International Food Assistance: Local and Regional Procurement Can Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain Its Implementation
Published: 2009-05-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: While the U.S. approach of providing in-kind food aid has assisted millions of hungry people for more than 50 years, in 2007 GAO reported limitations to its efficiency and effectiveness. To improve U.S. food assistance, Congress has authorized some funding for local and regional procurement (LRP)--donors' purchase of food aid in countries affected by food crises or in a country within the same region. Through analysis of agency documents, interviews with agency officials, experts, and practitioners, and fieldwork in four African countries, this requested report examines (1) LRP's impact on the efficiency of food aid delivery; (2) its impact on economies where food is procured; and (3) U.S. legal requirements that could affect agencies' use of LRP.
section_title: What GAO Found
paragraphs: LRP offers donors a tool to reduce food aid costs and delivery time, but multiple challenges to ensuring cost-savings and timely delivery exist. GAO found that local procurement in sub-Saharan Africa cost about 34 percent less than similar in-kind food aid purchased and shipped from the United States to the same countries between 2001 and 2008. However, LRP does not always offer cost-savings potential. GAO found that LRP in Latin America is comparable in cost to U.S. in-kind food aid. According to World Food Program (WFP) data, from 2004 to 2008, in-kind international food aid delivery to 10 sub-Saharan African countries took an average of 147 days, while local procurement only took about 35 days and regional about 41 days. Donors face challenges with LRP, including (1) insufficient logistics capacity that can contribute to delays in delivery, (2) donor funding restrictions, and (3) weak legal systems that can limit buyers' ability to enforce contracts. Although LRP may have the added benefit of providing food that may be more culturally appropriate to recipients, evidence has yet to be systematically collected on LRP's adherence to quality standards and product specifications, which ensure food safety and nutritional content. LRP has the potential to make food more costly to consumers in areas where food is procured by increasing demand and driving up prices, but steps can be taken to reduce these risks. As GAO's review of WFP market analyses and interviews with WFP procurement officers confirmed, a lack of accurate market intelligence, such as production levels, makes it difficult to determine the extent to which LRP can be scaled up without causing adverse market impacts. Although LRP does have the potential to support local economies, for example by raising farmers' incomes, data to demonstrate that these benefits are sustainable in the long term are lacking. U.S. legal requirements to procure U.S.-grown agricultural commodities for food aid and to transport up to 75 percent of those commodities on U.S.-flag vessels may constrain agencies' use of LRP. Although Congress has appropriated funding for some LRP, agencies disagree on the applicability of certain cargo preference provisions to LRP food aid that may require ocean shipping. The 1987 interagency MOU that governs the administration of cargo preference requirements and could clarify areas of disagreement among the agencies is outdated and does not address the issues arising from LRP.

section_title: Letter
paragraphs: In an environment of increasing emergencies and growing global food  insecurity, the United States and other donors face intense pressures to feed  the world’s expanding undernourished population. In September 2008, the  United Nations (UN) Food and Agriculture Organization (FAO) reported that  high food prices had resulted in the number of undernourished people  reaching a record 963 million—1 of every 7 people in the world and 40 million  more than the 923 million reported undernourished in 2007. Recently, the  International Fund for Agricultural Development (IFAD) reported that global  food insecurity could worsen, with some nutrition studies estimating that the  number of food-insecure may rise by 16 million people for every percentage  increase in the prices of staple goods. High food prices have sparked food  protests, with riots reported in more than 50 countries from January 2007 to  June 2008, including 12 countries in sub-Saharan Africa. Moreover, piracy  could endanger aid organizations’ food supply pipelines to some of these  countries.
Local and regional procurement (LRP)—the purchase of food aid by  donors in countries affected by disasters and food crises or in a different  country within the same region—has increasingly become a key element  in the multilateral food aid response over the past decade. Most bilateral  donors of food aid have switched from commodity-based in-kind food aid  to a cash-based food assistance program in recent years. According to  some experts, providing cash rather than in-kind food commodities to  implementing partners such as the UN World Food Program (WFP)—the  largest multilateral purchaser and provider of food aid in the world—or to  other aid organizations and nongovernmental organizations (NGO) can  enable them to purchase food locally or regionally and deliver it to  beneficiaries quickly and cost-effectively, while also providing  development benefits to local communities where the food is purchased.  However, other experts say that large cash purchases in some developing  countries can have detrimental effects on local market conditions, and in  such cases in-kind donations of commodities may be more beneficial.
As the largest international food aid donor, contributing over half of all  food aid supplies to alleviate hunger and support development, the United  States plays an important role in responding to emergency food assistance  needs and ensuring global food security.  In 2008, the United States  provided more than $2.8 billion in annual and supplemental funding for  U.S. international food aid programs for more than 2.9 million metric tons  of food aid. The large majority of U.S. food assistance is for U.S.-grown  commodities purchased competitively in the United States and shipped to  recipient countries on U.S.-flag carriers. Although this approach has  delivered vast amounts of food to hundreds of millions of undernourished  people over the past 50 years, we previously reported significant  limitations to its efficiency and effectiveness and recommended various  improvements in areas such as transportation and monitoring.
Congress has recently authorized limited funding for LRP. Its 2008 Farm  Bill authorized the U.S. Department of Agriculture (USDA) to implement a  5-year, $60 million pilot LRP program for food aid. Subsequently in 2008,  Congress appropriated $50 million in bridge fund supplemental funding to  the U.S. Agency for International Development (USAID) for LRP in  response to current emergencies, including the global food crisis. In  2009, Congress appropriated another $75 million for global food security,  including LRP and distribution of food.
In response to a request from the Chairman, House Subcommittee on  Africa and Global Health, Committee on Foreign Affairs, we examined (1)  the impact of LRP on the efficiency of food aid delivery, (2) the impact of  LRP on economies where food is procured, and (3) U.S. legal requirements  that could affect U.S. agencies’ use of LRP.
To address these objectives, we compared the cost of food through LRP  with in-kind food aid from the United States by analyzing the per ton cost of  similar commodities for the same recipient countries in the same quarter of  a given year for WFP and USAID, respectively. We examined WFP data that  compared the delivery time of LRP with in-kind food aid for 10 countries in  sub-Saharan Africa for 2004 through 2008. In addition, we reviewed selected  economic literature on LRP and recent reports, studies, and papers issued  by U.S. agencies, multilateral organizations, and bilateral donors. In four  African countries that we selected for fieldwork—South Africa in southern  Africa, Kenya and Uganda in East Africa, and Burkina Faso in West  Africa—we met with WFP procurement officers and other WFP officials,  U.S. mission staff, and host government, donor, and NGO representatives.  We also visited various WFP and USAID project sites, as well as  transportation and logistics facilities. In Washington, D.C., we interviewed  officials from U.S. agencies, including USAID, USDA, State, Department of  Transportation (DOT), and the Treasury; and the Millennium Challenge  Corporation (MCC). In addition, we met with the Rome-based UN food and  agriculture agencies—namely, FAO, WFP, and IFAD, as well as the U.S.  Mission to the UN—and several bilateral donors’ permanent  representatives. In addition, we met with representatives of private  foundations that actively fund agriculture and food security projects in sub- Saharan Africa. We also conducted semi-structured interviews with 11 WFP  procurement officers based in Africa and Asia. Finally, we convened a  roundtable of 10 experts and practitioners—including representatives from  academia, research organizations, multilateral organizations, and NGOs—to  further delineate, on the basis of our initial work, some key issues and  challenges to the implementation of LRP.
We conducted this performance audit from June 2008 to May 2009 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives. (App. I provides a detailed discussion of our  objectives, scope, and methodology.)
subsections: section_title: Background
subsections: section_title: Donors Provide Food Aid in Various Ways
paragraphs: Donors provide food aid primarily through procurements, vouchers, and  contracts, most commonly working through international organizations,  such as WFP, and NGOs. Procurements of food aid can be categorized  geographically as  International: Donor-financed purchases of food aid in world markets,  which may include both developed and developing countries. For  example, food purchased in Canada that is delivered to Uganda.
Regional: Donor-financed purchases of food aid in a different country in  the same region. For example, food purchased in South Africa that is  delivered to Uganda.
Local: Donor-financed purchases of food aid in countries affected by  disasters and food crises. For example, food purchased in the southern  part of Uganda that is delivered to the northern part of Uganda.
Donors may also provide vouchers that allow recipients to purchase their  own food in the local market. This option is usually used when food is  available, but disaster-affected populations no longer have the income or  livelihoods that would enable them to purchase food. WFP launched its  first food voucher operation in Africa in February 2009, targeting 120,000  people who were suffering from the impact of high food prices in the  urban areas of Ouagadougou in Burkina Faso.
In addition, donors may contract with a commercial agent, such as a local  trader, to purchase and deliver food aid. For example, in April 2009, the  Canadian Foodgrains Bank (CFB) contracted with Kenyan traders to  purchase food from sources outside the country and used several NGOs to  distribute the food.
section_title: Donors Are Increasingly Providing International Food Assistance in Cash
paragraphs: As the volume of food aid in the form of in-kind commodities has declined,  the volume of food aid purchased through cash donations has increased,  as shown in figure 1.
With the exception of the United States, most major donors—including the  European Union, the United Kingdom, and most recently Canada—now  provide all of their food aid as cash that may be used for local and regional  procurement (LRP) by WFP and NGOs. Previously, the European Union’s  food aid policies called for procuring food in the donor’s domestic market.  In 1996, however, the European Union essentially eliminated restrictions  that tied procurement of food aid to European suppliers as it restructured  its food aid and food security budgets to focus on improving food security.  In 2005, Canada took similar actions, providing 50 percent of its food aid  budget in cash available for LRP. In 2008, Canada opted to provide 100  percent of its food aid budget in cash.
Canada’s stated rationale for switching to  100 percent cash funding for food aid  (which in some cases can still be used to  purchase Canadian agricultural commodi- ties) was to provide more flexibility to its  overall food security strategy, improve the  efficiency of its food assistance, and  contribute to the development of local and  regional markets from which it purchases  food aid. As one of the world’s largest food  aid donors, Canada has provided an  average of about $161 million (USD) to  WFP, the Canadian Foodgrains Bank  (CFB), and other NGOs annually over the  last 4 years, with the vast majority of its  contributions going to WFP.
Many donors place conditions on their cash contributions to WFP, such as  stating a preference for procurement of food in developing countries or for  LRP. However, according to WFP, the availability of more flexible funding  has significantly increased over the years, as donors have gradually shifted  to providing food assistance as cash without tying such assistance to  purchases from domestic food suppliers.
section_title: WFP’s Use of LRP Has Increased, particularly in Developing Countries
paragraphs: In its strategic plan for 2008 through 2011, WFP identified use of LRP as one  of its five main objectives. WFP’s stated policy is to purchase food aid at the  most advantageous price available, taking into account the cost of  transportation and shipping, with a preference for using LRP in developing  countries wherever possible. WFP cited two primary goals for funding LRP:  (1) to increase the efficiency of food aid delivery, expediting assistance to  save lives during food emergencies and humanitarian crises; and (2) to  support development by stimulating agricultural production and raising farm  incomes, particularly by targeting smallholder farm households.
As shown in figure 2, WFP LRP has consistently exceeded international  procurement of food aid, principally for emergencies, from 2001 to 2008.
WFP procurement in developing countries has been increasing, from $171  million in 2001 to over $1 billion in 2008 (see fig. 3). In 2008, WFP procured  78 percent of its food aid from developing countries and 22 percent from  developed countries.
