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entitled 'Foreign Assistance: Various Challenges Impede the Efficiency 
and Effectively of U.S. Food Aid' which was released on April 13, 2007. 

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Report to the Committee on Agriculture, Nutrition, and Forestry, U.S. 
Senate: 

United States Government Accountability Office: 

GAO: 

April 2007: 

Foreign Assistance: 

Various Challenges Impede the Efficiency and Effectiveness of U.S. Food 
Aid: 

GAO-07-560: 

GAO Highlights: 

Highlights of GAO-07-560, a report to the Committee on Agriculture, 
Nutrition, and Forestry, U.S. Senate 

Why GAO Did This Study: 

The United States is the largest global food aid donor, accounting for 
over half of all food aid supplies to alleviate hunger and support 
development. Since 2002, Congress has appropriated an average of $2 
billion per year for U.S. food aid programs, which delivered an average 
of 4 million metric tons of food commodities per year. Despite growing 
demand for food aid, rising business and transportation costs have 
contributed to a 52 percent decline in average tonnage delivered over 
the last 5 years. These costs represent 65 percent of total emergency 
food aid, highlighting the need to maximize its efficiency and 
effectiveness. Based on analysis of agency documents, interviews with 
experts and practitioners, and fieldwork, this report examines some key 
challenges to the (1) efficiency of U.S. food aid programs and (2) 
effective use of U.S. food aid. 

What GAO Found: 

Multiple challenges hinder the efficiency of U.S. food aid programs by 
reducing the amount, timeliness, and quality of food provided. Specific 
factors that cause inefficiencies include (1) funding and planning 
processes that increase delivery costs and lengthen time frames; (2) 
ocean transportation and contracting practices that create high levels 
of risk for ocean carriers, resulting in increased rates; (3) legal 
requirements that result in awarding of food aid contracts to more 
expensive service providers; and (4) inadequate coordination between 
U.S. agencies and food aid stakeholders to track and respond to food 
and delivery problems. U.S. agencies have taken some steps to address 
timeliness concerns. The U.S. Agency for International Development 
(USAID) has been stocking or prepositioning food commodities 
domestically and abroad, and the U.S. Department of Agriculture (USDA) 
has implemented a new transportation bid process, but the long-term 
cost effectiveness of these initiatives has not yet been measured. In 
addition, the current practice of using food aid to generate cash for 
development projects—monetization—is an inherently inefficient use of 
resources. Furthermore, since U.S. agencies do not collect monetization 
revenue data electronically, they are unable to adequately monitor the 
degree to which revenues cover costs. 

Figure: Selected Trends in U.S. Food Aid, Fiscal Years 2002 through 
2006: 

[See PDF for Image] 

Source: GAO analysis of USAID and USDA data. 

[End of figure] 

Numerous challenges limit the effective use of U.S. food aid. Factors 
contributing to limitations in targeting the most vulnerable 
populations include (1) challenging operating environments in recipient 
countries; (2) insufficient coordination among key stakeholders, 
resulting in disparate estimates of food needs; (3) difficulty in 
identifying vulnerable groups and causes of their food insecurity; and 
(4) resource constraints on conducting reliable assessments and 
providing food and other assistance. Further, some impediments to 
improving the nutritional quality of U.S. food aid may reduce the 
benefits of food aid to recipients. Finally, U.S. agencies do not 
adequately monitor food aid programs due to limited staff, competing 
priorities, and restrictions on the use of food aid resources. As a 
result, these programs are vulnerable to not getting the right food to 
the right people at the right time. 

What GAO Recommends: 

GAO recommends that the Administrator of USAID and the Secretaries of 
Agriculture and Transportation enhance the efficiency and effectiveness 
of U.S. food aid by improving logistical planning, transportation 
contracting, and monitoring, among other actions. DOT supports the 
transportation initiatives GAO highlighted. While recognizing that 
improvements can be made, USAID and USDA did not directly respond to 
GAO’s recommendations but disagreed with some of GAO’s analysis. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-560]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Thomas Melito at (202) 
512-9601 or MelitoT@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

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

Various Challenges Reduce the Effective Use of Food Aid: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Program Authorities and Congressional Mandates: 

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

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

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

GAO Comment: 

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

GAO Comments: 

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

GAO Comments: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: USAID Tonnage and Costs for Prepositioning, Fiscal Years 2005 
through 2006: 

Table 2: U.S. Food Aid by Program Authority: 

Table 3: Congressional Mandates for P.L. 480: 

Figures: 

Figure 1: The United States Was the Largest Provider of WFP Food Aid in 
2006: 

Figure 2: Regions That Received Food from the Largest U.S. Food Aid 
Program in Fiscal Year 2006: 

Figure 3: Nonemergencies Represent a Decreasing Share of U.S. Food Aid 
from Fiscal Years 2001 through 2006: 

Figure 4: Average Shares of Total Funding for U.S. Food Aid by Program 
Authority from Fiscal Years 2002 through 2006: 

Figure 5: U.S. Food Aid Ocean Transportation Costs: 

Figure 6: An Example of a U.S. Food Aid Purchase and Its Delivery from 
Vendor to Village: 

Figure 7: Funding for USAID Food Aid Programs from Fiscal Year 2002 to 
Fiscal Year 2006: 

Figure 8: Bill Emerson Humanitarian Trust Commodity Balances (1984 to 
2006): 

Figure 9: Carriers Views on Costly Food Aid Ocean Transportation 
Practices and Recommended Improvements: 

Figure 10: Estimated Cargo Preference Ocean Freight Differential Costs 
and Department of Transportation Reimbursements to Food Aid Programs: 

Figure 11: Delays Led to Contamination of U.S. Food Aid in Durban, 
South Africa: 

Figure 12: Use of Monetization by Program Authority: 

Figure 13: Targeting Process to Ensure That Food Reaches the Most 
Vulnerable Populations: 

Figure 14: Food Distribution Activities to Target Recipients of Food 
Aid: 

Abbreviations: 

APHIS: Animal and Plant Health Inspection Service, U.S. Department of 
Agriculture: 
BEHT: Bill Emerson Humanitarian Trust: 
CSB: corn soy blend: 
DOD: Department of Defense: 
DOT: U.S. Department of Transportation: 
DOT/MARAD: Department of Transportation/U.S. Maritime Administration: 
FACG: Food Aid Consultative Group: 
FAM: Food Aid Management: 
FAPC: Food Assistance Policy Council: 
FAS: Foreign Agricultural Service, U.S. Department of Agriculture: 
FAO: Food and Agriculture Organization: 
ITSH: Internal Transportation, Storage, and Handling: 
KCCO: Kansas City Commodity Office U.S. Department of Agriculture: 
NGO: Nongovernmental organization: 
OFD: ocean freight differential: 
OMB: Office of Management and Budget: 
PRM: Bureau of Population, Refugees, and Migration (U.S. Department of 
State): 
PSC: Personal Services Contractor: 
SENAC: Strengthening Emergency Needs Assessment Capacity: 
State: U.S. Department of State: 
TCP: tricalcium phosphate: 
TQSA: Total Quality Systems Audit: 
UN: United Nations: 
USAID: U.S. Agency for International Development: 
USDA: U.S. Department of Agriculture: 
WSB: wheat soy blend: 
WFP: World Food Program: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 13, 2007: 

The Honorable Tom Harkin: 
Chairman: 
The Honorable Saxby Chambliss: 
Ranking Republican Member: 
Committee on Agriculture, Nutrition, and Forestry: 
United States Senate: 

