Foreign Assistance: Various Challenges Impede the Efficiency and Effectiveness of U.S. Food Aid
Released: 2007-04-13T00:00:00

Letter

Background

Food aid comprises all food-supported interventions by foreign donors to individuals or institutions within a country. It has helped save millions of lives and improve the nutritional status of the most vulnerable groups, including women and children, in developing countries. Food aid is one element of a broader global strategy to enhance food security by reducing poverty and improving the availability of, access to, and use of food in low- income, less developed countries. Food aid is utilized as both a humanitarian response to address acute hunger in emergencies and a development-focused response to address chronic hunger. Large-scale conflicts, poverty, weather calamities, and severe health-related problems are among the underlying causes of both acute and chronic hunger.

Countries Provide Food Aid through In-kind or Cash Donations, with the United States the Largest Donor

Countries provide food aid through either in-kind donations or cash donations. In-kind food aid is food procured and delivered to vulnerable populations, while cash donations are given to implementing organizations to purchase food in local, regional, or global markets. U.S. food aid programs are all in-kind, and no cash donations are allowed under current legislation. However, the administration has recently proposed legislation to allow up to 25 percent of appropriated food aid funds to purchase commodities in locations closer to where they are needed. Other food aid donors have also recently moved from providing primarily in-kind aid to more or all cash donations for local procurement. Despite ongoing debates as to which form of assistance is more effective and efficient, the largest international food aid organization, the UN WFP, continues to accept both. The United States is both the largest overall and in-kind provider of food aid to WFP, supplying about 43 percent of WFP’s total contributions in 2006 (see fig. 1) and 70 percent of WFP’s in-kind contributions in 2005. Other major donors of in-kind food aid in 2005 included China, the Republic of Korea, Japan, and Canada.

Most U.S. Food Aid Goes to Africa

In fiscal year 2006, the United States delivered food aid through its largest program to over 50 countries, with about 80 percent of its funding allocations for in-kind food donations going to Africa, 12 percent to Asia and the Near East, 7 percent to Latin America, and 1 percent to Eurasia (see fig. 2).

Of the 80 percent of the food aid funding going to Africa, 30 percent went to Sudan, 27 percent to the Horn of Africa, 18 percent to southern Africa, 14 percent to West Africa, and 11 percent to Central Africa.

Programs Use Assessments to Determine Emergency and Nonemergency Food Aid Needs

Food aid is used for emergency and nonemergency purposes. Program design and implementation decisions for both emergency and nonemergency situations are informed by assessments that help determine the nature and scale of humanitarian crises and the type and scope of assistance needed. These assessments inform the selection of geographic areas to be targeted as well as criteria for the selection of intended recipients.

The majority of U.S. emergency food aid resources are distributed to affected communities and households that require food assistance to survive an emergency and begin the process of recovery. Emergency needs assessments include analyses of various factors, among them the effects of the crisis on vulnerable populations, strategies used by these populations to deal with the crisis, and the outcome in terms of food insecurity. They are usually carried out as a joint effort by several organizations, including FAO, WFP, and NGOs, in response to a request from the government of an affected country. In addition to collecting primary data, assessors may use information from other sources, such as population estimates and agricultural data from recipient governments. Assessors may also rely on pre-crisis vulnerability assessments and information generated by early warning systems, such as the USAID- funded Famine Early Warning System Network and the FAO-funded Global International Early Warning System.

In nonemergency situations, U.S. commodities may be provided to address chronic hunger. In addition, U.S. law allows U.S. commodities to be sold— i.e., monetized—in developing countries to generate cash for development activities that address causes and symptoms of chronic food insecurity. For example, food may be provided in exchange for labor in poor communities to build agricultural infrastructure, or cash from monetization may be used to provide basic health services, nutrition education, and agricultural training. Assessments conducted during nonemergency situations help to identify vulnerable populations and the need for food aid interventions.

Nonemergency Funding for U.S. Food Aid Has Declined

Over the last several years, funding for nonemergency U.S. food aid programs has declined. For example, in fiscal year 2001, the United States directed approximately $1.2 billion of funding for international food aid programs to nonemergencies. In contrast, in fiscal year 2006, the United States directed approximately $698 million for international food aid programs to nonemergencies (see fig. 3).

U.S. Food Aid Is Delivered through Multiple Programs with Multiple Mandates

U.S. food aid is funded under four program authorities and delivered through six programs administered by USAID and USDA; the programs serve a range of objectives, including humanitarian goals, economic assistance, foreign policy, market development, and international trade. (For a description of each of these programs, see app. II.) The largest program, P.L. 480 Title II, is managed by USAID and represents approximately 74 percent of total in-kind food aid allocations over the past 4 years, mostly to fund emergency programs (see fig. 4). In addition, P.L. 480, as amended, authorizes USAID to preposition food aid both domestically and abroad with a cap on storage expenses for foreign prepositioning sites of $2 million per fiscal year.

U.S. food aid programs also have multiple legislative and regulatory mandates that affect their operations. One mandate that governs U.S. food aid transportation is cargo preference, which is designed to support a U.S.- flag commercial fleet for national defense purposes. Cargo preference requires that 75 percent of the gross tonnage of all government-generated cargo be transported on U.S.-flag vessels. A second transportation mandate, known as the Great Lakes Set-Aside, requires that up to 25 percent of Title II bagged food aid tonnage be allocated to Great Lakes ports each month. Other mandates require that a minimum of 2.5 million metric tons of food aid be provided through Title II programs and that of this amount, a subminimum of 1.825 million metric tons be provided for nonemergency programs. (For a summary of congressional mandates for P.L. 480, see app. II.)

Multiple U.S. Government Agencies and Stakeholders Coordinate U.S. Food Aid Programs through Various Forums

Multiple U.S. government agencies coordinate U.S. food aid programs. USDA and USAID share in the administration of all U.S. food aid programs. USDA’s KCCO manages the product standards, purchase, and delivery of all food aid commodities, while other branches of USDA—such as the Animal and Plant Health Inspection Service (APHIS) and the Federal Grain Inspection Service (FGIS)—conduct quality reviews and certification of food aid products. DOT/MARAD is also involved in supporting the ocean transport of food aid on U.S. vessels. Finally, the U.S. Department of State works to advance U.S. food aid as part of its international humanitarian and multilateral assistance initiatives.

U.S. food aid programs also involve many stakeholders, including donors, implementing organizations (also known as cooperating sponsors), agricultural commodity groups, and the maritime industry. U.S. agencies channel U.S. food aid contributions through organizations such as WFP, NGOs, and recipient country governments that serve as implementing partners. The level of contributions that each implementing partner receives varies for each food aid program. For example, between 2001 and 2006, WFP received the majority of U.S. Title II emergency food aid resources—approximately 78 percent—while NGOs received 94 percent of nonemergency Title II resources. Recipient country governments received considerable amounts of funding for USDA food aid programs. For example, the governments received 43 percent of funding for the Food for Progress program, while NGOs received 55 percent.

Stakeholders use various forums to discuss and coordinate U.S. food aid programs. The principal interagency forums are the Food Assistance Policy Council and the Food Aid Consultative Group. Led by USDA’s Under Secretary for Farm and Foreign Agricultural Services, the Food Assistance Policy Council includes representatives from USDA, USAID, and other key government agencies. The council oversees the Bill Emerson Humanitarian Trust, an emergency food reserve. The Food Aid Consultative Group, which includes various working groups, is led by USAID’s Office of Food for Peace. As stipulated by law, the Food Aid Consultative Group includes representatives from USAID, USDA, NGOs, and agricultural commodity groups. It meets at least twice a year and addresses issues concerning the effectiveness of the regulations and procedures that govern food assistance programs.

Multiple Challenges Hinder the Efficiency of U.S. Food Aid Programs

Multiple challenges reduce the efficiency of U.S. food aid programs, including logistical constraints that impede food aid delivery and reduce the amount and quality of food provided as well as inefficiencies inherent in the current practice of using food aid to generate cash resources to fund development projects. While in some cases agencies have tried to expedite food aid delivery, most food aid program expenditures are for logistics, and the delivery of food from vendor to village is generally too time- consuming to be responsive in emergencies. Factors that increase logistical costs and time frames include uncertain funding and inadequate planning, ocean transportation contracting practices that disproportionately increase risks for ocean carriers (who then factor those risks into freight rates), legal requirements, and inadequate coordination to systematically track and respond to food delivery problems, such as food spoilage or contamination. While U.S. agencies are pursuing initiatives to improve food aid logistics—such as prepositioning food commodities—their long-term cost-effectiveness has not yet been measured. In addition, the current practice of selling commodities as a means to generate resources for development projects—monetization—is an inherently inefficient use of food aid. Monetization entails not only the costs of procuring, shipping, and handling food, but also the costs of marketing and selling it in recipient countries. Furthermore, the time and expertise needed to market and sell food abroad requires NGOs to divert resources away from their core missions. In addition, U.S. agencies do not collect or maintain an electronic database on monetization revenues and the lack of such data impedes the agencies’ ability to fully monitor the degree to which revenues can cover the costs related to monetization.

Food Aid Procurement and Transportation Are Costly and Time-Consuming

Transportation costs represent a significant share of food aid expenditures. For the largest U.S. food aid program (Title II), approximately 65 percent of expenditures are for transportation to the U.S. port for export, ocean transportation, in-country delivery, associated cargo handling costs, and administration. According to USAID, these noncommodity expenditures have been rising in part due to the increasing number of emergencies and the expensive nature of logistics in such situations. For all food aid programs, rising transportation and business costs have contributed to a 52 percent decline in average tonnage delivered over the last 5 years. To examine procurement costs (expenditures on commodities and ocean transportation) for all U.S. food aid programs, we obtained KCCO procurement data for fiscal years 2002 through 2006. KCCO data also suggest that ocean transportation has been accounting for a larger share of procurement costs, with average freight rates rising from $123 per metric ton in fiscal year 2002 to $171 per metric ton in fiscal year 2006 (see fig. 5). Further, U.S. food aid ocean transportation costs are relatively expensive compared with those of some other donors. WFP transports both U.S. and non-U.S. food aid worldwide at reported ocean freight costs averaging around $100 per metric ton— representing just over 20 percent of its total procurement costs. At current U.S. food aid budget levels, every $10 per metric ton reduction in freight rates could feed almost 850,000 more people during an average hungry season.

Delivering U.S. food aid from vendor to village is also a time-consuming task, requiring on average 4 to 6 months. Food aid purchasing processes and sample time frames are illustrated in figure 6. While KCCO purchases food aid on a monthly basis, it allows implementing partner orders to accumulate for 1 month prior to purchase in order to buy in scale. KCCO then purchases the commodities and receives transportation offers leading to awards of transportation contracts over the following month. Commodity vendors bag the food and ship it to a U.S. port for export during the next 1 to 2 months. After an additional 40 to 50 days for ocean transportation to Africa, for example, the food arrives at an overseas port, where it is trucked or railroaded to the final distribution location over the next few weeks. While agencies have in some cases tried to expedite food aid delivery, the entire logistics process often lacks the timeliness required to meet humanitarian needs in emergencies and may at times result in food spoilage. Additionally, the largest tonnage of U.S. food aid is purchased during August and September. Average tonnage purchased during the fourth quarter of the last 5 fiscal years has exceeded that purchased during the second and third quarters by more than 40 percent. Given a 6-month delivery window, these food commodities do not arrive in country in most cases until the end of the peak hungry season (from October through January in southern Africa, for example).

Various Factors Cause Inefficiencies in Food Aid Logistics

Food aid logistics are costly and time-consuming for a variety of reasons. First, uncertain funding processes for emergencies can result in bunching of food aid purchases, which increases food and transportation costs and lengthens delivery time frames. Many experts, officials, and stakeholders emphasized the need for improved logistical planning. Second, ocean transportation contracting practices—such as freight and payment terms, claims processes, and time penalties—further increase ocean freight rates and contribute to delivery delays. Third, legal requirements such as cargo preference can increase delivery costs. Although DOT reimburses food aid agencies for certain transportation expenditures, the sufficiency of reimbursement levels varies and officials disagree on whether the levels are sufficient to cover the additional costs of such requirements. Fourth, when food delivery problems arise, such as food spoilage or contamination, U.S. agencies and stakeholders lack adequately coordinated mechanisms to systematically track and respond to complaints.