Of the top 20 developing countries from which WFP procured food in  2008, 16 were in Africa and Asia. As shown in table 1, in 2007, 9 of the top  10 developing countries (including 8 in Africa and Asia) from which WFP  procured food also received food aid the same year.  Africa received 54  percent of total international food aid provided, and Asia received 29  percent of total international food aid provided in 2007.
section_title: Donors Have Launched Various Initiatives That Support LRP
paragraphs: In an effort to address the global food crisis, donors have recently  launched a number of initiatives, many of which specifically advance LRP  of food aid (see app. II). These donors include multilateral organizations  such as the UN, WFP, and the World Bank, and bilateral donors such as  the United States. For example, in September 2008, WFP formally  launched the Purchase for Progress (P4P) program, a $76 million pilot that  is to be implemented in 21 countries, 15 of them in sub-Saharan Africa, in  the next 5 years to improve the income of smallholder farmers and thereby  increase their incentives for production. In July 2008, the Group of Eight  (G8)  issued a statement on global food security that called on donors to  participate in making commitments to provide access to seed and  fertilizers and help build up local agriculture by promoting local purchase  of food aid. In April 2008, the World Bank’s New Deal for Global Food  Policy called for changes including a shift from traditional in-kind food  assistance to cash, vouchers, development assistance for local markets,  and purchase of food from local farmers to strengthen their communities.
section_title: Local and Regional Procurement of Food Can Reduce Costs and Improve Timeliness of Food Aid Delivery, but Many Challenges Remain
paragraphs: Local and regional procurement (LRP) can offer donors a tool for reducing  costs and shortening delivery time but faces multiple challenges. LRP can  offer cost-saving opportunities over in-kind food aid from the United  States if food is available in the recipient country or neighboring countries,  and the cost of procuring locally or regionally is less than the cost of  procuring and shipping from the United States. Additionally, LRP can save  delivery time in emergency situations because it usually travels a shorter  distance than in-kind food aid. Local procurement can also avoid delays  that often occur when food crosses borders and has to go through permit  and inspection processes. Despite these benefits, donors face challenges  in making local and regional procurements, including insufficient logistics  capacity that can contribute to delays in delivery, and weak legal systems  that can limit buyers’ ability to enforce. Besides the benefit of reducing  costs and delivery time, locally and regionally procured food may have the  added benefit of being more culturally acceptable to recipients. However,  evidence on how LRP affects donors’ ability to enforce food aid quality  standards and product specifications has yet to be systematically  collected.
subsections: section_title: LRP Can Reduce Cost and Delivery Time
subsections: section_title: LRP Is Generally More Cost- Effective than In-kind Food Aid from the United States
paragraphs: We found that locally and regionally procured food costs considerably less  than U.S. in-kind food aid for sub-Saharan Africa and Asia, though the  costs are comparable for Latin America. We compared the cost per ton of  eight similar commodities for the same recipient countries in the same  quarter of a given year and found that the average cost of WFP’s local  procurements in sub-Saharan Africa and Asia was 34 percent and 29  percent lower, respectively, than the cost of food aid shipped from the  United States (see fig. 4).  For example, in the fourth quarter of 2002, the  average cost of locally purchased wheat in Ethiopia was approximately  $194 per metric ton while the cost of U.S. wheat shipped to Ethiopia in  the same quarter was 38 percent higher, at approximately $312 per metric  ton. Additionally, about 95 percent of WFP local procurements in sub- Saharan Africa and 96 percent in Asia cost less than corresponding U.S. in- kind food aid. However, the location of procurements affects whether LRP  offers any cost-saving potential and if so, by how much. While local  procurement in sub-Saharan Africa and Asia cost much less than U.S. in- kind food aid, we found that in Latin America, the cost of WFP LRP was  comparable to the cost of food aid shipped from the United States. The  average cost of WFP local procurements in Latin America was 2 percent  higher than that of U.S. food aid, and the number of WFP’s transactions  with a lower cost than U.S. food aid was close to the number of  transactions with a higher cost.  This difference is due in part to the fact  that shipping from the United States to Latin America is usually less costly  than shipping to Africa.
Local and regional procurement can offer donors the flexibility to take  advantage of cost-saving opportunities, which exist when food is available  locally or regionally and the costs of purchasing and transporting it are  lower than the costs of purchasing and shipping it from donor countries.  Donors can purchase food aid from surplus-producing areas within the  affected country, or purchase at the subregional and regional levels to  meet localized needs. For example, to meet the needs of Uganda’s large  internally displaced population in the north, WFP has been purchasing  maize and beans from the surplus-producing areas that are in close  proximity to the regions in need. In 2007, Uganda was the largest source  for WFP procurements in terms of tonnage. From 2001 to 2008, WFP  purchased over 600,000 metric tons of maize and beans locally to meet  needs in Uganda. Similarly, to meet needs in Zimbabwe in 2008, WFP  purchased a large amount of food aid that year from nearby countries  including Malawi; Zambia; Mozambique; and South Africa, a surplus- producing country. South Africa was the largest source for WFP  procurement in 2008, amounting to more than $163 million, and food from  South Africa fed people in both nearby countries and internationally (see  table 2).
To ensure cost-effectiveness, donors can use the import parity price to  guide purchase decisions. For example, WFP compares the lowest price  potential sellers submit through its tender process with the import parity  price, which includes the costs of commodity plus shipping and handling,  from various potential procurement sites. WFP procures locally or  regionally if the costs of doing so are below the import parity price.  Recently, for a LRP funded by USAID, Save the Children compared the  cost of locally or regionally procured wheat flour, vegetable oil, and lentils  to the cost of in-kind food aid from the United States. It found that  although locally procured wheat flour in Tajikistan had a higher price than  U.S. wheat, the cost of commodity plus shipping was lower. According to  WFP, LRP’s cost-effectiveness depends on many factors, such as the  commodity, season, and exchange rates. For example, WFP often procures  peas from Canada because of the availability and competitive pricing of  these commodities in this market. In addition, a strong currency can hurt a  country’s competitiveness. According to WFP officials, increases in the  value of the South African currency partly contributed to WFP’s decision  to decrease its purchases from South Africa in 2007 and then increase  them in 2008 when the currency devalued. (Fig. 5 shows WFP  procurement from South Africa from 2001 to 2008.)
According to WFP data, LRPs in sub-Saharan Africa generally have a shorter  delivery time than food aid procured internationally. We compared the  median delivery time for LRP to the median delivery time for food aid either  procured or donated internationally for 10 sub-Saharan countries. We  selected these countries because they had received both LRP and  international food aid. We found that international in-kind donation took the  longest, averaging 147 days (see fig. 6). Local and regional procurements took  on average 35 and 41 days, shortening the delivery time from international  donations by 112 days and 106 days, respectively. For example, in Malawi, in- kind international donations took 4 months (167 days) while locally procured  food aid took about 1 month (32 days). Similarly, the median delivery time for  regionally procured food going to Zimbabwe was 48 days versus 114 days for  internationally procured food aid. (For the delivery times of the 10 selected  sub-Saharan African countries, see app. III.)
Similarly, in a USAID-funded grant completed in April 2009, Save the  Children was able to obtain wheat flour from Russia and Kazakhstan and  transport it to Tajikistan within 2 months, while wheat flour from the  United States took over 5 months to arrive in Tajikistan (see illustrative  example in app. IV, which also compares the cost of U.S. in-kind food aid  with the cost of LRP). USAID sent the other two commodities—yellow   peas and fortified soybean oil—from its prepositioning site in Jacintoport  (Texas) and was able to shorten the delivery time. It took around the  same number of days for the yellow peas from the U.S. prepositioning site  as the lentils procured within the region to arrive.  According to DOT,  prepositioning offers significant time savings.  DOT’s analysis shows that  sending U.S. prepositioned food could have reduced transit time in  comparison to a regional purchase from South Africa that was delivered to  Somalia.
Locally and regionally procured food can take less time for delivery  because it travels a shorter distance than internationally procured food  and does not risk delays when crossing borders. Local procurement has  the benefit of avoiding import processes, such as meeting recipient  countries’ sanitary and phytosanitary requirements, which can delay  delivery. For example, if imported maize does not meet a country’s  moisture content requirement, delivery can be delayed. Some governments  require imported food aid to go through additional testing and certification  for genetically modified organisms (GMO). According to WFP officials in  South Africa, these requirements can take an additional 2 to 3 weeks.
section_title: Lack of Reliable Suppliers, Donor Funding Restrictions, and Other Factors Have Limited the Efficiency of LRP
paragraphs: Despite potential benefits, factors such as a lack of reliable suppliers,  limited logistical capacity, weak legal systems, and donor funding  restrictions have limited the efficiency of LRP, as explained below:    Lack of reliable suppliers. Of the 11 WFP procurement officers we  interviewed, 9 identified finding reliable suppliers and preventing  supplier default as a challenge to implementing LRP. A World Vision  representative in South Africa stated that the organization was involved  in a local procurement in Mozambique that took 5 months because the  supplier did not have food in stock and had to find alternative sources  to purchase enough to fulfill his contract. When food was finally  delivered, World Vision found that many bags were short of the  quantity specified in the contract.
Poor infrastructure and logistical capacity. Limited infrastructure  and logistical capacity could delay delivery. For example, according to  some WFP officials and private traders we met with, South Africa’s rail  system and ports are underinvested and have limited capacity to handle  food aid during peak seasons. Food aid could wait up to 2 months for a  warehouse at the port of Durban.  According to DOT, increasing  regional procurements from South Africa could lead to more  congestion at the port of Durban.  DOT believes that in-kind food aid  from the United States or prepositioning sites could avoid the port  congestion in South Africa by going directly to the port of entry nearest  the destination.  In addition, trade barriers in developing countries  could also delay delivery of food procured regionally.
Weak legal systems. A weak legal system could limit buyers’ ability to  enforce contracts. WFP generally requires suppliers to purchase bonds,  which they will lose if they do not fulfill their obligations under the  contracts. However, this requirement is not always feasible to  implement, especially when procuring from small suppliers. For  example, WFP usually eliminates its bond requirements for its  purchases from smallholder farmers.  Experts pointed out that it is  critical to build in the time and cost of adequate quality testing and  control, particularly in an environment where there are weak legal  requirements for the producers or the exporting countries.  For  example, WFP’s procurement officer in Uganda told us that many of  the smallholder farmers WFP purchases from had never seen a  contract before, and WFP had to take actions to ensure that these  purchases were delivered on time and met the quality specified in the  applicable contracts.
