The authority to monetize food aid was established by the Food Security Act of 1985. The act allowed implementing partners that received nonemergency food aid under USAID’s Food for Peace program and USDA’s Food for Progress program to monetize some of the food in recipient countries and use the proceeds to cover associated shipping costs. In 1988, the authorized use of monetization funds was expanded to incorporate funding of food-security-related development projects, and in 1995, a minimum monetization level for nonemergency food assistance was set at 10 percent, which was then increased to 15 percent in 1996. The 2002 Farm Bill authorized the McGovern–Dole International Food for Education and Child Nutrition Program and allowed it to raise cash through monetization. (For a description of these program authorities, see appendix III). The practice of selling commodities for cash to fund development programs originated in part from U.S. government farm subsidies that contributed to a surplus of agricultural commodities owned by the U.S. government. However, the U.S. government no longer has surplus agricultural commodities. Current monetization requires the U.S. government to purchase the commodities from the commercial market and ship them abroad for implementing partners to sell them in another market to generate cash. Neither USAID nor USDA has been required to achieve a set level of cost recovery following an amendment by the 2002 Farm Bill to the Food for Peace Act. Rather, the agencies are required, by statute, to achieve “reasonable market price” for sales of food aid in recipient countries. Prior to 2002, USAID sought to achieve an average cost recovery that was calculated based on the following formula: either (1) 80 percent of commodity value plus freight value, including associated transport and marketing costs, or (2) 100 percent of free alongside ship price on its monetization transactions. USDA’s requirement was to adhere to reasonable market price as its benchmark. According to the conference report for the 2002 Farm Bill, the change from the cost recovery formula to reasonable market price for USAID was made to address two primary concerns. The first concern was that the cost recovery formula requirement was too inflexible, and could either unfairly punish participants where market forces were beyond their control, or not reward situations where the market price was above the formula value. The second concern was that, since both USAID and USDA monetize food aid, sometimes in potentially overlapping markets, having a cost recovery requirement for USAID but not for USDA could cause inconsistencies in monetization and potentially penalizes one or the other agency. The change to a single requirement of reasonable market price for both agencies was intended to establish similar results in determining sales prices. Under new trtegy to ddress global hnger clled the Feed the Fre inititive, the dminitrtion ght the eablihment of Commnity Development Fnd (CDF) to decrease U.S. government relince on the monetiztion of food id to fnd development ctivitie. The CDF fnd was deigned to expnd effort to nrrow the getween hnitrind development assnce in reas thsupport food ecrity. However, the mechni to use the fnd to replce monetiztion were not inclded in the lw, nd the CDF therefore cnnot used to decrease crrent level of monetiztion. According to USAID officil, the gency will contine to work with Congress on fre budget o thpproprite mechni to decrease relince on monetiztion re incorported in the lw. A $75 million reqt to fnd the CDF was inclded in the fil yer 2011 Foreign Opertion Bdget. While Congressas pproprited fnd for the CDF, the finpproprition has not een mde public. In fiscal year 2010, the United States spent about $2.3 billion to provide a total of 2.5 million metric tons of food aid commodities to food-insecure countries. Of that amount, almost $800 million was spent on providing USAID and USDA 890,000 metric tons of nonemergency food aid (see fig. 1). This assistance is provided through both monetization and direct distribution, where commodities are provided directly to beneficiaries through implementing partners. While U.S. food aid legislation mandates that a minimum of 15 percent of USAID’s Food for Peace nonemergency assistance be monetized, actual levels of monetization far exceed the minimum. In fiscal year 2010, more than 313,000 metric tons of food aid were monetized under USAID’s Food for Peace program, accounting for 63 percent of food aid tonnage under that program. In fiscal year 2010, USDA monetized more than 229,000 metric tons of food aid under the Food for Progress program, accounting for 95 percent of food aid tonnage under that program. Monetization has been less prevalent under the McGovern-Dole International Food for Education and Child Nutrition Program since the end of its pilot program in 2003, due to an increase in the amount of cash provided along with food aid for direct distribution. In fiscal year 2010, the McGovern-Dole International Food for Education and Child Nutrition Program did not monetize any food aid