Funding and Planning Processes Increase Delivery Costs and Lengthen Time Frames

Uncertain funding processes, combined with reactive and insufficiently planned procurement, increase food aid delivery costs and time frames. Food aid emergencies are increasingly common and now account for 70 percent of USAID program expenditures. To respond to sudden-onset emergencies—such as Afghanistan in 2002; Iraq in 2003; Sudan, Eritrea, and Ethiopia in 2005; and Sudan and the Horn of Africa in 2006—U.S. agencies largely rely on supplemental appropriations and the Bill Emerson Humanitarian Trust (BEHT) to augment annual appropriations by up to a quarter of their budget. Figure 7, for example, illustrates that USAID supplemental appropriations and other funding in addition to its annual appropriations have ranged from $270 million in fiscal year 2002 and $350 million in fiscal year 2006 to over $600 million annually in fiscal years 2003 and 2005. Agency officials and implementing partners told us that the uncertainty of whether, when, and at what levels supplemental appropriations would be forthcoming hampers their ability to plan both emergency and nonemergency food aid programs on a consistent, long- term basis and to purchase food at the best price. Although USAID and USDA instituted multiyear planning approaches in recent years, uncertain supplemental funding has caused them to adjust or redirect funds from prior commitments, according to agency officials.

Agencies and implementing organizations also face uncertainty about the availability of BEHT funds. As of January 2007, BEHT held about $107.2 million in cash and around 915,350 metric tons of wheat valued at $133.9 million—a grain balance that could support two major emergencies based on an existing authority to release up to 500,000 metric tons per fiscal year and another 500,000 of commodities that could have been, but were not, released from previous fiscal years. Although the Secretary of Agriculture and the USAID Administrator have agreed that the $341 million combined value of commodity and cash currently held in BEHT is more than adequate to cover expected usage over the current authorization period, the authorization is scheduled to expire on September 30, 2007. Resources have been drawn from BEHT on 12 occasions since 1984 (see fig. 8). For example, in fiscal year 2005, $377 million from the trust was used to procure 700,000 metric tons of commodities for Ethiopia, Eritrea, and Sudan. However, experts and stakeholders with whom we met noted that the trust lacks an effective replenishment mechanism—withdrawals from BEHT must be reimbursed by the procuring agency or by direct appropriations for reimbursement, and legislation establishing BEHT capped the annual amount of reimbursement from P.L. 480 at $20 million.

Inadequately planned food and transportation procurement reflects the uncertainty of food aid funding. As previously discussed, KCCO purchases the largest share of food aid tonnage during the last quarter of each fiscal year. This bunching of procurement occurs in part because USDA requires 6 months to approve programs and/or because funds for both USDA and USAID programs may not be received until the middle of a fiscal year (after OMB has approved budget apportionments for the agencies) or through a supplemental appropriation. USAID officials stated that they have reduced procurement bunching through improved cash flow management. Although USAID has had more stable monthly purchases in fiscal years 2004 and 2005, total food aid procurement has not been consistent enough to avoid the higher prices associated with bunching. Higher food and transportation prices result from procurement bunching as suppliers try to smooth earnings by charging higher prices during their peak seasons and as food aid contracts must compete with seasonally high commercial demand. According to KCCO data for fiscal years 2002 through 2006, average commodity and transportation prices were each $12 to $14 per metric ton higher in the fourth quarter than in the first quarter of each year. Procurement bunching also stresses KCCO operations and can result in costly and time-consuming congestion for ports, railways, and trucking companies.

While agencies face challenges to improving procurement planning given the uncertain nature of supplemental funding in particular, stakeholders and experts emphasized the importance of such efforts. For example, 11 of the 14 ocean carriers we interviewed stated that reduced procurement bunching could greatly reduce transportation costs. When asked about bunching, agency officials, stakeholders, and experts suggested the following potential improvements: Improved communication and coordination. KCCO and WFP representatives suggested that USAID and USDA improve coordination of purchases to reduce bunching. KCCO has also established a web-based system for agencies and implementing organizations to enter up to several years’ worth of commodity requests. However, implementing organizations are currently only entering purchases for the next month. Additionally, since the statute that established the Food Aid Consultative Group does not specify including transportation stakeholders, DOT officials and ocean carriers strongly recommended establishing a formal mechanism for improving coordination and transportation planning.

Increased flexibility in procurement schedules. USAID expressed interest in an additional time slot each month for food aid purchases. Several ocean carriers expressed interest in shipping food according to cargo availability rather than through preset shipping windows that begin 4 weeks and 6 weeks after each monthly purchase. Although KCCO has established shipping windows to avoid port congestion, DOT representatives believe that carriers should be able to manage their own schedules within required delivery time frames.

Increased use of historical analysis. DOT representatives, experts, and stakeholders emphasized that USAID and USDA should increase their use of historical analysis and forecasting to improve procurement. USAID has examined historical trends to devise budget proposals prepared 2 years in advance, and it is now beginning to use this analysis to improve timing of procurement. However, neither USAID nor USDA has used historical analysis to establish more efficient transportation practices, such as the long-term agreements commonly used by DOD. For example, WFP is now using forecasting to improve purchasing patterns through advanced financing but is unable to use this financing for U.S. food aid programs due to legal and administrative constraints.

Ocean Transportation Contracting Practices Increase Delivery Costs and Contribute to Delays

Ocean transportation contracting practices are a second factor contributing to higher food aid costs. DOT officials, experts, and ocean carriers emphasized that commercial transportation contracts include shared risk between buyers, sellers, and ocean carriers. In food aid transportation contracts, risks are disproportionately placed on ocean carriers, discouraging participation and resulting in expensive freight rates. Examples of costly contracting practices include the following.

Noncommercial and nonstandardized freight terms. Food aid contracts often define freight terms differently than commercial contracts and place increased liability on ocean carriers. For example, many food aid contracts hold ocean carriers responsible for logistical problems such as improperly filled containers that may occur at the load port before they arrive. Many food aid contracts also hold ocean carriers responsible for logistical problems, such as truck delays or improper port documentation, that may occur at the discharge port after they arrive. One carrier reported financial losses of around $1 million for an instance where, to be able to deliver food aid to a port in Madagascar, the carrier was required to wait almost 60 days for a vessel already at port to finish unloading and to assist the government in repairing port discharging equipment. Further, several carriers reported that food aid contracts are not sufficiently standardized. Although USDA and USAID created a standard contract for nonbulk shipments, contracts for bulk shipments (which accounted for 63 percent of total food aid tonnage in fiscal year 2006) have not yet been standardized. To account for risks that are unknown or outside their control, carriers told us that they charge higher freight rates.

Impractical time requirements. Food aid contracts may include impractical time requirements, but agencies disagree on how frequently this occurs. Although USAID officials reviewed contract time requirements and described them as reasonable, they also indicated that transportation delays often result from poor carrier performance and the diminishing number of ocean carriers participating in food aid programs. Several implementing organizations also complained about inadequate carrier performance. WFP representatives, for example, provided several examples of ocean shipments in 2005 and 2006 that were more than 20 days late. While acknowledging that transportation delays occur, DOT officials indicated that these delays often result from problems at a discharge port on the vessel’s previous food aid voyage. DOT officials also stated that although contract time requirements are being made more reasonable, some contracts still include requirements that are impossible for carriers to meet. For example, one carrier complained about a contract that required the same delivery date for four different ports. When carriers do not meet time requirements, they must often pay costly penalties. Carriers reported that they review contracts in advance and, where time requirements are deemed implausible, factor the anticipated penalty into the freight rate. While agencies do not systematically collect data on time requirements and penalties associated with food aid contracts, DOT officials examined a subset of contracts from December 2005 to September 2006 and estimated that 13 percent of them included impractical time requirements. Assuming that the anticipated penalties specified in the contracts analyzed were included in freight rates, food aid costs may have increased by almost $2 million (monies that could have been used to provide food to more than 57,000 additional beneficiaries during a typical hungry season).

Lengthy claims processes. Lengthy processes for resolving transportation disputes discourage both carriers and implementing organizations from filing claims. According to KCCO officials, obtaining needed documentation for a claim can require several years, and disputed claims must be resolved by the Department of Justice. USAID’s Inspector General reported that inadequate and irregular review of claims by USAID and USDA has also contributed to delayed resolution. Currently, KCCO has over $6 million in open claims, some of which were filed prior to fiscal year 2001. For ocean carriers, the process is burdensome and encourages them to factor potential losses into freight rates rather than pursue claims. Incentives for most implementing organizations are even weaker given that monies recovered from claims reimburse the overall food aid budget rather than the organization that experienced the loss. According to KCCO and WFP officials, transportation claims are filed for less than 2 percent of cargo. However, several experts and implementing organizations suggested that actual losses are likely higher. In 2003, KCCO proposed a new administrative appeals process for ocean freight claims that would establish a hearing officer within USDA and a 285-day time frame. While DOT and some carriers agreed that a faster process was needed, DOT officials suggested that the claims review process should include hearing officers outside of USDA to ensure independent findings. To date, KCCO’s proposed process has not been implemented.

Lengthy payment time frames and burdensome administration. Payment of food aid contracts is slow and paperwork is insufficiently streamlined. When carriers are not paid for several months, they incur large interest costs that are factored into freight rates. While a new electronic payment system has enabled USDA to provide freight payments within a few weeks, several ocean carriers complained that USAID often requires 2 to 4 months to provide payment, though USAID officials dispute this claim. USAID officials also asserted that the electronic payment system used by USDA is too expensive, and they are considering other payment options. In addition to payment issues, a few carriers suggested that paperwork in general needs streamlining and modernization. The 2002 Farm Bill required both USDA and USAID to pursue streamlining initiatives that the agencies are implementing. KCCO officials indicated that they are updating food aid information technology systems (to be in place in fiscal year 2009).

In structured interviews, ocean carriers confirmed the cost impact of food aid transportation contracting practices. Figure 9 shows that depending upon the practice, between 9 (60 percent) and 14 (100 percent) of the carriers reported increased costs, with “liabilities outside the carriers’ control” as the most significant factor. To quantify the impact, two carriers estimated that nonstandardized freight terms increase costs by about 5 percent (about $8 per metric ton), while another carrier suggested that slow payment increases costs by about 10 percent (about $15 per metric ton). Figure 9 also shows that a large percentage of carriers strongly recommended actions to address contracting practices.

Legal requirements governing food aid procurement are a third factor that can increase delivery costs and time frames, with program impacts dependent on the sufficiency of associated reimbursements. In awarding contracts, KCCO must meet various legal requirements, such as cargo preference and the Great Lakes Set-Aside. Each requirement may result in higher commodity and freight costs. Cargo preference laws, for example, require 75 percent of food aid to be shipped on U.S.-flag carriers, which are generally more expensive than foreign-flag carriers by an amount known as the ocean freight differential (OFD). The total annual value of this cost differential between U.S.- and foreign-flag carriers averaged $134 million from fiscal years 2001 to 2005 (see fig. 10). DOT reimbursements have varied from $126 million in fiscal year 2002 to $153 million in fiscal year 2005. However, USAID officials expressed concern that the OFD calculations do not fully account for the costs of cargo preference or the uncertainties regarding its application. For example, several U.S. agency and port officials believe that cargo preference regulations discourage foreign-flag participation in the program due to the small percentage of cargo that can be shipped on foreign-flag vessels. OFD reimbursements do not include shipments for which a foreign-flag vessel has not submitted a bid or for the additional costs of shipping on U.S.-flag vessels that are older than 25 years (about half of the vessels). USAID officials estimated that for Title II programs, the actual cost of cargo preference in fiscal year 2003 exceeded the total OFD cost by about $50 million due to these factors. DOT officials estimated these additional costs for Title II at about $34 million in fiscal year 2004 and about $56 million in fiscal year 2005. Finally, USAID and DOT officials have not yet agreed on whether cargo preference applies to shipments from prepositioning sites.