The United States is the largest provider of food aid in the world, 
accounting for over half of all global food aid supplies intended to 
alleviate hunger and support development in low-income countries. Since 
its last reauthorization of the Farm Bill in 2002, Congress has 
appropriated an average of $2 billion per year in annual and 
supplemental funding for U.S. international food aid programs, which 
delivered an average of 4 million metric tons of agricultural 
commodities per year. In 2006, the largest U.S. food aid program, Title 
II of Public Law 480, benefited over 70 million people through 
emergency and development-focused projects. However, about 850 million 
people in the world are currently undernourished--a number that has 
remained relatively unchanged since the early 1990s, according to 
United Nations (UN) Food and Agriculture Organization (FAO) 
estimates.[Footnote 1] Furthermore, the number of food and humanitarian 
emergencies has doubled from an average of about 15 per year in the 
1980s to more than 30 per year since 2000, due in large part to 
increasing conflicts, poverty, and natural disasters around the world. 
Despite the growing demand for food aid, rising transportation and 
business costs have contributed to a 52 percent decline in average 
tonnage delivered over the last 5 years.[Footnote 2] For the largest 
U.S. food aid program, these noncommodity costs now account for 
approximately 65 percent of program expenditures, highlighting the need 
to maximize the efficiency and effectiveness of U.S. food aid. 

To inform Congress as it begins the process of reauthorizing the food 
aid provisions of the Farm Bill in 2007, we examine in this report some 
key challenges to the (1) efficiency of U.S. food aid programs and (2) 
effective use of U.S. food aid.[Footnote 3] 

To address these objectives, we analyzed food aid procurement and 
transportation data provided by the U.S. Department of Agriculture's 
(USDA) Kansas City Commodity Office (KCCO) and food aid budget and 
expenditure data provided by USDA and the U.S. Agency for International 
Development (USAID). We determined that the food aid data obtained were 
sufficiently reliable for our purposes. We reviewed economic literature 
on the implications of food aid on local markets and recent reports, 
studies, and papers issued on U.S. and international food aid programs. 
We conducted structured interviews of 14 U.S.-and foreign-flag ocean 
carriers that transport over 80 percent of U.S. food aid tonnage. 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 nongovernmental organizations (NGO) 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 UN Food and Agriculture Agencies, the UN World Food Program 
(WFP) headquarters, and FAO. We also conducted fieldwork in three 
countries that are recipients of food aid--Ethiopia, Kenya, and Zambia-
-and met with officials from U.S. missions, implementing organizations, 
and relevant host government agencies in these countries and South 
Africa. 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. For the countries we visited, we also reviewed 
numerous documents on U.S. food aid, including all the proposals that 
USDA approved and approximately half of the proposals that USAID 
approved from fiscal years 2002 through 2006 for the food aid programs 
that they respectively administer.[Footnote 4] In January 2007, we also 
convened a roundtable of 15 experts and practitioners--including 
representatives from academia, think tanks, implementing organizations, 
the maritime industry, and agricultural commodity groups--to further 
delineate, based on GAO's 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 I provides a detailed discussion of our objectives, scope, 
and methodology.) 

Results in Brief: 

Multiple challenges combine to hinder the efficiency of U.S. food aid 
programs. These challenges reduce the amount, timeliness, and quality 
of food provided. Specifically, factors that cause inefficiencies in 
food aid delivery include the following: 

* Funding and planning processes that increase delivery costs and 
lengthen time frames. These processes make it difficult to time food 
procurement and transportation to avoid commercial peaks in demand, 
often resulting in higher prices than if such purchases were more 
evenly distributed throughout the year. 

* Ocean transportation and contracting practices that differ from 
commercial practices and create high levels of risk for ocean carriers, 
increasing food aid costs. For example, food aid transportation 
contracts often hold ocean carriers responsible for logistical problems 
occurring at the load port, such as improperly filled containers, or 
costly delays at destination when the port or implementing organization 
is not ready to receive the cargo. Ocean carriers factor these costs 
into their freight rates, driving up the cost of food aid. 

* Legal requirements that result in the awarding of food aid contracts 
to more expensive providers and contribute to delivery delays. For 
example, cargo preference laws require 75 percent of food aid to be 
shipped on U.S.-flag carriers, which are generally more costly than 
foreign-flag carriers. DOT reimburses certain transportation costs, but 
the sufficiency of these reimbursements varies. 

* Inadequate coordination between U.S. agencies and stakeholders in 
tracking and responding to food and delivery problems. For example, 
while food spoilage has been a long-standing concern, USAID and USDA 
lack a shared, coordinated system to systematically track and respond 
to food quality complaints. 

To enhance the efficiency of food aid delivery, U.S. agencies have 
taken measures to improve their ability to provide food aid on a more 
timely basis. For example, USAID has been stocking food commodities, or 
prepositioning them, in Lake Charles (Louisiana) and Dubai (United Arab 
Emirates) for the past several years and is in the process of expanding 
this practice. Additionally, in February 2007, USAID and USDA 
implemented a new transportation bid process in an attempt to increase 
competition and reduce procurement time frames. Although both efforts 
may result in food aid reaching vulnerable populations faster in an 
emergency, their long-term cost-effectiveness has not yet been 
measured. Despite such initiatives to improve the process of delivering 
food aid, the current practice of using food aid as a means to generate 
cash for development projects--monetization--is an inherently 
inefficient use of resources. Monetization entails not only the costs 
of procuring, transporting, and handling food, but also the costs of 
marketing and selling it to generate cash for funding development 
projects. Furthermore, NGOs must maintain the expertise necessary to 
sell and market food aid abroad, which diverts resources from their 
core missions. In addition, U.S. agencies do not collect or maintain 
data electronically on the revenues generated from monetization. The 
absence of such electronic data impedes the agencies' ability to 
adequately monitor the degree to which monetization revenues can cover 
the costs. 

Various challenges limit the effective use of food aid to alleviate 
hunger. Given limited food aid resources and increasing emergencies, 
ensuring that food aid reaches the most vulnerable populations--such as 
poor women who are pregnant or children who are malnourished--is 
critical to enhancing its effectiveness and avoiding negative market 
impact in recipient countries. However, a number of factors limit 
effectiveness including the following: 

* Challenging operating environments characterized by poor 
infrastructure and lack of physical safety and security in recipient 
countries that restrict access to populations in need and cause delays. 
Limited recipient government participation has in some cases also 
contributed to insufficient or lack of timely coverage of vulnerable 
populations. 

* Insufficient coordination among key stakeholders, resulting in 
disparate estimates of food needs. For example, separate assessments by 
host governments, WFP, and NGOs have resulted in significantly 
different estimates of food needs and numbers of intended recipients. 
Consequently, donor assistance has been delayed until the various 
stakeholders reach agreement on these estimates. Moreover, assessments 
may not be sufficiently used to inform proposed programs. 

* Difficulties in identifying the most vulnerable groups and 
understanding the causes of food insecurity. For example, it has been 
challenging for implementing organizations to determine the causes of 
chronic food insecurity in people--such as poor health and water 
quality, in addition to lack of food--and provide appropriate 
assistance. Moreover, these difficulties have been exacerbated by 
insufficient use of best practices and institutional knowledge. 

* Resource constraints that adversely affect the timing and quality of 
assessments, as well as the quantity of food and other assistance. U.S. 
food aid funding available to conduct assessments in advance of program 
implementation is limited. Furthermore, in cases where recipients do 
not receive sufficient complementary assistance, they may be forced to 
sell part of their food rations to buy other basic necessities and, 
therefore, may not get the full health benefits of food aid. 

