testimony today. What is happening in food aid in our Nation, 
for a few special interests that benefit only marginally, is a 
national disgrace--a national disgrace. I am going to do 
everything in my power to make sure that every American I come 
in contact with is aware that a few special interests that have 
negligible impact, really, on them, but they have this Nation 
in their grip, people are dying and starving--dying and 
starving--because of this national disgrace of corporate 
welfare that is totally unnecessary, totally unnecessary to the 
beneficiaries.
    So I thank you for being here. I look forward to working 
constructively with people on this committee, as we have so 
much recently, to ensure that our focus here is on making sure 
that people who are hungry have the basic food elements that 
they need to survive.
    Thank you very much.
    Ranking Member Cardin.
    Senator Cardin. Evidently, your comments brought in 
reinforcements. [Laughter.]
    As I said earlier, I strongly support a more robust Federal 
budget for development assistance, including food aid. I am 
very disappointed that we not only have not had an increase, 
but we have had a decrease. We should be increasing the size of 
the pie going to these national security issues and furthering 
the policies of America. And I want to make sure that every 
dollar we spend is spent in the most cost-effective, efficient 
way. So I join the chairman, Senator Coons, and others in that 
regard.
    I do feel, though, obligated to respond on the U.S.-flagged 
issue. I will be the first to acknowledge that I am not an 
expert on this. I do not serve on the committees that deal with 
this issue.
    But let me just quote from the person who is responsible 
for that, General Paul Selva, who is the current commander in 
the U.S. Transportation Command who spoke directly about this 
issue before the Senate Committee on Armed Services on March 19 
of this year. He was commenting about the reductions of cargo 
being used on U.S.-flagged vessels and specifically referenced 
the reductions in food aid.
    He said, ``With the recent vessel reductions, the mariner 
base is at a point where future reductions in U.S.-flagged 
capacity puts our ability to fully activate, deploy, and 
sustain forces at increased risk.'' Now, that is the person who 
is responsible for our defense needs as to what is happening 
with U.S.-flagged vessels.
    Now let me quote from Maj. Gen. Kathleen Gainey commenting 
about our merchant marines as the fourth arm of the Department 
of Defense and critical to the Nation.
    So this is a defense issue. I agree with the chairman that 
food aid's purpose is not national defense from the point of 
view of the merchant marines. I agree with you on that. But I 
do think we need to know the impact it has on U.S. readiness.
    The last point I would mention, quoting from the U.S. 
Maritime Industry, that the alternative here is to use foreign-
flagged vessels for national defense, or for DOD to build, 
maintain, and operate the requisite vessels itself.
    I just think that is an issue that we have to be mindful 
of. I want to make sure our programs are efficient. It is not 
this committee's specific charge to deal with this issue, but I 
do think it is a matter that we have to be mindful of as we go 
through these types of issues.
    Let me turn my questioning, though, to an issue that we 
have more harmony on. I have already mentioned that there is a 
concern when you reduce the amount of local produced products, 
as far as popular support is concerned. I think that is a fact. 
It is something we have to deal with.
    I do believe, though, there is tremendous benefit by local 
sourcing of agriculture in the host country. I think it gives 
us an opportunity to develop the type of economy that will be 
able to sustain itself and grow and provide for its own people. 
So there are a lot of advantages to local sourcing.
    I also think it allows us the opportunity to deal with 
other goals of development assistance, and that is creating the 
structures within countries to make sure that they deal with 
corruption and deal with gender equity. In agriculture, that is 
a very important factor.
    But when we source locally, we have the opportunity to have 
a more direct impact and can really make the lasting changes 
that can bring about stable countries that can take care of 
their own needs. So I think that is a real important plus for 
local sourcing.
    I talked to former administrator Shah about this on several 
different occasions, as to how we can improve local capacity 
and build the types of structures that will be in our long-term 
interest.
    So I just would welcome the thoughts of any of the 
panelists as to how we could be more effective in local 
sourcing to develop the type of sustainable institutions within 
the host countries that will give real hope for future 
stability and economic opportunities in these countries.
    Mr. Ray. If I could just refer back to the Kore Lavi 
program I mentioned in my testimony, in Haiti. In that 
particular instance, I think it is a good example of how we are 
working very closely with the Haitian Government both to design 
the program and to build their capacity to operate that program 
long after we and the U.S. Government leave.
    There are also secondary benefits in terms of helping to 
build the financial system because we are working through the 
formal financial system as well as building up the informal 
financial system through microfinance organizations.
    As part of that, we are also having an effect on the 
agricultural industry more broadly by increasing demand for 
locally produced products and bringing, in this case, very 
purposefully more women into that value chain so that they, in 
fact, can continue to improve their own lot and the lot of 
their families and communities for many years to come.
    Senator Cardin. That is very beneficial. The gender issue 
is critical in these countries. Agriculture is an area where 
there has been huge discrimination against women.
    Mr. Ray. Absolutely.
    Senator Cardin. So it seems to me that if we leverage local 
sourcing, we can do that with a focus to really make a lasting 
change, not just feeding hungry people but giving them a future 
of hope and a much more stable country.
    Dr. Mercier. Senator Cardin, there is another example. The 
World Food Programme has run a program they call Purchase for 
Progress, or P4P, over the last several years where they focus 
resources on procuring food from smallholders, from 
cooperatives, not from big conglomerates or multinational 
firms, but from small producers. And it has been very, very 
effective in terms of helping build capacity and building 
confidence among those smallholder farmers that they can 
produce a product and have a reliable market to be able to sell 
into.
    So I think that is an example of the kind of things you are 
looking at. It is something that WFP has been working on and 
perfecting for several years now.
    Senator Cardin. Mr. Chairman, I was very pleased to hear 
from the previous witness about steps they are taking to deal 
with corruption, because I am very worried about corruption and 
the efficiency of our programs.
    It does seem to me that the reforms that you are working on 
really will give us a better opportunity to deal with these 
problems in-country, not just providing food but providing a 
way in which they can have a sustainable future. I think the 
way the program is being administered from the anticorruption 
angle is a huge step forward.
    The Chairman. Thank you. Thank you so much for your input 
and just tremendous successes we have had recently.
    Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman.
    Thank you, folks, for being here this morning.
    Having lived outside the United States, I have witnessed 
the benefits of what you guys do and I want to applaud what you 
do, and especially the operation CARE being based in Georgia.
    I am very proud, Mr. Ray, that you are here.
    Dr. Mercier, I have just a couple questions. From the 
business sector and business perspective, your recommendations 
about increasing efficiency, what reforms and what benefits 
could those reforms bring to the U.S. agriculture business? And 
how can that help provide for the needs that we are trying to 
meet in the programs that you guys are representing? Talk about 
our port systems and national security, as well as shipping.
    As part of that, my observation is that one of the problems 
we have in these host countries that we are trying to ship to 
is infrastructure.
    Our State exports to a lot of poultry. One of the problems 
you have is you can get it to their ports. Once it gets to the 
port, it is very difficult to distribute within the countries. 
So protein, fat, sugar, those things are in high demand there.
    Can you just speak to some of those issues as we look at 
this?
    Dr. Mercier. Yes. I think what you are getting at goes far 
beyond what international food aid really provides, and that is 
a broader international ag development effort. I have seen food 
aid as being the starting point of U.S. assistance.
    You have a region of a country where there is a drought or 
civil conflict, people just do not have enough food, and you 
try to figure out what is the optimal response for meeting that 
emergency need. But you also think beyond that, to some extent, 
as to how you help that population transition into being more 
self-sufficient, building up the infrastructure.
    So one of the things that I think is an important 
development in recent years is the recognition that you need to 
try to build resiliency in those local populations. So you need 
to have a combination of instruments and programs that help 
them do that. Part of that is making sure they have enough food 
when they are really hungry and that is largely a food aid 
issue.
    But beyond that, it is international development. It is 
helping them get seed. It is helping them build roads. It is 
helping, as in the case of the poultry exports, build capacity 
at the ports so they can have some cold storage, so they can 
actually utilize U.S. or other sources of protein.
    So it is a combination. There are a number of institutions 
within USAID, not just the Office of Food for Peace, but also 
the Bureau for Food Security, who are focusing on making these 
kinds of opportunities available to these folks.
    Senator Perdue. Thank you, Mr. Chairman.
    The Chairman. Senator Coons.
    Senator Coons. Thank you, Chairman Corker, for convening 
this and leading this effort.
    Thank you, Senator Cardin, for your insight and your 
questions.
    I want to pursue three lines of inquiry, if I might.
    First, on monetization. David, I want to commend CARE and 
you for giving up what is tens of millions of dollars of 
potential cash for CARE in recognition, if I understood your 
testimony correctly, that there are harmful effects to 
monetization, that is not just inefficient, it also, in some 
instances, has been documented to have a negative impact on 
resiliency and on the development of markets in some of the 
countries we are most trying to help.
    Why does monetization continue as a practice? What would be 
the potential benefits and how might we structure a reduction 
to monetization and offset it with a more efficient and 
responsible practice for supporting NGOs, whose primary purpose 
is providing relief to those who are struggling with food 
insecurity?
    Mr. Ray. Senator, thank you for your question and for your 
recognition.
    There are a couple of reasons that monetization continues. 
Perhaps the most concrete one is that it is required by law. 
Fifteen percent of the----
    Senator Coons. This is leading up to my question about 
reforms we could make by law.
    Mr. Ray. Right. So 15 percent of title II nonemergency 
funds are required to be monetized, and so they are.
    But on a practical level, there are organizations who 
continue to monetize because it supports very important ongoing 
development programs. If, in fact, that money was made 
available as cash, then we would not have to monetize and we 
could be actually getting a hundred percent of the value of 
those dollars rather than $.70 or less on the dollar, and 
actually do more good.
    The Chairman. Senator Coons, if I could, could I add a 
minute or 2 to your time, and for people who are just watching 
this, ask your witness to explain how monetization works?
    Senator Coons. Sure.
    The Chairman. I think it would be helpful to everyone and 
help build a case for what you are trying to----
    Senator Coons. If you would, please, because once you 
really grasp what monetization is and how it works, it is hard 
to see it as an admirable practice.
    I am not meaning to impugn those NGOs who benefit from 
monetization.
    Mr. Ray. Not at all.
    Senator Coons. They provide valued and needed services. But 
the inefficiency of it really is striking.
    So, Mr. Ray, if you could?
    Mr. Ray. As I mentioned in my testimony, monetization, very 
simply put, is the practice of buying commodities here, 
shipping them to developing countries, selling them there, 
often at a loss, and then using those proceeds to fund long-
term development programs.
    Certainly, our argument has been that it would be a much 
more efficient and effective way to fund those programs to just 
supply the money rather than go through that very convoluted 
method and, in fact, losing money on the whole transaction.
    Senator Coons. And in the same spirit, Dr. Smith, you 
testified somewhat about the sealift, the maritime fleet that 
is sustained through cargo preference. Senator Cardin shared 
some important testimony in front of the Armed Services 
Committee that suggested that sealift remains an important 
priority for our national security.
    You testified earlier that there is a significant mismatch, 
that a lot of the fleet that is being used for food aid really 
is not helpful or relevant for maritime military sealift. If we 
were to simply more directly fund through DOD the maintenance 
of a DOD appropriate sealift capacity, what difference might 
there be in efficiency of outcome?
    Dr. Smith. I have not run those numbers, and I have not 
seen a clear number.
    Senator Coons. A rough impression.
    Dr. Smith. A rough impression is, let us have a program 
that has one goal, not that is diverted to a program that has 
another goal.
    Senator Coons. Right.
    Dr. Smith. That is the fundamental message.
    If DOD thought the expansion of capacity was important on a 
maritime basis, then DOD should be making the decisions about 
allocating funds there. But if I am a general or admiral or 
even a Senator with issues associated with maritime shipping, I 
would really like someone else to have to pay for those costs, 
rather than use my chits.
    That is really what we are seeing. We are seeing a litany, 
if you like, or almost a liturgy, from the maritime interests 
that say this is a vital piece of support. If you look at the 
dollars, the amount of dollars that actually go to the maritime 
private sector from food aid are much smaller on a per ship 
basis than $3.1 million annually than currently ships qualified 
as a DOD ready for shipment are currently getting.
    There is a complete mismatch there. The problem, of course, 
is that all of the funds that come out of food aid into 
shipping reduce the capacity of the food aid programs at 
current funding levels 
to deal with genuine human tragedy. And that is what is really 
problematic.
    It is not problematic that the Department of Defense wants 
to make sure they have adequate resources to protect this 
Nation. And it is not problematic--if I owned a ship, I would 
want cargo preference, too. We understand profit incentives.
    Senator Coons. Understood. So that brings me to my last 
question, which I think is really the key question here, Dr. 
Mercier. And the whole panel might address this.
    So we are using food aid partly to provide food aid, and 
partly to provide relief from food insecurity, and partly to 
sustain sealift capacity, and partly to sustain maritime labor, 
and partly to provide monetization support for NGOs.
    The concern that has always been raised in these 
conversations is, what would the impact be if we significantly 
streamlined and modernized this program so that DOD is paying 
for sealift and we are providing direct support for NGOs that 
are doing important development work? And where it is 
appropriate, we are buying U.S. commodities and shipping them 
on Jones Act ships and delivering them with American labor. And 
where it is not, we are doing direct, flexible, local 
procurement or direct provision through electronic means, as 
you testified.
    How would we sustain food aid? How vital are these sectors 
to sustaining the allocation of food aid?