U.S. agencies and stakeholders do not coordinate adequately to respond to food and delivery problems when they arise. USAID and USDA lack a shared, coordinated system to systematically track and respond to food quality complaints. Food quality concerns have been long-standing issues for both food aid agencies and the U.S. Congress. In 2003, for example, USAID’s Inspector General reported some Ethiopian warehouses in poor condition, with rodent droppings near torn bags of corn soy blend (CSB), rainwater seepage, pigeons flying into one warehouse, and holes in the roof of another. Implementing organizations we spoke with also frequently complained about receiving heavily infested and contaminated cargo. For example, in Durban, South Africa, in October 2006, we saw 1,925 metric tons of heavily infested cornmeal that arrived late in port after it had been erroneously shipped to the wrong countries first. As shown in figure 11, we found live and dead insects in bags of cornmeal, along with their nests. NGOs noted that some of the food had been in containers for as long as 78 days. This food could have fed over 37,000 people during a typical hungry season. When food arrives heavily infested, NGOs hire a surveyor to (1) determine how much is salvageable for human consumption or for use as animal feed and (2) destroy what is deemed unfit.

U.S. agencies and food aid stakeholders face a variety of coordination challenges in addressing such food delivery problems, including the following: KCCO, USDA and USAID have disparate quality complaint tracking mechanisms that monitor different levels of information. As a result, they are unable to determine the extent of and trends in food quality problems. In addition, because implementing organizations track food quality concerns differently, if at all, it is difficult for them to coordinate to share concerns with each other and with U.S. government agencies. For example, since WFP—which accounts for approximately 60 percent of all U.S. food aid shipments—independently handles its own claims, KCCO officials are unable to track the quality of food aid delivery programwide. Agencies and stakeholders have suggested that food quality tracking and coordination could be improved if USAID and USDA shared the same database and created an integrated food quality complaint reporting system.

Agency country offices are often unclear about their roles in tracking food quality, creating gaps in monitoring and reporting. For example, USAID found that some missions do not clearly understand their responsibilities to independently verify claims stemming from food spoilage and often rely on the implementing organization to research the circumstances surrounding losses. One USAID country office also noted that rather than tracking all food quality problems reported, it only recorded and tracked commodity losses for which an official claim had been filed. Further, in 2004, USAID’s Inspector General found that USAID country offices were not always adequately following up on commodity loss claims to ensure that they were reviewed and resolved in a timely manner. To improve food quality monitoring, agencies and stakeholders have suggested updating regulations to include separate guidance for complaints, as well as developing a secure Web site for all agencies and their country offices to use to track both complaints and claims.

When food quality issues arise, there is no clear and coordinated process to resolve problems. For example, WFP officials stated that they experienced coordination issues with USAID in 2003 when they received 4,200 metric tons of maize from USAID in Angola and found a large quantity to be wet and moldy. Although USAID officials maintain that their response was timely, WFP officials stated that USAID did not provide timely guidance on how WFP would be reimbursed for testing and destruction of cargo that was not fit for consumption and how USAID would replace the quantity lost. WFP officials claim that WFP lost over $640,000 in this case, including testing and destruction costs and the value of the commodity, and no replacement cargo was provided by USAID. Although KCCO established a hotline to provide assistance on food quality complaints, KCCO officials stated that it was discontinued because USDA and USAID officials wanted to receive complaints directly, rather than from KCCO. Agencies and stakeholders have suggested that providing a standard questionnaire to implementing organizations would ensure more consistent reporting on food quality issues.

While Agencies Have Taken Steps to Improve Efficiency, Related Long- term Costs and Benefits Have Not Yet Been Measured

To improve timeliness in food aid delivery, USAID has been prepositioning commodities in two locations and KCCO is implementing a new transportation bid process. Prepositioning enabled USAID to respond more rapidly to the 2004-2005 Asian tsunami emergency than would have been possible otherwise. KCCO’s bid process is also expected to reduce delivery time frames and ocean freight rates. However, the long-term cost- effectiveness of both initiatives has not yet been measured.

Prepositioning and Transportation Procurement Could Improve Timeliness

USAID has prepositioned food aid on a limited basis to improve timeliness in delivery. USAID has used warehouses in Lake Charles (Louisiana) since 2002 and Dubai (United Arab Emirates) since 2004 to stock commodities in preparation for food aid emergencies, and it is now adding a third site in Djibouti, East Africa. USAID has used prepositioned food to respond to recent emergencies in Lebanon, Somalia, and Southeast Asia, among other areas. Prepositioning is beneficial because it allows USAID to bypass lengthy procurement processes and to reduce transportation time frames. USAID officials told us that diverting food aid cargo to the site of an emergency before it reaches a prepositioning warehouse further reduces response time and eliminates storage costs. When the 2004 Asian tsunami struck, for example, USAID quickly provided 7,000 metric tons of food to victims by diverting the carrier at sea, before it reached the Dubai warehouse. According to USAID officials, prepositioning warehouses also offer the opportunity to improve logistics when USAID is able to begin the procurement process before an emergency occurs or if it is able to implement long-term agreements with ocean carriers for tonnage levels that are more certain.

Despite its potential for improved timeliness, USAID has not studied the long-term cost-effectiveness of prepositioning. Table 1 shows that over fiscal years 2005 and 2006, USAID purchased about 200,000 metric tons of processed food for prepositioning (around 3 percent of total food aid tonnage), diverted about 36,000 metric tons en route, and incurred contract costs of about $1.5 million for food that reached the warehouse (averaging around $10 per metric ton). In addition to contract costs, ocean carriers generally charge higher freight rates for prepositioned cargo to account for additional cargo loading or unloading, additional days at port, and additional risk of damage associated with cargo that has undergone extra handling. USAID officials have suggested that average freight rates for prepositioned cargo could be $20 per metric ton higher.

In addition to the costs of prepositioning, agencies face several challenges to their effective management of this program, including the following: Food aid experts and stakeholders expressed mixed views on the appropriateness of current prepositioning locations. Only 5 of the 14 ocean carriers we interviewed rated existing sites positively, and most indicated interest in alternative sites. KCCO officials and experts also expressed concern with the quality of the Lake Charles warehouse and the lack of ocean carriers providing service to that location. For example, many carriers must move cargo by truck from Lake Charles to Houston before shipping it. Relative to other ports, shipping out of the Lake Charles prepositioning site can add as much as 21 days for delivery.

Inadequate inventory management increases the risk of cargo infestation. KCCO and port officials suggested that USAID had not consistently shipped older cargo out of the warehouses first. USAID officials emphasized that inventory management has been improving but that limited monitoring and evaluation funds constrain their oversight capacity. For example, the current USAID official responsible for overseeing the Lake Charles prepositioning stock was able to visit the site only once in fiscal year 2006—at his own expense.

Agencies have had difficulties ensuring phytosanitary certification for prepositioned food because they do not know the country of final destination when they request phytosanitary certification from APHIS. According to USDA, since prepositioned food is not imported directly from a U.S. port, it requires either a U.S.-reissued phytosanitary certificate or a foreign-issued phytosanitary certificate for re-export. USDA officials told us they do not think it is appropriate to reissue these certificates— once a food aid shipment leaves the United States, they cannot make any statements about the phytosanitary status of the commodities, which may not meet the entry requirements of the destination country. USDA officials are also concerned that USAID will store commodities for a considerable period of time during which their status may change, thus making their certificate invalid. Although USDA and USAID officials are willing to allow foreign government officials to issue these certificates, U.S. inspection officials remain concerned that the foreign officials might not have adequate resources for inspection or be willing to certify these commodities. Without phytosanitary certificates, food aid shipments could be rejected, turned away, or destroyed by recipient country governments.

Certain regulations applicable to food aid create challenges for improving supply logistics. For example, food aid bags must include various markings reflecting contract information, when the commodity should be consumed, and whether the commodity is for sale or direct distribution. Marking requirements vary by country (some require markings in local languages), making it difficult for USAID to divert cargo. Also, due to the small quantity of total food aid tonnage (around 3 percent) allocated for the prepositioning program, USAID is unable to use the program to consistently purchase large quantities of food aid earlier in the fiscal year.

New Transportation Bid Process Could Reduce Procurement Time Frames

In addition to prepositioning, KCCO is implementing a new transportation bid process to reduce procurement time frames and increase competition between ocean carriers. In the prior two–step system, during a first procurement round, commodity vendors bid on contracts and ocean carriers indicated potential freight rates. Carriers provided actual rate bids during a second procurement round once the location of the commodity vendor had been determined. In the new one-step system, ocean carriers will bid at the same time as commodity vendors. KCCO expects the new system to cut 2 weeks from the procurement process and provide potential annual savings of around $25 million. KCCO expects this new bid process to also reduce cargo handling costs as cargo loading becomes more consolidated. When asked about the new system, several carriers reported uncertainty about its future impact and expressed concern that USDA’s testing of the system had not been sufficiently transparent.

Monetization Is an Inefficient Practice and the Lack of Electronic Data Impedes Agencies’ Ability to Monitor

Despite efforts to improve the efficiency of the delivery of U.S. food aid, the current use of food aid as a means to raise cash to fund development projects—a practice known as monetization—is inherently inefficient. Besides procurement and shipping costs, NGOs involved in monetization programs often incur additional costs for marketing food commodities in recipient countries. Furthermore, NGOs must maintain the expertise necessary to sell and market food aid abroad, which diverts resources from their core missions. The permissible use of monetization revenues has expanded beyond its original intent over the years. Although monetization was initially established to fund expenses related to direct food aid delivery for humanitarian purposes, it now funds projects ranging from rural financing to health services. Additionally, U.S. agencies do not collect data electronically, and the lack of such data impedes their ability to monitor the extent to which monetization revenues can cover the costs.

Monetizing Food to Fund Development Projects Is Inherently Inefficient

Monetizing food to fund development projects is an inherently inefficient use of food aid. Monetization requires food to be procured, shipped, and eventually sold—incurring costs at each step in the process. Furthermore, although bulk products comprise a larger proportion of monetized food aid, they have higher transportation costs relative to their market price in recipient countries than nonbulk (processed) products. For example, the ratio of transportation cost to market price for bulk wheat is more than three times that of vegetable oil.

In addition to shipping and handling costs, the process of generating cash from selling food is inefficient because it also requires NGOs to maintain the capacity necessary to sell and market food aid, diverting them from their core missions. In its 2001 report to Congress on Food Aid Monetization, USDA stated that the increasing involvement of NGOs in implementing food aid programs has required these organizations to seek expertise in all facets of commodity sales and cope with price, exchange rate, and other uncertainties, which has affected the way in which they operate. Noting that NGOs have differing missions and backgrounds and vary in size and scope of operations, the USDA report stated that some NGOs view the monetization process as “inconvenient but necessary to generate program development funds.” However, some NGOs would prefer to end their involvement in monetization. For example, CARE, one of the major NGOs engaged in the practice, decided to transition out of it by 2009 partly because “monetization requires intensive management and is fraught with risks. Procurement, shipping, commodity management, and commercial transactions are management intensive and costly. Experience has shown that these transactions are also fraught with legal and financial risks.” Some participants at the GAO roundtable on food aid stated that they recognize that monetization is not an efficient way to raise development money, but they pointed out that it is the only available resource to supplement food aid and enhance food security and other development projects.

Permissible Use of Monetization Revenues Has Expanded

The permissible use of monetization revenues and the minimum level of monetization allowed by the law have expanded, contributing to an increasing use of monetization as a means to generate cash for development projects. While monetization was initially established to pay for administrative costs related to direct food distribution, monetization revenues now fund development activities beyond food distribution that aim to improve food security. Examples include the following.

Title II monetization revenues can be used to implement income- generating, community development, health, nutrition, cooperative development, agricultural, and other development activities. Revenues can also be invested, and any interest earned on such investments may be used for the same purposes.