Timing and restrictions on donor funding. Timing and other  restrictions on donor funding limit the flexibility of implementing  partners to decide when, where, and how to purchase food, according  to WFP procurement officers. If donor funding is not available when  there is surplus in the market and prices are low, WFP cannot take  advantage of market opportunities. A procurement officer in Sudan, for  example, stated that, in January 2009, he was expecting 100,000 to  200,000 metric tons of high-quality commodities to be available on the  market, but that he would only be able to purchase 20,000 metric tons  due to the timing of donor funding. A WFP procurement officer in  South Africa stated that, although he may be able to convince  headquarters staff to let him use WFP’s advanced financing facility to  make a purchase, he may encounter problems if the anticipated donor  funding does not come through with its commitment. With donor  support, WFP has begun to test flexible financing mechanisms that are  expected to facilitate LRP. These include the advance financing facility,  a mechanism with which WFP finances a specific project to mobilize  food based on specific forecasts of donor contributions to the project,  and a forward purchase facility, a mechanism that allows WFP to take  a market position at an optimal time without specific knowledge of  where the purchased food will go or which donor’s funding will  underwrite the specific procurement action. Some officers also noted  that some donors’ preference for LRP may result in procuring locally or  regionally when importing might be less expensive.
section_title: LRP Can Provide More Culturally Appropriate Food, but Views on Quality Are Mixed
subsections: section_title: LRP Can Provide More Culturally Acceptable Food
paragraphs: Local and regional procurement can provide food that is more acceptable  to the dietary needs and preferences of beneficiaries in recipient  countries. People tend to be more familiar with food grown in neighboring  regions than food from different continents. For example, people in many  African countries prefer white maize, and Ethiopians who receive yellow  maize as food aid from the United States might sell it in the cattle market  as feed, according to a WFP procurement officer in Ethiopia.
section_title: Views on Meeting Product Specifications and Quality Standards Are Mixed
paragraphs: Experts and practitioners have mixed views on how LRP affects donors’  ability to adhere to product specifications and quality standards—such as  moisture content and the level of broken and foreign matter—which  ensure food safety and nutritional content. However, donors have yet to  systematically collect evidence that demonstrates whether food procured  in different locations varies significantly in meeting product specifications  and quality. Some experts contend that because locally and regionally  procured food travels shorter distances and takes on average less time to  arrive at its destination than internationally procured food aid, certain  quality standards, such as moisture content, may be less critical. The  longer grain has to travel, the more critical it is to control moisture content  so that it does not become moldy and infested with insects. We have  previously reported quality problems with U.S. food aid during long transit  times. Regarding LRP food aid, 9 out of the 11 WFP procurement officers  we interviewed for this review confirmed that quality was a challenge.  They also noted, however, that some quality standards, which may often  be difficult for suppliers in developing countries to meet, may not be very  crucial to individual recipients. For example, due to the lack of modern  processing facilities, rice from some developing countries may have a  higher level of broken kernels, but some recipients may actually prefer  such rice because it is better suited to cooking porridge, a common  method of consumption. However, concerns persist about the quality of  food procured in developing countries. The U.S. Wheat Associates noted  that the ability to ensure food quality and safety could be jeopardized  when purchases occur where standards are less rigorous than those of  U.S. suppliers to food aid programs. We learned of a few examples of  locally or regionally procured food not meeting quality standards. For  example, representatives from WFP and NGOs told us that they had  received food that turned out to be of lower quality or quantity than what  was specified in the contract. A WFP procurement officer in South Africa  reported that WFP requires the plants that manufacture maize meal or  corn soy blend (CSB) to meet internationally accepted production  standards, such as Hazard Analysis and Critical Control Point (HACCP),  and hires surveyors to take samples for testing and assess whether the  facility meets those standards. However, these surveyors recently found  that 13 out of 15 maize meal plants were not in compliance with the  standards and provided a list of activities the plants should undertake in  order to improve. In addition, some factors that affect the efficiency of  LRP also affect the ability to meet quality standards and product  specifications. For example, a weak legal system limits buyers’ ability to  enforce contracts, including imposing penalties when commodities  delivered do not meet the specifications outlined in the contract. However,  no evidence has been systematically collected on how LRP affects donors’  ability to adhere to quality standards and product specifications. A WFP  official told us he does not believe there is any significant difference  among different procurement types in the level of post-delivery loss, which  is one measure of quality issues. However, WFP has not analyzed whether  the quality issues are more severe for food procured locally or regionally  versus food procured internationally.
section_title: Local and Regional Procurement of Food Aid Has Potential for Adverse Market Impacts That Can Be Mitigated by Better Market Intelligence
paragraphs: Local and regional procurement (LRP) has the potential to make food  more costly to consumers in areas from which food is procured by  increasing demand and driving up prices. While WFP has taken actions to  help mitigate these impacts, such as coordinating with other implementing  partners to gather market information, in some cases local purchases have  adversely affected markets where the purchases were made. In particular,  lack of reliable market intelligence—such as market prices, production  levels, and trade patterns—makes it difficult to determine the extent to  which LRP can be increased without causing adverse market impacts.  Poorly functioning and unintegrated markets pose an additional challenge  to avoiding adverse market impacts and expanding the use of LRP. Other  challenges include lack of access to inputs and extension services, weak  transportation infrastructure, and host government policies that inhibit  food production.
subsections: section_title: Local Purchases of Food Aid Have Adversely Affected Some Markets
paragraphs: LRP can make food more costly to consumers by increasing demand and  driving up prices. Although most of the WFP procurement officers we  interviewed stated that local procurements of food aid generally do not  affect market prices, our review of the literature and interviews during  fieldwork show that there have been instances where LRP contributed to  price hikes and price volatility in markets from which food is procured.  However, the size of each of WFP’s local procurements tends to be  small—on average about 298 metric tons, as compared with 671 metric  tons for its international procurements. Additionally, WFP’s local  procurements do not make up a large portion of the market for a food  commodity in many developing countries, which reduces the risk of  disrupting local markets. WFP’s local procurements of about 20,000 metric  tons of maize in Burkina Faso in 2008, for example, amounted to less than  1 percent of a total market capacity of 700,000 metric tons. However, local  procurements have also contributed to price hikes. In 2003, for example,  when food aid donors tried to take advantage of low prices following 2  years of good harvests in Ethiopia, their purchases contributed to a rise in  prices. Additionally, in 2003, WFP’s Uganda country office procured a  large amount of locally grown maize from large traders based in Kampala  in support of its operations in northern Uganda and in the Great Lakes  region, particularly in Burundi. Due in part to this activity, maize prices in  Kampala during this period were double those in Iganga (119 kilometers  away).  However, because maize is not a staple food in Uganda,  consumers’ access to food may not have been adversely affected. WFP’s  large local procurements in Uganda from a small number of large traders  may also have contributed to an increase in the market power of those  large traders.
While local procurements of food aid have adversely affected markets in  several developing countries, particularly in sub-Saharan Africa, almost all  of the WFP procurement officers we interviewed stated that they  supported the idea of the United States increasing its funding for LRP.  However, WFP procurement officers we spoke to, NGO officials in  countries we visited, and other experts we met with agreed that increased  use of LRP should be done incrementally and that significant challenges  remain to expanding market capacity in many countries, particularly in  sub-Saharan Africa.
section_title: Unreliable Market Intelligence, Poorly Functioning and Unintegrated Markets, and Other Factors Pose Challenges to Increasing LRP without Causing Adverse Market Impacts
subsections: section_title: Unreliable Market Intelligence
paragraphs: Food Procurement in Developing Countries, World Food Program, Executive Board First  Regular Session (Rome: February 2006). have also noted that market information for many countries is very  difficult for WFP or NGOs to collect and rely on when making purchasing  decisions. For example, a 2005 study commissioned by the United  Kingdom’s Department for International Development (DFID) of local  procurement in Ethiopia noted that market information at the smallholder farmer level was non-existent and that there was no formal system for  determining the domestic price of grain.
In efforts to significantly reduce the risk of contributing to price hikes and  long-term food price inflation WFP uses import parity pricing, solicits  tenders for small amounts of food early in the harvest season, and works  with other parties involved in international food assistance to plan food  aid interventions. In addition to serving as a measure for cost-efficiency,  comparing local prices with import parity prices helps those involved in  local procurement to determine whether a local procurement will “do no  harm” to local markets and consumers by not making local procurements  when local prices are higher than international prices. However, as a  USDA study on LRP has noted, this standard may be constrained in cases  where local prices for commodities are so much lower than import parity  prices that it would require substantial price increases to reach the import  parity threshold.  WFP also tries to mitigate potential adverse market  impacts by issuing tenders for small amounts of food early in the harvest  season. Then, combined with available market intelligence, WFP  determines whether its purchases have contributed to price hikes before  putting out larger tenders. In addition to these tactics, WFP country offices  work with other parties involved in food aid, such as donors, host  government agencies, and NGOs, to coordinate efforts and share market  information. For example, several WFP country offices in eastern and  southern Africa created a country-by-country spreadsheet in the summer  of 2008 to stay current on developments related to rapidly escalating food  prices, such as government-imposed export bans.
section_title: Poorly Functioning and Unintegrated Markets
paragraphs: Even when market information is adequate, poorly functioning and  unintegrated markets in sub-Saharan Africa and other developing  countries still present challenges to expanding LRP while avoiding its  potential adverse market impacts, according to food aid evaluations,  experts convened for our roundtable, and fieldwork. Unintegrated markets  are characterized by a lack of price transmission among markets.   Additionally, there is difficulty in tracking informal cross-border trade and  a lack of functioning commodity exchanges. When markets are not well- integrated, either within countries or regionally, large purchases of food  by WFP, other food aid organizations, or donors can cause localized price  hikes. For example, WFP officials in Burkina Faso noted that the  government’s purchases for its strategic food reserve have correlated with  price spikes. Because the markets for agricultural commodities in sub- Saharan Africa, in particular, are not always clearly defined and do not  always account for natural geographic and ethnic boundaries, significant  informal cross-border trading that does not heed international and  regional trade agreements can occur. For example, approximately 30 to 50  percent of Uganda’s marketable surplus for maize is traded informally,  often on bicycles across the borders to Kenya or Rwanda, according to  WFP, USAID, and foreign government officials, and others we interviewed  during fieldwork in Uganda. Additionally, WFP’s Uganda country office  staff stated that it is difficult to effectively plan food aid interventions  involving LRP in the neighboring Democratic Republic of the Congo due to  lack of information about informal cross-border trading and volatile  market conditions. The market effects of such trading can be difficult to  track and create additional constraints to understanding and avoiding  adverse price impacts when conducting LRP. Finally, in all of sub-Saharan  Africa there is only one well-functioning agricultural commodity exchange,  the South African Futures Exchange (SAFEX). Several countries are  developing warehouse receipt systems that would allow farmers access to  credit, but the countries face challenges such as farmers’ lack of  awareness about marketing structures and banks’ reluctance to provide  credit to farmers.
section_title: Factors That Contribute to Persistent Food Insecurity
paragraphs: Many of the factors that affect persistent food insecurity in sub-Saharan  Africa and other developing countries are also challenges to the  implementation and potential expansion of LRP. These factors include  lack of access to inputs and extension services by farmers, weak  transportation infrastructures, and weak or conflicting host government  policies.
As we reported in 2008, smallholder farmers in developing countries,  particularly in sub-Saharan Africa, have limited access to modern  inputs and agricultural extension services such as enhanced seeds,  fertilizer, and tractors. During our fieldwork, representatives from  several farmer groups and associations told us they had experienced  similar problems. In Burkina Faso, one farmer group in a food-deficit  area had stopped growing maize for lack of fertilizer and seed and had  started planting more cotton because it could receive government  subsidies for that crop.
Weak transportation infrastructure in many developing countries  makes it difficult for smallholder farmers to move their crops to  market and for local markets to integrate regionally and nationally. The  World Bank has reported that less than half of the rural population in  sub-Saharan Africa lives near an all-season road.
Policies of host governments are not always favorable to supporting  agricultural development, although the Comprehensive Africa  Agriculture Development Program (CAADP) aims to address the lack  of agriculture development in sub-Saharan Africa by focusing on  budget prioritization and policy restructuring. USAID’s Initiative to  End Hunger in Africa (IEHA) supports CAADP’s efforts by  coordinating with other donors to provide technical and policy support  for agricultural and market development.