    Senator Cardin raised this central point. The 
appropriations for food aid have gone down in recent years. I 
would love to hear from all three of you, what is your 
guesstimate of the impact on food aid for the long-term, if we 
were, in fact, to make it more efficient?
    Dr. Mercier. Thank you for the question, Senator Coons. 
This is an issue that was of great concern for me when I worked 
on the Agriculture Committee. Sort of what I worked through 
over the years is that you need to maintain a balance, and I 
think it is important to recognize, just based on the LRP pilot 
program, that there is going to be continuing need to purchase 
U.S. commodities for use in these programs.
    In some cases, it is going to be because it is more cost 
effective. That is largely the case with the more value-added 
commodities, processed products, vegetable oil, that kind of 
thing. It is still going to be more cost effective to buy here 
and ship it overseas. That is especially the case for nearby 
destinations like in Central America or Latin America.
    Then there are some places where there is just simply not 
enough food, and we need to supplement that with U.S. 
commodities.
    So this is going to continue to be a program that uses U.S. 
food. It just needs to be one that has other mechanisms 
available as well.
    The maritime issues, I recognize that this is a legitimate 
national security objective, to provide assurance of having 
that sealift capacity in the need of emergency, but I do not 
think this is a cost-effective way of doing it, as Dr. Smith 
mentioned. The data suggests that a lot of the ships carrying 
food aid are not suited for that reason.
    Senator Coons. I am out of time. My question is not about 
cost-effectiveness. I think we have discussed in great detail 
how cost inefficient this is.
    My question is about whether or not the NGO community and 
the good intentions of the American people are enough to 
sustain food aid at its current levels or higher, or whether 
these other communities of interest have to be engaged in order 
to sustain food aid?
    Any opinions from Mr. Ray or Dr. Smith would be welcome as 
well.
    Dr. Smith. Let me speak to the agricultural sector, because 
a lot of my work is on agriculture.
    There is a clear case to be made that American farmers 
actually will benefit by more efficient use of current dollars 
because it essentially increases global demand for these key 
commodities, wheat, corn, rice, and so on.
    There is a paradox here. The litany has always been wrong 
here, that the notion that you have to buy American for 
American farmers to benefit is simply wrong. If we take the 
crude economic view that what they care about is the price of 
wheat or the price of corn or the price of peanut butter, what 
matters is how much is being taken off the global market in 
these globally traded commodities.
    I think that is the case that a wide array of supporters of 
food aid should make. I think they are also shooting from the 
hip with no expertise in this area at all.
    There are things that we can do to make it clear to the 
American farmer that their work is critical to feeding the 
world. For example, where possible, stamping all food aid 
delivered in bulk as provided with the support of the American 
farmer is a very nice way to go, where that is politically 
appropriate. Things like that are important in sustaining 
effort.
    It is unclear to me that the mercantile service is really 
an important factor in overall development aid here. It is 
unclear to me what they are doing. It seems to me, to be 
honest, that the private maritime interests are lobbying for 
their corporate welfare.
    And there is an issue about assuring adequate capacity for 
the marine fleet to support DOD efforts. There are other ways 
to go that are more efficient, and I am going to stop there 
because I am not an expert in how politically you form those 
alliances that help them get more money in other directions 
that would be efficient, but less money than they are currently 
taking out from the cargo preference approach.
    Senator Coons. Mr. Chairman, do you want to let Mr. Ray 
answer the question?
    The Chairman. Sure.
    Mr. Ray. Thank you. If I may, Senator, I think you bring up 
really critical points and something that, certainly, has been 
of concern to us. The last thing we want to do is see support 
for these vital programs reduced.
    I will, however, say this, as an organization with 1 
million supporters around the country and 250,000 members of 
our citizen advocacy network in every district and State around 
the country, our experience has been that the most effective 
way to build support for foreign assistance programs, and for 
this program, in particular, is for it to be as effective and 
efficient as possible.
    If we can deliver on that, we will generate public support 
for this program. I am confident we can retain the level of 
public support that will provide political support and backing 
to Members of Congress to continue to fund this program.
    Senator Coons. Thank you. Thank you, Mr. Ray.
    Thank you to the whole panel for your testimony.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Coons, thank you for asking the great question 
about what if food aid were focused on food aid. That would be 
a good thing.
    I would just say, editorially, I doubt there are other aid 
programs that we participate in that have such a small amount 
of corporate welfare interests that cause us to waste as much 
money. I just cannot believe 450 sailors are generating the 
support for this aid program. And I just hope that we will 
figure out a way to deal appropriately with it.
    Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman, and thank you to 
you and Senator Coons for this legislation, and to all of the 
panelists for not only your testimony this morning, but for 
your great work in helping to provide food aid to people around 
the world.
    You know, I share the sentiments that have already been 
expressed, that it is very important for us to look at the 
budget for food aid and try to increase that, but that we also 
need to be as efficient as possible, and that there are a lot 
of things about the current program that do not seem to work in 
a way that is understandable for the American people.
    I share your point, Mr. Ray. I think people want what 
government does to be effective and efficient. And if we can 
make that case, it is much easier to get support for the 
programs the government provides.
    I had a couple specific questions that have come up as a 
result of Senator Cardin's question and raising the concerns 
about the maritime industry. Does anybody know--and maybe you 
know this, Senator Cardin--what percentage of cargo that is 
shipped by the U.S. maritime industry is actually food aid?
    Dr. Mercier.
    Dr. Mercier. Yes. There are three kinds of cargo that are 
affected by cargo preference rules. The biggest by far is 
military cargo. So it is tanks. It is fuel. It is the kind of 
things that we need our military overseas to have access to. 
That is about 86 percent of it. Food aid is about 6 to 8 
percent. And then the remainder is material that is shipped out 
under transactions by U.S. Import-Export Bank, those kinds of 
things.
    So food aid is a very, very small share of what is covered 
by cargo preference right now.
    Senator Shaheen. Is there a dollar amount that accounts for 
that, or a percentage of income of the U.S. maritime industry 
that can be attributed to food aid?
    Dr. Smith.
    Dr. Smith. A group at George Mason has estimated that less 
than 1 percent of the total value of cargo that is carried by 
the maritime fleet, either commercially or under cargo 
preference, is food aid. And the followup is you always have to 
remember that the majority of that amount that is being shipped 
is being shipped on ships that are not included in the DOD 
assessment of military preparedness.
    Senator Cardin. Senator, would you yield just for 1 minute 
so I can get Dr. Mercier to just comment?
    Senator Shaheen. Sure.
    Senator Cardin. As we are winding down our military 
operations, would the percentage of food aid increase since we 
are now transporting less military?
    Dr. Mercier. I suppose that is possible, but the tonnage 
that is being shipped under food aid is also declining over 
time. As recently as 5 years ago, we were talking 4 million or 
5 million tons of food aid, and I think over the last couple 
years, it has been about 2 million tons.
    So both numbers are going down, and so I am not sure the 
relative shares are going to be changing that much.
    Dr. Smith. And just to come back to a point that was made 
earlier; in 2002, corn was selling at $2.20 a bushel. Today, it 
is selling at $3.80. And the budget available for food aid has 
not changed measurably at all.
    So a ton of corn, a ton of wheat, costs more money for 
reasons that are probably not germane here but do not trivially 
relate to ethanol.
    Senator Shaheen. We do not want to go into that here right 
now. [Laughter.]
    We can talk about sugar though. I am happy to talk about 
sugar.
    Sorry.
    Again, I apologize for missing your testimony, so some of 
you may have addressed this. But in 2008, the farm bill 
authorized a pilot project for local and regional procurement. 
Do we have a report or data from what that pilot program showed 
us? And can any of you comment on that?
    Dr. Mercier. I think I can comment on that because I helped 
write the language for the provision. There has actually been a 
couple different reports that have been studying the results of 
the pilot program. One was specifically required under the 
statutory language and then a separate one was done by a 
consortium of NGOs and Cornell University. And pretty broadly 
what they showed is that for most commodities, when you have 
the cost of the commodity, plus the cost of shipping it from 
the United States as compared to the cost of buying it locally; 
you are saving anywhere between 30 to 50 percent by buying it 
locally. There are a couple of exceptions, which I mentioned in 
my testimony, vegetable oil being one.
    And the other important main finding in both studies is 
that it is much faster to do it when you procure locally. I 
think the average was 130 days to ship from the United States 
to recipients and about 56 days, so less than half the time, if 
you procure locally for the emergency projects at least.
    Senator Shaheen. So who is the second country, in terms of 
providing the most food aid around the world, to the United 
States? Does anyone know?
    Dr. Smith. Senator, we can get that information to your 
office very quickly. A wild guess is that it is going to be a 
combination, in the developed world, of Australia, Canada, and 
various European Union countries.
    Senator Shaheen. That would have been my guess.
    Dr. Smith. But China is doing a lot, and that is why I want 
to say I will look that up for you.
    Senator Shaheen. Okay. And can you also speak to how they 
provide food aid? Is it similar to what we do in the United 
States? Or do they more of the local and regional procurement?
    Dr. Mercier. Most of the aid provided by other donor 
countries is cash-based. Canada still does a mixture but I 
think it is predominantly cash-based. They still do some 
Canadian-sourced commodities, but most of the rest of the world 
has given their NGOs the flexibility that is being proposed in 
this legislation for the United States.
    Senator Shaheen. And finally, Senator Coons raised this 
issue, but there are vested interests who benefit from the way 
the current system operates. So where is the most opposition 
coming from to changing the way the current system works?
    Dr. Smith. I would defer to the distinguished Chair of this 
committee, but a good guess is the maritime interests have been 
very aggressive.
    Senator Shaheen. Certainly, we have heard from the maritime 
interests. Are there others?
    Dr. Smith. Some NGOs are concerned about losing their 
ability to compete for the cash. Whether that is any sort of a 
good reason for changing the system is entirely another matter. 
In fact, it sounds to me like the worst possible reason or 
among the worst possible reasons.
    Senator Shaheen. And several of you alluded to farmers. I 
have not heard from any farmers in New Hampshire that they are 
concerned about changing the way food aid works, but they are 
probably not benefiting a lot from the current program. So 
where are farmers on these changes?
    Dr. Smith. It depends on who is speaking. That is 
critically----
    Senator Shaheen. When you say that, you mean who is 
speaking for the farmers or who represents the farm industry?
    Dr. Smith. Yes, it depends on which lobby you are going to 
listen to. Perspectives have changed, though. In 1956, the corn 
growers and wheat growers would have been extremely supportive 
of food aid. They would have seen it as a major source of the 
demand for their product.
    Today, it is a trivial proportion of the total global 
demand for wheat and corn, for example. And we compete in 
global markets, not local markets.
    If anything, making reforms that would take more corn, more 
wheat, more rice, more peanut butter, off the market would be 
beneficial for those groups.
    And an important issue, as I alluded to earlier, is that it 
is true that you want the American farm community to believe 
that it is making a significant contribution to helping genuine 
problems. Most farmers are good people.
    Senator Shaheen. I believe that.
    Dr. Smith. Some maybe not, but most. No, overwhelmingly the 
farmers I know are genuine people who want to make a living, 
but they also recognize the importance of what they do 
globally. So it is important to communicate the American 
productivity at the farm level is a major contributor to our 
ability as a global community to feed the world, and to 
recognize their contributions in some way. But it does not have 
to be through sourcing wheat in Ekalaka, MT, which is in the 
middle of nowhere--trust me, I have been there--or anywhere in 
Iowa.
    Senator Shaheen. Mr. Chairman, can I ask the other two to 
respond to that?
    The Chairman. Sure.
    Dr. Mercier. Senator Shaheen, we actually had a concrete 
example in 2013 after the President made his proposal. There 
was actually an amendment in the House to the farm bill that 
would have implemented a lot of things he proposed. There was a 
floor vote on this issue. I was involved with consulting with 
NGO community at that point.
    We found the most effective opposition came from the 
maritime industry and the associated labor unions. Agriculture, 
as far as we were able to tell, did not really engage very 
actively for the most part. There were a few exceptions. We 
believe the rice industry was involved to some extent. But most 
of them had much higher priorities in that farm bill, as they 
usually do.
    Senator Shaheen. Thank you.
    Mr. Ray.
    Mr. Ray. I would just say, from the NGO perspective, there 
has been substantial support among the NGO sector for these 
kinds of food aid reforms. In fact, in the lead-up to this 
hearing, 28 NGOs signed a letter of support for the kind of 
food aid reform that Senators Corker and Coons have proposed.
    There are, of course, concerns around the issue of 
monetization, but I think we have already spoken to that issue.
    Senator Shaheen. Right.
    Thank you very much.
    The Chairman. Anybody else have any closing questions or 
comments?
    I want to thank all of you for being here. I think this 
testimony has been outstanding, as has the hearing.
    My guess is, to follow up on Dr. Smith's comments, I would 
bet that while there are associations and entities that lobby 
on behalf of various industries, if you will, I would bet if 
the members themselves were aware of the negative impact this 
lobbying was having on people who were starving, I do not 
believe there would be as much lobbying taking place.
    I do not think they have any idea that there are paid 
lobbyists up here that are causing people around the world to 
starve. I just have greater faith in the American people, 
greater faith that if these groups they are representing, if 
the individuals actually knew what was happening, they would be 
ashamed and they would cause it to stop.
    So I thank you all for being here.
    Mr. Ray, thank you for the example your organization is 
setting.
    Dr. Mercier, thank you for all your efforts through the 
years to cause reforms to happen.
    The meeting will be adjourned, although for questions, the 
record will remain open through the end of the day Friday.
    Thank you all for being here.
    [Whereupon, at 11:16 a.m., the hearing was adjourned.]
                              ----------                              