Food for Progress monetization revenues can be used for private sector agricultural development through improved agricultural techniques, marketing systems, farmer education, and cooperative development; enhanced food processing capacity; introduction of new foods; or agricultural-related business growth.

Monetization has also been used on rare occasions to achieve objectives that may be beyond the scope of direct food delivery. USAID officials informed us of a case in which monetization was intentionally used to help increase access to food for the urban poor in Zimbabwe. The program involved subsidized sales of sorghum meal in poor areas of a few selected cities. The main goal was not to generate revenue but to provide affordable staple foods to households in urban areas where conventional food aid distribution programs were not practical or appropriate.

The monetization rate for Title II nonemergency food aid has far exceeded the minimum requirement of 15 percent, reaching close to 70 percent in 2001 but declining to about 50 percent in 2005. This decline is due to both increasing demand for emergency food aid and OMB’s 2002 recommendation to decrease monetization, according to USAID officials. OMB pointed out that monetization can impede U.S. commercial exports, lower market prices, induce black market activity, and thwart market development for U.S farm products. OMB also raised questions about the economic efficiency of the practice. Furthermore, in 2002 The President’s Management Agenda suggested that directly feeding the hungry, rather than providing food for development, should be the primary goal of U.S. food aid programs. Figure 12 shows the average share of nonemergency food aid funding different programs used for monetization from fiscal years 2001 through 2006.

Agencies’ Ability to Adequately Monitor Monetization Cost Recovery Impeded by Lack of Electronic Data

U.S. agencies do not electronically collect data on monetization revenues. Without such data, the agencies’ ability to adequately monitor the degree to which revenues cover costs is impeded. USAID used to require that monetization revenues cover at least 80 percent of costs associated with delivering food to recipient countries, but this requirement no longer exists. Neither agency was able to provide us with data on the revenues generated through monetization. The agencies told us that the information should be in the results reports, which are in individual hard copies and not available in any electronic database. We have expressed similar concerns about the limited oversight of monetization revenues in our 2002 review of the McGovern-Dole Food for Education program.

USAID officials told us that they believe NGOs have incentives to generate the maximum amount of resources possible from monetization and, therefore, the officials are not concerned about monitoring revenue data. However, some NGOs may not have sufficient expertise in commodity trading to ensure that they are selling food at the best possible price. In addition, due to insufficient market expertise or delivery delays, monetization revenues can also be reduced when NGOs sell the commodity at a time when market supplies have grown. For example, selling Title I- and Title II-funded wheat simultaneously in Mozambique in 2002 flooded the market and decreased food prices, resulting in reduced monetization revenues.

Various Challenges Reduce the Effective Use of Food Aid

A number of challenges reduce the effectiveness of food aid in alleviating hunger. Since food aid is limited, it is important that donors and implementers use it effectively by ensuring that it reaches the most vulnerable populations and does not cause negative market impact. However, a number of factors limit efforts to develop reliable estimates of food needs and respond to crises in a timely manner. These include challenging operating environments in recipient countries, insufficient coordination among stakeholders and use of noncomparable assessment methods, difficulties in identifying vulnerable groups (such as chronic versus transitory food-insecure populations) and understanding the causes of food insecurity, and resource constraints that adversely affect the quality of assessments and quantity of food and other assistance. Consequently, estimates of food needs have differed significantly and, in some cases, have resulted in delays in appropriately responding to crises with sufficient food and complementary assistance. Furthermore, some impediments to improving the nutrition quality of U.S. food aid, including the lack of interagency coordination to update food aid products and specifications, may prevent the most nutritious or appropriate food from reaching intended recipients. Despite these concerns, USAID and USDA do not sufficiently monitor food aid programs, particularly in recipient countries, as they have limited staff and competing priorities and face legal restrictions on the use of food aid resources.

Ensuring That Food Aid Reaches the Most Vulnerable Populations Is Critical to Enhancing Its Effectiveness and Avoiding Negative Market Impact

U.S. food aid assists only about 11 percent of the estimated hungry population worldwide. In light of the significant need for food aid, it is critical that this assistance be used effectively by ensuring that the right food reaches the right people at the right time. Generally, the most food- insecure populations include poor households with elderly people, young children (especially those under 5 years of age), pregnant and lactating women, and the chronically sick (e.g., people with HIV/AIDS). To provide food to these vulnerable populations, agencies and stakeholders target food aid resources. Targeting involves assessments of needs, program planning to reach vulnerable households with adequate food, implementing the distribution of food, and monitoring these programs. (Figure 13 illustrates these elements of the targeting process). The timing of food delivery is a key factor that impacts targeting effectiveness. Timely provision of food aid will not only save lives during an emergency, but also help to avert crises that may result from increasing vulnerability. To focus on the vulnerability of food insecure populations, USAID discussed the concept of development relief in its Food Security Strategic Plan for 2006- 2010, whereby programs dealing with emergencies would also address the underlying causes of emergencies and development programs would help vulnerable people improve their ability to prevent and cope with future emergencies. Enhancements to early warning systems, such as the USAID- funded Famine Early Warning System Network, and efforts to better understand the livelihoods of vulnerable populations have contributed to improved information on the needs of vulnerable populations, according to officials from implementing organizations and USAID.

In addition to ensuring effective use of food aid resources, accurate targeting can reduce the potential adverse impact of food aid on recipient country markets. (See app. III for more information on the impact of food aid on local markets.) When food aid is distributed during a food shortfall to people who would not otherwise be able to purchase food, markets may remain unaffected. In the case of food shortfalls, food aid may actually serve to bring supply back to levels that would have occurred in the absence of the shortage and help limit price increases. However, when food aid is sent in response to a food shortfall but arrives while food is readily available—such as after the hungry season—and is distributed to people who can otherwise purchase food, it increases total food supplies above normal market levels. Additionally, in such cases, the food aid may decrease market prices and the incomes of food producers in recipient countries. These low prices could decrease agricultural investments and reduce the return on labor allocated to agriculture. While food aid may lower prices, it may also increase income for recipients. For example, according to one study, distribution of food aid to households in northern Ethiopia during the hungry season actually increased household purchasing power and contributed to increased agricultural productivity.

Various Factors Limit the Effectiveness of Efforts to Provide Food Aid to the Most Vulnerable Populations

Various factors limit the ability of U.S. agencies to ensure that food aid is directed to the most vulnerable populations. First, challenging operating environments, characterized by poor infrastructure and concerns about physical safety and security, have limited access to vulnerable groups and caused delays in providing food aid. Inadequate recipient government participation and human resource constraints also contribute to insufficient assistance to vulnerable people. Second, weak in-country coordination among key stakeholders and the use of noncomparable methods in assessing food needs have resulted in significantly different estimates and delays in donor assistance. Additionally, assessments have not been used sufficiently to inform food aid programs. Third, difficulties in identifying vulnerable populations and understanding the causes of their food insecurity contributed to the lack of timely and appropriate response in some instances. For example, it has been challenging for implementing organizations to determine the causes of chronic food insecurity and provide appropriate assistance. Fourth, resource constraints have affected the quality and timeliness of assessments as well as the quantity of food and other related assistance provided to vulnerable populations.

Challenging Operating Environments in Recipient Countries Have Restricted Access to Vulnerable Populations and Caused Delays

Difficult operating environments characterized by poor infrastructure and physical safety, as well as the limited participation and capacity of recipient governments, have impeded access to and the timely delivery of food aid to the most vulnerable populations. In 2003, we reported on the southern Africa food crisis, noting that long-standing weaknesses in transportation infrastructure across the region hampered timely delivery of food aid where it was needed. Access to intended recipients in villages was further hindered during the rainy seasons when many village roads became impassable. Due to concerns about physical safety and security, the timely provision of food aid to recipients has been especially difficult in regions experiencing war and conflict. We recently reported that frequent violence and continued conflict and an increase in attacks on humanitarian staff in the Darfur region of Sudan limited the ability of implementing organizations to access parts of the region and provide food and other assistance to vulnerable populations, such as internally displaced persons. As a result, approximately 460,000 people in northern Darfur were cut off from emergency food aid in July 2006, and 355,000 people still did not receive food aid in August 2006, according to UN sources.

Limited recipient government participation has contributed to insufficient coverage of vulnerable populations. In late 2006, while donors were providing assistance to support the food needs of Zambians, the government continued to hold large quantities of its food stocks— approximately 350,000 metric tons—in its emergency reserve, according to Zambian officials. Even in cases where recipient governments are participating, lack of human resources and financial capacity can limit overall efforts to target vulnerable populations. For example, while the governments of Ethiopia and Kenya are involved in coordinating the food aid efforts of donors and implementers, several implementing organizations expressed concerns about the governments’ human resource capacity at the district and village level to effectively contribute to planning and implementing food aid programs. According to a number of USAID-approved proposals for Ethiopia, a lack of government staffing and skills combined with high turnover rates posed a significant challenge to implementing food aid projects. USAID officials acknowledged these concerns and noted that the government of Ethiopia is addressing these deficiencies by providing training to staff at all levels of the government. Additionally, all Title II-funded NGOs in Ethiopia have received resources for capacity building and training as part of their agreements with USAID.

Weak Coordination on Assessments and the Use of Noncomparable Methods Have Led to Different Estimates of Food Needs

Insufficient coordination among key stakeholders and the use of noncomparable methods has resulted in disparate assessments of food needs and numbers of recipients, although some efforts are under way to improve coordination. Officials of various implementing organizations we interviewed in Ethiopia, Kenya, Zambia, and South Africa identified lack of coordination on assessments, especially with recipient governments, as one of the key challenges to accurately assessing the needs of vulnerable populations. According to an NGO official in Zambia, the Zambian government and NGOs conducted two parallel but separate assessments in 2005 that resulted in significantly different estimates. This discrepancy led to a 6-month delay in declaring an emergency while the difference in assessment results was resolved.

Some recipient governments have increased their efforts to ensure coordination on assessments between stakeholders; however, estimates of food needs have sometimes differed significantly because the stakeholders use different methods and estimating assumptions. For example, although the Ethiopian government's Disaster Prevention and Preparedness Agency coordinates with donors and implementing organizations in conducting assessments of food needs, their assessments varied significantly in 2004. Specifically, WFP estimated that 1.8 million people would need food assistance, while the government of Ethiopia estimated that 700,000 fewer people (1.1 million) would need assistance. Donors we interviewed in Ethiopia stated that the host government has tended to lower food need estimates based on its view of what donors are likely to fund. They noted that an earlier assessment in 2006, which was led by the government but involved other stakeholders, underestimated the number of potential beneficiaries by 1 million people. This significant underestimation created a humanitarian crisis, according to a senior UN official, and more emergency food was eventually requested. Implementing organizations have had to resort to measures, such as reducing ration size or shortening the duration of assistance, to provide food aid to a larger than estimated number of vulnerable households.

Various implementing organizations have attributed a proliferation of assessment methods and approaches to a lack of coordination that can result in different estimates and delay donor response, especially during emergencies. Although USAID and NGOs have noted that multiple assessment methods and approaches are required to respond to different circumstances, noncomparable methods have resulted in disparate food need estimates. Donors and implementing organizations do not agree on definitions and common approaches to conducting assessments; according to USAID officials, this has resulted in inconsistent estimates that prevent timely donor responses, especially during emergencies. WFP’s Strengthening Emergency Needs Assessment Capacity (SENAC) initiative, launched in 2004, is aimed at addressing some of these concerns by developing better methods and guidance for assessments conducted during emergencies. However, USAID and other officials have expressed concerns about the limited involvement of NGOs in the SENAC process and its implementation in selected countries. Moreover, there is a lack of coordination among various NGOs, which tend to assess food needs differently, according to U.S. government officials. Some GAO roundtable participants stated that peer learning and information-sharing among implementing organizations had been further hampered by the dissolution in 2004 of Food Aid Management (FAM), a USAID-funded NGO that facilitated information sharing and development of food aid standards.