These factors, combined with unreliable market intelligence and poorly  functioning and unintegrated markets, continue to represent significant  challenges to increasing LRP in many developing countries, particularly in  sub-Saharan Africa.
section_title: LRP Has the Potential to Indirectly Support the Development of Local Economies by Increasing Demand for Agricultural Commodities and Raising Farmers’ Incomes
paragraphs: While the primary purpose of LRP is to provide food assistance in  humanitarian emergencies in a timely and efficient manner, a potential  secondary benefit is contributing to the development of the local  economies from which food is purchased. This can be accomplished by  increasing the demand for agricultural commodities, thereby increasing  support for all levels of the commodity value chain, which includes  individuals, businesses, and organizations involved in their respective  agriculture production and marketing industries such as large traders,  intermediate traders or middlemen, smallholder farmers, input suppliers,  and processors. Figure 7 illustrates the agricultural commodity value chain  supported by LRP.
The development benefits to local economies are secondary because in  almost all cases WFP and NGO purchases are not large enough or reliable  enough to sustain increased demand over time. Only recently has WFP  acknowledged that LRP can contribute to local development. In several of  the countries we visited, we observed WFP LRP initiatives under way that  might support local economies in the long term and connect LRP to other  food security initiatives. However, many of them are new and limited in  scale. For example, in February 2009, WFP began a cash voucher program  in Burkina Faso that will target beneficiaries in two major cities,  Ouagadougou and Bobo Dioulasso, by providing them with vouchers that  are redeemable for food commodities. In September 2008, WFP launched  its P4P program, which had the goal of benefiting smallholder farmers  directly by purchasing food from them. However, WFP officials recognize  that these procurements will only amount to a small percentage of its total  local procurements. With initial funding to manage and administer P4P  from the Bill & Melinda Gates and Howard G. Buffett Foundations, pilot  programs have been approved in 21 countries.
section_title: Legal Requirements for U.S. Food Aid May Constrain U.S. Agencies’ Use of Local and Regional Procurement
paragraphs: Certain legal requirements to procure U.S.-grown agricultural commodities  for food aid and to transport up to 75 percent of them on U.S.-flag vessels may  constrain agencies’ use of local and regional procurement (LRP). First, the  Food for Peace Act supports in-kind food aid by specifying that funding under  the Act can be used only to purchase U.S.-grown rather than foreign-grown  agricultural commodities and thus cannot be used for LRP. Since 2002,  appropriations for Title II of the Food for Peace Act have averaged $2 billion  annually, none of which can be used to purchase foreign-grown food.  However, from 2001 to 2008, through programs funded under a different  authority, the Foreign Assistance Act, the U.S. government has provided  approximately $220 million in total cash contributions to WFP that were used  to purchase foreign-grown commodities. In addition, since July 2008,  Congress has appropriated $50 million to USAID that can be used for LRP in  addition to $75 million that the Administration allocated for LRP in  International Disaster Assistance funding; and the 2009 Omnibus  Appropriations Act provided another $75 million in development assistance  funding to USAID for global food security, including LRP and distribution of  food. Second, the Cargo Preference Act of 1954, as amended, which is  enforced by the DOT, requires up to 75 percent of the gross tonnage of all  U.S.-funded food aid to be transported on U.S.-flag vessels. There is  disagreement among USAID, USDA, and DOT on how to interpret and  implement certain requirements of cargo preference, such as the agency  responsible for determining availability of U.S.-flag vessels. If these  requirements remain ambiguous, U.S. agencies’ use of LRP could be  constrained.
subsections: section_title: Legal Requirement to Purchase U.S.-Grown Food Limits Funding for Foreign-Grown Food
paragraphs: While most funding for U.S. food aid cannot be used to purchase foreign- grown food, a limited amount of funding has been used to support LRP.  Programs under the Food for Peace Act, have been the main vehicles of  U.S. international food aid.  However, funding under the Act is restricted  to the purchase of U.S.-grown agricultural commodities. Title II of the  Food for Peace Act, administered by USAID, is the largest U.S.  international food aid program providing humanitarian donations to  respond to emergency food needs or to be used in development projects.  Since 2002, appropriations for Title II have averaged $2 billion annually,  none of which can be used to purchase foreign-grown food, as envisioned  by LRP. However, a limited amount of U.S. funding has been authorized  through the 2008 Farm Bill, the Foreign Assistance Act, 2008/2009 bridge  supplemental, and the 2009 Omnibus Appropriations.
First, the 2008 Farm Bill established a 5-year, $60 million LRP pilot program,  administered by USDA, to respond to emergencies and chronic food aid  needs around the world. The pilot requires a study of LRP experiences, field- based projects, evaluations of field-based projects by independent parties,  and a USDA report submitted to Congress by 2012. USDA is currently  establishing guidelines for proposals to conduct field-based LRP projects and  estimates completion of the guidelines by the end of summer 2009.
Second, the Foreign Assistance Act authorizes USAID and State to provide  cash contributions to WFP and implementing partners to purchase foreign- grown commodities for specific program goals. From 2001 to 2008, the U.S.  government, through programs operating under the Foreign Assistance Act,  has provided approximately $220 million in total cash contributions to WFP  for 1,265 LRP transactions. WFP received contributions from State’s Bureau  of Population, Refugees, and Migration (PRM); USAID Office of Foreign  Disaster Assistance (OFDA); and USAID country missions; among other  programs. State officials stated that LRP can be used to fill gaps in refugee  and internally displaced persons (IDP) feeding operations caused by lack of  donor support; inflows of new refugees and IDPs; inability of donors to  deliver food to an area quickly, or more recently, rising costs of  commodities and transportation. Similarly, officials from USAID agreed that  LRP offers an opportunity to respond to food security crises and increase  the total amount of food aid the United States can provide by filling gaps in  country before food shipped from the United States arrives.
Third, since July 2008, Congress has appropriated $125 million to USAID that  can be used for LRP. USAID received $50 million in fiscal year 2008  supplemental appropriations to respond to the global food price crises with  LRP, among other activities. Another $75 million in development assistance  funding was made available to USAID through the 2009 Omnibus  Appropriations Act for global food security, including LRP and distribution of  food. For fiscal year 2009, the Administration made available for LRP $75  million in International Disaster Assistance funding.   To implement LRP  programs with increased authority, USAID/OFDA issued guidelines for LRP  proposals in October 2008 specifying that organizations applying for funding  must (1) demonstrate an urgent need for food aid; (2) relate to the factors  associated with the emergency to the global food price crisis or to a declared  disaster; or (3) provide compelling evidence that the use of local procurement  will save lives, reduce suffering, and/or serve more people than by using  international procurement of Title II food aid. By April 2009, USAID/OFDA  had programmed $63 million in direct cash contributions to WFP and  implementing partners to purchase foreign-grown commodities for vulnerable  populations in Ethiopia, Kenya, Kyrgyzstan, Nepal, Pakistan, Somalia,  Tajikistan, and Zimbabwe. Monitoring and evaluation plans for tracking  program implementation, results, and outcomes are required with all awards.
section_title: Uncertainty Regarding Cargo Preference Could Constrain Agencies’ Implementation of LRP
paragraphs: Because the leading U.S. food assistance agencies and DOT disagree on  how to implement the Cargo Preference Act, their use of LRP could be  constrained. The Cargo Preference Act, as amended, requires that up to 75  percent of the gross tonnage of agricultural foreign assistance cargo be  transported on U.S.-flag vessels. DOT issues and administers regulations  necessary to enforce cargo preference. Among other things, the  department has the authority to require the transportation on U.S.-flag  vessels of cargo shipments not otherwise subject to cargo preference  (hereafter referred to as “make-up requirements”) when it determines that  an agency has failed to sufficiently utilize U.S.-flag vessels. In some cases,  however, USAID and USDA officials disagree with DOT on interpretations  of cargo preference requirements including (1) the agency responsible for  determining availability of U.S.-flag vessels; (2) make-up requirements  when U.S.-flag vessels are unavailable or when an agency waives cargo  preference requirements during emergencies, also referred to as  “notwithstanding authority;” (3) applicability of cargo preference  requirements to public international organizations; and (4) methodology  used for cost reimbursements.
subsections: section_title: Agency Officials Have Different Interpretations of Cargo Preference Requirements
paragraphs: Table 3 summarizes differences in agency officials’ interpretations of  cargo preference requirements.
The differences in agency interpretations of cargo preference are  discussed below.  1.  Agency responsible for determining availability of U.S.-flag vessels:  Officials from USAID, USDA, and DOT stated that their respective  agencies have independent authority to determine U.S.-flag vessels are  not available. According to USAID officials, the agency determines  U.S.-flag nonavailability based on its USAID program needs but seeks  prior concurrence from DOT’s Maritime Administration (MARAD).  According to USDA officials, USDA determines the availability of U.S.- flag vessels based on programmatic needs, and DOT determines what  constitutes a fair and reasonable shipping rate. Agency officials and  industry experts noted that the availability of U.S.-flag vessels in areas  such as Africa’s eastern coast is limited. DOT noted that a U.S.-flag  vessel could ship food from one African port to another if the ship  happened to be in the region conducting military operations or other  business. However, most carriers do not currently provide regular  regional service. U.S. officials in Kenya and South Africa confirmed  this lack of regular service along Africa’s eastern coast. A shipping  agent in South Africa stated that she was aware of two U.S.-flag vessels  that frequent the port of Durban. Representatives of a coalition of U.S.- flag carriers indicated that U.S.-flag vessels could provide additional  service in the region in the future but their decision to relocate vessels  depends on the regularity of regional shipments. According to a 2008  report regarding efforts to improve procurement planning, USAID  and USDA compete with DOD and other exporters for space aboard  the relatively few U.S.-flag vessels, some of which are ill-suited for t carriage of food-grade commodities. Moreover, of the three  participating liner service container carriers utilizing U.S.-flag vessels,  only one services Africa, where 54 percent of international food aid  was delivered in 2007, according to INTERFAIS data. 2.  Make up requirements when U.S.-flag vessels are unavailable or an  agency uses “notwithstanding” authority: Agencies disagree as to  whether shipments made on foreign vessels, because U.S.-flag vessels  were not available or because an agency waives cargo preference  requirements utilizing authority to conduct a program notwithstanding  any other provision of law, should count toward the maximum  tonnage allowed on foreign-flag vessels. DOT has stated that it  should, and any tonnage shipped on foreign-flag vessels that exceeds  the 25 percent maximum tonnage should be made up the following  year. However, USAID has the authority to implement emergency  programs, including international disaster assistance, notwithstanding  any other provision of law. With this authority, USAID has waived  cargo preference requirements to ensure food aid delivery during  emergencies. In those cases, it believes the tonnage shipped on  foreign-flag vessels should not be counted toward the maximum  foreign-flag tonnage allowed under cargo preference. DOT officials  believe otherwise. Since 2005, USAID has used notwithstanding  authority to override cargo preference four times, two of which were  in 2005 when there were extreme price disparities between U.S.-flag  and foreign-flag offers to transport emergency food aid to Kenya and  Somalia.  3.  Applicability of cargo preference requirements to public  international organizations:  Agencies also disagree on whether  grants made to international organizations, such as WFP, must  incorporate cargo preference requirements. According to DOT  officials, if public international organizations use U.S. funding to  purchase food and that food requires ocean shipping, U.S.-flag vessels  should be given cargo preference. For example, in 2006, DOT notified  the USAID West-Bank/Gaza mission that it had not conformed to the  legal mandate in a U.S.-funded grant with WFP to purchase 16,000  metric tons of wheat flour for shipment to Tel Aviv. However,  according to the USAID policy manual, public international  organizations are allowed to abide by their own procurement rules.  Therefore, international organizations that receive cash contributions  for regional procurement of food are not required to ship on U.S.-flag  vessels. 4.  Reimbursement methodology:  DOT is required to reimburse food aid  agencies for a portion of the ocean freight and transportation costs  that exceed 20 percent of their total program costs. However, agencies  disagree on whether reimbursement levels are sufficient to cover the  additional costs incurred by transporting the food on U.S.-flag vessels.  According to USDA officials, DOT has been reluctant to reimburse  USDA for any excess costs beyond 20 percent freight costs and has not  gone on the record about reimbursement for USDA’s LRP pilot field- based projects. According to USAID, areas of ambiguity regarding  reimbursements include:   costs of ocean freight and transportation on U.S.-flag vessels that  exceed 20 percent of program costs,  transportation from overseas food warehouses to final destinations,  foreign inland transport costs, and    costs of ocean freight and transportation on U.S.-flag vessels when  there is no foreign-flag vessel available for cost comparison.