* Impediments to improving the nutritional quality of U.S. food aid, 
including a lack of an interagency mechanism to update food aid 
products and specifications, that may result in recipients not 
receiving the most nutritious or appropriate food. For example, 
although U.S. agencies have undertaken some measures to improve the 
nutritional quality of food aid, such as updating food aid product 
specifications with fortification enhancements, they have not fully 
addressed some key concerns. 

Finally, USAID and USDA do not sufficiently monitor food aid programs, 
particularly in recipient countries, due to limited staff, competing 
priorities, and restrictions on the use of food aid resources. For 
example, although USAID had some non-Title II-funded staff assigned to 
monitoring, it had only 23 Title II-funded staff assigned to missions 
and regional offices in 10 countries to monitor programs costing about 
$1.7 billion in 55 countries in fiscal year 2006. USDA has even less of 
a field presence for monitoring than USAID. As a result, U.S. agencies 
may not be accomplishing their goals of getting the right food to the 
right people at the right time. 

This report makes recommendations to the Administrator of USAID, the 
Secretary of Agriculture, and the Secretary of Transportation to work 
to improve the efficiency of U.S. food aid delivery, including 
instituting measures to (1) improve food aid logistical planning, (2) 
modernize transportation contracting practices, (3) update 
reimbursement methodologies to minimize the cost impact of cargo 
preference regulations on food aid transportation expenditures, (4) 
track and resolve food quality complaints systematically, and (5) 
develop an information collection system to track monetization revenues 
and costs. Further, to improve the effective use of food aid, we 
recommend that the Administrator of USAID and the Secretary of 
Agriculture also work to (1) enhance the reliability and use of needs 
assessments; (2) determine ways to provide adequate nonfood resources, 
when appropriate; (3) develop a coordinated interagency mechanism to 
update food aid specifications and products; and (4) improve monitoring 
of food aid programs. 

DOT, USAID, and USDA provided comments on a draft of our report. We 
have reprinted these agencies' comments in appendixes V, VI, and VII, 
respectively, along with our responses to specific points. DOT stated 
that it strongly supports the transportation initiatives highlighted in 
our report, which it agrees could reduce ocean transportation costs. 
USAID stated that we did not adequately recognize its recent efforts to 
strategically focus resources to reduce food insecurity in highly 
vulnerable countries. Although food security was not a research 
objective of this study, we recognize the important linkages between 
emergencies and development programs and used the new USAID Food 
Security Strategic Plan for 2006-2010 to provide context, particularly 
in our discussion on the effective use of food aid. USDA took issue 
with a number of our findings and conclusions because it believes that 
hard analysis was lacking to support many of the weaknesses that we 
identified. We disagree. 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. DOT, USAID, and USDA, along with DOD, State, FAO, and WFP, 
also provided technical comments and updated information, which we have 
included throughout this report as appropriate. 

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[Footnote 5] 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,[Footnote 6] 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.[Footnote 7] 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. 

Figure 1: The United States Was the Largest Provider of WFP Food Aid in 
2006: 

[See PDF for image] 

Source: GAO analysis based on February 2006 WFP data. 

Note: "Other donors" includes approximately 82 countries and 8 other 
entities, including associations of nations, NGOs, private donors, the 
Organization of Petroleum Exporting Countries fund, and international 
finance institutions such as the World Bank and the African Development 
Bank. 

[End of figure] 

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. 

Figure 2: Regions That Received Food from the Largest U.S. Food Aid 
Program in Fiscal Year 2006: 

[See PDF for image] 

Sources: GAO analysis based on USAID Title II data as of August 2006; 
Nova Development (map). 

[End of figure] 

Programs Use Assessments to Determine Emergency and Nonemergency Food 
Aid Needs: 

Food aid is used for emergency[Footnote 8] 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). 

Figure 3: Nonemergencies Represent a Decreasing Share of U.S. Food Aid 
from Fiscal Years 2001 through 2006: 

[See PDF for image] 

Source: GAO analysis of USAID and USDA data. 

Note: These data represent all food aid programs administered by USAID 
and USDA. USDA funding data for 2006 is estimated. 

[End of figure] 

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;[Footnote 9] the 
programs serve a range of objectives, including humanitarian goals, 
economic assistance, foreign policy, market development, and 
international trade.[Footnote 10] (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. 

Figure 4: Average Shares of Total Funding for U.S. Food Aid by Program 
Authority from Fiscal Years 2002 through 2006: 

[See PDF for image] 

Source: GAO analysis of USAID and USDA data. 

[A] This includes the Bill Emerson Humanitarian Trust. 

[End of figure] 

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.[Footnote 11] 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.[Footnote 12] (For a summary of congressional mandates for 
P.L. 480, see app. II.) 

Text Box: Cargo Preference as Applied to U.S. Food Aid: 

The cost-effectiveness of food aid cargo preference as a means of 
supporting a U.S.-flag commercial fleet has not been studied recently. 
The Department of Transportation reports that about 100 U.S.-flag 
vessels—employing about 5,000 U.S. citizen mariners—have carried U.S. 
food aid cargoes in the past several years. Operating U.S.-flag vessels 
is relatively expensive due to taxes, health and safety regulations, 
and labor costs. By providing a protected market, cargo preference 
regulations are largely designed to ensure the availability of an 
adequate number of U.S.-flag vessels and U.S. citizen mariners in the 
event of a national defense need (see GAO-04-1065 for further details). 
In 2006, 68 percent of U.S.-flag vessels participating in food aid 
programs also supported DOD’s military operations by serving as 
connecting vessels in the Middle East, Korea, and Japan and 
transporting ammunition, among other activities. DOD relies on 
commercial vessels, mariners, and infrastructure and estimates that it 
would cost DOD billions of dollars to replicate this capacity. Given 
that food aid accounts for almost a third of preference cargoes, DOD 
officials have indicated their support for cargo preference. 

[End of text box] 

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.[Footnote 13] 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.[Footnote 14] 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.[Footnote 
15] To examine procurement costs (expenditures on commodities and ocean 
transportation)[Footnote 16] 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).[Footnote 17] 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.[Footnote 18] 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.[Footnote 19] 

Figure 5: U.S. Food Aid Ocean Transportation Costs: 

[See PDF for image] 

Source: GAO analysis of Kansas City Commodity Office data; GAO ( 
photos). 

Note: Total procurement costs include commodity and ocean 
transportation costs. Costs incurred to transport the cargo to the U.S. 
port for export are included in the commodity and ocean transportation 
costs, dependent on contract terms. 

[End of figure] 

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.[Footnote 20] 
After an additional 40 to 50 days for ocean transportation to 
Africa,[Footnote 21] 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).[Footnote 22] 

Figure 6: An Example of a U.S. Food Aid Purchase and Its Delivery from 
Vendor to Village: 

[See PDF for image] 

Sources: GAO analysis of USAID and USDA data; GAO and Art Resources ( 
photos). 

[End of figure] 

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. 

Figure 7: Funding for USAID Food Aid Programs from Fiscal Year 2002 to 
Fiscal Year 2006: 

[See PDF for image] 

Source: GAO analysis based on USAID budget data. 

[End of figure] 

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.[Footnote 23] 

Figure 8: Bill Emerson Humanitarian Trust Commodity Balances (1984 to 
2006): 

[See PDF for image] 

Source: GAO based on USDA data. 

[End of figure] 

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.[Footnote 24] 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.[Footnote 25] 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.[Footnote 26] 

* 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.[Footnote 27] 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. 