              Additional Material Submitted for the Record

  Written Statement of Rev. David Beckmann, President, Bread for the 
                                 World

    I appreciate the opportunity to submit written testimony on a 
subject very close to my own heart and a prime policy interest of Bread 
for the World.
    My name is David Beckmann, president of Bread for the World, a 
collective Christian voice urging our Nation's decisionmakers to end 
hunger at home and abroad. Our network of thousands of individual 
members, churches, and denominations ensures Bread's presence in all 
U.S. congressional districts. Through the support of these members 
around the country and in partnership with faith groups and churches, 
we have worked for over 40 years to help ensure that no person faces 
the burden of food insecurity.
    The dimensions of global hunger are well known: More than 805 
million people--or one in every nine people globally. Poor nutrition 
causes nearly half (45 percent) of deaths in children under 5, 
approximately 3.1 million children each year. For such demeaning hunger 
and poverty to persist when we have the technological and economic 
means of ending it is a moral affront to American values.
    Food aid has been an important tool in combating global hunger, and 
has saved many lives. The United States can rightly feel proud of its 
role as the world's most generous donor of food aid. Our efforts have 
saved millions of lives. However, with changes in technology and 
transportation, it is time to modernize food aid to create a faster and 
more flexible program to help eradicate hunger
    The food aid environment has changed significantly from when Food 
for Peace was initiated over 50 years ago. Changes in the food aid 
program are overdue. Any food aid reform efforts should include the 
following.
    First, increased flexibility to deliver food aid in the best way 
possible. Current law requires nearly all of food aid to be commodities 
produced in the United States. Commodity food aid is not always the 
most appropriate response to food insecurity, whether chronic or 
emergency. One life-affecting consideration is that of timeliness, 
ensuring the quickest response to emergencies or windows of 
opportunity. Other considerations include market impact--whether the 
commodity food aid serves as an incentive or disincentive to local or 
regional production and commerce--and commodity composition--i.e., 
whether the needs are best served by commodities or products available 
from the United States.
    In order to facilitate the most effective and efficient responses 
to food insecurity, Bread for the World strongly supports allowing both 
U.S. and locally or regionally procured (LRP) commodities, vouchers, 
and cash transfers to be used. Two independent evaluations by the 
Government Accountability Office and a congressionally mandated study 
by Management Systems International found that local and regional 
procurement (LRP) programs have an average cost-saving of at least 25 
percent compared with similar in-kind food aid programs. In some cases, 
these savings can increase to over 50 percent, as a Cornell University 
study documented, along with a 62-percent gain in timeliness of 
delivery. Local and regional procurement, and vouchers or cash 
transfers are not going to be appropriate in every case and need to be 
carefully applied, but there is already sufficient information and 
experience to clearly demonstrate the circumstances under which this 
instrument can be effectively applied.
    Second, we support loosening the restrictions that mandate the 
processing (``value added'') of food aid and U.S.-flag shipping. While 
these reflect legitimate interests, our main focus should be on meeting 
needs and saving lives, and employing the most appropriate and 
efficient means to that end. Surely, other means can be found for 
ensuring the viability of the U.S. merchant marine than by imposing 
onerous and costly restrictions on the shipment of food to meet the 
urgent nutritional needs of hungry people around the world.
    Finally, we would like to eliminate the process of monetization. 
With some food aid, food is donated to a poor country and then sold 
there. The revenue is used to fund projects carried out by private 
charities or intergovernmental organizations. Unfortunately, a recent 
GAO study found monetization loses an average of 25 cents on every 
taxpayer dollar spent, and according to USAID, eliminating monetization 
could feed an additional 800,000 people and free up an estimated $30 
million per year.
    God is moving in our time to overcome hunger and poverty around the 
world. The world has reduced poverty and hunger; extreme poverty has 
been cut in half and 100 million people have escaped from hunger in 
just the past decade alone. Undeniably, U.S. food assistance has played 
a leading role in achieving these results. Yet, clearly there is more 
we can do, and we have the obligation and the opportunity to end 
hunger. We need to take advantage of every means for doing so.
    Moreover, in difficult budget circumstances, when all programs must 
be justified, proposals to increase cost-effectiveness, save time and 
costs, and potentially reach more people should be strongly considered. 
The changes to the food aid program noted above will, I am confident, 
move the United States closer, in concert with the NGO community, 
intergovernmental organizations and other donors, toward meeting this 
urgent objective.
                                 ______
                                 

           Written Statement from the U.S. Maritime Industry

                                 ______
                                 

                    Written Statement of Mercy Corps

    On behalf of Mercy Corps, an Oregon-based humanitarian and 
development nonprofit organization, we would like to thank the chairman 
for his deep commitment to food aid reform and for holding this 
important hearing. Mercy Corps works in over 40 countries around the 
world. We are dedicated to alleviating suffering, poverty and 
oppression by helping people build secure, productive, and just 
communities. A major foundation of our work is in helping communities' 
increase their food security; Mercy Corps' agricultural programs are 
valued today at more than USD $200 million and implemented in 27 
countries.
    Mercy Corps supports the chairman's and committee's continued 
efforts to reform U.S. food aid programs to make them more efficiently 
help the world's most vulnerable people. We would like to offer the 
following testimony that highlights the urgent need for reform in title 
II emergency and nonemergency programs, the importance of building 
resilience in the developing world and provide recommendations to the 
committee for additional steps to take to continue to support food aid 
reform.
                local and regional procurement and the 
                   use of cash in emergency responses
    With unprecedented emergencies around the world and limited 
resources to respond to these crises, it has never been more important 
to encourage innovations that improve emergency food aid. Local and 
Regional Procurement (LRP) is the purchase of food aid in the country 
or region of distribution, or the use of cash and/or vouchers for the 
purchase of food and/or nonfood items that reduce food insecurity among 
the targeted population.
    Mercy Corps has been a leader in researching and implementing LRP. 
Our research has found that LRP is more efficient, cost-effective and 
has a high impact. Specifically, LRP provides:

   Efficiencies: LRP ensures hungry and malnourished people 
        receive food quickly. While U.S. commodities can take 4 to 6 
        months to arrive to the implementing organization, the average 
        time for Mercy Corps' LRP programs to procure commodities was 
        just over 1 month. This means LRP can ensure essential food 
        assistance reaches those who are hungry and malnourished more 
        than 70 percent faster than food aid provided through 
        international commodity shipment.
   Cost Effectiveness: LRP maximizes the number of people 
        reached with each dollar of assistance. A cost comparison of 
        comparable goods showed that in Central Asia and Africa, Mercy 
        Corps' LRP programs cost an average of 27 percent less than 
        programs based on shipment of U.S. commodities.
   High Impact: LRP ensures food assistance programs enhance 
        food security and sustainable development. Research found Mercy 
        Corps' LRP programs are effective at improving the food 
        security of those targeted for assistance, both immediately and 
        in the longer term. Beneficiaries reported that LRP programs 
        enhanced their psychological well-being, and helped families to 
        avoid negative coping mechanisms, such as selling off 
        productive assets to feed their families in times of crisis. By 
        ensuring beneficiaries are able to gain access to the foods 
        they traditionally eat, LRP programs may yield greater 
        nutritional benefits. Private sector vendors reported that LRP 
        programs helped them to expand businesses, build their own 
        capacity, and integrate into formal systems, leading to more 
        rapid and sustainable economic recovery.\1\

    We would therefore recommend the committee support efforts to allow 
for significantly increasing flexibility within title II emergency 
programs to allow for more LRP and the use of cash and vouchers in 
emergencies. This increased flexibility would allow for the U.S. 
Government to reach millions of more vulnerable populations at no 
additional cost to the taxpayer.
    the importance of non-emergency programs and ending monetization
    There are over 800 million people around the globe that do not have 
enough food to eat. In our decades of experience, one of the most 
effective programs we have seen to promote food security and address 
the underlying causes of hunger is the Title II Food for Peace Non-
Emergency programs. These multiyear programs are an essential tool to 
helping communities build their resilience to crises and over time, 
decrease the need for emergency, lifesaving interventions. Addressing 
root causes of hunger so that the world's most vulnerable can rise out 
of poverty is a cornerstone of nonemergency programs.
    Yet nonemergency programs, as originally codified in 1954, included 
a heavy reliance on the practice of monetization, the conversion of 
U.S. commodities to cash by selling them in overseas markets. Money 
from the sale of U.S. commodities are made available to fund program 
costs, like buying scales to weigh infants to ensure they gain weight 
properly or fund trainings for smallholder farmers in how to improve 
their yields. While the programmatic use of the funds gained from 
monetization is extremely helpful in building the capacity of 
communities to fight hunger, the actual practice of monetization is--
the vast majority of the time--extremely inefficient. From costs lost 
in shipping U.S. commodities on U.S.-flagships, to shipping food inland 
to the point of sale, to storing the food, then organizing the actual 
sale of the food on the open market, monetization takes time and money. 
Moreover, the market prices available in other countries for the 
commodities sold through monetization can often be lower than the total 
investment that the U.S. Government has made in purchasing and shipping 
the food. The Government Accountability Office's 2011 report, ``Funding 
Development Projects through the Purchase, Shipment, and Sale of U.S. 
Commodities Is Inefficient and Can Cause Adverse Market Impacts'' found 
that USAID's average cost recovery was 76 percent, while USDA's was 58 
percent. In addition, USAID could not guarantee that the sale of 
commodities did not have an adverse effect on the local markets.\2\
    From our personal experiences with monetization, we often face 
considerable setbacks including food that spoils in transit that cannot 
be sold, or in the case of the Democratic Republic of Congo, a monopoly 
by one buyer of wheat, who drives down the price of the commodity we 
are trying to monetize, further decreasing funds we can use of 
programs. Of particular frustration to our staff is that in order to 
program effectively, we need to know how much funds we will receive in 
advance from monetization so we can plan out activities over the 
following 6 months to a year. With monetization though, the amount of 
cash we will actually receive for food security programs can be 
radically different than what was planned for or needed.
    Eliminating the need to monetize and providing cash directly to 
implementing partners for programmatic purposes would be vastly more 
efficient. Any efforts by the committee to eliminate the need to 
monetize would be greatly appreciated, including working to increase 
the amount of overall cash flexibility in title II programs to 
eliminating the provision in the 2014 Farm Bill that requires at least 
15 percent of nonemergency funding be monetized. In FY 2015, we would 
also appreciate the committee's attention to ensuring sufficient cash 
(like from the Community Development Fund, appropriated out of the 
State and Foreign Operations Subcommittee) is available for 
nonemergency programs so that programs that were not supposed to 
monetize are not suddenly forced to monetize mid-year, which could 
dramatically impact our programs and beneficiaries.
               building resilience with flexible funding 
                  mechanisms in non-emergency programs
    Addressing the root causes of food insecurity will require USAID, 
USDA, and implementers to break out of traditional ``siloes'' and link 
food security to other development challenges, including governance, 
conflict mitigation and peace-building. For example, in Karamoja, 
Northern Uganda, where 12.5 percent of children face acute 
malnutrition,\3\ a major underlying factor contributing to food 
insecurity is lack of land tenure. If we are to comprehensively address 
hunger, we need the flexibility to analyze and respond to what the 
drivers of food insecurity are on the ground, including supporting 
efforts of smallholder farmers to gain access to land and the legal 
sector. While this may appear like a governance issue, it actually is a 
food security related activity and needs to be addressed if we are to 
tackle the drivers of hunger. The current authorities outline in 
existing legislation (the 2014 Farm Bill and underlying statute) for 
nonemergency programs allows for this needed flexibility to address 
these underlying causes of hunger. We consider the structure of 
nonemergency programs as a model for other parts of USAID, and while 
not a food aid reform issue per se would encourage the committee to 
look at the nonemergency, multisectoral approach as a successful model 
for development programs. We would also urge the committee to support 
this important flexibility and maintain existing authorities for title 
II nonemergency programs in any future authorizing or reform 
legislation.
    Again, we would like to thank the chairman for holding this 
important hearing and his continued leadership to improving the U.S. 
Government's response to food insecurity. We look forward to supporting 
your, and the committee's, efforts to make every taxpayer dollar as 
effective as possible in the fight against global hunger.

----------------
End Notes

    \1\ Local and Regional Procurement: a Case Study of Mercy Corps' 
Programming in Haiti, Kyrgyzstan and Niger.
    \2\ `` Funding Development Projects through the Purchase, Shipment, 
and Sale of U.S. Commodities Is In efficient and Can Cause Adverse 
Market Impacts.'' GAO-11-636. June, 2011.
    \3\ UNICEF Global Appeal January 2014.
                                 ______
                                 

         Written Statement of Gawain Kripke, Policy Director, 
                     Oxfam America, Washington, DC

   Moving From Food Aid to Flood Assistance: Broadening the Horizons 
                     of the Food for Peace Program