section_title: Lack of Clarity on Cargo Preference Requirements Could Constrain LRP
paragraphs: With a lack of clarity on how to interpret cargo preference regulations,  agencies’ ability to utilize LRP to respond to emergencies may be  constrained. For example, as of October 2008, DOT has the authority to  require the transportation on U.S.-flag vessels of cargo shipments not  otherwise subject to cargo preference when it determines that an agency  has failed to sufficiently utilize U.S.-flag vessels. DOT has not yet issued  regulations governing how it will implement this new authority and USAID  faces uncertainty regarding whether increased use of LRP will trigger  imposition of make-up requirements.
Cargo preference could also constrain USAID’s and USDA’s LRP pilot  programs if U.S.-flag vessels are unavailable. USAID officials indicated that  given the limited volume of regional shipments relative to regular Title II  shipments, the agency would probably not be able to meet the U.S.-flag  compliance threshold if even one shipment could not be transported on a  U.S.-flag vessel. According to a USDA official, countries chosen for its LRP  pilot field-based projects will likely receive food shipments only once in a  fiscal year. If U.S.-flag vessels are unavailable for service at that time, it is  unclear how USDA will make up tonnage by country and program the  following year since, according to officials, the pilot is of limited duration.  In addition, USDA will not cut other country program budgets in order to  make up tonnage by country for its LRP program.
Finally, the lack of clarity when USAID waives cargo preference through  notwithstanding authority could constrain its ability to fully utilize the  authority when responding to emergencies that require regional shipment  of food in anticipation of potential sanctions by DOT. To date, USAID has  used notwithstanding authority to waive cargo preference requirements on  only four occasions, in part due to the uncertainty of a regulatory response  from DOT. The $200 million that USAID has for LRP is available to be  expended notwithstanding any other provision of law. According to  USAID officials, the agency has not used its authority to waive cargo  preference requirements for any of the LRP transactions funded through  May 2009.
The MOU that outlines the manner in which USAID, USDA, and DOT  coordinate the administration of cargo preference requirements was last  updated in 1987 and does not reflect modern transportation practices or  the areas of ambiguity related to LRP. In our 2007 review of U.S. food aid,  we found that cargo preference can increase delivery costs and time  frames, with program impacts dependent on the sufficiency of DOT  reimbursements. Therefore, we recommended that USAID, USDA, and  DOT seek to minimize the cost impact of cargo preference regulations by  updating implementation and reimbursement methodologies of cargo  preference as it applies to U.S. food aid. Since 2007, USAID and USDA  have proposed a working group with DOT to renegotiate the MOU. To  date, however, there have been few meetings and no agreement has been  reached between the agencies.
section_title: Conclusions
paragraphs: The timely provision of food aid is of critical importance in responding to  humanitarian emergencies and food crises. In 2007 and 2008, the number  of chronically hungry people in the world grew by 115 million, despite an  international commitment to halve the number of hungry people by 2015.  While the United States has primarily provided in-kind food aid for over 50  years, it has been exploring expanded use of LRP. This tool has the  potential to better meet the needs of hungry people by providing food aid  in both a more timely and less costly manner. To fully realize this  potential, however, challenges to its effective implementation must be  addressed.
Concerns about the quality of LRP food aid persist, but aid organizations  still do not systematically collect evidence on LRP’s adherence to quality  standards and product specifications that would ensure food safety and  nutritional content. Furthermore, experts and practitioners caution that  scaling up LRP in recipient countries should be done gradually to ensure  that the potential benefits of LRP are maximized while any potential  adverse impacts are minimized or avoided. While accurate and reliable  market data would help ensure that U.S. agencies and implementing  partners make optimal decisions with regard to when, where, and how to  procure food locally or regionally, such data are not yet available. Finally,  the implementation of LRP may be constrained by U.S. agencies’  disagreement on a number of requirements associated with cargo  preference, thus elevating the importance of an updated interagency MOU  that resolves existing ambiguities.
section_title: Recommendations for Executive Action
paragraphs: To enhance the impact that LRP can have on the efficiency of food aid  delivery and the economies of countries where food is purchased, we  recommend that the Administrator of the U.S. Agency for International  Development and the Secretary of Agriculture take the following three  actions:    systematically collect evidence on LRP’s adherence to quality standards  and product specifications to ensure food safety and nutritional content;    work with implementing partners to improve the reliability and utility of  market intelligence in areas where the U.S.-funded LRP occurs, thereby  ensuring that U.S.-funded LRP practices minimize adverse impacts and  maximize potential benefits; and    work with the Secretary of Transportation and relevant parties to expedite  updating the MOU between U.S. food assistance agencies and the  Department of Transportation, consistent with our 2007 recommendation,  to minimize the cost impact of cargo preference regulations on food aid  transportation expenditures and to resolve uncertainties associated with  the application of cargo preference to regional procurement.
section_title: Agency Comments and Our Evaluation
paragraphs: DOT, USAID, USDA, and WFP provided written comments on a draft of  this report.   We have reprinted these agencies’ comments in appendixes  VII, VIII, IX, and X, respectively, along with our responses.  Additionally,  USAID, DOT, State, and WFP provided technical comments on a draft of  our report, which we have addressed or incorporated as appropriate.   Treasury and MCC did not provide comments.
USAID generally concurred with our recommendations.  With regard to  the first recommendation, however, USAID noted that it may be more  efficient for us to recommend that all food aid organizations collaborate in  the development and implementation of systems to monitor quality  assurance and product specification issues in all food purchases, including  LRP.  The recommendation does not preclude such coordination among  the agencies.  We recognize USAID’s and USDA’s efforts to date to  implement our 2007 recommendation to develop a coordinated  interagency mechanism to update food aid specifications and products to  improve food quality and nutritional standards.  Including actions to  systematically collect evidence on LRP’s adherence to quality will make  these efforts more efficient.  With regard to the third recommendation,  USAID commented that MARAD’s position on the applicability of the 75  percent threshold to USAID-funded LRP, rather than the 50 percent  threshold, is devoid of legal merit.  In providing information on agencies’  interpretations of cargo preference requirements as they pertain to LRP,  we sought to identify areas where agencies disagree on the applicability  and interpretation of these requirements.  We did not attempt to adjudicate  the differences in interpretation among the agencies involved.  However,  in technical comments to a draft of this report, DOT changed its position  regarding thresholds and now concurs with USAID’S interpretation, thus  eliminating this issue as an area of ambiguity.
USDA generally agreed with our report, noting that our comparisons of  costs and delivery times were insightful.  However, USDA observed that  aggregating some of the commodities such as vegetable oil and beans  could cause a loss of precision in our methodology.  To obtain an overall  picture of costs, we worked to ensure that we had the largest number of  observations, over the longest possible time period, so some aggregation  was required.  USDA also stated that our report does not specify how  differences in quality or specifications were handled.  We recognize that  the price of different commodities in the same category may vary  depending on quality or specifications.  However, we noted WFP’s  assertion that its commodities meet both the importing and exporting  countries’ standards, and there is no systematic evidence that U.S.  commodities differ in quality compared to LRP commodities. Nonetheless,  we recognize that there may be differences in the quality of certain  commodities, and we note such differences in our illustrative example of  LRP for Tajikistan.  In addition, both USDA and DOT noted that we did not  compare delivery times for LRP and in-kind food aid from prepositioning  sites.  Although we did not differentiate prepositioned commodities in our  cost comparison, we included them in our data analysis and note that  prepositioned commodities were a very small part of U.S. food aid during  the time period we examined.
DOT stated that additional analysis may be warranted before concluding  that LRP offers a tool to reduce costs and shorten delivery time.  Although  further analysis of LRP practices would be useful, our analysis  demonstrated consistent results across 8 years of data. For example, local  procurement in sub-Saharan Africa cost about 34 percent less than USAID  commodities procured at around the same time and delivered to the same  country. DOT also stated that it implements the cargo preference statute  through regulation, not through an interagency MOU.  While this is true,  the regulations contain ambiguities that have previously required  resolution through an MOU.  Our report describes new ambiguities that  could arise in applying cargo preference in the context of regional  procurement.  We believe that these ambiguities can be resolved by  updating the MOU.  Further, there is no requirement that establishing  regulation precede a MOU nor does a MOU preclude the issuance of new  regulation.  The updated MOU, establishing consensus among the relevant  agencies, could be reflected in any future regulation that DOT may draft  and get finalized through the rule-making process.
WFP welcomed our timely examination of LRP as one of numerous tools  to deliver effective and efficient food assistance to those in greatest need.   However, WFP stated it was perplexed that concerns persist about the  quality of food procured in developing countries, given the lack of  evidence showing that LRP introduces quality challenges that are not  already challenges to internationally procured and donor-provided food  aid.  We note that quality is one issue that many WFP procurement officers  and several other officials we interviewed identified as a challenge for  LRP.   However, the lack of systematically collected data makes it difficult  to objectively analyze how LRPs adhere to quality standards and product  specifications.  Our first recommendation addresses this issue.   In  addition, WFP offered some qualifications to our discussion of the impact  of LRP on economies where food is procured, noting the lack of  systematic evidence to suggest that current LRP practices adversely  impact host markets.  In this report, we explain several efforts that WFP  and others have taken to significantly improve the availability and  reliability of market intelligence in developing countries.  Nonetheless,  WFP, NGOs, U.S. agencies, host governments, and experts convened for  our roundtable stated that the most significant challenge to avoiding  potential adverse markets impacts when conducting LRP is unreliable  market intelligence. Therefore, we are recommending improving the  reliability and utility of market intelligence.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. We are sending copies of this report to interested Members of  Congress, the Administrator of USAID, and the Secretaries of Agriculture,  State, Transportation, and the Treasury. In addition, this report will be  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-9601 or melitot@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix XI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine (1) the impact of local and regional  procurement (LRP) on the efficiency of food aid delivery, (2) the impact of  LRP on economies where food is procured, and (3) U.S. legal requirements  that could affect U.S. agencies’ use of LRP.
We selected four countries for fieldwork based on geographic region, WFP  procurement data, and the presence of WFP procurement officers in- country. We selected countries in sub-Saharan Africa, excluding countries  with current conflict, because these regions within Africa have high  prevalence rates of undernourishment. While this selection is not  representative in any statistical sense, it ensured that we had variation in  the key factors we considered. We do not generalize the results of our  fieldwork beyond that selection, using fieldwork primarily to provide  illustrative examples.