Text box: WFP and DOD Planning: 

In 2003, WFP reviewed its business process and found that most delays 
in food aid delivery occurred during the funding process. In 
implementing a new business model, WFP is improving food aid delivery 
with logistical planning tools and advanced financing mechanisms based 
on historical analysis and forecasted contributions. Through several 
pilot programs, WFP estimates that its new business model allows it to 
reach about 20 to 30 percent more beneficiaries more rapidly and 
economically. DOD has improved its logistics with long-term 
transportation agreements. DOD’s international agreement for liner 
service, called the Universal Service Contract, has resulted in 
significantly lower freight rates, according to DOD and DOT officials. 
Transportation experts emphasize that long-term agreements include 
incentives to improve carrier performance and do not reduce 
competition. To meet the unique needs of food aid programs, long-term 
agreements could include flexibility and be used for countries with 
persistent food insecurity. For example, DOT found that 31 percent of 
the countries receiving food aid from 1994 to 2003 received over 50 
percent of U.S. food aid every year.WFP and DOD Planning

[End of text box] 

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.[Footnote 28] 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.[Footnote 29] 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.[Footnote 30] Further, several 
carriers reported that food aid contracts are not sufficiently 
standardized. Although USDA and USAID created a standard contract for 
nonbulk shipments,[Footnote 31] 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.[Footnote 32] 

* 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.[Footnote 33] 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.[Footnote 34] 
Carriers reported that they review contracts in advance and, where time 
requirements are deemed implausible, factor the anticipated penalty 
into the freight rate.[Footnote 35] 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.[Footnote 36] 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.[Footnote 37] 
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.[Footnote 38] 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. 

Figure 9: Carriers Views on Costly Food Aid Ocean Transportation 
Practices and Recommended Improvements: 

[See PDF for image] 

Source: GAO analysis of structured interviews with ocean carriers. 

Note: GAO asked ocean carriers to rate (1) the extent to which various 
transportation conditions increase costs and (2) how strongly they 
would recommend various improvements based on each option's potential 
to reduce costs. For this figure, we are illustrating those 
transportation conditions that reflect contracting practices--and 
improvements that are clearly linked with each condition. 

[End of figure] 

Legal Requirements Can Increase Delivery Costs and Time Frames: 

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).[Footnote 
39] 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.[Footnote 40] 
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).[Footnote 41] 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. 

Figure 10: Estimated Cargo Preference Ocean Freight Differential Costs 
and Department of Transportation Reimbursements to Food Aid Programs: 

[See PDF for image] 

Source: GAO analysis of USAID and DOT data. 

[A] DOT must finance any increased ocean freight charges resulting from 
the 1985 increase in the cargo preference requirement from 50 percent 
to 75 percent U.S.-flag. DOT must also finance the additional costs of 
all ocean transportation that exceeds 20 percent of the total cost of 
food aid commodities and ocean freight. 

[End of figure] 

Inadequate Coordination Limits Agency and Stakeholder Response to Food 
Delivery Problems: 

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.[Footnote 42] Food quality concerns have been long- 
standing issues for both food aid agencies and the U.S. 
Congress.[Footnote 43] 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. 

Figure 11: Delays Led to Contamination of U.S. Food Aid in Durban, 
South Africa: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

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: 

Text Box: Prepositioning Alternatives: 

WFP prepositions food aid by purchasing commodities and placing them on 
the high seas, “destination unknown.” In this way, WFP uses ocean 
vessels as floating warehouses that can be redirected as 
necessary.Ethiopia’s national grain reserve functions as a de facto 
prepositioning site. The reserve stores about 400,000 metric tons of 
food, capitalized by donors (including the United States)—enough to 
feed about 5.4 million people for about 6 months, according to the 
Ethiopian government’s Emergency Food Security Reserve Administration. 
Implementing organizations and WFP routinely draw down from the reserve 
with the understanding that the commodities borrowed will be 
replenished when U.S. food aid shipments arrive, usually within 6 
months. 

[End of text box] 

USAID has prepositioned food aid on a limited basis to improve 
timeliness in delivery.[Footnote 44] 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.[Footnote 45] 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.[Footnote 46] 

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. 

Table 1: USAID Tonnage and Costs for Prepositioning, Fiscal Years 2005 
through 2006: 

Tonnage purchased for prepositioning sites; 
Lake Charles: 99,630 MT;
Dubai: 100,520 MT. 

Tonnage shipped to prepositioning site; 
Lake Charles: 99,630 MT; 
Dubai: 64,606 MT. 

Tonnage diverted before reaching prepositioning site; 
Lake Charles: 0 MT; 
Dubai: 35,644 MT. 

Contract costs for storage and cargo handling services; 
Lake Charles: $839,380; 
Dubai: $715,668. 

Source: USAID. 

Legend: MT = metric ton: 

[End of table] 

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.[Footnote 47] 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.[Footnote 48] 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.[Footnote 49] 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.[Footnote 50] 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,[Footnote 51] 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."[Footnote 52] 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.[Footnote 53] 

The monetization rate for Title II nonemergency food aid has far 
exceeded the minimum requirement of 15 percent,[Footnote 54] 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[Footnote 55] 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. 

Figure 12: Use of Monetization by Program Authority: 

[See PDF for image] 

Source: GAO analysis of USAID and USDA data. 

[A] Monetization percentage is based on data from fiscal years 2002 
through 2005. 

[End of figure] 

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.[Footnote 56] 

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.[Footnote 57] 

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. 

Figure 13: Targeting Process to Ensure That Food Reaches the Most 
Vulnerable Populations: 

[See PDF for image] 

Sources: GAO analysis, adapted from WFP information; GAO (photos). 

[End of figure] 

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.[Footnote 58] (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.[Footnote 59] These low prices could decrease 
agricultural investments and reduce the return on labor allocated to 
agriculture.[Footnote 60] 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.[Footnote 61] 

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.[Footnote 62] 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.[Footnote 63] 

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 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.[Footnote 64] 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.[Footnote 65] 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.[Footnote 66] 

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.[Footnote 67] 
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.[Footnote 68] 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.[Footnote 69] 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.[Footnote 70] (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[Footnote 71] 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.[Footnote 72] 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.[Footnote 73] 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.[Footnote 74] 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.[Footnote 75] 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.[Footnote 76] 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.[Footnote 77] 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.[Footnote 78] 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: 

Text box: Why Nutrition Matters: The Impact of Title II Nutrition 
Programs on the Nutritional Status of Children: 

In 2004, USAID conducted a review of Title II maternal and child health 
and nutrition programs and found them successful in improving the 
nutritional status of children under the age of 2 and their mothers. A 
majority of the programs documented reductions in the prevalence of 
stunted and underweight children. 

[End of text box] 

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.[Footnote 79] 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)[Footnote 80] 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.[Footnote 81] 

* 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.[Footnote 82] 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.[Footnote 83] 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.[Footnote 84] 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.[Footnote 85] 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.[Footnote 86] 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.[Footnote 87] 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.[Footnote 88] 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 complaints; and: 

* 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. 

Signed by: 

Thomas Melito: 
Director, International Affairs and Trade: 

[End of section] 

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)[Footnote 89] 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. 

[End of section] 

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. 

Table 2: U.S. Food Aid by Program Authority: 

Program: Total budget[A]; 
P.L. 480: Title I: $30 million; 
P.L. 480: Title II: $1,706.9 million; 
P.L. 480: Title III: 0[B]; 
Food for Progress: $207.8 million; 
McGovern-Dole Food for Education and Child Nutrition: $97 million; 
Section 416(b): $20.8 million[C]. 

Program: Managing agency; 
P.L. 480: Title I: USDA; 
P.L. 480: Title II: USAID; 
P.L. 480: Title III: USAID; 
Food for Progress: USDA; 
McGovern-Dole Food for Education and Child Nutrition: USDA[D]; 
Section 416(b): USDA. 