    Chairman Corker, Senator Cardin, members of the committee, thank 
you for holding this hearing on the critical need to strengthen a vital 
program to fight global hunger: international food aid. Oxfam is 
providing this statement for the record to identify issues and concerns 
with the current Food for Peace programs and to urge the committee to 
take steps to increase the impact and improve the overall efficiency 
and effectiveness of the U.S. food aid program.
    Oxfam America is a global organization working to right the wrongs 
of hunger, poverty, and injustice. As one of 17 members of an 
international confederation, we work with people in more than 90 
countries to create lasting solutions, including saving lives in 
emergency settings, developing long-term solutions to poverty and 
campaigning for social change. Our concerns regarding the current Food 
for Peace program are grounded in more than 60 years of institutional 
experience working on food emergencies as well as our research and 
policy analysis on a wide range of agriculture and food security 
issues, of which food aid is one important aspect. Oxfam America does 
not take U.S. Government assistance and Oxfam affiliates do not 
implement U.S. food aid projects.
    It is important to acknowledge and applaud the generosity of the 
American people in serving as the world's most generous donor of food 
aid. Each year, the United States provides approximately half of all 
food aid globally. This proud history has helped to reach hundreds of 
millions of people suffering from acute and chronic hunger, in both 
emergency and nonemergency settings. The need for this assistance 
remains as urgent as ever: according to latest estimates, one in nine 
people around the world are food insecure,\1\ and due to current crises 
in, Iraq and South Sudan among other places, 77.9 million people will 
need humanitarian assistance, including food, in 2015.\2\
    Given this overwhelming need, U.S. assistance must be designed and 
delivered to maximize reach and impact. Currently, it is not optimized 
for these purposes. Public Law 480, also known as the Food for Peace 
Act, has not kept up with best practices in the delivery of food 
assistance thus undermining the humanitarian focus of this aid program. 
It was authorized in 1954, and while some amendments have been made to 
law since then, the fundamental approach to U.S. food aid--buying food 
from the United States and shipping it overseas, often on U.S.-flag 
vessels--remains fundamentally unchanged.
Moving from food aid to food assistance
    There are and will remain instances where U.S.-procured food aid is 
necessary, but, this approach is both outdated and inappropriate in 
many cases. In-kind food aid distributions, of the kind supported 
through U.S. food aid projects, are most appropriate in instances where 
food availability is limited in the immediate area; and/or where 
markets are not effectively functioning. But as is often the case even 
in the midst of food crises, it is not markets that have collapsed; 
rather very poor households have no income to purchase available food.
    Activities such as local and regional procurement and the use of 
vouchers or delivery of cash for food security purposes are all proven, 
effective ways of delivering assistance. For more than a decade, Oxfam 
and other aid organizations, in collaboration with donors and 
multilateral agencies, have been experimenting with evaluating and 
refining the use of these tools to support vulnerable communities 
facing food insecurity. From early pilot projects in Pakistan and 
Malawi, to ongoing efforts to meet the needs of refugees affected by 
the Syria conflict, there is a robust and growing body of evidence 
documenting the efficacy of taking a more flexible response to food 
emergencies, one that does not rely primarily or exclusively on 
purchasing and shipping grain and other food items from the United 
States.
    Building on this body of evidence, the 2008 Farm Bill authorized a 
Local and Regional Procurement Project. The experience and lessons 
learned from the Pilot Project were well documented.\3\ They showed 
that, for most commodities, getting locally procured food aid to people 
in need is cheaper resulting in significant cost savings. Locally 
procured unprocessed cereals, for example, were 35 percent less 
expensive on a delivered basis than food aid purchased and shipped from 
the United States. Additionally, by eliminating the need for 
transoceanic shipping, LRP projects also resulted in substantial time-
savings as well 56 days on average (LRP) compared to 101 days (U.S.-
sourced).\4\ In a companion study, researchers at Cornell University 
found that the procurement of food aid on local or regional markets did 
not induce higher food prices. Additionally, recipients reported being 
more satisfied with locally purchased food aid since it tended to be a 
more familiar product.\5\
    The Local and Regional Procurement Project became a permanent 
program in the 2014 Farm Bill. However, this program does not amend the 
main titles of the Food for Peace Act (title II being the most widely 
used program under the Food for Peace Act). Moreover, the program did 
not receive appropriations in 2014, the first year it was available for 
funding.
    In Oxfam's own experience, the use of cash can also meet food 
security objectives. In 2012 in response to an expected food crisis 
across the Sahel region--resulting from among other things a drought 
induced crop failure that threatened to worsen already high levels of 
chronic food insecurity in the region--Oxfam designed and delivered a 
cash-based intervention in the Tillabery region of Niger. The project 
targeted highly vulnerable households, and the distribution schedule 
coincided with the harvest, giving households the opportunity to 
stockpile grain at a low price. Followup surveys found that the average 
recipient household spent more than half the assistance they received 
on food and that a significant number of these households reported 
improved food security status. These households were also less likely 
than the control sample to go into debt for food purchases.\6\ Among 
the uses of the remaining cash not spent on food, households reported 
investing in livestock and agriculture products and paying school fees. 
These expenditures represent strategic investments that may make food 
aid interventions less necessary in the future.
    The Food for Peace Act should be updated to allow the U.S. Agency 
for International Development to utilize a broader set of tools in 
reaching food insecure households in need of support. Doing so will 
modernize U.S. assistance, moving from a one-size-fits-all food aid 
paradigm to a broader, more inclusive food assistance paradigm. 
Critically, it will improve the overall functionality of the program, 
increase the number of beneficiaries that can be reached with U.S. 
taxpayer dollars, and ensure programs are appropriately tailored to 
specific contexts.
Addressing the agriculture cargo preference requirement
    In addition to the Food for Peace Act, the Cargo Preference Act of 
1954 also has an important bearing on how U.S.-sourced food aid is 
delivered. Under current law, at least 50 percent of food aid must be 
shipped on vessels registered in the United States, with a largely 
U.S.-citizen mariner crew and flying the U.S. flag. This requirement is 
intended to ensure the existence of a robust U.S.-flag fleet. It also 
links humanitarian food aid with national security interests since the 
purpose of the U.S.-flag vessel requirement is to ensure adequate 
sealift capacity during times of national emergencies requiring 
military response. However, the U.S.-flag ocean-going fleet has 
suffered a significant decline over the last 50 years, a trend that the 
agriculture cargo preference program has had little impact over.
    The agriculture cargo preference (ACP) requirement is both costly 
and is the subject of political capture. In a review of this program, 
researchers found that this requirement drives up the cost of shipping. 
The difference between the lowest competitive bid for shipment and the 
winning U.S.-flag bid is known as Ocean Freight Differential (OFD). It 
has been estimated that fulfilling the U.S.-flag vessel requirement has 
cost U.S. taxpayers $146 million annually in OFD.\7\ Moreover, these 
gains are captured by a small number of companies. Analysis conducted 
by George Mason University, just three companies--Maersk, Sealift and 
Liberty--handle 80 percent of food aid shipments.\8\
    Given the scarcity of resources and the overwhelming humanitarian 
need, the Agriculture Cargo Preference requirement should be scrapped, 
allowing USAID and USDA to use the lowest cost carrier to deliver food 
aid that requires ocean transportation.
    In the absence of the elimination of the agriculture cargo 
preference requirement, other more immediate reforms can be taken to 
improve the delivery of U.S. food aid. For instance, in previous years, 
USAID was reimbursed for OFD charges resulting from the U.S.-flag 
vessel requirement. This reimbursement was eliminated with the Budget 
Act of 2013, so food aid administering agencies now bear the full cost 
of these programs. This reimbursement could be reinstated.
    Additionally, changes in how the 50 percent ACP requirement is 
calculated can reduce costs and improve aid delivery. However, no 
formal agreement on this issue has been reached between USAID and the 
Department of Transportation's Maritime Administration (MARAD). One 
potential explanation for this is MARAD's unwillingness to properly 
balance the interests of its client companies against those of another 
agency of the Federal Government. The problems with agriculture cargo 
preference demonstrate how food aid and the issue of cargo preference 
are seen by some--both inside Congress and out--as first and foremost a 
tool to subsidize American industry.
    An alternative approach to the issue of cargo preference would be 
to more fully engage the Department of Defense in its administration 
and to reimburse food aid implementing agencies for the higher costs of 
using U.S.-flag vessels.
Ending the practice of monetization
    The 1990 Farm Bill included a provision to allow for the sale of 
U.S.-sourced food aid on developing country markets. Presently, at 
least 15 percent of nonemergency food aid must be monetized. Aid 
organizations have used this practice to generate revenue to fund food 
and nutrition related development activities. These are important 
projects, but the use of monetization is an inefficient mechanism and 
at worst risks undermining local markets and negatively impacting 
small-scale producers.
    The Government Accountability Office has looked extensively at the 
P.L. 480 Food Aid program, including the use of monetization. Their 
findings document massive waste in monetization activities due to the 
inability of organizations undertaking monetization to recoup the full 
cost of purchase and transportation in end market sales. Between 2009 
and 2011, the GAO found that $219 million in food aid was lost in the 
process of monetization.\9\ Had USAID and USDA the ability to fund 
these development activities directly rather than relying on 
monetization, these savings could have resulted in a greater number of 
people reached through the U.S. Food for Peace program. It would have 
additionally avoided any potentially negative market impacts resulting 
from monetization activities.
    In recent years, USAID has taken steps to reduce the use of 
monetization. Changes in the 2014 Farm Bill increased the percentage of 
funds that could be used to pay for program costs not related to direct 
commodity distribution. In addition, USAID has drawn on Development 
Assistance funds, outside of the of P.L. 480 budget, to augment food 
aid funding and ensure that development programs do not have to 
monetize. However, without a specific change in law eliminating the use 
of monetization, some monetization will occur (at least at the 15 
percent minimum) and USAID could return to a substantially greater use 
of monetization with all of its inherent risks and inefficiencies.
    By moving from an in-kind food aid program to a food assistance 
approach, adapting tools to specific contexts and ensuring a steady and 
predictable flow of funding for nonemergency food security projects, 
the use of monetization would not be necessary to fund highly impactful 
development activities.
Breaking political gridlock to reform the Food for Peace Act
    In both the previous and current administrations, proposals have 
been put forward to reform the Food for Peace Act. At the same time, 
Congress has sought a path forward that would untie a percentage of 
U.S. food aid, allowing for it to be used flexibly. In the context of 
the 2014 Farm Bill, an amendment in the House of Representatives to 
overhaul U.S. food aid fell just 9 votes short of passage on a strong 
bipartisan basis. More recently, the Food for Peace Reform Act of 2015, 
introduced by Senators Corker and Coons proposes a bold transformation 
of U.S. food aid that addresses the issues and concerns identified in 
this statement.
    The budget proposals by the administration as well as the 
legislative proposal introduced by Senators Corker and Coons deserve 
consideration and vote by Congress. The Senate Committee on Foreign 
Relations has an important role to play in reviewing the P.L. 480 
program and in working with the Agriculture Committee, the current 
committee of jurisdiction for P.L. 480, to develop solid, ambitious 
reforms that will reinvigorate support for the program, eliminate 
inefficiencies and ensure continued focus of the program on meeting 
humanitarian and development objectives.

----------------
End Notes

    \1\ U.N. Food and Agriculture Organization (2014)`` State of Food 
Insecurity in the World: Strengthening the Enabling Environment for 
Food Security and Nutrition.''
    \2\ UNOCHA (2015) ``Global Humanitarian Overview: 2015.''
    \3\ See: US Department of Agriculture (2012) ``USDA Local and 
Regional Procurement Pilot Project: Independent Evaluation Report.''
    \4\ Ibid.
    \5\ Lentz, et. al. (2012) ``The Impacts of Local and Regional 
Procurement of U.S. Food Aid: Learning Alliance Synthesis Report.''
    \6\ Tumusiime, E (2015) ``Do Early Cash Transfers in a Food Crisis 
Improve Resilience? Evidence from Niger.'' Development in Practice 
25:2, 174-187.
    \7\ Barrett, C. (2010) ``Food Aid and Agriculture Cargo 
Preference.'' Note that this is for fiscal year 2006 only.
    \8\ Ferris, W. (2014) ``Impact of US Government Food Aid Reforms on 
the U.S. Shipping Industry: Preliminary Results.''
    \9\ U.S. Government Accountability Office (2010) ``International 
Food Assistance: Funding Development Projects Through the Purchase, 
Shipment and Sale of U.S. Commodities is Inefficient and can Cause 
Adverse Market Impacts.''
                                 ______
                                 