To understand the experiences of other donors with local and regional  food procurement and corroborate information gathered in our literature  review, we conducted semi-structured interviews with 11 principal WFP  procurement officers in Africa and Asia. We focused on Africa and Asia  because that is where the majority of food procurement abroad takes  place. The 11 we interviewed represented all the principal WFP  procurement officers that were in place in Asia and Africa at the time we  conducted our fieldwork. We asked each procurement officer a series of  open-ended questions on the factors impacting and actions that could be  taken to improve: cost, delivery time, quality, market impact, and  development. To ensure that the questions were clear and unambiguous,  did not place an undue burden on respondents, and that respondents had  the necessary information and time to answer the questions, we conducted  pre-tests with WFP procurement officers in Sudan and Thailand. To  determine which factors and actions were mentioned most frequently, we  coded the officer’s responses to the questions. One analyst developed and  applied the codes to the interviews and another analyst reviewed both the  codes and their application. Based on that coding, we report data on the  number of officers that mentioned each factor and action. The views we  report are limited to WFP procurement officers in Africa and Asia and may  not represent WFP procurement officers in other regions.
In addition, we reviewed economic literature on LRP practices and recent  reports, studies, and papers issued by U.S. agencies, multilateral  organizations, and bilateral donors. These sources were chosen because  they represent a wide cross section of the discussion on LRP and are  written by the leading authorities and institutions working in the field.
In the four African countries that we selected for fieldwork—Kenya and  Uganda in East Africa, South Africa in southern Africa, and Burkina Faso  in West Africa—we met with U.S. Agency for International Development  (USAID) and other U.S. officials; World Food Program (WFP) country  office staff; and representatives of nongovernmental organizations (NGO),  smallholder farmer groups, and commodity exchanges. We also visited  several sites where food aid may be locally purchased and where food aid  is delivered.
In Washington, D.C., we interviewed officials from U.S. agencies, including  USAID; USDA; the Departments of State, Transportation (DOT), and the  Treasury; and the Millennium Challenge Corporation (MCC). We also met  with the International Food Policy Research Institute (IFPRI) and the  World Bank. In New York, we met with the Rockefeller Foundation, the  Alliance for a Green Revolution in Africa (AGRA), and Columbia  University. In Rome, we met with FAO, WFP, and the International Fund  for Agricultural Development (IFAD). We also met with the U.S. Mission to  the UN (USUN) in Rome and several bilateral donors’ permanent  representatives to the Rome-based UN food and agriculture agencies. In  addition, in Washington, D.C., we convened a roundtable of 10 experts and  practitioners—including representatives from academia, research  organizations, multilateral organizations, NGOs, and others—to further  delineate, based on our initial work, some of key issues and challenges to  the implementation of LRP.
To examine the impact of LRP on the efficiency of food aid delivery, we  focused on the cost, delivery time, and quality. To evaluate LRP cost  efficiency, we compared WFP’s costs with USAID’s. WFP’s costs  are based on WFP’s procurement data from 2001 to 2008 and USAID’s  costs are based on USAID’s Line 17 reports from fiscal year 2001 to 2008.   We did not evaluate the impact of prepositioning on U.S. food aid costs,  although we did not exclude the commodities shipped from prepositioning  sites, albeit small in value relative to overall U.S. food aid for the time  period we examined.  WFP’s procurement data include information on the  commodities purchased, the date of the purchase, the origin of the  commodities, the recipient of the food aid, the contract terms, and the  purchase prices. To assess the reliability of the data, we (1) reviewed  existing documentation related to the data sources and (2) interviewed  WFP and USAID officials familiar with the data sources. Accordingly, we  determined that the data were sufficiently reliable for the purposes of this  report. Since WFP’s procurements are under different contract terms, the  purchase prices include different costs. For example, most of WFP’s  international procurements are under the term free on board (FOB), which  normally does not include ocean shipping and handling. USAID’s data  include the costs for commodities and ocean shipping and inland  transportation, storage, and handling (ITSH). To make the costs  comparable, we included different USAID cost components depending on  the contract terms of the corresponding WFP purchase. See table 4 for  details of the corresponding WFP contract terms and USAID cost  components.
For each WFP purchase, we searched for a “match” in USAID’s data. A  match is defined as a purchase transaction of a similar commodity, in the  same quarter of the same year, for the same recipient country. The  commodity groups we selected are beans, corn soy blend (CSB), maize,  maize meal, rice, sorghum/millet, vegetable oil, and wheat, which  represent the majority of food aid for both WFP and USAID. We  aggregated the more detailed commodities in USAID’s data. For example,  we aggregated many types of beans (red beans, kidney beans, black beans,  pinto beans, and other beans) into the bean commodity group. We  compared the WFP’s per metric ton cost with its match of USAID’s cost.  See table 5 for the number of matches in our analysis, which occurred for  8 commodities out of approximately 37,000 transactions from 2001 to 2008.
We compared the costs by region (sub-Saharan Africa, Asia, and Latin  America) and by procurement type (local, regional, and international). To  account for DOT cargo preference reimbursements, we reduced USAID  ocean freight costs from 25 to 35 percent and found that it did not change  our results significantly. Based on previous GAO work, we consider 25  percent to be a reasonable value to account for cargo reimbursements  over the 8-year period. We analyzed the percentage of WFP transactions  that had lower costs than USAID’s and the cost differential. See fig. 8  below for a histogram of cost differential comparison.
The cost differences between U.S. food aid and LRP of similar food  products, around the same time frame, and for the same countries we  identified represent potential cost-saving opportunities. However, many  factors can reduce or even eliminate the amount of savings, including  whether food is available in the local and regional markets, and how much  additional purchases in these markets will drive up prices. We discussed  this methodology at the expert roundtable we conducted, and the experts  indicated that our methodology was sufficient in controlling for various  factors that may influence costs to make the costs comparable.
To evaluate the impact of LRP on delivery time, we relied on interviews  with WFP officials and representatives from various organizations we met  with during fieldwork in the four countries we visited. In addition, WFP  generated delivery time for 10 countries in sub-Saharan Africa that we  selected by procurement type. The countries that we selected had received  food aid purchased or donated internationally, as well as through LRP. Our  analysis of the aggregate delivery time consisted of the average of the  median delivery times for each of the 10 countries across the four  procurement types. To evaluate the impact of LRP on the quality, we  interviewed U.S. agency officials, WFP officials, and NGO representatives.  We reviewed assessments of WFP local and regional procurement.  We  discussed with WFP the methodology it used in order to generate the  delivery time and the limitations of the methodology. We determined the  data are sufficiently reliable for our purposes. We chose to use WFP data  because they included a substantial amount of both international and local  and regional procurements.  We did not compare WFP’s delivery time to  U.S. in-kind delivery time.  We also did not evaluate the impact of  prepositioning on U.S. food aid delivery time.
To examine the impact of LRP on the economies of countries where food  is procured, we relied on the responses of WFP procurement officers to  our semi-structured interview questions; our economic literature review of  LRP practices, reports, studies, and papers’ and our interviews with WFP,  U.S. government, NGO, World Bank, and private-sector officials in  Washington, D.C.; Rome; and the countries we visited for fieldwork in sub- Saharan Africa. We also discussed our preliminary findings on the  potential market risks, market intelligence, and development benefits  associated with LRP at our expert roundtable and received validation and  further input.
To examine U.S. legal restrictions that could affect U.S. agencies’ use of LRP,  we reviewed U.S. programs authorized in the 2008 Farm Bill, the Food for  Peace Act of 1961, the Foreign Assistance Act, and the 1954 Cargo Preference  Act, as amended, and appropriations for fiscal years 2002 to 2008. To better  understand agency interpretations of applicability of cargo preference, we  collected information from USAID, USDA, and DOT officials with regard to  U.S.-flag vessel availability, compliance thresholds, notwithstanding authority,  and application to international organizations.
The information on foreign law in this report does not reflect our independent  legal analysis but is based on interviews and secondary sources.
We conducted this performance audit from June 2008 to May 2009 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives.
section_title: Appendix II: Key Donor Initiatives That Support LRP
paragraphs: The following is a summary of some of the key donor food security  initiatives in recent years, many of which support LRP.  (See fig. 9.)
section_title: Appendix III: Delivery Time by Procurement Type in Ten Selected Countries
paragraphs: To evaluate the impact of local and regional procurement on delivery time,  we relied on lead time data provided by WFP for 10 countries in sub- Saharan Africa that we selected, all of which had received locally and  regionally procured food aid and food aid donated internationally. The  delivery time (also referred to as “lead time”) reflects the number of days  elapsed between the date of the purchase order and the date WFP took  possession of the food in the recipient country. The data cover the period  from 2004 to 2008.
As shown in figure 10, international in-kind donations took the longest  time, averaging 147 days. Local and regional purchases took on average 35  and 41 days, shortening the lead time from international donations by 112  days and 106 days, respectively.
section_title: Appendix IV: Illustrative Example of U.S. In-kind Food Aid Compared with LRP
paragraphs: Vegetable oil (fortified)
Vegetable oil (unfortified)
subsections: section_title: Issue call forward or
paragraphs: April 2009 Commodities may not be identical. For example, the protein level for U.S. wheat flour may be  different from the wheat flour from Kazakhstan. Soybean vegetable oil from the United States is  fortified, while cotton seed oil from Russia is not fortified. Yellow peas were provided from the United  States, and lentils were provided from Russia.
U.S. in-kind food aid was a USAID Single-Year Assistance Program funded through Title II of the  Food for Peace Act. LRP was funded through USAID’s 2008 supplemental appropriations.
section_title: Appendix V: Results of Interviews with WFP Procurement Officers
paragraphs: To identify factors that could limit the efficiency of LRP, steps WFP has  taken to improve the efficiency of LRP, and factors that limit or strengthen  the positive development impacts of LRP, we conducted semi-structured  interviews with 11 WFP procurement officers in Africa and Asia.
Figure 12 lists the factors that WFP procurement officers reported limit  the efficiency of LRP and steps they identified could improve and ensure  the efficiency of LRP.
Strengthening agricultural infrastructure includes actions such as  provision of raw materials or establishing bagging and processing  facilities.
Figure 13 lists factors that limit the positive development impacts LRP  could have and actions to improve or strengthen such impacts. The WFP  procurement officers discussed topics, some of which we had identified as  factors affecting food security in a previous report, namely, agricultural  productivity, rural development, and governance, as shown below.  Officers also discussed specific characteristics of WFP business practices.
Agricultural productivity. Several officers reported that small farmers’  lack of access to inputs and markets or the underdeveloped nature of  agricultural markets more generally limits their ability to create positive  development impacts with LRP. Up to seven officers suggested actions to  improve agricultural productivity. For example, the Thailand officer  suggested actions to support small farmers in Laos by providing training  on the corn soy production process. The Pakistan officer suggested  strengthening agricultural markets by establishing seed nurseries.
Rural development. Two officers indicated that poor rural development,  such as inadequate land holdings or inadequate access to information in  remote areas, limits their ability to create positive development impacts  with LRP. However, eight officers suggested actions to strengthen rural  development through, for example, providing equipment to dry grain or  educating communities on food fortification.
Governance. Several officers noted that due to the relatively small size of  LRPs, particularly those conducted through WFP’s P4P program, their  ability to result in positive development impacts are limited and ultimately  depends on whether local governments also have sound agricultural  policies in place that support LRP.