Program: Year established; 
P.L. 480: Title I: 1954; 
P.L. 480: Title II: 1954; 
P.L. 480: Title III: 1954; 
Food for Progress: 1985; 
McGovern-Dole Food for Education and Child Nutrition: 2003; 
Section 416(b): 1949. 

Program: Description of assistance; 
P.L. 480: Title I: Concessional sales of agricultural commodities; 
P.L. 480: Title II: Donation of commodities to meet emergency and 
nonemergency needs; commodities may be sold in-country for development 
purposes; 
P.L. 480: Title III: Donation of commodities to governments of least 
developed countries; 
Food for Progress: Donation or credit sale of commodities to developing 
countries and emerging democracies; McGovern- Dole Food for Education 
and Child Nutrition: Donation of commodities and provision of financial 
and technical assistance in foreign countries; 
Section 416(b): Donations of surplus commodities to carry out purposes 
of P.L. 480 (Title II and Title III) and Food for Progress programs. 

Program: Type of assistance; 
P.L. 480: Title I: Nonemergency; 
P.L. 480: Title II: Emergency and nonemergency; 
P.L. 480: Title III: Nonemergency; 
Food for Progress: Emergency and nonemergency; 
McGovern-Dole Food for Education and Child Nutrition: Nonemergency; 
Section 416(b): Emergency and nonemergency. 

Program: Implementing partners; 
P.L. 480: Title I: Governments and private entities; 
P.L. 480: Title II: World Food Program and NGOs; 
P.L. 480: Title III: Governments; 
Food for Progress: Governments, agricultural trade organizations, 
intergovernmental organizations, NGOs, and cooperatives; 
McGovern-Dole Food for Education and Child Nutrition: Governments, 
private entities, intergovernmental organizations; 
Section 416(b): See implementing partners for Title II, Title III, and 
Food for Progress programs. 

Source: GAO analysis based on USAID and USDA data. 

[A] Budget data are for fiscal 2006. USDA data represent programmed 
funding, while USAID data represent appropriated funds as of August 
2006. 

[B] This program has not been funded in recent years. 

[C] This program is currently inactive due to the unavailability of 
government-owned commodities. Because it is permanently authorized, it 
does not require reauthorization under the Farm Bill. 

[D] USDA administers this program as stipulated by law, which states 
that the President shall designate one or more federal agencies. 

[End of table] 

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. 

Table 3: Congressional Mandates for P.L. 480: 

Mandate: Minimum; 
Description: Total approved metric tons programmed under Title II; 
FY 2006 target: 2.500 million metric tons; 
Actual status September 2006: 2.714 million metric tons. 

Mandate: Subminimum; 
Description: Metric tons for approved nonemergency programs; 
FY 2006 target: 1.875 million metric tons; 
Actual status September 2006: 744,781 metric tons. 

Mandate: Monetization; 
Description: Percentage of approved nonemergency Title II programs that 
are monetization programs; 
FY 2006 target: 15 percent; 
Actual status September 2006: 69 percent. 

Mandate: Value-added; 
Description: Percentage of approved nonemergency program commodities 
that are processed, fortified, or bagged; 
FY 2006 target: 75 percent; 
Actual status September 2006: 44.9 percent. 

Mandate: Bagged in the United States; 
Description: Percentage of approved nonemergency whole grain 
commodities that are bagged in the United States; 
FY 2006 target: 50 percent; 
Actual status September 2006: 49.5 percent. 

Source: GAO analysis, based on USAID data. 

[End of table] 

[End of section] 

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[Footnote 90] 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.[Footnote 91] 

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. 

[End of section] 

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. 

Figure 14: Food Distribution Activities to Target Recipients of Food 
Aid: 

[See PDF for image] 

Source: GAO analysis based on USAID Commodity Reference Guide. 

[End of figure] 

[End of section] 

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

Note: GAO comment supplementing those in the report text appear at the 
end of this appendix. 

U.S. Department of Transportation: 
400 Seventh St., S.W. 
Washington, D.C. 20590: 
Office of the Secretary of Transportation: 

March 29, 2007: 

Mr. Thomas Melito: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, NW: 
Washington, DC, 20458: 

The U.S. Department of Transportation's Maritime Administration 
(MARAD), which has responsibility for administering the Cargo 
Preference program, strongly supports the transportation-related 
initiatives highlighted in the draft report. If fully and effectively 
implemented, they offer the potential to achieve efficiencies and 
potentially reduce costs for ocean transport of food aid. In 
particular, MARAD agrees with GAO's findings that the transport 
contracts written by the food agencies must utilize modern 
transportation contracting practices and updated reimbursement 
methodologies. Reducing costs associated with these contracts will be 
possible if they begin using commercial principles of shared risks, 
supply chain partnerships, streamlined administration methods, and 
expedited payment and claims resolution, as recommended. MARAD has 
previously sought to open discussions with the food agencies to assist 
them in achieving potentially substantial efficiencies and cost 
reductions for the ocean transit portion of the food aid programs. 
MARAD stands ready to assist in achieving this objective. 

The inefficient and burdensome procurement and contracting practices 
utilized for shipping food aid produce higher shipping costs. These 
practices, such as bunching shipments during peak season, placing 
increased liability on carriers beyond the terms expected within 
commercial shipping, placing impractical time requirements on the 
shipments, burdensome ineffective processes for resolving 
transportation related disputes, and slow payments, all end up built 
into the fees charged by carriers. For example, GAO's data show that 
two of these terms alone - nonstandard freight terms and slow payment - 
could account for about one third of the difference in rates between 
food aid and commercial cargo.[Footnote 90] 

Finally, while the draft report states that legal requirements such as 
cargo preference can increase delivery costs, it is critical to 
understand that these costs are not borne by the food programs, and 
have minimal if any impact on the amount of food aid available. As 
required by the Food Security Act of 1985, MARAD makes payments to the 
food agencies intended to cover the differential costs for shipping 
food aid on US flag carriers under cargo preference. In response to 
concerns expressed by food agencies, in 2004, the Department and its 
Office of Inspector General reviewed the formula used to calculate the 
differential payment. As a result of this review, MARAD implemented a 
revised formula and improved processing, in an effort to ensure the 
food agencies are appropriately and expeditiously compensated for the 
cost of cargo preference. As a result of these efforts, our 
calculations using USDA data show that over the past few years, the 
food agencies are receiving compensation that should cover the cost of 
cargo preference. 

We appreciate the opportunity to offer comments on the draft report. 
Please contact Martin Gertel, Director of Audit Relations, on 202-366- 
5145 with any questions. 

Sincerely, 

Signed by: 

Linda J. Washington: 
Acting Assistant Secretary for Administration:  

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. 

[End of section] 

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

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

USAID: 
From The American People: 

Mar 29 2007: 

Mr. Thomas Melito: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Melito: 

I am pleased to provide the U.S. Agency for International Development's 
(USAID) formal response to the draft GAO report entitled, "Foreign 
Assistance: Various Challenges Impede the Efficiency and Effectiveness 
of U.S. Food Aid" [GAO-07-560]. 

USAID has made a considerable effort to improve both the efficiency and 
effectiveness of U.S. food aid. We were surprised that the GAO did not 
make reference to the new USAID Food Security Strategic Plan for 2006- 
2010. This new Strategy specifically addresses the dynamically changing 
challenges which face the P.L. 480 Title II food aid program. We have 
also taken note of the numerous challenges that limit the effective use 
of food aid, which is especially important in light of limited 
resources and increasing emergencies needs. Several key examples of 
these challenges and the subsequent improvements that USAID has made 
are discussed in the enclosure to this letter.  