                 Written Statement of Save the Children

    On behalf of Save the Children, we thank Chairman Bob Corker, 
former Ranking Member Bob Menendez and members of this committee for 
holding this hearing and for the opportunity to submit written 
testimony. Save the Children strongly supports the need to pursue 
common-sense reforms of U.S. international food aid that will benefit 
millions of vulnerable children and families in need around the world.
    Save the Children invests in childhood--every day, in times of 
crisis and for our future. We are in our 83rd year as a child-focused, 
nonprofit organization working to inspire breakthroughs in the way the 
world treats children and to achieve immediate and lasting change in 
their lives. Today we work in 21 states across the nation and 120 
countries in the developing world to give children a healthy start, the 
opportunity to learn and protection from harm. In 2013, our programs 
helped more than 143 million children worldwide, including 250,000 in 
the United States.
    Save the Children has been designing and implementing some of the 
most complex international food security and nutrition programs for 
more than five decades. In addition to building long-term resilience to 
reduce chronic hunger for children and their families, we also mobilize 
rapid life-saving assistance for people caught in humanitarian 
emergencies such as Syria, Iraq, South Sudan, and Yemen.
    Our organization is a proud partner and implementer of Food for 
Peace emergency and nonemergency programs. Currently, Save the Children 
is implementing Food For Peace programs in 13 countries totaling around 
$350 million. In addition, Save the Children is the second-largest 
implementer for the U.N. World Food Programme (WFP)--the largest 
recipient of Food For Peace P.L. 480 Title II emergency funding. In 
2013, Save the Children distributed 125,000 Metric Tons of emergency 
food commodities for WFP, reaching an estimated 1 million people. We 
stand by the food security work we do with Food For Peace in saving and 
transforming children's lives.
    As cochair of the Modernizing Foreign Effectiveness Network (MFAN), 
Save the Children is strongly committed to aid effectiveness and the 
goal to maximize efficiencies in U.S. policy by eliminating wasteful 
rules and regulations. In alignment with our leadership in MFAN, and 
based on our organization's own experience on the ground, we support 
food aid reforms that will make a concrete difference for children 
globally. We urge Congress and the administration to make P.L. 480 
Title II food aid (also referred to as U.S. food assistance) more 
efficient and cost effective in order to allow U.S. food assistance 
programs to reach more children at no additional cost.
              critical importance of u.s. food assistance
    Great progress has been made in the fight against hunger and 
malnutrition. In just the last decade, the world has witnessed a 
dramatic and positive shift for children. Extreme poverty has been cut 
in half; 100 million people have escaped from hunger; and the numbers 
of children dying under the age of 5 fell at a faster rate than ever 
before. Investments in United States Agency for International 
Development (USAID) and specifically the Food For Peace program have 
made a vital contribution to these gains and are directly helping to 
reduce global food and nutrition insecurity and achieve the U.S. global 
commitment to ending preventable child deaths.
    Despite this progress however, hunger and malnutrition still remain 
unacceptably high. One in every eight people around the world faces 
chronic hunger and an estimated 100 million people endure extreme 
hunger crises. In sub-Saharan Africa the numbers are even higher, with 
one in four people undernourished. Malnutrition is the underlying cause 
of nearly half (3.1 million) of all child deaths under 5 and can reduce 
a country's Gross Domestic Product by as much as 16.5 percent (UNECA, 
The Cost of Hunger in Africa, 2014). Chronic child malnutrition remains 
stubbornly high, causing 165 million children to suffer stunted 
physical and cognitive growth that robs them of reaching their full 
potential. Experts estimate the return on investment in nutrition to be 
$16 for every $1 dollar invested--a ratio comparable to infrastructure 
(Global Nutrition Report, 2014). Experts also show that investments in 
agricultural growth is at least two times as effective at reducing 
poverty as growth in other sectors (World Bank, 2008).
    During the 2007 global food price crisis that pushed an estimated 
100 million additional people into poverty, some 60 food riots and 
protests raged in nations across the globe. Scholars and others point 
to the fundamental food crisis as a key trigger of the political 
upheavals of the Arab Spring. U.S. investments to combat global food 
and nutrition insecurity are invaluable. The benefit of such 
investments are inextricably linked to the security of our Nation and 
creating a more stable and prosperous world.
    While Save the Children supports U.S. food aid reform, we also 
strongly support robust funding of the Food For Peace P.L. 480 Title II 
program (also referred to as the Food For Peace program). Food For 
Peace is the primary vehicle providing U.S. emergency food aid and 
multiyear food security development to millions of children and 
families each year. In 2013, Food for Peace title II made an enormous 
difference in the lives of almost 36 million people experiencing deep, 
acute or chronic poverty and food insecurity. The Office's unique focus 
on serving the poorest, most vulnerable, most chronically food insecure 
people acts as a foundation for other development investments. It also 
has the greatest level of expertise in implementing interdisciplinary, 
integrated approaches to tackle the most complex development problems. 
These multisectoral programs play a vital role in addressing child 
malnutrition, preventing famines and building the resilience of 
vulnerable populations to withstand future shocks. Robust investments 
in Food For Peace not only helps the United States address current 
crises but also helps prevent future emergencies as well.
                      support for food aid reform
    While the United States remains the largest donor of global food 
assistance, there has been a sharp net drop of over half a billion 
dollars in title II funding since 2009. Transportation costs of U.S. 
food aid have also risen dramatically. We urge Congress to increase 
funding of Food For Peace P.L. 480 Title II in fiscal year 2016 to 
$1.75 billion from its current $1.466 billion. At the same time, we 
also recognize that tight budget constraints and continued global 
demand for food assistance make it more important than ever that U.S. 
taxpayer dollars be spent in the most efficient way possible to 
maximize reach and effectiveness.
    Save the Children has been a long-time supporter of both U.S. 
international food aid and food aid reform. To our organization, 
reforming U.S. food aid is about making an excellent program even 
better by increasing its reach and cost-effectiveness. The 
inefficiencies of U.S. food aid stem from the rules of the P.L. 480 
Title II account that tie U.S. food assistance almost entirely to 
American-grown agricultural commodities and strict cargo preference 
requirements. The inefficiencies of these rules are well documented by 
the General Accountability Office and teams of independent academic 
researchers led by Christopher Barrett at Cornell University. They are 
further complemented by published results of the U.S. Department of 
Agriculture's (USDA) Pilot Local and Regional Procurement program 
authorized in the 2008 Farm Bill.
    Large portions of U.S. international food aid are inefficiently 
spent on shipping and handling rather than used to reach more children. 
In 2012, almost 50 cents of every $1 of U.S. was spent on shipping and 
handling. (For example, in 2012 ocean freight and inland transport 
costs were 58 percent for emergency and 37 percent for nonemergency, 
totaling 47.5 percent.) We are encouraged by the momentum in Congress 
and the administration to address this issue. Our organization has been 
supportive of a variety of thoughtful and constructive reform 
proposals. These include the President's proposed reforms in his budget 
requests starting in fiscal year 2014 as well as the reform amendment 
introduced by House Foreign Affairs Chair and Ranking Members, 
Representatives Royce and Engel, which lost by just nine votes in the 
House of Representatives vote on the 2014 Farm Bill. It also includes 
the immensely helpful incremental reforms that passed in the 2014 Farm 
Bill and 2014 Omnibus and the expansive reform proposal put forth by 
Senators Bob Corker and Chris Coons in the Food For Peace Reform Act 
(S. 525).
    All of these reform proposals mentioned above have had at least 
three key elements in common that elicited Save the Children's support.
    1. Food aid reforms would result in reaching more children--
sometimes millions more, using the same level of investment. In the 
case of the Royce-Engel amendment for example, which increased the 
flexibility of title II to 45 percent and kept 55 percent of food aid 
tied to U.S. agricultural commodities, the reach of the program would 
have increased by 2 to 4 million more people. The recent Corker-Coons 
proposal, which completely unties U.S. food aid from U.S. agriculture 
and cargo preference requirements, is estimated to increase the reach 
of title II by as many as 12 million more people. The estimates all 
include varying assumptions that range in uncertainty, including annual 
levels of funding, but even the most conservative estimates would 
dramatically increase the numbers of children reached.
    2. Reforms would result in a reduced need to monetize food 
commodities, the practice of reselling U.S. food commodities in local 
and regional markets to raise funds for USAID title II development 
programs. USAID and the General Accountability Office (GAO) estimate 
losses from monetization to be 25 to 30 percent on average (GAO-11-636 
and USAID Behind the Numbers). The Agriculture Act of 2014 (2014 Farm 
Bill) made great progress in this area by increasing the percentage of 
cash-based resources allowed to be used as part of title II from 7 
percent to 20 percent. It also expanded the types of expenses the cash 
can be used to cover. These changes, together with an additional $35 
million of title II funds made flexible by The Consolidated 
Appropriations Act of 2014, combined to allow USAID to stop monetizing 
commodities, except to meet the mandatory minimum of 15 percent 
monetization that still remains in law.
    3. Reforms would increase the level of flexibility USAID has to use 
the most appropriate tool in the toolbox to respond to crises quickly 
and effectively. These tools include cash transfers, food vouchers, 
local and regional purchase of food (LRP), as well as in-kind food 
commodities. Improving the United States ability to respond to 
humanitarian emergencies and chronic food and nutrition insecurity with 
all tools in the toolbox would help ensure the most appropriate 
response for any given context based on a needs assessment and market 
analysis. The incremental increases of flexibility in the 2014 Farm 
Bill were very helpful but were insufficient to allow USAID to both 
reduce the need to monetize commodities in development projects and to 
respond more rapidly and most appropriately to humanitarian 
emergencies.
    If time is of the essence, which it commonly is in emergencies, 
then buying food closer to where it is needed can save time and reduce 
costs. The U.S. Department of Labor's pilot study on local and regional 
procurement of food aid authorized in the 2008 Farm Bill found local 
purchase of food to be 74 days, or over 2 months, faster than shipping 
in-kind commodities from the United States (USDA Local and Regional 
Food Aid Procurement Pilot Project Independent Evaluation Report, 
December 2012). Other studies also reported LRP to be 25 percent less 
expensive than delivering in-kind commodities and recipients to be more 
satisfied with the locally purchased food they received (Learning 
Alliance Synthesis Report, 2012). USAID finds that cash transfers and 
food vouchers overall also save time and costs. As an implementer of 
U.S. emergency and nonemergency food aid, Save the Children has found 
that leveraging local markets can create durable solutions. By 
incentivizing local farmers and working through the market to provide 
goods and services, people are invested, opportunities avail 
themselves, economic resilience is built and lives improve.
    In-kind food commodities still play a critical role in U.S. food 
aid, particularly in areas of acute food crises where markets have 
failed. However, increasing the flexibility to use all response tools 
will reduce risks, mitigate unintended consequences and help ensure the 
most appropriate response to the type of crisis. The risks were summed 
up in a recent report on U.S. Food Aid Programs released this month by 
the Congressional Research Service, ``U.S. reliance on in-kind food aid 
has become controversial for several reasons: it is slower and more 
costly than cash transfers; it tends to cause commodity price 
distortions and volatility in local markets where monetization . . . 
occurs; it can impede commercial exports; and it has engendered 
international concerns from key trade partners who contend that it is a 
form of export subsidy and potentially conflicts with the intent of 
international trade agreements.''
    unlocking innovation and efficiency: e-transfer cash programming
    The food aid reforms passed in the 5-year 2014 Farm Bill provided 
over $103 million per year in additional flexibility to use cash-based 
programming where appropriate. That increase is helping to drive new 
innovations in delivering cash-programming via digital transactions 
using various electronic platforms. Further increases to make title II 
more flexible would not only be transformational in the lives of the 
poor but also in the way development programs are delivered in the 21st 
century.
    Cash-based programming supports the needs of communities in crisis 
through various means. These include food vouchers as well as multiple 
forms of conditional and unconditional cash transfers, such as cash for 
work or training programs. Cash-based programming has been an effective 
and cost-efficient part of food and nutrition security programming for 
several years. A recent 2015 GAO report affirmed this view by finding 
that cash-based programming is an effective tool to deliver U.S. food 
assistance and that this modality is an established and proven practice 
in the international donor community (GAO-15-328).
    Cash and vouchers are particularly useful in areas where it is too 
dangerous, difficult, or costly to provide in-kind food commodities, 
such as areas in conflict or that are too remote or inaccessible. Save 
the Children also finds cash and vouchers to be strong delivery 
modalities in areas where food markets are strong and where U.S. 
assistance can strengthen the livelihoods and resilience of local 
small-scale producers to withstand future shocks or stresses. Perhaps 
most importantly, cash transfers provided to female participants are 
known to empower women by increasing their ability to partake in 
household decisions, mobilize resources, and have agency over various 
aspects of their lives (IFPRI, Women's Empowerment Evidence Review, 
2013). Evidence has long shown that increasing women's agency and 
empowerment is critical to improving nutrition outcomes for their 
children and themselves.
    Due to technological developments around the world and changes in 
connectivity, cash-based programming is currently in the midst of a 
rapid revolution through the use of digital transactions in place of 
paper. This new electronic approach could be transformational for 
people's lives by expanding the number of platforms through which 
financial services can be delivered to the poor and unbanked. It is 
widely recognized that the cost barriers are too high for regular brick 
and mortar banking companies to profitably provide financial services 
to those at the base of the economic pyramid. Yet, increasing access to 
financial services has long been identified as a key pathway out of 
poverty by helping people expand their options, better manage risks, 
create safety nets, and improve their health and education.
    The mobile banking program in Kenya, M-PESA, is well known for 
expanding the use of the mobile phone as a new platform to deliver 
financial services including payments, transfers, insurance, savings, 
and credit. Indeed, of the estimated 2.5 billion people in the world 
that are unbanked and lack financial services to support their 
livelihoods or protect their assets, more than 1 billion have access to 
a mobile phone (Mobile Money for the Unbanked Programme, State of the 
Industry, 2013). This is a statistic not lost on mobile phone companies 
expanding operations in the developing world. But digital transactions 
platforms can come in many forms, not just through phones. Digital 
transfers are also being done through transactions companies via 
plastic cards. Today, Save the Children is developing new, innovative 
approaches for cash-based programming through both mobile banking and 
electronic transfers, the benefits of which are likely to be 
transformational to people's lives and livelihoods.
    For example, Save the Children is currently in partnership with the 
global technology and transactions company, MasterCard, to develop new, 
innovative ways to deliver digital cash-based programs aimed at 
improving food and nutrition security and strengthening the resilience 
of people in Yemen. It is worthwhile to note that the partnership is 
carried out between Save the Children and MasterCard's products 
development department, as opposed to its philanthropy arm. The program 
with MasterCard will reach approximately 9,000 households in three 
districts over 3 years. It will focus on providing cash vouchers that 
provide food in exchange for work rebuilding community assets such as 
water canals, harvesting structures, terraces and roads. The rest of 
the project focuses on improved infant and young child feeding 
practices through participation in community-based groups, awareness 
campaigns and skills training.
    The traditional paper vouchers are time-intensive to distribute, 
collect, and reconcile. The electronic voucher system saves time for 
program participants to engage in livelihood activities, attend 
trainings or provide family care instead of traveling to, and from, 
central locations to collect monthly vouchers. To get the food, 
participants go to any one of the many participating vendors and use 
their electronic card and pin number. Small-scale vendors who redeem 
the vouchers also save time and improve the accuracy of their records 
by tracking payments electronically. As both the vendors and the 
participants are become more accustomed to using electronic 
transactions, it can open the way to using other electronic financial 
services. Lastly, development practitioners save time by not having to 
collect and reconcile the paperwork and instead are able to spend that 
time on monitoring, impact analysis, and quality assurance. Use of the 
new technology will also make strides in learning by having a detailed 
track record of participants' transactions that made available through 
MasterCard's global data repository.
                   support for food for peace program
    U.S. food assistance programs under P.L. 480 Title II have served 
as a foundation of global efforts to confront the challenge of global 
hunger and malnutrition. The Food For Peace program maintains both 
emergency programs that keep people alive, and developmental food 
security programs that address the underlying sources of chronic hunger 
and malnutrition.
    To this day, the title II Food For Peace program remains the main 
program in the U.S. Government laser-focused on creating pathways out 
of poverty for the poorest, most vulnerable, most chronically food 
insecure people. When provided at the right time, economic or food 
assistance gives households the means to endure hard times while 
remaining on a pathway out of poverty. It helps families avoid 
difficult and consequential choices between eating a meal or selling 
their most important asset, sending a child to school or going to the 
doctor. The Food For Peace program is skilled at doing complex food and 
nutrition security programming with multisectoral, interdisciplinary 
approaches to get at immediate impacts and root causes. The experts at 
Food For Peace have long recognized that addressing child malnutrition 
is essential to breaking the cycle of poverty and hunger. As such the 
program ensures that children get the right food at the right time, 
particularly during the 1,000 day window between pregnancy and a 
child's second birthday.
    Through partnering with Food For Peace, Save the Children has built 
a base of innovations in food production and consumption, water and 
sanitation, social behavioral change, and local partnerships. The 
lessons learned from our projects are shared through the Food For 
Peace-funded Technical and Operational Performance Support (TOPS) 
program, an open community of implementers sharing best practices in 
food security and nutrition programming--all leading to greater results 
in food and nutrition security.
    For these reasons, Save the Children is dedicated to working with 
Congress to support and maintain investments in U.S. food assistance. 
In fiscal year 2016, we urge Congress to bring funding of the P.L. 480 
Title II program up to at least to $1.75 billion in fiscal year 2016, 
which still represents a decline from previous years. At the same time, 
we look forward to working with Congress and the administration to find 
a pathway forward that maintains the strong level of support title II 
currently enjoys and achieves reforms that increase the numbers of 
children reached and the speed and flexibility of the program to 
appropriately respond to disasters and crises around the world.
ANNEX 1
    In April 2013, Save the Children worked with CARE USA, Catholic 
Relief Services, Mercy Corps, and World Vision to draft a set of 
principles around food aid reform that still hold firm today. These 
principles were also endorsed by the following organizations: 
InterAction, Alliance for Global Food Security, Concern Worldwide US, 
Helen Keller International, International Relief & Development, 
International Rescue Committee, Land O'Lakes International Development, 
Lutheran World Relief, Mercy-USA for Aid and Development, Partners for 
Development, Relief International, World Food Program USA, World Renew.
    Principle #1: Reforms should protect the core focus and effective 
elements of existing food assistance programs. U.S. food assistance 
programs are unique in their focus on hunger and malnutrition among the 
poorest and most vulnerable populations. Emergency programs respond to 
urgent needs while developmental programs strengthen the resiliency of 
people facing chronic food insecurity, and employ a community-based 
multisector approach that addresses agricultural productivity, 
nutrition, and livelihoods. These programs provide a stable multiyear 
commitment of support that is critical to achieving lasting results. 
Reforms should not alter or undermine these important elements of the 
current system.
    Principle #2: Reforms should increase the number of people helped. 
In 2012, U.S. food assistance reached 46 million people. Yet since 2000 
the amount of U.S. food assistance has declined by more than half, 
primarily due to decreases in funding and higher commodity, 
transportation, and distribution costs. Reforms should seek to offset 
this decline by increasing the number of people served in both 
emergency and developmental food assistance programs, and should not be 
used simply to justify funding cuts. Every effort should be made to 
reinvest savings achieved through reform into both programs.
    Principle #3: Reforms should increase the flexibility of food 
assistance programs. Allowing significantly more flexible use of tools 
such as cash transfers, food vouchers, and local and regional 
procurement, alongside provision of U.S. commodities and direct program 
funding, would provide a variety of program and resource options to 
help ensure the most appropriate response in each context. Such 
flexibility would improve program efficiency and impact and increase 
the number of people reached.
    Principle #4: Reforms to food assistance programs should be made in 
an open, transparent, and inclusive process. As both implementers and 
advocates, the nonprofit and civil society communities are major 
partners and supporters of food assistance programs. We bring important 
perspectives on how to maximize program effectiveness and reach, as 
well as wide grassroots networks that provide public support for these 
programs. Civil society engagement is crucial to the effectiveness and 
political viability of the reform process and to the future success of 
these programs in meeting the needs of poor people.
                                 ______
                                 