WFP business practices. Four officers mentioned that imperfect market  impact information is a challenge to creating positive development  impacts with LRP. Four officers discussed the importance of market  impact monitoring. Two officers also suggested changes to WFP business  practices, such as merging LRP with the P4P program.
section_title: Appendix VI: GAO Literature Review of Selected Studies on the Use of LRP
paragraphs: This appendix summarizes selected studies on LRP, including several  analytical studies conducted by WFP to assess its use of LRP in sub- Saharan Africa (see table 6). The studies describe the types of markets and  the trading environment in which LRP is conducted, as well as the impact  of LRP on local markets and the extent to which those markets are  integrated; the studies also provide an estimate of savings achieved  through LRP.  The first study in the table presents the types of questions  that should be addressed when undertaking LRP. The remaining studies  can be reviewed with these questions in mind.
The report proposes a number of questions that should be asked when making  decisions about LRP.
What kind of supply response will the LRP market have?
Can traders supply the demand without price increases on the local market?
Is the market integrated with other supply markets so traders have incentive to  import additional food into the market?
What is the local price relative to the import parity price (IPP)? Should both of  these prices include all costs?
Do local traders behave competitively? Can traders exercise market power by  raising prices so as to extract most of the gains from transfers?
What is the likelihood of supply disruptions or delays due to breach of contract,  insufficient storage capacity, supplier inability to deliver on contract terms,  government interference (such as export bans and currency controls), and  logistical bottleneck?
Study: Food Procurement in Developing Countries, World Food Program, Executive  Board, First Regular Session, Feb. 2006, Rome.
Report summarizes other WFP studies on LRP in Bolivia, Burkina Faso,  Ethiopia, Nepal, South Africa, Uganda, and Congo.
The vast majority of WFP operations is in response to emergencies and has  wide fluctuations in needs.
WFP’s food purchasing tends to be irregular and unpredictable, which seriously  limits its ability to contribute to market development.
WFP has not had success in procuring directly from farmers and farmer groups.  The case studies indicate that supporting farmers and farmer groups has mixed  results and may lead to higher prices paid, higher administrative costs, more  contracts, and greater risk of default.  In many low-income countries, national market intelligence systems are weak,  and reliable and timely data are not available.
Often, it is not the cost of the food, but the management costs associated with  local procurement in surplus-producing regions where there is little or no market  infrastructure that is prohibitive.   These management costs include monitoring and supporting the completion of  contracts, the costs and risks of contract default, and risk of inadequate food  quality.
Study: World Food Program Local and Regional Food Procurement-An Analytical  Review (Ethiopian Case Study), Final Report. Addis Ababa:  June 2005.
Year: 2001-2004
Country: Ethiopia
Commodity: Corn and wheat  In 2003 there would have been a cost savings of $78 per ton on locally  purchased wheat and corn.
Based on analysis in 1996-2004, 60-70 percent of the markets are integrated.
Producers receive 75 percent of retail price in Addis Ababa, leaving a 25  percent retail margin.
Ethiopia’s grain marketing system is constrained by lack of access to financial  resources, inadequate infrastructures, poor roads, inadequate access to market  information, storage facilities, lack of standards and grades, high transfer costs,  and nonfulfillment of delivery options.   Traders deal with small annual volume and do not hold grain in storage for  seasonal arbitrage.
Delivery of the product is a real challenge, particularly ensuring the quality of the  product delivered. Rejection of delivery for failure to fulfill quality standards is  frequent.
Since traders do not keep stocks on hand, contract default is a problem when  traders are unable to procure the proper amount or quality at the expected price.
Default occurs if traders get a better offer; there are problems with traders not  honoring their commitments.  Transport shortages and tariff increases hinder timely delivery.
Study: Local and Regional Food Procurement in Uganda an Analytical Review, A study  report prepared for the Economic Analysis and Development Policy Unit in the Strategy,  Policy and Program Support Division of the World Food Program, Serunkuuma and  Associates Consult, June 2005.
Year: 2001-2004
Country: Uganda
Commodity: Corn and beans In 2003, WFP spent $12 million less on corn and beans purchased from Uganda  than if it had imported these commodities.
While imports from the United States and South Africa may cost less at port,  added inland transportation costs made them more expensive than LRP. LRP  delivered food to beneficiaries in 3 months while international procurement  delivery took an average of 6 months.
Locally, in 2003, 7 of 8 markets in Uganda appeared integrated. Regionally, Uganda  markets were integrated with Tanzania markets but not with Kenya markets.
WFP contracts require higher quality than locally traded corn—high moisture  content and is subject to rot.
Poor post-harvest practices, storage facilities, and equipment such as dryers  and shellers affect quality of final product leading to high post-harvest losses  and increased costs to clean the grain.
Intensification of local purchase contributed to reduction in corn exports.
Supplies still come from a small number of companies or farmer groups,  suggesting high concentration and potential for monopolistic behavior.   Lack of sufficient storage capacity and access to bank loans without WFP  contracts are constraints to smaller traders. High cost of borrowing and  unavailability of long-term finance are additional constraints.
Many traders enter into contracts with WFP before they have stock, putting them  at a higher risk for contract default. This also adds pressure on markets because  large quantities are purchased in a short period of time, which may lead to  drastic price changes.
Study: Food Aid Procurement in South Africa: an Analytical Review of WFP Activities;  Nick Vink, Thulasizwe Mkhabela, Ferdie Meyer, and Johann Kirsten; April 2005.
Year: 2001-2004
Country: South Africa
Commodity: Corn
In June 2003, farmers received 53 percent of the retail value of corn meal.
During the period of analysis, WFP’s unit price for maize was above South  Africa’s average prices.   This difference in price may be due to the transportation differential, contract  delivery terms, and the exchange rate.   Traders charge a $5-$10 risk premium to account for the time that elapses from  submitting a tender to receiving an award.
While WFP has been active in buying corn in the South African market, WFP  purchases represent a very small portion of the market—1/5 to 3/4 of a  percentage point of the gross value of South African agricultural production.
South Africa has a functioning futures commodity market called the South  African Futures exchange (SAFEX), which was established after deregulation  when the corn board was abolished.
Purchase prices are determined by comparing SAFEX prices to the  IPP, which  is the representative price for purchases on the world market.
Study: Democratic Republic of Congo Food Procurement Assessment Mission Euateur,  Katanga, Orientale, North Kivu and South Kivu Provinces; World Food Program; May  2007.
Years: 2001-2006
Country: Democratic Republic of Congo
Commodity: Corn and pulses There is no continuity in WFP purchases; quantities vary significantly from year  to year.
There are zones of food insecurity alongside zones considered food-secure.  Factors hampering production and purchases include the following:
Poor road and rail infrastructure;
Excessive official and unofficial (illegal) duties and taxes;
Disruptions to the trading system, which are often/mainly political, such as  Lack of permanent market buyers;  Lack of storage, drying, cleaning, milling, and bagging facilities;  Lack of access to seeds and fertilizers;  Lack of substantial storage or stocks available;   Limited facilities for cleaning, drying, and milling;
Quality problems, including moisture content, infestation, and losses due to  poor storage.
Study: Impact of WFP’s Local and Regional Food Purchases (A Study Case on Burkina  Faso) Final Report Submitted by Institut de Sahel Comite’ Permanent Inter-Etats de Lutte  Contre La Secheresse dans le Sahel, Mali.
Year: 2002-2005
Country: Burkina Faso
Commodity: Corn, corn meal, sorghum, and cowpea
During the period it took an average of 34 days between the invitation for tender  In 2004, prices paid for corn by WFP were lower than the IPP in 6 of 7 LRP  operations.   The price differential ranged from 43 to 72 percent of prices paid by WFP.   and the signing and implementation of the contract.
Suppliers stated that there were delays in WFP payments.
WFP purchases did not change the level of integration between markets.
Market participants indicated that WFP purchases resulted in price increases of  between 5 to 10 percent.
Many organizations intervene in local markets unexpectedly and without prior  consultation, simultaneously purchasing large quantities. Such activity  contributes to price increases and should be harmonized.
WFP contracts were concentrated to a limited number of suppliers. There were  15 suppliers, and 3 of them received more than half the payments made.
Other organizations enter the market with food aid purchases, contributing to  price increases. Donors should coordinate.
Study: Local and Regional Food Aid Procurement: An Assessment of Experience in  Africa and Elements of Good Donor Practice, David Tschirley, and Anne Marie Del  Castillo, Michigan State University International Development Working Paper No. 91,  2007.
Year: 2001-2005
Country: Kenya, Uganda, Zambia and Mozambique
Commodity: Corn and corn/soy blend The report cites an analysis by Clay, Riley, and Urey to compare estimated  costs of food aid from the United States with LRP in three countries.   LRP was 66 percent less expensive than in-kind donations for all commodities.  LRP cost 61 percent less for corn and 52 percent less for corn soy blend.
Compared local prices to import parity prices, 2001-2005.
Local purchase saved the United States nearly $68 million.   These savings would allow 75 percent more food aid to be provided.
The results were mixed. WFP paid a 10 percent premium in Kenya from 2001 to  2005, an 18 percent premium in Uganda from 2001 to 2004, and the local  market price from 2000 to 2005.  In Zambia, WFP paid the local price over the  period. Some evidence shows that LRP contributed to price surges in Uganda in  2003 and Niger and Ethiopia in 2005 to 2006.
Contract default is a major risk of LRP.
Limited pool of qualified traders with certified financial capacity, access to  physical infrastructure, and trading experience.
Most sales remain concentrated in a very small number of trading companies  and larger farmers.
WFP instituted a program of direct procurement from small farmers.
Assessments suggest that this approach is expensive, time-consuming, and  unreliable, and has little developmental impact.   Food quality is a risk of LRP. In Kenya, at least two documented cases of  aflatoxin poisoning from infected corn resulted in dozens of deaths.
Study: The United States’ International Food Assistance Programs: Issues and Options  for the 2007 Farm Bill, Christopher B. Barrett, February 2007.
Year: 2007
Country: United States
Commodity: Not applicable; general discussion of U.S. food aid
On average, LRP is 66 percent cheaper across all commodities than direct  purchase.   36 percent of U.S. food aid shipments to Ethiopia, Kenya, and Tanzania from  1998 to 2002 cost less than comparable local market purchases.   The study mentions timeliness of LRP versus direct shipment.
Local and regional purchases are not always simple, available, or effective  everywhere.
Some markets are too thin to absorb a significant increase in commercial food  demand without driving up prices.
Quality control, transport capacity, and trader market power limit donors’  procurement options.
Even taking freight and administrative costs into account, it is sometimes  cheaper to import food aid from the United States.   Legislative restrictions on food aid program result in added costs, delayed  deliveries, and reduced cultural appropriateness of commodities.   These costs are attributable to restrictions placed on food aid with respect to  shipping, bagging, and processing.   These restrictions include the tying of food aid to domestic procurement of  commodities, minimum volumes, minimum nonemergency volumes, value- added minimum, bagging minimum, cargo preference, restrictions on use of  ports, monetization requirements, and overhead reimbursement for operational  agencies.
Study: The Development Effectiveness of Food Aid: Does Tying Matter? Organization for  Economic Cooperation and Development, 2006
Year: 2002-2003
Country: Various donating and recipient countries
Commodity: Wheat, corn, cornsoy blend, vegetable oil, and rice
Analysis of food aid transactions by a representative group of 16 donors and 15  selected recipient countries.    The study looked at resource transfer efficiency (RTE) by comparing the cost of  direct aid transfers with the hypothetical cost of an alternative commercial  transaction (ACT).   The actual cost of direct transfers was on average 50 percent more than local  food purchases and 33 percent more than food procured in third countries. The  range of difference in costs varies widely among donors, commodities, mode of  transport and destinations—from 10 percent below to 55 percent higher than the  cost of alternative commercial imports.