Thank you for the opportunity to respond to the GAO draft report and 
for the courtesies extended by your staff in the conduct of this 
review. 

Sincerely, 

Signed by: 

Mosina H. Jordan: 
Counselor to the Agency: 

Enclosure: a/s:  

U.S. Agency for International Development: 
1300 Pennsylvania Avenue, NW: 
Washington, DC 20523: 
wwww.usaid.gov: 

USAID Comments To Draft GAO 07-560: 

The new USAID Food Security Strategic Plan for 2006-2010 explicitly 
recognizes the crucial relationship between emergencies and development 
and the need to address the linkages between chronic and acute 
vulnerabilities, and how USAID and its partners are improving targeting 
criteria to ensure that food resources reach the most vulnerable 
countries and populations. 

As recognized in the Strategy, USAID is working in close cooperation 
and consultation with regional bureaus, USAID missions, cooperating 
sponsors, other donors and the private sector to focus its staff time 
and attention on the most strategic set of countries for multi-year 
programs to support country-specific strategies for enhancing the 
programs' impact on reducing food insecurity. These challenges are what 
led USAID and its partners to the strategic decision to focus Title II 
resources on reducing risk and vulnerability in vulnerable populations. 

In addition, the draft report did not take into consideration the 2002 
Report of the Food Aid and Food Security Assessment: A Review of the 
Title II Development Food Aid Program Achievements and Constraints in 
Management and Implementation of Title II. As noted in this report, 

"...over the past 6 years, (cooperating sponsors) have made 
considerable progress in program assessment, program design, resource 
integration, partnering and capacity-building, while facing some 
significant constraints. Program assessments have advanced considerably 
as the technical sophistication of (cooperating sponsors) has 
increased, although gaps remain. Review of DAP proposals submitted over 
time shows significant improvement in identifying and describing 
critical country-level food security problems; most assessments 
incorporate a participatory methodology." 

Moreover, USAID notes that the GAO draft report would have been 
strengthened by additional analysis of the magnitude and perspective of 
recommendations in terms of the size of the program and the number of 
beneficiaries reached. For example, while the report notes that "every 
$10 per metric ton reduction in freight rates could feed about 1.2 
million more people during an average hungry season," USAID would like 
to underscore that no hungry season is "average" and that actual saving 
would represent less than two percent of the FY2006 program. 

USAID has taken note of the numerous challenges that limit the 
effective use of food aid, which is especially important in light of 
limited resources and increasing emergencies needs. Several key 
examples of these challenges and the subsequent improvements that USAID 
has made are discussed in this letter. 

In terms of the commodity procurement, USAID has joined with the U.S. 
Department of Agriculture (USDA) in a consultative process to 
significantly improve the U.S. food aid supply chain management. 
Starting in 1999, USAID has investigated and inaugurated pre- 
positioning facilities, first in Lake Charles, Louisiana, and then 
Dubai, United Arab Emirates (UAE). These programs have succeeded in 
reducing the time it takes for commodities to arrive for the recipients 
of food emergencies, by eliminating the ordering process and, in the 
case of Dubai, reducing the shipping time as the commodities are placed 
half way around the world. At this time, USAID has awarded a third pre- 
positioned site in Djibouti and will award a domestic warehouse 
contract in the next few days. In addition, USAID is seeking to 
establish appropriate management of the expanding system of sites. 

The GAO draft report implies that USAID unilaterally selects pre- 
positioned sites rather than using Federal Acquisition Regulations. The 
award of pre-positioning facilities is through a fair, open, and 
competitive process. Award is made to the best bidder in response to a 
solicitation. Since the award cannot go to a facility that did not or 
will not make an offer, we can only award to the best bidder under a 
particular solicitation. These solicitations are regularly competed 
through fair and open procedures to ensure that the USG retains the 
best service providers. Our pre-positioning contractors are 
additionally responsible for helping to ensure that commodities are 
rotated on or near a first-in, first out (FIFO) basis. 

USAID emergency food aid allocations demand considerable effort and 
analysis. This task is made even more difficult by the rapidly changing 
circumstances and budgetary uncertainties. A number of relevant factors 
come into play, including: 

* Overall need, as measured by objective assessments of required 
rations and tonnage; 

* Severity of the need, as measured by malnutrition rates and other 
critical factors; 

* Ability of affected populations to cope with the emergency using 
resources at their disposal; 

* Resource levels that other donors are planning or are likely to 
provide; and: 

* Ability of aid organizations, e.g., cooperating sponsors, World Food 
Programme (WFP), etc., to reach those most in need and to monitor 
distributions, both of which may be hampered by insecurity, government 
actions, logistical constraints and other factors. 

Within the constraints of existing legislative mandates, USAID works to 
introduce competitive commercial principles in all of its contracting 
and procurement arrangements. Transportation and contracting practices 
must protect the U.S. government's interests while including, to the 
greatest extent practicable, commercial principles of shared risks, 
streamlined administration, and expedited payment and claims 
resolution. GAO has recommended improvements in transportation 
contracting, but did not include information on the process involved in 
developing the "Food Aid Booking Note." This Booking Note is the 
uniform contract that is used in both USAID and USDA food aid programs 
and is the direct result of the recommendations of a committee that 
included carriers, cooperating sponsors and their freight forwarders, 
and U.S. government representatives from USAID, USDA and DOT. This 
committee was formed in 2002 and met quarterly for approximately two 
years before the final product was presented. The terms and conditions 
of the Booking Note were fully vetted with all the major carriers and 
the cooperating sponsors prior to acceptance. 

USAID has explored different payment methods as well as considered 
longer term transportation arrangements. While in a normal commercial, 
competitive environment, these types of improvements would most 
certainly yield reduced rates and lower transportation costs, USAID 
recognizes that the myriad of cargo preference laws in the Title II 
program do not reflect a commercial, competitive environment. USAID has 
undertaken numerous initiatives to strike an appropriate balance 
between risk and costs, while taking into account the non-commercial 
nature of the cargo preference requirements and their impact on 
competition. 

USAID is interested in formally updating the ocean freight 
reimbursement methodologies to take into account the new electronic 
freight bidding procedures implemented in February 2007. However, DOT 
has stated that they must publish updated cargo preference regulations 
before any inter-agency agreement can be finalized. USAID has 
investigated options as it relates to long-term transportation 
agreements as well as different payment methods that would speed up 
ocean transportation payments. While the costs for those particular 
tools would far exceed the benefits, USAID will continue to seek 
alternatives that would improve transportation services and reduce 
costs so that more food successfully reaches the most food insecure. 
USAID has already expanded its use of tendering for multiple discharge 
port options in ocean contracts, for example, similar to the World Food 
Programme's (WFP) operations, so that flexibility is enhanced without 
incurring the steep premiums of high seas diversion. 

USAID works closely with USDA and members of the Food Aid Consultative 
Group (FACG) to coordinate, track and resolve food quality complaints. 
Nevertheless, USAID recognizes that the system could be strengthened. 
We support the work of the FACG's commodity management working group to 
investigate improved processes and procedures among the cooperating 
sponsors, USAID and USDA to resolve food aid quality complaints through 
a more streamlined, consolidated approach. Finally, USAID is 
investigating ways to use its Quarterly Web Interfaced Commodity 
Reporting (QWICR) system to also track quality issues and complaints so 
that stakeholders can more quickly become aware of quality issues. 
Overtime, USAID anticipates that QWICR will also have the capability to 
track and analyze monetization transactions. 