  Written Statement of Dr. Carolyn Woo, President and Chief Executive 
                  Officer of Catholic Relief Services

    Thank you Chairman Corker and Ranking Member Cardin for receiving 
this testimony on behalf of Catholic Relief Services (CRS) and for 
holding this hearing examining ways in which food aid programs can be 
improved.
    Catholic Relief Services is the international relief and 
development agency of the U.S. Conference of Catholic Bishops. Our work 
reaches millions of poor and vulnerable people in nearly 90 countries. 
CRS works with people and communities based on need, without regard to 
race, creed, or nationality. CRS often partners with institutions of 
the Catholic Church and other local civil society groups in the 
implementation of programs, which from our experience is essential to 
understanding the needs of the communities we work with, and ultimately 
the long-term success of our work.
    Catholic Relief Services is one of the largest implementers of 
international food aid programs, including the Food for Peace program. 
CRS implements both emergency and nonemergency development programs 
through Food for Peace. We offer this testimony from the perspective of 
an implementer.
                        food aid reform efforts
    For many years, Catholic Relief Services has been one of the 
leading voices for reforms to U.S. international food aid. Today, our 
main reform objectives are, to the extent possible: (1) minimize and 
eliminate if possible the need to monetize food aid resources; (2) 
minimize the impacts that cargo preference laws have on food aid 
programs; and (3) maximize the discretion that implementers have in 
choosing whether to use U.S. commodities, locally produced/purchased 
commodities, vouchers, or cash transfers in the implementation of 
programs. We actively championed these kinds of reforms in both the 
2008 and 2014 Farm Bills and for several years in the annual 
appropriations process.
    Over this time, we believe there have been incremental but 
important improvements to the food aid system. Thanks to the work of 
the Agriculture Committees and Appropriators, we have seen changes in 
the recent Farm Bill and in recent Agriculture Appropriations bills 
that allowed for the reduction of monetization in Food for Peace 
programming. In the Farm Bill we also saw the establishment of a 
permanent Local and Regional Procurement (LRP) program under the 
auspices of the U.S. Department of Agriculture. We have also seen a 
steady increase in funding for the Emergency Food Security Program 
(EFSP) that provides resources for local purchase, vouchers, and cash 
transfers during emergencies, which the administration has championed 
and State and Foreign Operations Appropriators have supported.
    In addition to these efforts, we think more can be done to reform 
how the food aid system works in the areas of monetization, cargo 
preference, and discretion in the tools used in programs.
                              monetization
    As noted earlier, Catholic Relief Services seeks to minimize, and 
eliminate if possible, the need to monetize food aid resources. 
Monetization is the process of shipping U.S. commodities overseas, to 
be sold abroad to raise funds to cover nonfood program costs. Usually 
the markets in which these goods must be sold cannot bear the full cost 
of purchasing U.S. commodities and delivering them there, thus most 
sales are at a loss. The Government Accountability Office has looked at 
this and has concluded that monetization is an inefficient means of 
raising funds to cover nonfood program costs, noting that Food for 
Peace monetization on average achieved 76 percent cost recovery--that 
is, the sale of commodities netted only 76 percent of the cost to buy 
and transport the food in the first place.\1\ Our own experience 
closely resembles these results.
    Catholic Relief Services acknowledges that substantial progress 
toward reducing monetization within Food for Peace was made in the 2014 
Farm Bill, and thanks to these reforms CRS is not monetizing in any of 
the Food for Peace programs we are currently implementing. However, we 
note that the Farm Bill maintained a requirement that at least 15 
percent of Food for Peace development program resources have to be used 
toward monetization. This enduring 15 percent requirement could force 
our programs in the future to monetize again. We ask Congress to 
consider measures that would eliminate the requirement to monetize in 
Food for Peace programs altogether. We also ask Congress to provide 
additional direct funding to development programs sufficient to cover 
program expenses so that monetization need not be used in these 
programs.
                            cargo preference
    Catholic Relief Services also seeks to minimize the impact that 
cargo preference laws have on food aid programs. Cargo preference is 
the policy that requires the shipping of U.S. impelled cargo, in this 
case food aid, on U.S.-flagged vessels. The basis for this requirement 
is to help maintain private, sealift capacity--in terms of both cargo 
vessels and U.S. crews--in order to transport military supplies should 
it be required. While there is debate over whether cargo preference is 
an effective way of achieving this objective, we can tell you that as 
an implementer of food aid programs that the cargo preference law, and 
the ways in which the law has been applied to food aid, leads to higher 
than necessary transportation costs for food aid programs, reducing the 
amount of food commodities that can be bought and thus the number of 
people served by food aid programs.
    The reason that the mandatory use of U.S.-flagged cargo vessels to 
deliver food aid drives up transportation costs is that U.S.-flagged 
vessels are substantially more expensive than other available vessels. 
According to a study commissioned by the Maritime Administration, U.S.-
flagged vessels cost 2.7 times more to operate than vessels flagged in 
other countries.\2\ Our own experience in the price differential 
between U.S. and other vessels matches well this assessment. As such, 
we would prefer that cargo preference laws not apply to any of the food 
aid programs--Food for Peace, Food for Education, or Food for Progress. 
If this is not possible, we ask that Congress consider making changes 
in how cargo preference laws are applied that will reduce the burden 
placed on budgets of these food aid programs, close loopholes that 
allow U.S. carriers to manipulate regulations for their economic 
benefit, and improve transparency.
    Current cargo preference law applicable to food aid programs is 
found in 46 USC 55305(b), and states that: ``at least 50 percent of the 
gross tonnage of the . . . commodities (computed separately for dry 
bulk carriers, dry cargo liners, and tankers) which may be transported 
on ocean vessels is transported on privately-owned commercial vessels 
of the United States, to the extent those vessels are available at fair 
and reasonable rates for commercial vessels of the United States, in a 
manner that will ensure a fair and reasonable participation of 
commercial vessels of the United States in those cargoes by geographic 
areas.''
    We posit that current applications of this law also drive up costs 
needlessly. For instance, the Maritime Administration, supported by the 
Department of Justice, has determined ``that at least [50] percent of 
agricultural commodities be shipped by U.S. flag vessels `computed 
separately for dry bulk carriers, dry cargo liners and tankers' 
requires that the U.S. vessels be divided into those three categories 
and further, that the [50] percent minimum be computed separately for 
each category of vessel.'' \3\ We have seen U.S. carriers use this 
provision to force the rebidding of awards that were initially to less 
expensive carriers (both U.S. and foreign) because the quota for the 
vessel type they were offering had not been met. Additionally, the 
reference to ``geographic areas'' has led to the requirement that food 
aid programs meet the 50 percent quota by country.\4\ Under this 
constraint, large programs that require multiple shipments in a year 
can potentially make use of less expensive foreign flag carriers for 
some of their commodity deliveries, but small country programs with 
only one or two shipments in a year likely will have to use the more 
expensive U.S. carriers for all their commodities in order to ensure 
they meet the 50 percent minimum.
    While we are champions of reforming how cargo preference law is 
applied to food aid programs, we also recognize that U.S. merchant 
mariners have been valuable partners in the fight against world hunger 
since the inception of the Food for Peace program 60 years ago. Their 
efforts and sacrifices in the delivery of U.S. food have helped to save 
and improve countless lives around the globe. As an organization, 
Catholic Relief Services has great respect and admiration for the men 
and women who are part of the U.S. merchant marine and we would be glad 
to have them continue their role in the fight against hunger. However, 
we believe that achieving the objective of maintaining a U.S.-flagged 
merchant fleet, and U.S. mariners to crew those vessels, should not 
come at the expense of more efficient food aid programs. We encourage 
Congress to consider measures to support merchant marines in ways that 
do not place an undue burden on food aid funding but do allow for their 
continued participation in the delivery of U.S. food aid.
    Additionally, we note that at one time the Maritime Administration 
published data concerning the tonnage of cargo that was shipped by type 
of carrier (U.S./foreign flagged), per country. This provided a clear, 
aggregate and public picture of the result of cargo preference 
requirements. This data has not been published in several years and we 
suggest that Congress consider requiring such reporting.
                     implementation tool discretion
    In order to respond to varying local contexts, Catholic Relief 
Services urges Congress to provide implementers as much discretion as 
possible in whether they use U.S. commodities, locally produced/
purchased commodities, vouchers, or cash transfers in their programs. 
CRS has had experience using all these modes of assistance--U.S. 
commodities in current food aid programs, and the various Local and 
Regional Procurement (LRP) modalities in ESFP programs and in the LRP 
pilot program authorized in the 2008 Farm Bill. From this experience, 
CRS believes that all these modalities of assistance can be valuable 
tools in the fight against hunger, but which is the right tool depends 
greatly on specific circumstances we cannot necessarily know in 
advance. As such, providing implementers discretion will allow us to 
evaluate the situation and utilize the most appropriate tool.
    Following the implementation of LRP pilot program, Catholic Relief 
Services and several other implementing organizations worked with 
Cornell University to evaluate the impacts of their LRP programs.\5\ 
That study found that on average locally procured food, vouchers, and 
cash resulted in a time savings of nearly 14 weeks compared with 
shipping food from the United States. It also found cost savings in the 
local purchase of unprocessed grains and some pulses, but that U.S.-
sourced processed foods and vegetable oils were less expensive than 
local sources. Our understanding from this study, and continued 
experience with each modality tells us that there are several factors 
to consider in determining which mode of assistance is best suited for 
a particular program. These factors include current market prices of 
the various applicable commodities both in the United States and in the 
country and region in which the program takes place, cost of overseas 
transportation, distance from the coast and overall cost of in-land 
transportation, availability of local food in the necessary quantity 
and quality, the familiarity the target population has of the type of 
food being made available, the ability to physically reach the target 
population, and a host of other considerations.
    Because of the many variables to consider it is difficult, if not 
impossible, to say what the best mode of assistance is, nor can we 
confidently predict how many more people will be served using one 
option over another, without knowing the specific conditions in which 
the food aid response will operate. What we can say is that in some 
cases using U.S. commodities will be the best choice--because it's less 
expensive, it can be provided in the necessary quality or quantities, 
and/or buying locally will negatively impact local markets. 
Alternatively, in some cases using an LRP modality will be the best 
choice--because it's less expensive, can get to the target population 
faster, is more amenable to local diets, and/or because bringing in 
U.S. commodities would be disruptive to the local market. It should 
also be noted that what is the best option at a particular point in 
time may not necessarily be the best option at a later point in time 
because one or more of the factors listed above has changed.
    Given the dynamic circumstances in which food aid operates, food 
aid programs should be responsive, nimble, and adaptable to current 
conditions. Ideally, implementers would have complete discretion in how 
food aid funding is used through the life of a program. Alternatively, 
we recommend Congress consider making more resources available for LRP 
purposes, whether through increased funding of EFSP or through changes 
in Food for Peace that would allow for LRP modalities to be used, and 
that they be available for programming alongside U.S. commodities 
through the life of projects.
                    the success of food aid programs
    This hearing is focused on ways in which food aid programs can be 
made better, but it is important to keep in context that food aid 
programs are currently highly successful, and this is especially true 
of the Food for Peace program. As an implementer of both emergency and 
development Food for Peace programs, we know firsthand how lives are 
touched and saved by these programs. In your efforts to make these 
programs better, we urge Congress to also preserve what makes them so 
successful.
    Generally, Food for Peace emergency programs provide victims of 
civil conflict or natural disasters food rations to help get them 
through the difficult times they face. While these programs are 
typically designed to provide 6-12 months of response, in some cases 
the emergency conditions are protracted indefinitely, as we are seeing 
in the case of the Syrian refugee crises. The success of emergency 
programs can be measured in the people who are fed, who wouldn't 
otherwise have anything to eat. This is achieved through generous 
funding by Congress--in recent appropriations cycles, over $1 billion 
has been provided annually for emergency Food for Peace programs.
    Food for Peace development programs also provide food to vulnerable 
groups who might otherwise go hungry, but their primary focus is 
building the capacity of beneficiaries to feed themselves. Development 
projects cover a number of sectors--agriculture, nutrition, land 
regeneration, water management, infrastructure improvements, and market 
engagement--in order to put whole communities on a sustainable path 
toward self-reliance. These are multiyear projects that give 
implementers enough time to achieve real results, like revitalizing a 
watershed or making a lasting impact on farmers' skill sets. 
Development programs are awarded on a competitive basis, allowing the 
best ideas and most successful implementers to carry out the work. And 
funding for development programs cannot be redirected to other 
purposes, giving beneficiaries the assurance that they will not be 
abandoned midstream after the U.S. commitment is made to help them. The 
success of these programs can be measured in the number of poor farmers 
who realize the dignity of being able to provide for their families and 
the ability of communities to withstand droughts and other disasters on 
their own, without having to rely on emergency food aid to get them 
through the challenges they face.
    By these measures, we can say Food for Peace development programs 
CRS has implemented have been highly successful. For instance, 
Ethiopia's Productive Safety Net Program (PSNP), supported in part by a 
development Food for Peace program, has helped small-farm families 
weather the 2011 drought that hit the Horn of Africa, prompting Tom 
Stall, USAID's Ethiopia Mission Director at the time to say ``you had a 
drought that's as big as any in the last 20, 30 years--maybe bigger in 
terms of Ethiopia--and yet there was no famine. So we've broken that 
cycle.'' \6\ In Burkina Faso, on a visit to rural farmers 2 years after 
a CRS-led development program had ended, then-USAID Assistant 
Administrator Nancy Lindborg noted that ``farmers are continuing to 
thrive on the proceeds of their dry season market gardens.'' \7\ And 
the FY 2013 International Food Assistance Report reported that as a 
result of the CRS-led development program in Malawi ``farmers in 
program areas grew enough on their land to be able to sell pigeon peas 
. . . for use in WFP's emergency response in other districts of the 
country.'' \8\
    Given the success that emergency and development Food for Peace 
programs have had, we urge Congress to evaluate any reform proposals 
not only by the ways they change Food for Peace, but also by the ways 
in which they preserve those elements of Food for Peace that currently 
work. These include the focus Food for Peace has had on prioritizing 
assistance to the poorest and most vulnerable, the continuous learning 
and sharing of best practices that Food for Peace encourages, the broad 
political support that has maintained strong levels of funding for the 
program over the years, and the dedicated, uninterrupted funding that 
multiyear development programs need to save lives, move people out of 
poverty, and reduce long-run emergency food assistance needs.
                               conclusion
    Catholic Relief Services has been, and will continue to be a strong 
supporter of reforms to the U.S. international food aid system. As a 
Catholic organization, we are guided by Catholic Social Teaching that 
calls us all to be good stewards of our resources and we believe the 
changes we outlined above will improve how existing food aid resources 
are used. Catholic Social Teaching also calls us to protect and promote 
human life and dignity, by providing those in need with food in 
emergency programs and by helping the poor and vulnerable break the 
cycle of poverty and dependence through development programs. Catholic 
Relief Services believes that any changes to food aid in the name of 
reform must also preserve those elements of food aid that are 
effective, or we risk undermining the great work already being done by 
these programs.