Additionally, assessments have not been used sufficiently to inform food aid programs. According to WFP and NGO officials, estimates resulting from needs assessments have not, in many cases, driven donor response to impending or existing crises. Other factors—such as donors’ foreign policy objectives or media attention to a crisis—tend to determine the timing and level of donor assistance, according to these officials. However, donors and GAO roundtable participants have expressed concerns about the independence of assessors, because organizations such as WFP and NGOs generally conduct assessments and also implement programs based on their results. According to GAO roundtable participants, NGOs generally conduct assessments and propose projects in areas where they are already operating, which may introduce geographical gaps in the delivery of assistance and prevent food aid from reaching the most vulnerable areas. According to a USAID-funded study on Title II development food aid programs in 2002, although program assessments had advanced considerably and proposals described critical country-level food security problems, quantitative data collection and analysis at the local level were deficient. Our review of USAID- and USDA-approved proposals indicates that some proposed programs were based on assessments that identified specific criteria to target food aid, whereas other proposals justified programs based on general statements of need. For example, while proposals for a nationwide safety net program in Ethiopia generally identified districts based on high levels of chronic vulnerability, proposals for some other countries did not include adequate assessment information on the extent or severity of needs in areas proposed for food aid programs.

Difficulties in Identifying Vulnerable Populations Have Limited Effective Targeting

Accurately identifying various types of vulnerable populations and the causes of their vulnerability has been difficult due to the complexity of factors—such as poverty, environmental degradation, and disease—that contribute to food insecurity. According to WFP officials in southern Africa, identifying people with HIV/AIDS who need food aid has been very difficult because the social stigma associated with the disease may discourage intended recipients from getting tested for it. It is also difficult to assess whether deterioration in health is due to hunger or the disease itself.

Insufficient understanding of the causes of malnutrition and chronic food insecurity, as well as the role of local markets, has in some cases resulted in inaccurate assessment of and response to crises. According to WFP and USAID, assessments have focused too narrowly on food availability (such as food production in vulnerable countries) and not enough on factors that determine access to food (such as food prices in local markets) and effective use of food (such as health and sanitation practices). The 2005 food crisis in Niger, where about 1.8 million people received food aid, illustrated such a limitation in focus. According to WFP’s evaluation, donors as well as implementers focused too narrowly on food production and deficits and analyzed the causes of malnutrition insufficiently. As a result, the cause of the crisis was misdiagnosed as lack of food availability, when in fact it was caused by factors affecting the effective use of food, such as health and sanitation problems and poor water quality, according to a USAID analysis. Donors did not respond until May 2005, 3 months after the crisis reached emergency proportions in February 2005. Moreover, insufficient understanding of the causes of the crisis initially led to a disagreement between the recipient government and WFP on how to respond to the situation. As a result, the request for aid was revised seven times in the next 3 months, from May to August, and recipients finally received food in August 2005.

Difficulties in the targeting process related to determining eligibility of recipients and appropriate food distribution activities have also been exacerbated because implementers have not developed or optimally used best practices and institutional knowledge. According to USAID officials in Kenya, there has been very limited analysis of which targeting approaches and activities are more appropriate to provide food aid in certain situations and how long these should be used. (See app. IV for food distribution activities to target different vulnerable groups.) According to a WFP evaluation of its targeting practices during emergency and relief operations, a more systematic analysis of WFP’s experience in targeting recipients is necessary to resolve recurring issues and improve this practice. Furthermore, WFP’s targeting approaches tend to depend on individual staff experience rather than organizationwide experience, according to the review. In part, this is because WFP had not yet developed a consolidated policy and comprehensive guidance material on targeting.

Despite these limitations, there is some evidence that with experience, accuracy in providing food to intended recipients has generally improved at the country and program level. For example, according to several implementing organization officials in Ethiopia, during the first year of implementing a nationwide food and cash assistance program, targeting the most vulnerable populations was challenging because implementers did not adequately understand the eligibility criteria for recipients and selected better-off people in many cases. In the second year, however, targeting improved as program goals were more clearly communicated to implementers, who applied the recipient selection criteria more accurately.

Resource Constraints Have Adversely Affected Assessments and Adequate Coverage of Vulnerable Populations

Limitations on the amount and use of resources have adversely affected the quality and timing of assessments, particularly for Title II-funded programs. According to USAID, NGO, and WFP officials we interviewed in the field, lack of sufficient resources is one of the main constraints to conducting accurate and reliable assessments. The U.S. agencies provide very limited or no resources to conduct assessments prior to the implementing organizations’ submission of proposals requesting food aid. This is because requests for cash for materials or activities related to U.S. food aid funding, such as assessments, must accompany requests for food commodities. Since cash is in effect tied to requests for commodities, the U.S. government cannot provide assistance for activities such as needs assessments that may enhance the use of food aid but may not require commodities at the same time. Due to such constraints, U.S. agencies have not provided financial assistance for WFP’s major initiative to improve needs assessments, although they have provided technical assistance. According to WFP officials we spoke with in South Africa, this lack of adequate financial support for assessments diminishes U.S. influence and input on how assessments are conducted. USAID officials stated that they would like to fund assessments using P.L.480 Title II resources, but they are unable to do so because of legal restrictions related to such use of these funds.

In addition to their impact on assessments, resource constraints have also limited the quantity of food and other complementary assistance that is provided to intended recipients. In 2003, we reported that due to the lack of adequate donor funding in Afghanistan, food rations to refugees and internally displaced persons were reduced to a third of the original planned amount, and program implementation was delayed by up to 10 weeks in some cases. During our fieldwork, we found instances where insufficient complementary assistance to meet basic needs in addition to food has also limited the benefits of food aid to recipients. For example, people with HIV/AIDS receiving food aid in Wukuru, Ethiopia, informed us that they sold part of their food rations to pay for other basic necessities because they lacked other assistance or income. Similarly, Somali and Sudanese refugees in Kenya sold approximately 4 percent of their food rations to buy basic items (such as fuel, cooking utensils, and clothes) or supplementary foods, according to a 2004 food consumption survey by WFP and the UN High Commission for Refugees. These refugees suffered from poor nutrition as a result of insufficient food consumption and other factors, such as poor hygiene.

Impediments to Improving Nutritional Quality Reduce the Benefits of Food Aid

Some impediments to improving nutritional quality further reduce the effectiveness of food aid. Although U.S. agencies have made efforts to improve the nutritional quality of food aid, the appropriate nutritional value of the food and the readiness of U.S. agencies to address nutrition- related quality issues remain uncertain. Further, existing interagency food aid working groups have not resolved coordination problems on nutrition issues. Moreover, USAID and USDA do not have a central interagency mechanism to update food aid products and their specifications. As a result, vulnerable populations may not be receiving the most nutritious or appropriate food from the agencies, and disputes may occur when either agency attempts to update the products.

Despite Efforts to Improve Nutrition, Challenges Remain with Quality Control and Interagency Coordination

Although U.S. agencies have made efforts to improve the nutritional quality of food aid, challenges remain with nutrition quality control mechanisms and interagency coordination on these issues. Past micronutrient assessments of U.S. food aid have also found that commodities are produced containing low and inconsistent levels of micronutrients, and gaps exist in nutrition quality control procedures. According to the World Health Organization, deficiencies in iron, vitamin A, and zinc rank among the top 10 leading causes of death from disease in developing countries, and micronutrient fortification of food aid is considered one of the most cost-effective approaches to addressing widespread deficiencies.

Despite efforts to update food aid nutritional quality control mechanisms, the quality of U.S. food aid and U.S. agencies’ readiness to address quality issues remains uncertain. USDA attempted to improve its quality control procedures by introducing a Total Quality Systems Audit (TQSA) program to verify a supplier’s capability of producing products that meet program requirements. The TQSA program is responsible for examining commodity suppliers’ quality control mechanisms, such as management processes and procedures for food aid production, to ensure that they are operating according to U.S. food aid standards. However, the TQSA program is not responsible for overseeing the nutritional quality of the product itself. It was only recently given more funding in this area in response to a 2005 incident involving CSB food aid that was found to be overfortified with iron. Because food with iron overfortification can be toxic when consumed by vulnerable groups in large quantities, USAID and USDA suspended distribution of 1,100 metric tons of CSB food aid donations while WFP suspended distribution of 16,000 tons of U.S.- donated CSB to Ethiopia. It was not until after this incident that the TQSA program was provided with funding to test CSB fortification, but it was given only enough resources to cover the costs of sampling and testing CSB and no other processed commodities. USDA has recently requested additional funding to develop quality sampling and testing protocols for each blended or processed food aid product, but this proposal has yet to be approved. USDA officials have stated that they are still struggling to verify the nutritional quality of U.S. food aid.

Insufficient coordination also limits agencies’ abilities to improve the nutritional quality of food aid commodities. First, existing food aid commodity working groups have not resolved interagency coordination problems. While U.S. government agencies have begun to jointly discuss ways to improve nutrition issues in the FACG’s Commodity Working Group, the group has yet to implement any of their suggested improvements. And while interagency forums such as the Commodity Working Group exist, coordination problems still occur. For example, USAID approached USDA officials to collaborate on exploring ways to deliver fortified and enriched food aid commodities to beneficiaries at a competitive cost. USDA’s Agriculture Research Service declined, citing its mission to address problems for U.S. agriculture and food supply and its lack of authority to study nutritional needs in other countries. Second, USAID and USDA do not have a central interagency mechanism to update products and their specifications. As a result, food aid recipients may not be receiving the most nutritious or appropriate food from the agencies, and disputes may occur when either agency attempts to update the products. Examples include the following: Although USDA has taken some steps to improve its food aid product specifications, there is still no central system in place to ensure that the product specifications are consistently updated. USDA recently made fortification improvements and updated the specifications to comply with Federal Acquisition Regulations and also requested resources to review the specifications. However, commodity suppliers complain that food aid product specifications are not as clear and consistent as in the commercial sector and that some requirements for food aid commodities are outdated and no longer necessary. One commodity supplier questioned the need for a current requirement of 50 ash for all USDA food aid flour purchases, noting that other countries have different ash specifications or none at all.

KCCO officials have stated that most of the food aid products in use today were first developed in the 1960s and that they do not have a system in place to evaluate and update them. Therefore, KCCO officials may not be using the most cost-effective products to address food aid nutrition needs. One commodity supplier noted that products should be updated every 5 to 6 years and that it would be more cost-effective for the U.S. government to update products as technology develops.

U.S. government agencies are currently attempting to discuss recipients’ nutritional needs in the Commodity Working Group and have started to explore the introduction of new food aid products that address health issues related to HIV/AIDS in young children and nutritional deficiencies in young mothers. USDA has also recently requested resources to conduct a long-term study on the present composition and use of food aid commodities. However, the agencies have yet to (1) agree on what products to update and (2) implement a central system to ensure that such updates are put into practice when they do reach an agreement.

USDA and USAID disagree on a proposed update to product specifications. USDA reviewed micronutrient fortification and enrichment of Title II commodities in 1994 and recommended that tricalcium phosphate (TCP) be reduced by 25 percent. According to USDA, this reduction would result in an annual savings of over $1.5 million, which would increase funds available for Title II program commodities without compromising their nutritional value. However, USAID did not agree with the recommended reduction and chose not to reduce TCP in any Title II commodities due to its concern about the effect of the reduction on malnourished food aid recipients. The agencies have disagreed about the nutritional effect of TCP reductions since 2004 and have yet to reach an agreement.

U.S. Agencies Do Not Sufficiently Monitor Food Aid Programs

Although USAID and USDA require implementing organizations to regularly monitor and report on the use of food aid, these agencies have undertaken limited field-level monitoring of food aid programs. Agency inspectors general have reported that monitoring has not been regular and systematic, that in some cases intended recipients have not received food aid, or that the number of recipients could not be verified. Our audit work also indicates that monitoring has been insufficient due to various factors including limited staff, competing priorities, and legal restrictions on the use of food aid resources.