USAID recognizes that both the quality and formulation of food aid 
products are crucial to delivering safe, wholesome products to 
undernourished populations, particularly vulnerable groups including 
infants and young children, women of child-bearing age and people 
living with HIV/AIDS. Along with USDA, USAID is reviewing options to 
review the nutritional quality and cost-effectiveness of commodities 
being provided as food assistance. Our goal will be to have 
consultations with nutritionists, scientists, commodity associations 
and our partners to make sure all viewpoints are heard. USAID wants to 
ensure that the food aid we provide is of the highest quality to meet 
the nutritional requirements necessary to address chronic hunger. 

To address these concerns, along with USDA, USAID is taking the 
initiative to do an in-depth review of the types and quality of food 
products used in the administration of U.S. food aid programs and will 
also continue its efforts of reviewing the existing contract 
specifications used to obtain food aid commodities, and improving our 
post-production commodity sampling and testing regime based upon sound 
scientific standards. 

The GAO draft report highlights the importance of enhancing the 
reliability and applications of needs assessments for new and existing 
food aid programs through better coordination among implementing 
organizations, which can learn from past targeting experiences. 
Assessment is a USAID priority. Good early warning intelligence is the 
most effective tool we have to develop and confirm reliable needs 
assessments. It is for this reason that, over the last several years, 
there has been an expansion of the reach and improvements in the 
techniques of the USAID-funded Famine Early Warning System (FEWS). This 
year, USAID has been working with FEWS to improve tools to be able to 
report on potential food crises with six months anticipation. USAID is 
developing ways to apply FEWS as a framework for donor information 
sharing and coordination. In addition, USAID utilizes its available 
monitoring resources as effectively as possible to ensure proper 
targeting, management and implementation. As food aid alone cannot 
achieve food security, USAID seeks to coordinate with other donors to 
ensure that the needed non-food resources are made available to 
reinforce the food resources. 

Monitoring of all grant programs is not only allowed, it is required. 
All implementers are under legal obligations to monitor and report 
their findings to USAID. In addition, USAID staff, more than 65 of whom 
are based in the field, and more than 30 in Washington, monitor and 
oversee the food aid programs. However, USAID may only bring personal 
service contractors on board to monitor emergency work, although some 
portion of their time can be directed to development projects. 

USAID evaluates every proposed monetization activity and approves only 
those which use monetization proceeds to address the underlying causes 
of food insecurity, without disrupting local production or markets. For 
each commodity to be monetized, USAID's policy request that the 
cooperating sponsors set a sales price which: (1) represents the 
reasonable market price of the commodity in the country (or region) in 
which it is being sold; (2) does not depress the price of locally 
produced commodities in accordance with the 1977 Bellmon Amendment; (3) 
does not disrupt normal commercial practices, i.e. UMR considerations 
and (4) is acceptable to the USAID Field Mission (or Regional mission 
for non-presence countries). For all planned monetization, cooperating 
sponsors estimate anticipated sales prices based upon local market 
analysis and provide the background and basis of that estimate for 
review by the USAID. 

Although beyond the GAO audit's mandate, which is to limit its review 
to existing programs, with regard to efforts to improve the 
effectiveness of food aid programs, especially its emergency response 
capabilities, it is important to note that the Administration is 
seeking the authority to apply up to 25 percent of the P.L. 480 Title 
II funds to procure food commodities in local and regional markets. 
This authority is requested as in certain circumstances, local 
procurement could accelerate the delivery of critically needed food to 
emergency victims. 

Finally, USAID works closely with other U.S. agencies and donor 
partners in the fight against global hunger by increasing G8 action on 
implementing the New Partnership for Africa's Development's (NEPAD) 
Comprehensive African Agricultural Development Plan (CAADP), which is 
now a viable framework for improving the effectiveness of development 
assistance in achieving food security and broad-based economic growth 
in Africa; and, to highlight the need for ongoing G-8 commitment to 
reducing hunger, preventing famine and meeting emergency humanitarian 
needs in Africa, particularly in the Horn and Sudan. 

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. 

[End of section] 

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

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

United States Department of Agriculture: 
Farm and Foreign Agricultural Services: 
Foreign Agricultural Service: 
1400 Independence Ave, SW: 
Stop 1060: 
Washington, DC 20250-1060: 

Mar 3 0 2007: 

Mr. Thomas Melito: 
Director, International Affairs and Trade: 
United States Government Accountability Office: 
441 G Street, N.W. 
Washington, D.C. 20548: 

Dear Mr. Melito: 

The U.S. Department of Agriculture (USDA) sincerely appreciates the 
efforts of the Government Accountability Office (GAO) to allow USDA an 
opportunity to provide a substantive response to the comprehensive GAO 
draft report and accompanying testimony on "Foreign Assistance: Various 
Challenges Impede the Efficiency and Effectiveness of US Food Aid" (GAO-
07-560). USDA's comments are based on GAO's draft report provided to 
USDA on March 8, 2007. Some issues raised in the draft report are not 
reflected in the recommendations, and USDA does not address these due 
to our already lengthy comments and the limited time to respond. USDA 
believes that the release of the final report represents the 
beginning --not the end --of the discussion on this complex topic, and 
that all sides will have further opportunities to explore and 
understand the several complicating factors in food aid. 

USDA agrees that improvements in efficiency and effectiveness are 
possible in the procurement, planning, monitoring, and quality of food 
aid. However, despite the title GAO gave the report, USDA believes that 
in some cases GAO fails to fully articulate the inherent challenges in 
achieving an ideal first-world performance when implementing the 
programs in difficult third-world environments. These written comments 
will address some of these challenges. USDA notes that despite these 
complications, critical nutritional needs all around the world 
routinely are met in a timely fashion, and all available data indicates 
that U.S. commodity losses for non-World Food Programme food aid are 
limited to one percent or less. 

USDA also does not find where any hard analysis was undertaken by GAO 
to support many of the weaknesses that the draft report identifies. 
Instead, GAO appears to have drawn broad conclusions based upon various 
anecdotal incidents as reported by assorted constituencies, each with 
their own interests and points of view. Many of the examples GAO cited 
to illustrate the points in the draft report are unique or presented 
out of context, resulting in misleading statements or flawed 
conclusions. Obviously USDA cannot address each instance here, but the 
Department's overall comments should be read with that in mind. 

For example, although the majority of food aid shipments consist of 
relatively stable bulk commodities, most of GAO's conclusions and 
recommendations regarding transportation appear to involve the shipment 
of higher risk packaged products. In 2006, overall food aid shipments 
totaled approximately three million metric tons, with bulk shipments 
representing approximately 62 percent by quantity (and approximately 52 
percent by freight dollars). So while the report is presented as 
addressing all food aid, in truth much of the report is focused on just 
over one-third of all food aid shipped. 

USDA also is very proud of the Department's ability to adapt and 
respond appropriately in emergency situations. For example, after the 
Indian Ocean Tsunami, USDA quickly responded with the diversion of 
15,000 metric tons of rice, with almost 5,000 metric tons arriving in 
Indonesia only 13 days after the event. In Lebanon, 25,000 metric tons 
of USDA diverted wheat arrived in Beirut just 18 days after the 
decision was made to provide emergency assistance. 

USDA is aware of the past bunching of shipments and continues to take 
steps which already have markedly alleviated this issue. Over the past 
two years USDA has introduced more flexibility into shipping periods. 
Commodity and freight procurement that once was compressed into the 
October-December timeframe now can be shipped anytime from October 
through March, therefore spreading out food aid procurements and 
resulting in a more balanced procurement process. 