----------------
End Notes

    \1\ Government Accountability Office, ``Funding Development 
Projects through the Purchase, Shipment, and Sale of U.S. Commodities 
Is Inefficient and Can Cause Adverse Market Impacts,'' June 2012.
    \2\ Maritime Administration, U.S. Dept. of Trans., ``Comparison of 
U.S. and Foreign-Flag Operating Costs,'' Sept. 2011.
    \3\ Maritime Administration, U.S. Dept. of Trans. ``Notice: 
Procedures for Determining Vessel Service Categories for Purposes of 
the Cargo Preference Act,'' Fed. Reg. Vol. 74, No. 177, Sept. 15, 2009 
, p. 47309.
    \4\ Government Accountability Office, ``Cargo Preference 
Requirements: Objectives Not Significantly Advanced When Used in U.S. 
Food Aid Programs,'' Sept. 1994.
    \5\ Erin C. Lentz, Christopher B. Barrett and Miguel I. Gomez, 
``The Impacts of Local and Regional Procurement of U.S. Food Aid: 
Learning Alliance Synthesis Report,'' Final Report: A Multidimensional 
Analysis of Local and Regional Procurement of U.S. Food Aid, January 
2012.
    \6\ Kelly Ramundo, ``Catching Ethiopians Before They Fall,'' USAID 
Frontlines, May/June 2012.
    \7\ Nancy Lindborg, ``Responding Early and Building Resilience in 
the Sahel,'' Huffington Post, Mar. 3, 2012.
    \8\ USDA/USAID International Food Assistance Report, Fiscal Year 
2013.
                                 ______
                                 

              Responses of Dr. Vincent Smith to Questions 
                   Submitted by Senator David Perdue

    Question. Coming to the Senate from the business sector, I 
appreciate your recommendations for increasing the efficiency of U.S. 
food aid to get more out of U.S. taxpayer dollars. I have heard from 
other sectors that these reforms might impact their industry.
    Could you please speak to the impact of food aid reforms on the 
following sectors:

   U.S. agriculture?

    Answer. Any effects on the U.S. agriculture sector of the proposed 
reform are likely to be positive but miniscule. The major bulk 
commodities provided as food aid, such as wheat and corn, are traded on 
global markets. Shifting to local and regional sourcing (as well as 
abandoning cargo preference for food aid and the practice of 
monetization) will increase the amount of funds available for 
purchasing all food aid, including those commodities, with a positive 
effect on global prices and, therefore, prices on local U.S. markets 
that are clearly and unambiguously linked to the world markets for 
those commodities.
    For processed food aid commodities such as cooking oil and peanut 
butter, complete flexibility in sourcing will still lead USAID and USDA 
to source those commodities from the United States as, for these 
commodities, currently and the near- and medium-term future, the United 
States is almost certain to remain the low cost and most economically 
efficient food aid source. Some small acre commodities such as peas and 
lentils are also sometimes purchased for food aid. Very recent research 
by Dr. Joseph Janzen at Montana State University finds that food aid 
purchases of peas and lentils have no measurable impacts on the prices 
at which those commodities are traded in local U.S. markets as these 
are also globally traded commodities).

   U.S. jobs in our ports?

    Answer. A recent George Mason University study estimated that 
shifting from mandatory sourcing in the United States for food aid 
would result in the loss of about 175 jobs at U.S. ports if that was 
all that was happening in those ports. However, they correctly point 
out that product handling in those ports is growing at a rapid annual 
rate because of the relatively rapid growth of trade in the U.S. 
economy (both in terms of exports and imports). The increase in demand 
for port workers (of all types) because of the expansion of total trade 
will require many more workers than the jobs that would otherwise by 
lost because of ending cargo preference for food aid. Thus no actual 
person is likely to be laid off because of a shift to local sourcing 
for food aid.

   U.S. national security?

    Answer. The independent studies (ones not sponsored by the Maritime 
lobby) and various GAO reports that have examined this issue have 
concluded that ending cargo preference will have minimal if any 
substantive effects on the military preparedness of the United States 
with respect to sealift capacity. The data show that about 70 percent 
of the privately owned U.S.-flagged vessels used for food aid shipments 
do not meet the Department of Defense criteria for vessels from the 
privately owned maritime fleet that can be used for sealift (because 
they are too old and/or are bulk carriers or tankers unsuited for 
almost all sealift purposes without major refits). It would be much 
cheaper for the U.S. Government to directly subsidize only those 
vessels that meet DOD criteria rather than subsidize food aid shipments 
carried on vessels that have no military value. The vessels that have 
no value for the purposes of national security carry the majority of 
food aid and are retained in service by private mercantile interests 
(and 40 percent of which are, in the end, foreign owned through U.S.-
registered holding companies) because of the high shipping rates that 
can be charged to the U.S. Government on food aid cargo preference 
shipments.

   U.S. shipping?

    Answer. There will be very little effect on U.S. shipping. The DOD 
estimate is that if cargo preference for food aid were ended and there 
was no growth in other areas of cargo preference shipping (such as 
intercoastal shipping) then between 350 and 475 jobs for sailors with 
U.S. citizenship or permanent residence would be lost. However, there 
is growth in those other areas and so it is unlikely that impacts will 
be substantial. As indicated in the response to the issue of national 
security, the main impact on U.S. shipping of food aid cargo preference 
coupled with required U.S. sourcing of food aid is to enable U.S.-based 
shipping companies (40 percent of which are owned by foreign 
conglomerates) to keep old and inefficient ships in service. 
Effectively, food aid cargo preference is a form of corporate welfare 
that does nothing to enhance the competitiveness of U.S.-flag ships in 
international shipping markets.

    Question. I understand that USAID and USDA are implementing similar 
nonemergency food aid programs in common geographic areas.

   How are the two agencies increasing and improving program 
        coordination-- 
        in Washington and in the field--in order to reduce overlap and 
        duplication with our limited resources for food assistance?

    Answer. This is not my area of expertise. However, a recent GAO 
report has indicated that there is a need for more effective 
communication between the two agencies to achieve efficiency gains in 
coordination. However, I would defer to Dr. Mercier's expertize with 
respect to the issue of mission overlap between the two agencies. The 
programs they manage do have clearly defined mandates that are distinct 
and rarely target exactly the same problems.

    Question. I understand that before I came to the Senate, last 
year's Farm Bill included reforms to allow increased flexibility for 
using a mix of U.S. commodities as well as locally and regionally 
procured (LRP) commodities.

   How much flexibility is currently allowed?

    Answer. Under the 2014 Farm Bill provisions, the amount of funding 
allowed for local and regional souring was increased from $40 million a 
year (the amount allowed in the 2008 Farm Bill pilot program) to $80 
million under the Food for Peace program, which is funded at a total of 
about $1.3 billion. That is about 6.15 percent of the total.

   Can you discuss the impact of this new flexibility on food 
        aid?

    Answer. The data indicate that every dollar spent through local and 
regional sourcing reduces the cost of delivering a ton of food to the 
target populations by about 40 percent. The reason the Senate 
Agricultural Committee strongly supported expansion of funding for 
local and regional sourcing in 2014 was precisely because the pilot 
program had been successful in enabling USAID to use efficient markets 
efficiently.
                                 ______
                                 

            Responses of Dr. Stephanie Mercier to Questions 
                   Submitted by Senator David Perdue

    Question. Coming to the Senate from the business sector, I 
appreciate your recommendations for increasing the efficiency of U.S. 
food aid to get more out of U.S. taxpayer dollars. I have heard from 
other sectors that these reforms might impact their industry.
    Could you please speak to the impact of food aid reforms on the 
following sectors:

   U.S. agriculture;
   U.S. jobs in our ports;
   U.S. national security; and
   U.S. shipping?

    Answer. Impact on U.S. agriculture: As I indicated in my written 
testimony, in recent years, the value of U.S. commodities exported 
under food aid programs accounts for less than 1 percent of total U.S. 
agricultural exports.
    The share of food aid in overall exports varies somewhat among the 
commodity categories utilized for the programs, higher among certain 
processed commodities such as vegetable oil or blended products such as 
corn-soybean blend (CSB), and lower for bulk commodities such as corn 
and wheat. It is the former types of food that are most likely to see 
continued use if the Food for Peace program were to be provided with 
additional flexibility, as highly processed commodities produced in the 
United States were shown in the LRP pilot program to be more cost-
competitive with similar categories of domestically produced 
commodities in developing countries. In addition, these products are 
most commonly used for direct feeding purposes in emergency assistance 
situations, which in many instances will require U.S.-sourced 
commodities because of food shortages in the recipient country.
    As to the bulk commodities, these commodities are heavily traded on 
international markets, and any U.S. wheat or corn that is not sold for 
food aid purposes will find an outlet somewhere else in the commercial 
market. Although the commodity volumes in question are tiny as a share 
of international trade, if those resources are used more efficiently to 
purchase wheat or corn in developing country markets instead, to the 
extent that there is any price impact from these changes it would be a 
positive one, although likely modest at best.
    Impact on U.S. port jobs: The data indicate that U.S. food aid 
shipments amount to well less than 1 percent of annual activity in most 
major U.S. ports. As described above, the commodities no longer shipped 
as food aid will eventually find other markets, many of them overseas, 
so the net impact on port activity from more extensive food aid reform 
would likely be close to zero. In addition, overall U.S. port activity 
across all categories of exports and imports has been climbing steadily 
in recent years, so any net change would be a shrinking share of total 
port business.
    Impact on U.S. national security: USAID has estimated that the full 
flexibility of the Food for Peace program could allow the Agency to 
reach an additional 12 million beneficiaries annually as compared to 
the current impact of the program. Fewer hungry and consequently 
desperate people around the world with the expanded number of 
beneficiaries having good reason to be grateful for U.S. assistance, 
cannot be anything but a net positive for U.S. national security.
    While the cargo preference program was nominally put into place to 
ensure that the U.S. military would have access to ample sea-lift 
capacity in the event of an emergency, the majority of U.S.-flagged 
vessels that carry food aid under those rules do not qualify for the 
Maritime Security Program and are not deemed to be militarily useful 
under the program's criteria. A 1994 GAO report entitled ``Cargo 
Preference Requirements: Objectives Not Significantly Advanced When 
Used in U.S. Food Aid Program'' raised significant concerns about this 
matter, as have other reports in recent years.
    Impact on U.S. shipping: In general, U.S. export promotion programs 
are put in place to help U.S. firms level the playing field with other 
exporters in overseas markets. For example, the GSM-102 export credit 
guarantee program operated by USDA is designed to offset the advantage 
that European or Australian exporters receive by dint of their credit 
costs being lower because they are backed by their respective 
governments. In all other respects, U.S. agricultural exporters operate 
as efficiently as possible so as to be able to compete with other 
exporters on the open world markets for their commodities.
    On the other hand, the cargo preference program essentially sets 
aside market share for U.S.-flag vessels to carry U.S. food aid, 
relieving them of the need to operate efficiently in that market so as 
to compete for that business. For the vessels included in the Maritime 
Security Program, data analyzed as part of a food aid project conducted 
at George Mason University indicate that food aid shipments are only a 
small part of their business, which could be easily replaced by 
military cargo (also covered under cargo preference rules) or other 
commercial cargo.
    However, of the eight U.S.-flag vessels which carried the 
equivalent in tonnage of at least two complete shiploads of U.S. food 
aid between FY 2011-2013, it appears that none of them were registered 
under the Maritime Security Program during that period. In fact, the 
two companies which carried 62 percent of the U.S. food aid tonnage 
shipped during this period under the preference program had no MSP 
vessels carrying U.S. food aid at all. A 2011 study by the U.S. 
Maritime Administration (MARAD) found that the average U.S.-flag 
vessels had operating costs 2.7 times higher than comparable foreign-
flag vessels. A portion of the difference is due to more stringent wage 
and environmental rules faced by U.S. carriers, but part of the 
difference is due to the greater age and cost inefficiencies of the 
vessels themselves.
    The evidence suggests that in the absence of cargo preference 
rules, which essentially creates a guaranteed market for the services 
of these ships, these older non-MSP ships with their higher cost/
pricing structure could not be operated on a profitable basis if faced 
with open competition. In a Department of Defense letter in 2013, it 
was estimated that food aid reform could affect the jobs of up to 495 
mariners, or less than 2 percent of members of the merchant marine as 
classified in the Bureau of Labor Statistics data. However, since the 
volume of goods carried in traffic between U.S. states has been 
increasing steadily in recent years, it is likely that most of those 
mariners could easily find new jobs on those ships.