USAID and USDA require NGOs and WFP to regularly monitor food aid programs. USAID Title II guidance for multiyear programs requires implementing organizations to provide a monitoring plan, which includes information such as the percentage of the target population reached and midterm and final evaluations of program impact. USDA requires implementing organizations to report semiannually on commodity logistics and the use of food. According to WFP’s agreement with the U.S. government, WFP field staff should undertake periodic monitoring at food distribution sites to ensure that commodities are distributed according to an agreed-upon plan. Additionally, WFP is to provide annual reports for each of its U.S.-funded programs.

In addition to monitoring by implementing organizations, agency monitoring is important to ensure that targeting of food aid is adjusted to changes in conditions as they occur and to modify programs to improve their effectiveness, according to USAID officials. However, various USAID and USDA Inspectors General reports have cited problems with agencies’ monitoring of programs. For example, according to various USAID Inspector General reports on nonemergency programs in 2003, food aid was generally delivered to intended recipients, but USAID officials did not conduct regular and systematic monitoring. One assessment of direct distribution programs in Madagascar, for example, noted that as a result of insufficient and ad hoc site visits, USAID officials were unable to detect an NGO reallocation of significant quantities of food aid to a different district; combined with the late arrival of U.S. food aid, this resulted in severe shortages of food aid for recipients in a USAID-approved district. The Inspector General’s assessment of food aid programs in Ghana stated that the USAID mission’s annual report included data, such as the number of recipients, that were directly reported by implementing organizations without any procedures to review the completeness and accuracy of this information over a 3-year period. As a result, the Inspector General concluded, the mission had no assurance as to the quality and accuracy of this data.

Limited staff and other demands in USAID missions and regional offices have constrained their field-level monitoring of food aid programs. In fiscal year 2006, although USAID had some non-Title II-funded staff assigned to monitoring, it had only 23 Title II-funded USAID staff assigned to missions and regional offices in 10 countries to monitor programs costing about $1.7 billion in 55 countries. For example, USAID’s Zambia mission had only one Title-II funded foreign national and one U.S. national staff member to oversee $4.6 million in U.S. food aid funding in fiscal year 2006. Moreover, the U.S. national staff member spent only about one-third of his time on food aid activities and two-thirds on the President’s Emergency Plan for AIDS Relief program.

USAID regional offices’ monitoring of food aid programs has also been limited. These offices oversee programs in multiple countries, especially where USAID missions lack human resource capacity. For example, USAID’s East Africa regional office, which is located in Kenya, is responsible for oversight in 13 countries in East and Central Africa, of which 6 had limited or no capacity to monitor food aid activities, according to USAID officials. This regional office, rather than USAID’s Kenya mission, provided monitoring staff to oversee about $100 million in U.S. food aid to Kenya in fiscal year 2006. While officials from the regional office reported that their program officers monitor food aid programs, an implementing organization official we interviewed told us that USAID officials have visited the project site only three times in 1 year. USAID officials told us that they may be responsible for multiple project sites in a given country and may monitor selected sites based on factors such as severity of need and level of funding. Monitoring food aid programs in the Democratic Republic of Congo (DRC) from the USAID regional office had been difficult due to poor transportation and communication infrastructure, according to USAID officials. Therefore, USAID decided to station one full-time employee in the capital of the DRC to monitor U.S. food aid programs that cost about $51 million in fiscal year 2006.

Field-level monitoring is also constrained by limited resources and restrictions on their use. Title II resources provide only part of the funding for USAID’s food aid monitoring activities, and there are legal restrictions on the use of these funds for nonemergency programs. Other funds, such as those from the agency’s overall operations expense and development assistance accounts, are also to be used for food aid activities, such as monitoring. However, these additional resources are limited due to competing priorities, and their use is based on agencywide allocation decisions, according to USAID officials. As a result, resources available to hire food aid monitors are limited. For example, about five U.S. national and five foreign national staff are responsible for monitoring all food aid programs in seven countries in southern Africa, according to a USAID food aid regional coordinator. Moreover, because its operations expense budget is limited and Title II funding allows food monitors only for emergency programs, USAID relies significantly on personal services contractors (PSC)—both U.S. national and foreign national hires—to monitor and manage food aid programs in the field. For example, while PSCs can use emergency food aid project funds for travel, USAID’s General Schedule staff cannot. Restrictions on the use of Title II resources for monitoring nonemergency programs further reduce USAID’s monitoring of these programs.

USDA administers a smaller proportion of food aid programs than USAID and its field-level monitoring of food aid programs is more limited. In March 2006, USDA’s Inspector General reported that USDA’s Foreign Agricultural Service (FAS) had not implemented a number of recommendations made in a March 1999 report on NGO monitoring. Furthermore, several NGOs informed us that the quality of USDA oversight from Washington, D.C., is generally more limited than USAID’s. USDA has fewer overseas staff, and they are usually focused on monitoring agricultural trade issues and foreign market development. For example, the agency assigns a field attaché—with multiple responsibilities in addition to food aid monitoring—to the U.S. mission in some countries. However, FAS officials informed us that in response to past USDA Inspector General and GAO recommendations, a new monitoring and evaluation unit was recently established with an increased staffing level to monitor the semiannual reports, conduct site visits, and evaluate programs.

Without adequate monitoring from U.S. agencies, food aid programs may not effectively direct limited food aid resources to those populations most in need. As a result, agencies may not be accomplishing their goal of getting the right food to the right people at the right time.

Conclusions

U.S. international food aid programs have helped hundreds of millions of people around the world survive and recover from crises since the Agricultural Trade Development and Assistance Act (P.L. 480) was signed into law in 1954. Nevertheless, in an environment of increasing emergencies, tight budget constraints, and rising transportation and business costs, U.S. agencies must explore ways to optimize the delivery and use of food aid. U.S. agencies have taken some measures to enhance their ability to respond to emergencies and streamline the myriad processes involved in delivering food aid. However, opportunities for further improvement in such areas as logistical planning and transportation contracting remain. Inadequate coordination among food aid stakeholders has hampered ongoing efforts to address some of these logistical challenges. Furthermore, inefficiencies inherent in current monetization practices best illustrate the complex challenges that face U.S. food aid programs today. In addition, the lack of comparable and reliable needs assessments, insufficient complementary assistance, and impediments to improving the nutritional quality of food aid commodities raise questions about the effectiveness of the use of food aid. Finally, U.S. agencies’ lack of sufficient monitoring leaves U.S. food aid programs vulnerable to wasting increasingly limited resources, not putting them to their most effective use, or not reaching the most vulnerable populations on a timely basis.

Recommendations for Executive Action

To improve the efficiency of U.S. food aid—in terms of its amount, timeliness, and quality—we recommend that the Administrator of USAID and the Secretaries of Agriculture and Transportation take the following five actions: improve food aid logistical planning through cost-benefit analysis of (1) supply-management options, such as long-term transportation agreements, and (2) prepositioning, including consideration of alternative methods, such as those used by WFP; work together and with stakeholders to modernize ocean transportation and contracting practices to include, to the extent possible, commercial principles of shared risks, streamlined administration, and expedited payment and claims resolution; seek to minimize the cost impact of cargo preference regulations on food aid transportation expenditures by updating implementation and reimbursement methodologies to account for new supply practices, such as prepositioning, and potential costs associated with older vessels or limited foreign-flag participation; establish a coordinated system for tracking and resolving food quality develop an information collection system to track monetization transactions.

To improve the effective use of food aid, we recommend that the Administrator of USAID and the Secretary of Agriculture take the following four actions: enhance the reliability and use of needs assessments for new and existing food aid programs through better coordination among implementing organizations, make assessments a priority in informing funding decisions, and more effectively build on lessons from past targeting experiences; determine ways to provide adequate nonfood resources in situations where there is sufficient evidence that such assistance will enhance the effectiveness of food aid; develop a coordinated interagency mechanism to update food aid specifications and products to improve food quality and nutritional standards; and improve monitoring of food aid programs to ensure proper management and implementation.

Agency Comments and Our Evaluation

DOT, USAID, and USDA—the three U.S. agencies to whom we direct our recommendations— provided comments on a draft of our report. We have reprinted their comments in appendixes V, VI, and VII, respectively, along with our responses to specific points. These agencies—along with DOD, State, FAO, and WFP—also provided technical comments and updated information, which we have incorporated throughout this report as appropriate.

DOT stated that it strongly supports the transportation initiatives highlighted in the draft report and that full and effective implementation of these initiatives—in particular, modernizing transportation and contracting practices and updating reimbursement methodologies—offers the potential to reduce costs for ocean transportation. DOT commented that legal requirements (such as cargo preference) that increase delivery costs are not borne by food aid programs and have minimal impact on the amount of food available for distribution. While we recognize that DOT reimbursements have improved, the impact of cargo preference on the amount of food aid tonnage provided depends on the sufficiency of reimbursements to cover cargo preference costs. Our analysis shows that compared with the estimated costs of cargo preference, the level of DOT reimbursements varied—falling short in fiscal years 2001 through 2004 when taking into account the costs included in the current reimbursement formula and the additional costs associated with older vessels and shipments where there was no foreign-flag vessel bid.

USAID’s comments suggest that we did not adequately address some of the challenges facing U.S. food aid programs or take into account the considerable improvements USAID has made in a number of areas, such as transportation and contracting practices. USAID raised two key overarching points: (1) the crucial relationship between emergencies and development and the need to address the linkages between chronic and acute vulnerabilities discussed in the new USAID Food Security Strategic Plan for 2006-2010 and (2) the need for additional analysis of the magnitude and perspective of the recommendations in relation to program size and the number of beneficiaries reached. While we recognize the important linkages between emergencies and development programs, these issues primarily relate to food security, which was not a research objective of this study. However, we used the strategic plan to provide contextual information, particularly in our discussion of the effective use of food aid. We also provided information throughout this report to indicate the potential magnitude and impact of savings from efficiency improvements in food aid delivery.

USDA took issue with a number of our findings and conclusions and expressed two overarching concerns. First, USDA believes that we did not fully articulate the challenges inherent in achieving an ideal first world performance when implementing programs in difficult third world environments and that critical nutritional needs are routinely met in a timely manner. Second, USDA believes that we lacked hard analysis to support many of the weaknesses that we identified and suggested that our conclusions are based upon anecdotal incidents reported by various constituencies with their own interests and viewpoints. We recognize the difficult operating environments in developing countries and agencies’ efforts to provide U.S. food aid on a timely basis with minimal commodity losses. However, during our fieldwork in three recipient countries, many implementing organizations we met with complained about the lack of timeliness in food aid delivery, particularly to meet emergency needs. The example of the Ethiopian grain reserve illustrates how local food aid stakeholders adapted ways to provide food aid in a timely manner even when U.S. shipments were late. As described in our scope and methodology (app. I), this report is based on a rigorous and systematic review of multiple sources of evidence, including procurement and budget data, site visits, previous audits, agency studies, economic literature, and testimonial evidence collected in both structured and unstructured formats. To ensure accuracy and independence in our findings, we assessed the reliability of data we used for our analysis and compared information from stakeholders who have different points of view and are involved in different stages of food aid programs. We discussed our preliminary findings with a roundtable of food aid experts and practitioners. We reviewed and incorporated, where appropriate, agency oral, technical, and official comments. We use anecdotal examples in our report to illustrate findings that are based on our broader work.

We are sending copies of this report to interested members of Congress, the Administrator of USAID and the Secretaries of Agriculture, State, and Transportation. We will also make copies available to others upon request. 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 VIII.

Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine some key challenges to the (1) efficiency of U.S. food aid programs and (2) effective use of U.S. food aid.