While LRP generally cost the least, its cost-effectiveness varied widely. LRP in  Africa— Ethiopia, Malawi, Zambia, and Kenya—appeared to cost the least. LRP  in India, Jordan and Mauritania cost more than LRP in Africa. The highest costs  for LPR were in Haiti.
Comparison includes international transport costs to the same destination,  The ACT equates to the import parity price (IPP); therefore, local purchase  would not be efficient if the overall cost exceeded the IPP.    Therefore it would be expected that LRP costs would be less than IPP or most  cost-efficient.   LRP is the least-cost alternative.   For purpose of study treated all direct transfers of food aid as de facto “tied.”    overland transport cost to the point of border entry for land locked countries.
Comparison does not include internal transport from port or borders to point of  distribution, handling, and/or internal storage.
Calculations do not account for transaction costs of organizing and importing  food products.
section_title: Appendix VII: Comments from the U.S. Agency for International Development
paragraphs: The following are GAO’s comments on the U.S. Agency for International  Development letter dated May 15, 2009.  1.  Our recommendation to systematically collect evidence on LRP’s  adherence to quality standards and product specifications does not  preclude such collaboration as part of efforts, consistent with our 2007  recommendation, to develop a coordinated interagency mechanism to  update food aid specifications and products to improve food quality  and nutritional standards.  We agree with USAID that including actions  to collect evidence on LRP’s adherence to quality will make ongoing  efforts to improve food quality more efficient.  2.  In providing information on agencies’ interpretations of cargo  preference requirements as they pertain to LRP, we sought to identify  areas of ambiguity where agencies disagree on the applicability of  these requirements.  We did not attempt to adjudicate the differences  in interpretation among the agencies involved.   However, in technical  comments to a draft of this report, DOT changed its position regarding  thresholds and now concurs with USAID’s interpretation, thus  eliminating this issue as an area of ambiguity.  This is reflected in the  final report. 3.  See comment 2.    4.  We modified text to reflect USAID’S agreement with DOT’s definition  of vessel type.
section_title: Appendix VIII: Comments from the U.S. Department of Agriculture
paragraphs: The following are GAO’s comments on the U.S. Department of  Agriculture’s letter dated May 15, 2009.  1.  To obtain an overall picture of costs, we worked to ensure that we had  the largest number of procurement transactions, over the longest  possible time period for which we had data so some aggregation was  required.   We acknowledge the variations in the cost differentials in  figure 4 that provides the range of differences between USAID and  WFP local procurement in sub-Saharan Africa.  Our analysis  demonstrated consistent results across 8 years of data. For example,  95 percent of local purchases in sub-Saharan Africa cost less than  USAID commodities to the same country procured at around the same  time.  We did not differentiate the prepositioned commodities in the  cost comparison, but they were included in our data.  However, they  represented a small part of U.S. food aid during the period of time that  we examined.   2.  The issue of quality is one that many WFP procurement officers and   others we interviewed identified as a challenge for LRP.   However, the  lack of systematically collected data makes it difficult to objectively  analyze how LRPs adhere to quality standards and product  specifications and whether LRP differs in quality from U.S.  commodities.  Our first recommendation addresses the issue of quality,  which would also include improving nutritional standards.  3.  We added information to clarify MARAD’s role as the determining  agency of “fair and reasonable rates” but note that DOT interprets its  role as the sole agency responsible for determining U.S.-flag  availability.   4.  While we recognize that there is no widespread evidence of LRP  causing adverse impacts in markets, we believe that there is a  preponderance of information to show that in many developing  countries there is a lack of reliable market information.  Widespread  evidence of any impacts, adverse or otherwise, will not become  available in many countries until market intelligence systems are made  more reliable and widely used. Therefore, it is important to focus on  the potential risk for adverse impacts on markets in areas where LRP  is practiced.
section_title: Appendix IX: Comments from the U.S. Department of Transportation
paragraphs: The following are GAO’s comments on the U.S. Department of  Transportation’s letter received May 22, 2009.  1.  Although further analysis of LRP practices would be useful, we believe  that the results of our analysis demonstrate consistent results over 8  years of data, with 95 percent of local purchases in sub-Saharan Africa  costing less than USAID commodities to the same country around the  same time. Although we did not differentiate prepositioned  commodities in our cost comparison, they were included in our data  analysis.  However, it is important to note that prepositioned  commodities were a very small part of U.S. food aid during this time  period.  Nonetheless, we recognize that prepositioning can affect  delivery time, which was the case in the Tajikistan example where  prepositioned food from Jacintoport shortened delivery time.   Additionally, DOT questioned an illustrative example we used in this  report on potential cost savings in purchasing wheat in Ethiopia  because it believed the country had severe shortage in 2002.  Although  there may be limited capacity for local procurement, disasters are  often localized, and there may be surplus regions within the country or  in nearby countries.  This is precisely a rationale for LRP.  In fact, WFP  purchased 74,000 metric tons of wheat in Ethiopia locally in the last  quarter of 2002, and the average price was lower than wheat procured  from the United States.  2.  Ocean shipping is one of the many stages in food aid procurement and  delivery. While DOT found that the ocean transit time from a  prepositioning site averaged only 24.5 days, trans-Atlantic shipping,  which account for majority of U.S. food aid to sub-Saharan Africa  takes longer. Therefore, the ocean transit time DOT provided in its  letter does not represent the typical U.S. food aid delivery time. In  addition, other stages of food procurement and delivery add time to  the entire process. In order to do a fair comparison of delivery time  among various procurement types and to ensure comparability in the  procurement and delivery stages, we identified countries that had  received significant amount of LRP and international food aid from the  WFP.   Although the breakdown of the different elements in the  delivery time might be useful (which we could not do from the data  provided to us by WFP), it does not change our finding that LRP to  these countries took less time than international food aid.  3.  Although DOT does implement cargo preference statutes through  regulation, the regulations often contain ambiguities that have required  resolution through a MOU.  Our report describes new ambiguities that  could arise in applying cargo preference in the context of regional  procurement.  We believe that these ambiguities need to be resolved— and can be resolved—by updating the MOU.  Further, there is no  requirement that establishing regulation precede an MOU nor does a  MOU preclude the issuance of new regulation.  The updated MOU,  establishing consensus among the relevant agencies, could be reflected  in any future regulation that DOT may draft and get finalized through  the rule-making process.
section_title: Appendix X: Comments from the World Food Program
paragraphs: The following are GAO’s comments on the World Food Program’s letter  dated May 15, 2009.  1.  The issue of quality is one area that many WFP procurement officers  we spoke with mentioned as a challenge in local and regional  procurement. In addition, quality is an area of concern expressed by  organizations such as the U.S. Wheat Associates. However, the lack of  systematically collected data makes it difficult to objectively analyze  how LRPs adhere to quality standards and product specifications.  Our  first recommendation addresses this issue.     2.  In our report, we explain several of the efforts that WFP and others  have taken to significantly improve the availability and reliability of  market intelligence in developing countries.  Yet, as WFP’s own  documents state, in many low-income countries national market  intelligence systems are weak and unreliable, and timely data are not  always available, which may limit the effectiveness of WFP’s market  intelligence efforts.  3.  We modified text, adding language in the report to explain that the use  of import parity prices to determine when to switch from local  procurement to regional or international procurement may be  constrained. Specifically, in some countries, commodity prices may be  so much lower than import parity prices that it would take substantial  price increases to reach the import parity price threshold.  4.  We recognize that WFP’s market position in many countries is very  small (less than 1 percent in Burkina Faso, for example) and we state  that in the report, noting that this limits the effects that LRP can have  on prices. Also, recognizing that it is difficult to demonstrate an  absolutely causal relationship between a discrete WFP local purchase  and a discrete price increase, we note that LRP, when combined with  other market interventions, unreliable market intelligence, poorly  functioning and unintegrated markets, and other factors, has the  potential to cause price hikes and reduce consumers’ access to food.  Therefore, we recommend improving the reliability and utility of  market intelligence in order to guard against the risks associated with  a lack of reliable market information.
section_title: Appendix XI: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the person named above, Phillip Thomas (Assistant  Director), Sada Aksartova, Kathryn Bernet, Carol Bray, Ming Chen, Debbie  Chung, Lynn Cothern, Martin De Alteriis, Mark Dowling, Etana Finkler,  Katrina Greaves, Kendall Helm, Joy Labez, Andrea Miller, Julia A. Roberts,  Jerry Sandau, and David Schneider made key contributions to this report.
section_title: Related GAO Products
paragraphs: International Food Security: Insufficient Efforts by Host Governments  and Donors Threaten Progress to Halve Hunger in Sub-Saharan Africa  by 2015. GAO-08-680. Washington, D.C.: May 29, 2008.
Foreign Assistance: Various Challenges Limit the Efficiency and  Effectiveness of U.S. Food Aid. GAO-07-905T. Washington, D.C.: May 24,  2007.
Foreign Assistance: Various Challenges Impede the Efficiency and  Effectiveness of U.S. Food Aid. GAO-07-560. Washington, D.C.: Apr. 13,  2007.
Foreign Assistance: U.S. Agencies Face Challenges to Improving the  Efficiency and Effectiveness of Food Aid. GAO-07-616T. Washington,  D.C.: Mar. 21, 2007.
Darfur Crisis: Progress in Aid and Peace Monitoring Threatened by  Ongoing Violence and Operational Challenges. GAO-07-9. Washington,  D.C.: Nov. 9, 2006.
Foreign Assistance: Lack of Strategic Focus and Obstacles to  Agricultural Recovery Threaten Afghanistan’s Stability. GAO-03-607.  Washington, D.C.: June 30, 2003.
Foreign Assistance: Sustained Efforts Needed to Help Southern Africa  Recover from Food Crisis. GAO-03-644. Washington, D.C.: June 25, 2003.
Food Aid: Experience of U.S. Programs Suggest Opportunities for  Improvement. GAO-02-801T. Washington, D.C.: June 4, 2002.
Foreign Assistance: Global Food for Education Initiative Faces  Challenges for Successful Implementation. GAO-02-328. Washington, D.C.:  Feb. 28, 2002.
Foreign Assistance: U.S. Food Aid Program to Russia Had Weak Internal  Controls. GAO/NSIAD/AIMD-00-329. Washington, D.C.: Sept. 29, 2000.
Foreign Assistance: U.S. Bilateral Food Assistance to North Korea Had  Mixed Results. GAO/NSIAD-00-175. Washington, D.C.: June 15, 2000.
Foreign Assistance: Donation of U.S. Planting Seed to Russia in 1999  Had Weaknesses. GAO/NSIAD-00-91. Washington, D.C.: Mar. 9, 2000.
Foreign Assistance: North Korea Restricts Food Aid Monitoring.  GAO/NSIAD-00-35. Washington, D.C.: Oct. 8, 1999.
Food Security: Factors That Could Affect Progress toward Meeting World  Food Summit Goals. GAO/NSIAD-99-15. Washington, D.C.: Mar. 22, 1999.
Food Security: Preparations for the 1996 World Food Summit.  GAO/NSIAD-97-44. Washington, D.C.: Nov. 7, 1996.