    Question. I understand that USAID and USDA are implementing similar 
nonemergency food aid programs in common geographic areas.

   How are the two agencies increasing and improving program 
        coordination--in Washington and in the field--in order to 
        reduce overlap and duplication with our limited resources for 
        food assistance?

    Answer. In FY13, there were 8 countries in which both Food for 
Peace nonemergency projects and Food for Progress projects were 
underway, out of a total of 43 countries where projects were ongoing 
under both programs. These countries were Bangladesh, Burkina Faso, 
Ethiopia, Guatemala, Liberia, Malawi, Mali, Mauritania, Mozambique, and 
Uganda. While both programs operate in each of these countries, they 
often work in different parts of the countries targeting different 
populations.
    For example, there are two Food for Progress projects going on in 
Uganda, one run by Mercy Corps and the other by the National 
Cooperative Business Association (NCBA). Both of these projects are 
operating in northern Uganda, which is still recovering from a decades-
long civil conflict with the group the Lord's Resistance Army (LRA), 
which drove hundreds of thousands of Ugandans from their homes. There 
is also a title II development project going on in Uganda, run by the 
cooperative ACDI-VOCA. This project is targeted at the Karamoja region, 
which is in the northeast corner of the country.
    On the ground USG coordination and oversight of these programs run 
by USDA and USAID is probably hampered by recent actions by FAS to 
reduce the number of attache offices it operates overseas due to budget 
pressures. Of the eight countries listed above, there are attache 
offices in-country in only two of them: Guatemala and Ethiopia. In the 
other six countries, there are at most locally employed staff working 
on agricultural issues in the U.S. Embassy (i.e., not U.S. nationals); 
otherwise agricultural issues are being monitored by FAS staff in a 
neighboring country's capital, such as the FAS office in Nairobi, 
Kenya, also has responsibility for agriculture in Uganda.
    Nonetheless, the various U.S. Government agencies involved in 
overseas development assistance are doing a much better job of 
coordinating their activities than was the case just a few years ago. 
With respect to Uganda again, there is an extensive set of documents 
available on the USAID Web site which describes all the U.S. Government 
activities currently being conducted in the Karamoja region and how 
they are being integrated. Recognizing that coordination is a 
challenge, the Global Food Security Act reported out of the House 
Foreign Affairs Committee on April 23 seeks to create a stronger 
interagency mechanism to ensure cooperation and a coherent approach 
between U.S. agencies with programming or expertise in agriculture 
development/food security.

    Question. I understand that before I came to the Senate, last 
year's farm bill included reforms to allow increased flexibility for 
using a mix of U.S. commodities as well as locally and regionally 
procured (LRP) commodities.

   How much flexibility is currently allowed?
   Can you discuss the impact of this new flexibility on food 
        aid?

    Answer. The legislative authority for the Food for Peace program 
has a specific section (section 202(e)) which allows implementing 
partners to request a specified share of the resources they are 
provided to undertake their projects as cash to cover nonfood expenses. 
As established under the 2008 farm bill, the maximum percentage allowed 
under the law was 13 percent. In the 2014 farm bill, that maximum was 
raised to 20 percent, and the category of expenses that could be 
covered with these resources was expanded. In effect, the share of 
title II resources that can now be used flexibly was increased by 7 
percentage points. Most of this increased flexibility was used to 
provide PVO's operating nonemergency, development projects under title 
II with the ability to forgo using monetization transactions (selling 
U.S. commodities in local markets and use the proceeds to cover nonfood 
expenses). This change eliminates the inefficiency of converting 
commodities into cash which wasted at least 25 cents of every dollar 
spent on U.S. food aid for these projects, allowing the PVO's to 
actually reach an additional 600,000 people annually. Some monetization 
still occurs under title II because the provision requiring minimum 
monetization of at least 15 percent remains in law, but otherwise 
monetization only occurs when it makes sense as part of the development 
activity, not just to generate cash.
    In addition, the 2014 farm bill established a new stand-alone 
authority for USDA to run a local and regional procurement program 
(LRP), authorized to spend up to $80 million annually. This authority 
can be used to acquire local foods to complement U.S.-sourced 
commodities used in school feeding programs under the McGovern-Dole 
program, or to quickly respond to small-scale emergency situations. 
This program received no appropriation for FY15 so is not currently 
being operated, but the President's FY16 budget request did include $20 
million for this new program.
                                 ______
                                 

                  Responses of David Ray to Questions 
                   Submitted by Senator David Perdue

    Question. Coming to the Senate from the business sector, I 
appreciate your recommendations for increasing the efficiency of U.S. 
food aid to get more out of U.S. taxpayer dollars. I have heard from 
other sectors that these reforms might impact their industry. Could you 
please speak to the impact of food aid reforms on the following 
sectors:

   U.S. Agriculture?

    Answer. Food aid programs in recent years have accounted for less 
than 1 percent of total U.S. agricultural exports. Therefore reforming 
food aid will likely have minimal impact on U.S. agriculture as a 
whole. It is also important to keep in mind that reforming food aid 
does not mean entirely abandoning use of U.S. commodities, only 
increasing flexibility to use the most cost efficient and appropriate 
method according to the context. There is always be a need for U.S. 
commodity in order to meet nutritional needs of specific target groups 
(lactating women and children under 2 years of age), or when markets 
cannot function and/or nutritionally appropriate food is not available. 
Likewise, certain processed commodities will likely continue to be 
primarily sourced from the United States, such as vegetable oil, 
because it is more cost effective. Food aid makes up a negligible 
amount of other bulk commodities that are already largely traded on the 
international market, such as a wheat and corn. Procuring less of these 
commodities for food aid purposes is unlikely to negative impacts and 
additional market outlets will continue to make up the majority of the 
market.
    Again, it is worth noting that any commodity currently used for 
food aid can still play a role in providing this assistance overseas. 
Circumstances where food is not locally or regionally available, or 
when it is more cost efficient and timely to use U.S. commodities, such 
as some places in Latin America, will still involve U.S. agriculture. 
Reform is unlikely to have negative impacts on U.S. agricultural 
markets and will mean flexibility to provide more efficient and 
lifesaving assistance worldwide.

   U.S. Jobs in Our Ports?

    Answer. U.S. food aid shipments make up a minimal amount of 
activity in most major U.S. ports, less than 1 percent annually. Port 
workers are often paid by the tonnage loaded, and flexible food aid 
funding could increase cost-efficiency in the program, thus allowing 
for more U.S.-made prepackaged goods to be purchased and then loaded by 
dock workers. It is also critical to note the overall U.S. port 
activity in both imports and exports has been steadily increasing in 
recent years. Due to this increase, there is demand for mariners and 
those involved in shipping food aid will likely have alternate shipping 
opportunities.

   U.S. National Security?

    Answer. Reforming food aid can have a positive impact on U.S. 
national security. USAID has estimated as many as 12 million more 
beneficiaries can be reached annually if full flexibility is allowed 
for Food for Peace. This additional reach is badly needed as ISIS and 
other extremists continue to use food as an incentive and refugee 
numbers continue to rise. More people reached by U.S. food aid means 
less people desperate for food resources from other sources; this can 
only help the U.S.'s standing in the world and ultimately national 
security.
    In terms of the cargo preference program, which meant to ensure the 
U.S. military will have enough sea-lift capacity in times of emergency 
through the Maritime Security Program, most U.S. flagged vessels 
carrying food aid do not qualify. Independent studies and GAO reports 
have found that because most vessels shipping food aid are not capable 
of being used for military purpose, reforms to food aid will not 
negatively impact the readiness of the U.S. military or national 
security. It is also important to point out that programs, such as the 
Department of Defense's Voluntary Intermodal Sealift Agreements (VISA) 
provide the U.S. military with significant additional sea power through 
Vessel Sharing Agreements (VSA) with both U.S. and non-U.S. flag ships. 
The Maritime Security Program ships are generally only activated once 
all preexisting VSAs and accelerated VSAs with both U.S. flag and 
foreign flag ships have been exhausted.

   U.S. Shipping?

    Answer. The impact food aid reform will have on overall U.S. 
shipping is minimal. Currently there are U.S. export promotion programs 
helping U.S.-flag vessels to compete in the international market. 
However, because food aid cargo preference limits market competition, 
there are some U.S.-flag vessels carrying U.S. food aid that are able 
to continuously operate despite significant inefficiency. A 2011 study 
found that the average U.S.-flag vessel had an operating cost of 2.7 
times higher than comparable foreign flag vessels, in large part 
because of the vessels were older.
    In terms of the Maritime Security Program very few ships actually 
carrying food aid qualify for the program because of either the type of 
ship, age, or other inefficiencies. In addition, the Jones Act provides 
significant support to U.S. shipping as it requires that all goods 
transported by water between U.S. ports must be carried on U.S.-flag 
ships that are constructed in the United States, owned by U.S. 
citizens, and crewed by U.S. citizens and U.S. permanent residents. In 
addition, because of steadily increasing imports and exports across 
categories, mariners currently or previously involved in food aid 
shipments are not likely to be impacted by reforms. Additionally, it is 
important to recognize while food aid reform is unlikely to 
substantially impact the shipping industry, it will impact millions of 
additional beneficiaries worldwide through providing lifesaving 
assistance in a more cost and time efficient manner.

    Question. I understand that USAID and USDA are implementing similar 
nonemergency food aid programs in common geographic areas.

   How are the two agencies increasing and improving program 
        coordination--in Washington and in the field--in order to 
        reduce overlap and duplication with our limited resources for 
        food assistance?

    Answer. Although there are USAID and USDA programs overlapping in 8 
countries, it is CARE's understanding that these programs work with 
different populations in different areas. Budget constraints have meant 
difficulties in program coordination and oversight, particularly in the 
field. The Global Food Security Act (S. 1252/H.R. 1567), which focuses 
not on food aid but on long-term food security programs, recognizes 
issues in interagency coordination and provides mechanisms to further 
cooperation and develop integrated approaches between these agencies 
and their programs.

    Question. I understand that before I came to the Senate, last 
year's farm bill included reforms to allow increased flexibility for 
using a mix of U.S. commodities as well as locally and regionally 
procured (LRP) commodities.

   How much flexibility is currently allowed?

    Answer. PVOs are able to request a share of resources for project 
implementation as cash through Section 202(e) of the legislative 
authority for the Food for Peace program. The 2014 farm bill increased 
the maximum percentage from 13 percent to 20 percent and expanded the 
resources and activities covered by the account. In addition, the FY 
2014 Omnibus provided an additional $35m on top of this 20-percent 
increase for 202(e) activities. These funding increases and the 
definition of expanded activities gives organizations implementing 
nonemergency title II projects flexibility to use alternate methods, 
such as local and regional procurement of food, and to forego 
monetization to some extent.
    Monetization is the practice of selling U.S. commodities on local 
markets and using proceeds to fund development projects, however 
approximately 25 cents on every dollar is lost in this transaction. 
Monetization can also hurt local markets by flooding them with low 
priced U.S. commodities, negatively impacting the very people targeted 
by programs as beneficiaries. Current law requires 15 percent of title 
II funds to be used for monetization. However, increased flexibility in 
202(e) has been helpful in offsetting monetization allowing 600,000 
additional beneficiaries to be reached annually. It is important to 
note that the $35m in additional 202(e) funding provided through the 
FY14 Omnibus was limited to 1 year, and as such monetization activities 
are set to expand in future programs as this funding is no longer 
available to offset monetized activities.

   Can you discuss the impact of this new flexibility on food 
        aid?

    Answer. The impact of this flexibility is more cost efficient food 
aid for more beneficiaries, meaning additional lives saved and 
community served with more appropriate and sustainable mechanisms. 
Flexibility gives implementing PVOs the ability to use the most 
appropriate form of food aid, whether U.S. commodities, locally and 
regionally procuring foods, providing vouchers in functioning markets 
or some combination, depending on the context. Flexibility also ensures 
that U.S. food aid does not harm local markets through monetization, 
and can actually help build markets and effectively end long term 
dependence on food aid.
    CARE's Kore Lavi program in Haiti program is an example of how 
flexibility in a Food for Peace program being implemented is already 
making positive impacts and sustainable outcomes. The program is 
designed and run in coordination with the Haitian Government, functions 
with high levels of oversight and accountability, and targets the 
poorest 10 percent of Haiti's population. Electronic vouchers can be 
used to buy staple foods, such as rice, and paper vouchers used to buy 
fresh foods, such as fruit and vegetables. The program emphasizes 
purchasing locally produced foods, helping to build the local market 
and supporting livelihoods of those living in the communities. Kore 
Lavi is in its second year, and so far the program has reached 
approximately 125,000 chronically hungry individuals and has partnered 
with 387 vendors, many of whom are women and other disenfranchised 
populations.
    Kore Lavi is an example of a Food for Peace funded program using a 
combination of vouchers to purchase locally produced food, and in-kind 
U.S. food aid to supply additional nutrition to pregnant and lactating 
mothers.
    Different communities have different needs, flexibility allows PVOs 
to best meet the needs of the beneficiaries and make the best use of 
tax payer dollars. The ability to not only provide food aid, but do it 
in a way that builds the capacities of local partners and beneficiaries 
links aid to resilient communities who are ultimately able to feed 
themselves and is made possible through increased flexibilty.

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