To examine key challenges to the efficiency of the delivery of U.S. food aid programs, we analyzed (1) food aid procurement and ocean transportation data provided by the Kansas City Commodity Office (KCCO) and (2) total food aid budget and monetization cost data provided by the U.S. Agency for International Development (USAID), the U.S. Department of Agriculture (USDA), and the World Food Program (WFP). We did not assess the reliability of the data that we used for background purposes or that WFP reported for transportation costs. We examined the KCCO data for their reliability and appropriateness for our purposes through electronic testing of the data, verification of the data against other sources, and interviews with agency officials that manage the data. We found the data to be sufficiently reliable to represent trends in food aid tonnage, required time frames for delivery, and commodity versus noncommodity costs. We also conducted structured interviews of the 14 U.S.- and foreign-flag ocean carriers that transport over 80 percent of U.S. food aid tonnage. While information from these interviews may not be generalized to all ocean carriers, we supplemented the structured interviews with information from several other ocean carriers, shipping agents, and transportation experts. To examine key challenges to the sale of food to generate cash (monetization), we reviewed monetization data from USAID and USDA for all food aid programs to determine the commodity and noncommodity (such as shipping and other transportation) costs. We tested the data for internal consistency, interviewed USAID and USDA officials to clarify data definitions, and corroborated our classification of bulk commodities with them. We determined that the data were sufficiently reliable to represent the level, cost breakdown, and bulk versus nonbulk breakdown of monetization. We were not able to determine to what extent the costs of monetization are recovered through sales proceeds because neither USAID nor USDA systematically collect the data, which we point out as a finding in this report. We reviewed program authorities and regulations to determine their impact on food aid transportation; the nature of food aid transportation contracts; and the allowable use of monetization proceeds, 202(e) funding, and Internal Transportation, Storage, and Handling (ITSH) costs.

To examine key challenges to the effectiveness of the use of food aid, we reviewed numerous U.S. government documents, including all USDA- approved proposals and approximately half of all USAID-approved proposals from fiscal years 2002 through 2006 for food aid programs each agency administers in the countries we visited. We reviewed several WFP internal evaluations, including those related to needs assessments and targeting, and some external studies, such as those conducted by the Washington, D.C.-based International Food Policy Research Institute. We also incorporated information from our past audits as appropriate. Additionally, we interviewed officials from WFP, nongovernmental organizations (NGO), recipient governments, the U.S. government, and food aid recipients in the field and obtained relevant documentation from them. To assess food quality and nutrition issues, we conducted interviews with and reviewed reports by commodity suppliers, trade associations, and officials from NGOs, WFP, KCCO, USAID, and Animal and Plant Health Inspection Service (APHIS). We also reviewed U.S. agency food aid product specifications, rules and regulations, commodity complaint logs, and quality control guidelines; USAID audit reports; and internal agency correspondence and draft documents concerning food quality and nutrition issues. To assess U.S. agencies’ monitoring of food aid programs, we reviewed agencies’ inspectors general reports, guidance for implementing organizations, and staffing data. Lastly, we reviewed economic literature on the impact of food aid on local markets and recent reports, studies, and papers issued on U.S. and international food aid programs.

In Washington, D.C., we interviewed officials from USAID; USDA; the Departments of State (State) and Defense (DOD); the Department of Transportation Maritime Administration (DOT/MARAD); and the Office of Management and Budget (OMB). We also met with a number of officials representing NGOs, including 8 of the top 10 recipients of Title II food aid between fiscal years 2002 to 2005, that serve as implementing partners to USAID and USDA in carrying out U.S. food aid programs overseas; freight forwarding companies; and agricultural commodity groups. In Rome, we met with officials from the U.S. Mission to the United Nations (UN) Food and Agriculture Agencies, the WFP headquarters, and the Food and Agriculture Organization. We also conducted fieldwork in three countries that are recipients of food aid—Ethiopia, Kenya, and Zambia—and met with officials from over 40 organizations representing U.S. missions, implementing organizations, and relevant host government agencies. We visited a port in Texas from which food is shipped; two food destination ports in South Africa and Kenya; and two sites in Louisiana and Dubai where U.S. food may be stocked prior to shipment to destination ports. Finally, in January 2007, we convened a roundtable of experts and practitioners—including 15 representatives from academia, think tanks, implementing organizations, the maritime industry, and agricultural commodity groups—to further delineate, based on our initial work, some key challenges to the efficient delivery and effective use of U.S. food aid and to explore options for improvement. We took the roundtable participants’ views into account as we finalized our analysis of these challenges and options.

We conducted our work between May 2006 and March 2007 in accordance with generally accepted government auditing standards.

Appendix II: Program Authorities and Congressional Mandates

The United States has principally employed six programs to deliver food aid: Public Law (P.L.) 480 Titles I, II, and III; Food for Progress; the McGovern-Dole Food for Education and Child Nutrition; and Section 416(b). Table 2 provides a summary of these food aid programs by program authority.

In addition to these programs, resources for U.S. food aid can be provided through other sources, which include the following: The International Disaster and Famine Assistance Fund, which provides funding for famine prevention and relief, as well as mitigation of the effects of famine by addressing its root causes. Over the past 3 years, USAID has programmed $73.8 million in famine prevention funds. Most of the funds have been programmed in the Horn of Africa, where USAID officials told us that famine is now endemic. According to USAID officials, experience to date demonstrates that these funds have the advantage of enabling USAID to combine emergency responses with development approaches to address the threat of famine. Approaches need to be innovative and catalytic while providing flexibility in assisting famine- prone countries or regions. Famine prevention assistance funds should generally be programmed for no more than 1 year and seek to achieve significant and measurable results during that time period. Funding decisions are made jointly by USAID’s regional bureaus and its Bureau for Democracy, Conflict, and Humanitarian Assistance and are subject to OMB concurrence and congressional consultations. In fiscal year 2006, USAID programmed $19.8 million to address the chronic failure of the pastoralist livelihood system in the Mandera Triangle—a large, arid region encompassing parts of Ethiopia, Somalia, and Kenya that was the epicenter of that year’s hunger crisis in the Horn of Africa. In fiscal year 2005, USAID received $34.2 million in famine prevention funds for activities in Ethiopia and six Great Lakes countries in Africa. The activities in Ethiopia enabled USAID to intervene early enough in the 2005 drought cycle to protect the livelihoods—as well as the lives—of pastoralist populations in the Somali region, which were not yet protected by Ethiopia’s Productive Safety Net program. In fiscal year 2004, the USAID mission in Ethiopia received $19.8 million in famine prevention funds to enhance and diversify the livelihoods of the chronically food insecure.

State’s Bureau of Population, Refugees, and Migration (PRM), which provides limited amounts of cash to WFP to purchase food locally and globally to remedy shortages in refugee feeding pipeline breaks. In these situations, PRM generally provides about 1 month’s worth of refugee feeding needs and will not usually provide funds unless USAID’s resources have been exhausted. Funding from year to year varies. In fiscal year 2006, PRM’s cash assistance to WFP to fund operations in 14 countries totaled about $15 million, including $1.45 million for humanitarian air service. In addition, PRM also funds food aid and food security programs for Burmese refugees in Thailand. In fiscal year 2006, PRM provided $7 million in emergency supplemental funds to the Thailand-Burma Border Consortium, most of which supported food-related programs. PRM officials told us that they coordinate efforts with USAID as needed.

Table 3 lists congressional mandates for the P.L. 480 food aid programs and the targets for fiscal year 2006.

Appendix III: Ensuring Food Aid Reaches Intended Recipients Is Important to Avoid Market Distorting Effect of Food Aid

The impact of food aid on local markets can be assessed by analyzing its impact on supply and demand and on expectations of market participants regarding future market stability. A number of factors affect the impact of food aid on the markets of recipient countries. In general, in-kind food aid affects recipient markets by increasing supply. In the case of food shortfalls, food aid may actually serve to bring supply back to what the levels would have been in the absence of the shortage and would not be thought to cause a distortion. Under these circumstances, food aid would help stop the rise in prices caused by the shortage-induced decreased supply. To the extent that food aid prevents major losses in physical and human capital, it may help assure growth in subsequent periods. In addition, if food aid is distributed free of charge to people who are desperately poor and have no purchasing power, the transaction can be “off line” to the market—not leading to changes in market prices.

To the extent that food aid increases supply beyond what it would have been in the absence of shortage, it can have a potentially adverse effect on the market. These effects would include downward pressure on prices. The extent of this decrease would depend on (1) the amount of food aid relative to the total volume handled in the market and (2) the sensitivity of demand to changes in the quantities supplied to the market (price elasticity of demand). Declines in market prices provide disincentives to local production and could also affect the allocation of inputs to production by reducing the value of labor—for example, causing households to reallocate labor away from agricultural production. The impact of food aid could extend to other sectors of the market by affecting the prices for substitute and complementary foods.

The general characteristics of the recipient market—such as the extent to which the local market is integrated into broader national, regional, and global markets—can also influence the impact of food aid. Market integration measures the degree to which changes in market conditions in one market affect those in other markets (separated by time or space). It is typically the result of traders moving products across markets when it makes economic sense to do so—when the price differential between those markets exceeds the cost of moving the product. If markets are well integrated, injecting aid in one area can strongly affect market conditions in related areas. In well integrated markets, food aid shocks are short term and dissipate quickly. In poorly functioning markets, food aid impact could be more long term, and price movements can be dramatic. In addition, the increase in supply due to food aid may result in less need for commercial sales or imports.

Adverse market impacts resulting from food aid can be alleviated through the timing and targeting of food aid delivery. For example, timing the delivery of food aid to occur when it is needed, such as in the “hungry season,” would alleviate adverse market effects by bringing market supply to what the levels would have been in the absence of supply shortfalls. In this case food aid might be effective in capping what might otherwise be a very sharp spike in prices. In addition, it would reduce the longer term effects of the food shortages by alleviating the need for recipients to liquidate high return assets, such as livestock and tools, or incur high levels of debt to meet short-term requirements for food, thus reducing their future capacity to produce. Conversely, food aid that arrives at harvest time, when prices are already falling due to increased supply, can plunge prices below what it costs farmers to produce and distribute the commodity, thereby discouraging them from future production.

Targeting food aid by making sure it goes to the people who need it the most and excluding those who can obtain the food in other ways is also important. This assures that the supply arrives where the demand is greatest. In addition, according to some of the studies we reviewed and economic principles, the very poor tend to spend a greater proportion of income on food (high income-elasticity) and are responsive to prices when income is available (high price-elasticity of demand). When food aid is targeted to this group, the combined price and income effects lead to proportionately more purchases of food, checking overall price declines.

The actual impact of food aid on markets is an empirical question. Studies have been inconclusive regarding disincentives and other effects of food aid. In the case of emergency food aid distributions, there is less evidence of negative effects than for nonemergency aid, the effects of which tend to persist over longer time periods.

Appendix IV: Food Distribution Activities to Target Recipients of Food Aid

Figure 14 describes the food distribution activities used to target different groups of food and recipients.

Appendix V: Comments from the U.S. Department of Transportation

The following is GAO’s comment on the U.S. Department of Transportation’s (DOT) letter dated March 29, 2007.

GAO Comment

1. We recognize that processing of DOT reimbursements has improved.

However, the impact of cargo preference on the amount of food aid tonnage provided depends on the sufficiency of reimbursements to cover cargo preference costs—both those that are included in the reimbursement calculation as well as those associated with shipments where no foreign-flag vessel has submitted a bid and where the vessel’s age is 25 years or older. Figure 10 in out report illustrates how DOT reimbursements compare with the estimated costs of cargo preference (ocean freight differential (OFD) costs) included in the reimbursement calculation. As shown in the figure, DOT reimbursements fell short of OFD costs in fiscal years 2001 through 2003 and exceeded OFD costs in fiscal years 2004 and 2005. Including the estimated additional costs for Title II programs only that were associated with older vessels and shipments where there was no foreign-flag vessel bid (about $50 million in fiscal year 2003, about $34 million in fiscal year 2004, and about $56 million in fiscal year 2005), DOT reimbursements would have exceeded total cargo preference costs in fiscal year 2005 only. Finally, while we acknowledge that DOT revised the reimbursement formula in 2004 to provide more timely payments, the current methodology has not been updated to include these additional costs of cargo preference or to promote new supply practices, such as prepositioning.

Appendix VI: Comments from the U.S. Agency for International Development

The following are GAO’s comments on the U.S. Agency for International Development’s letter dated March 29, 2007.