shipments. According to KCCO data, between fiscal years 2008 and 2010, more than 1.3 million metric tons of food aid were programmed for monetization in 34 countries (see fig. 2). The countries in which the largest volumes of commodities were programmed to be monetized during that time period are Bangladesh (220,590 metric tons), Mozambique (202,200 metric tons), Haiti (100,000 metric tons), and Uganda (88,400 metric tons). Together, these four countries accounted for 45 percent of all food aid programmed to be monetized. During that same time period, wheat was the commodity most often programmed for monetization, accounting for about 77 percent of all monetization. Other commodities programmed to be monetized during the same period include soy bean meal, milled rice, vegetable oil, and crude soybean oil. (For a complete list of commodities and volumes programmed to be monetized by country, see appendix IV.) Monetization is conducted by implementing partners, usually NGOs that receive grants from USAID or USDA to monetize agreed-upon commodities in certain countries. Monetization grants generally provide development resources over a 3- to 5-year period. The process begins with a call for applications from either USAID or USDA, to which implementing partners respond by submitting grant proposals for development programs that are to be funded in part with monetization proceeds. USAID and USDA independently issue calls for applications and approve applications at different times, based on different guidelines and priorities. Grant proposals include, among other things, information on the commodity to be monetized, commodity volumes requested, estimated sales price, estimated cost recovery, considerations of market impact assessments, and projects that will be funded based on the estimated sales proceeds. Implementing partners that receive grants have the responsibility to manage and oversee the monetization process. As part of their responsibilities, implementing partners must secure a buyer in the recipient country before a call forward (or purchase order) can be approved by the relevant agency. After either USAID or USDA receives a call forward request from the implementing partner in their Web Based Supply Chain Management (WBSCM) system, the agency approves or disapproves the request, which is then routed to KCCO. KCCO purchases the requested commodities from U.S. producers in the United States and ships them to the implementing partner in the recipient country. To adhere to cargo trade preference requirements, DOT assists in identifying qualified ocean carriers to ship the commodities to the recipient country. The commodities are delivered to the implementing partner in the recipient country, where the implementing partner executes the sales contract with the buyer and collects payment. The implementing partner uses the proceeds to implement the development projects. Figure 3 depicts the general steps in the monetization process, from submitting a grant proposal to obtaining proceeds to completing development projects. (See appendix V for more information). According to an implementing partner we interviewed, the monetization process consists of nearly 50 substeps, including steps to complete the application, conduct market assessments, coordinate requests and shipment, identify buyers and obtain bids, deliver commodities, and collect payments. While implementing partners are not required to follow a particular process to conduct food aid sales for monetization, the two most common approaches reported by implementing partners are the following: Several implementing partners might form a consortium in which one of the partners serves as the selling agent. Consortiums are often formed when several implementing partners obtain grants for the same country to monetize the same commodity. Generally, one of the implementing partners in the consortium takes the lead in conducting monetization sales. The lead implementing partner is responsible for identifying the buyers; preparing a single call forward drawing from each partner’s food allocation; arranging for commodities to be shipped in a single shipment; finalizing the sale in-country; and distributing proceeds among participating consortium members, as appropriate. Typically, the lead implementing partner charges a fee of 3 to 5 percent of total sales to handle monetization, while in some cases, the lead is rotated among consortium members. Fifteen of the 29 implementing partners we interviewed reported being part of a monetization consortium. A single implementing partner might independently sell the commodities granted to it. When a single implementing partner monetizes only its own commodities, it must hire or train staff to conduct the sales or contract a selling agent to sell the food. Selling agents that we interviewed generally charge a fee of 3 to 5 percent of monetization sales. Fourteen of the 29 implementing partners we interviewed said that they monetize only the food granted to their organization. Implementing partners generally sell commodities to private buyers in the recipient countries in the open market.