GAO Comments

1. We incorporated contextual information from USAID’s Food Security Strategic Plan for 2006–2010 in the background and in the discussion on the effectiveness of the use of food aid. We also added a direct reference in the text to the strategic plan. While we recognize the importance of the linkages between emergencies and development programs, these issues primarily relate to food security, which was not a research objective of this study. 2. We added information from the specific study cited. While this study mentioned that proposals had improved in identifying and describing critical country-level food security problems, it also noted that quantitative data collection and analysis at the local level were deficient. Additionally, according to this study, USAID’s policy guidance has been insufficient, and there has been friction between USAID and implementing organizations regarding the transparency and timeliness of the program management by the Office of Food for Peace. 3. We have provided available information throughout this report to indicate the potential magnitude and impact of savings from improving the efficiency of food aid delivery. In our view, even a savings of less than 2 percent of the fiscal year 2006 program funding could have a significant impact by enabling the United States to feed almost 850,000 additional people for 90 days. 4. We have included additional information regarding the selection process for prepositioning warehouses. 5. We recognize that uncertainties in funding processes, combined with reactive and insufficiently planned procurement, increase food aid delivery costs and time frames. Further, we noted that difficult operating environments contribute to various challenges that impede the effective use of food aid. Despite these constraints, we noted that enhancements, such as better planning and improved coordination in conducting assessments, can improve the efficiency and effectiveness of U.S. food aid programs. 6. We reference the standard booking note that USAID and USDA created with input from the booking note committee. We have included additional information regarding members of this committee.

However, in structured interviews, all 14 ocean carriers indicated that further improvements are needed to standardize freight terms and to further include, to the extent possible, commercial principles for the allocation of risk. 7. More timely payment of food aid contracts is not a competitiveness issue and would reduce costs for both U.S.- and foreign-flag carriers. DOD and DOT officials have also reported that long-term transportation agreements have produced savings for DOD and could provide savings for food aid programs. As DOD is also subject to cargo preference regulations, legal requirements governing food aid may not necessarily prevent the agencies from achieving savings with long-term transportation agreements. To determine potential savings, we are recommending that USAID, USDA, and DOT work together to conduct further cost-benefit analyses of supply-management options. 8. We recognize that USAID asked DOD several years ago to calculate the cost for a sample set of shipments using long-term transportation agreements managed by DOD, and that this analysis indicated a lack of potential savings. However, as discussed in this report, DOD and DOT officials subsequently found that the analysis contained flaws and both agencies recommend that a new analysis be conducted. For example, DOT officials indicated that cost savings could be realized if USAID were to manage its own contracts, and they have offered to assist USAID in doing so. Regarding USAID’s use of multiple port discharge options, we have included additional language in our report to reflect this information. 9. While food quality issues may be discussed in the Food Aid Consultative Group, there is still no shared, coordinated system in place that USDA, KCCO, and USAID can use to track and respond to complaints. Additionally, while we acknowledge that USAID has developed the Quarterly Web-Interfaced Commodity Reporting (QWICR) system to assist in tracking food aid commodities, this system is currently utilized only by some Food for Peace programs and NGOs in Africa and is not shared with USDA and KCCO. We also point out the need for better monitoring and tracking of monetization transactions, including tracking of revenues generated by monetization. At this point, it is not clear whether QWICR will be able to accommodate this need for both USAID and USDA. 10. We note that USAID recognizes that the quality and formulation of food aid products are crucial for undernourished populations and that the Director of the Office of Food for Peace highlighted the need to improve the quality of food aid commodities in his statement before the Senate Committee on Agriculture, Nutrition, and Forestry on March 21, 2007. We also note that USAID, along with USDA, plans to do an in-depth review of the types and quality of food products used in U.S. food aid programs and will continue its efforts to review existing contract specifications and improve commodity sampling and testing. However, these planned reviews and improvements have not yet been implemented. 11. USAID recognizes that enhancing assessments is a priority. Our recommendation to improve needs assessments was also endorsed by the Director of USAID’s Office of Food for Peace in his statement before the Senate Committee on Agriculture, Nutrition, and Forestry on March 21, 2007. 12. Based on USAID’s technical comments, we have added a footnote stating that implementing organizations are required to monitor food aid programs according to OMB Circular A-110 as well as USAID regulations (22 C.F.R. 226.51). While noting the implementing organizations’ monitoring responsibilities, we maintain that U.S. agencies still need to adequately monitor programs to ensure independence and provide assurance that food aid resources are used optimally. In its official comments, USAID states that it has over 65 staff in the field and over 30 staff in Washington, D.C., to monitor and oversee food aid programs. However, as noted in our report, there are only 23 Title II-funded staff in the field, and non-Title II funded staff often have other responsibilities in addition to monitoring food aid programs. Further, the Director of the Office of Food for Peace, in his statement before the Senate Committee on Agriculture, Nutrition, and Forestry on March 21, 2007, supported our recommendation on the need for increased monitoring. 13. We agree that it is important to carefully review the monetization proposals in order to minimize the disruption to local production and markets. However, even when the proposals satisfy all the criteria USAID considers, monetization is still an inherently inefficient practice because converting food to cash in order to fund development projects is costly.

Appendix VII: Comments from the U.S. Department of Agriculture

The following are GAO’s comments on the U.S. Department of Agriculture’s letter dated March 30, 2007.

GAO Comments

1. We recognize (1) the challenges of providing food aid in developing countries and (2) agency efforts to provide U.S. food aid on a timely basis with minimal commodity losses. However, multiple implementing organizations we met with expressed concern regarding the lack of timeliness in food aid delivery, particularly to meet emergency needs. The Ethiopian grain reserve example illustrates how food aid stakeholders have adapted strategies to provide food aid in a timely manner even when U.S. shipments are late. Although commodity losses for non-WFP programs are reported at less than 1 percent, KCCO is unable to determine the extent of commodity losses for WFP programs, which account for approximately 60 percent of U.S. food aid shipments. Additionally, various factors suggest that actual commodity losses may exceed those reported in the data. 2. We provide a detailed description of our scope and methodology in appendix I. Each of our report findings and recommendations is based on a rigorous and systematic review of multiple sources of evidence, including procurement and budget data, site visits, previous audits, agency studies, economic literature, and testimonial evidence collected in both structured and unstructured formats. To ensure accuracy and independence in our findings, we assessed the reliability of data used for our analysis and compared information from stakeholders who have different points of view and are involved in different stages of food aid programs. We discussed our preliminary findings with a roundtable of food aid experts and practitioners. We reviewed and incorporated, where appropriate, agency oral, technical, and official comments. We include anecdotal examples in our report to illustrate findings that are based on our broader work. 3. While it is likely that the risks of transporting packaged cargo are higher than those for bulk cargo, all of our transportation recommendations are intended to improve the delivery of both types of food aid. Improving food aid logistical planning could decrease procurement bunching (and the higher prices that result) for both packaged and bulk food shipments. Modernizing transportation contracting practices, including standardizing bulk cargo contracts and improving claims processes, could likewise decrease ocean freight rates for both bulk and packaged shipments. Finally, since cargo preference regulations apply to shipments of both bulk and packaged cargoes and food quality complaints may occur for all food aid shipments, our remaining two recommendations to improve the efficiency of delivery are aimed at the entire food aid program. 4. KCCO officials told us that USDA needs to improve procurement planning in order to reduce the continued bunching of purchases that stresses its operations and those of its food suppliers. KCCO data and a recent KCCO study confirmed that bunching of procurement has occurred through fiscal year 2006—findings that were confirmed by a broad representation of other food aid stakeholders and experts we interviewed. 5. To determine the length of time required to provide U.S. food aid, we examined the delivery process from vendor to village. Our analysis of transportation contracting practices refers to ocean transportation contracts only, and we have added language in the report to reflect this scope. We did not systematically examine transportation contracts for foreign inland cargo since U.S. agencies do not collect uniform contract data for these shipments. KCCO does not include these costs when determining lowest cost providers for food aid delivery, and DOT cargo preference reimbursement methodologies pertain to ocean transportation only. 6. We have added language to the report to reflect that USDA ships bulk cargoes using contract terms that incorporate more shared risk. However, contracts for bulk shipments have not yet been standardized, and the standard booking note used by both USAID and USDA for packaged cargoes defines freight terms differently than commercial contracts. Other areas where USDA transportation contracting practices differ from commercial practices include lengthy claims processes and insufficiently streamlined administration and paperwork. 7. We have added language to the report to indicate that the net cost impact of shifting risk from ocean carriers to other food aid stakeholders, such as commodity suppliers and implementing organizations has not been studied. However, savings could arise through aligning the fiduciary responsibility for food delivery risks with those stakeholders that could better assess and manage those risks. Under the current approach, ocean carriers are held responsible for certain food delivery risks that they have no direct ability to manage. Ocean carriers generally insure themselves against these risks by increasing their freight rates for all deliveries. Moreover, by realigning the cost of risk to those who manage it during each step of the process, food aid stakeholders would have additional incentives to make sure the process goes right. 8. Figure 10 in our report compares DOT reimbursements with the estimated costs of cargo preference. DOT reimbursements include the incremental ocean freight rate differential and the additional costs of ocean transportation exceeding 20 percent of the total cost of food aid commodities and ocean freight (Sections 901d(a) and 901d(b) of the Merchant Marine Act). As shown in the figure, DOT reimbursements fell short of OFD costs in fiscal years 2001 through 2003 and exceeded OFD costs in fiscal years 2004 and 2005. However, the estimated OFD costs in figure 10 do not include costs associated with shipments where no foreign-flag vessel submitted a bid and where the vessel’s age was 25 years or older. USAID and DOT officials separately estimated the additional costs associated with these two factors for past Title II shipments. Agency estimates amounted to about $50 million in fiscal year 2003, about $34 million in fiscal year 2004, and about $56 million in fiscal year 2005. Including additional estimated costs, DOT reimbursements would only have exceeded total cargo preference costs in fiscal year 2005. 9. While we acknowledge that USAID and USDA do have some means of sharing information on quality problems and that commodity and storage-specific initiatives like the Containerization Aid Product Improvement Team are helpful in addressing quality issues , both agencies still do not have a shared, coordinated system to track and respond systematically to food quality complaints for all of their commodities. And as stated in comment 1, agency officials are unable to track the quality of food aid for approximately 60 percent of food aid shipments, and commodity losses may exceed those reported in the data. We also acknowledge that USDA has a rapid response team, but KCCO officials have told us that the team is limited in its ability to respond to all of the complaints on food quality that it receives. USDA officials have also stated that food quality inspection officials like USDA’s Federal Grain Inspection Service do not have responsibilities overseas and are limited to inspecting only some food aid commodities and that while those officials can be hired to conduct overseas inspections, it would be expensive to do so. 10. Limitations in the availability and use of nonfood resources to conduct credible assessments and to use these assessments to inform program proposals apply both to USAID- and USDA-administered programs. However, we specifically note in response to agency comments that some limitations, such as legal restrictions on the use of funding, apply specifically to Title II-funded programs. As indicated by USDA, the McGovern-Dole Food for Education and Child Nutrition program has a cash component of 13 percent, as indicated by USDA, which is higher than the upper limit of 10 percent cash allowed as 202(e) funding to implementing organizations for USAID Title-II funded programs. However, Food for Education accounts for only 4 percent of U.S. food aid funding; therefore, our overall finding about limited complementary nonfood resources still applies broadly to U.S. food aid programs. Additionally, the majority of Food for Progress commodities are monetized rather than used for direct distribution to beneficiaries, as shown in figure 12 in our report. Therefore, the need for nonfood resources to enhance the effectiveness of the use of food aid is less relevant in the case of Food for Progress. Moreover, as we note in our report, the use of monetization to generate funds for development projects is an inefficient use of food aid resources in general.

Appendix VIII: GAO Contact and Staff Acknowledgments

Acknowledgments

In addition to the person named above, Phillip J. Thomas (Assistant Director), Carol Bray, Ming Chen, Debbie Chung, Martin De Alteriis, Leah DeWolf, Mark Dowling, Etana Finkler, Kristy Kennedy, Joy Labez, Kendall Schaefer, and Mona Sehgal made key contributions to this report.

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