The Department also recently published the final rule on a one-step 
procurement process for packaged products, which allows USDA to procure 
commodity and freight with bids that are received at the same time. An 
electronic bid system for packaged commodity and freight now is in 
operation as well. This process allows commodity suppliers and carriers 
to respond to government proposals more efficiently, and also provides 
a platform for the consolidation of cargo, which USDA believes will 
result in long term cost savings. Further, this one-step process will 
reduce the time to deliver commodities to the U.S. port, thus reducing 
the delivery time to the ultimate recipient. The U.S. Agency for 
International Development (USAID), USDA, and the U.S. Maritime 
Administration (MARAD) are in discussions to revise MARAD's cargo 
preference regulations to allow greater flexibility and efficiencies in 
utilizing U.S. flag carriers. 

USDA agrees that a greater acceptance of multi-year food aid agreements 
may offer opportunities to improve program planning and logistics, and 
may provide increased flexibility in purchasing and shipping periods. 
The Department actually is receiving a higher number of multi-year 
proposals for the Food for Progress (FFP) and the McGovern-Dole Food 
for Education (FFE) programs, and is doing its best to approve more of 
them. We believe that the FFE under present operating guidelines is an 
example of an effective and efficient program. In FY 2006, commodity 
purchases made up 54 percent of expenditures, transportation to the 
destination made up 21 percent, administrative costs of implementing 
organizations and inland transportation made up 12 percent, and cash 
for teacher training and other such activities made up 13 percent. 
However, an increased demand for these programs, coupled with the 
currently high commodity and freight costs, is limiting the number of 
multi-year proposals that can be accepted. 

USDA has greater concern with the draft report's discussion on 
modernizing food aid transportation contracting practices. We again 
believe that GAO oversimplifies the issue and that its recommendations 
are too general. For example, the draft report is misleading in that it 
does not make distinctions between the different transportation 
contracts that make up the logistical operations of food aid. Contract 
terms, risks, and overall challenges are not the same for marine 
transportation contracts as for foreign inland cargo movements. 
Reviewing all cargo transportation movements collectively (from vendor 
to village) caused the findings in the draft report to be inaccurate. 
These contracts must be reviewed separately if the overall issues are 
to be properly understood. 

USDA is open to talking with the shipping industry, USAID, and MARAD to 
discuss potential improvements, but the Department believes that its 
contracts already are both clear and consistent with commercial 
practices. Any confusion on the point might arise from the fact that 
food aid programs often mandate shipment to difficult locations and 
less-commercial port environments. Carriers which are inexperienced in 
this type of work may not price into their bid adequate protection for 
the increased risks that they assume as a result. 

USDA shares in those risks, but believes that in most cases the carrier 
is the more capable party to avoid or handle the foreseeable risks 
involving any logistical problems that arise. The contracts clearly set 
out the complete responsibilities of each party and the foreseeable 
risks through the entire transaction, and particularly the financial 
responsibilities in the event that logistical problems (such as limited 
infrastructure or corruption) do occur. As in any commercial exchange, 
the very first risk a bidder takes is in understanding what his 
contracted responsibilities will be, and in pricing his bid 
accordingly. 

GAO limits its draft report discussion on cargo preference to trying to 
minimize the cost of implementation. USDA shares the desire to limit 
the impact of cargo preference on the food aid programs, but believes 
that the draft report is misleading in suggesting that substantial 
savings which could be used to increase the tonnage of food aid shipped 
under the programs are possible. This is largely because GAO failed to 
adequately examine the ramifications of reimbursements received from 
MARAD under Sections 901d(a) and 901 d(b) of the Merchant Marine Act. 

Any discussion of the cost of cargo preference and its impact on the 
food assistance programs must contain a thorough review of the 
financing provisions and reimbursements received from MARAD. Section 
901d(a) requires MARAD to finance the additional cost in ocean freight 
charges in moving from a requirement of 50 percent U.S. flag vessel 
participation to 75 percent U.S. flag vessel participation. Section 
901d(b) reimburses the food aid agencies for all ocean freight costs 
whenever the ocean freight costs exceed 20 percent of the total 
commodity cost. For Fiscal Years 2003, 2004, and 2005, all but one of 
the food aid grant programs received significant reimbursements under 
Section 901d(b). The single exception was the Section 416(b) program, 
which did not qualify since it was utilized primarily for the export of 
nonfat dry milk, the very high cost of which prevented it from meeting 
the 20 percent qualification. 

Food aid programs that reach this 20 percent threshold under Section 
901 d(b) have their ocean freight costs effectively capped, with all 
ocean freight costs above that point --regardless of vessel age or flag 
--being reimbursed by MARAD. With MARAD reimbursements to the USDA and 
USAID food aid programs totaling approximately $100 million annually 
under this provision, food aid agencies would have to seek efficiencies 
in transportation operations exceeding that amount before any cost 
savings would be available to procure additional food. USDA does not 
understand how the transportation changes alluded to in the draft 
report would capture these types of savings. An examination of any 
significant savings ultimately would have to involve a general 
discussion of cargo preference, which the draft report does not do. 

However, USDA always has been aware of the financial cost of 
transportation in food aid programs, whether reimbursed by MARAD or 
not. Because of this concern, the Department has instituted procedures 
such as automated payment processes to increase efficiency. 

USDA will carefully review GAO's final recommendation regarding the 
establishment of a coordinated system for tracking and resolving food 
quality complaints, and will coordinate with USAID in addressing the 
issue. In many cases, commodities for USDA and USAID programs share 
space on the same ship, so we already learn together of any problems 
regarding a ship or its cargo. In addition, USDA and USAID routinely 
share information on substantial known quality problems. However, as 
previously indicated, commodity losses due to shipping problems or 
infestation are extraordinarily low. Nevertheless, USDA continues to 
work with USAID to consider a more formal structure to share and record 
food quality or contamination information, and to review different ways 
to procure or ship commodities that may improve or preserve quality. 

As an example, the recent development of the Containerization Aid 
Product Improvement Team (CAPIT) was the result of collaboration 
between USDA and USAID, along with carriers and commodity suppliers. 
CAPIT made operational recommendations which were adopted by the food 
aid agencies to resolve issues specific to commodity losses of corn and 
beans during the containerized movement of these food aid cargos. In 
addition, over a decade ago USDA created a rapid response team 
comprised of operational experts that travel worldwide to respond to 
loss complaints from food aid recipients. This team has been very 
successful in addressing large loss situations and has saved millions 
of dollars for the food aid programs by effectively mitigating 
commodity losses. 

USDA and USAID continue to take steps to review the products used in 
food aid and to ensure that we are shipping quality products that meet 
the needs of the recipients. We are taking a three-pronged approach 
that involves the agencies, the food industry and nutritionists, and 
the organizations that deliver the food aid in country. First, USDA is 
taking steps to improve its contracting for food aid by increasing the 
enforcement of standards in the contracts that would be included in 
future procurements. Second, USDA will work with experts to identify 
and reinforce laboratory testing standards and manufacturing processes. 
Third, a longer-term study will be undertaken to help identify new 
products or improved products that could be provided through food aid. 
USDA and USAID will work closely with Congress and the private sector 
during this process. 

USDA is developing an information system to improve the monitoring and 
evaluation of food aid programs. The Food Aid Information System (FAIS) 
currently is in development, and when completed will capture 
implementing organizations' reports electronically and automate the 
tracking of both report delinquency and completion. Most importantly, 
the system will allow the quick and easy comparison of agreement 
objectives and progress criteria against program outputs and outcomes 
through improved reporting formats and performance metric tools. The 
FAIS is scheduled for completion in 2009, assuming no additional 
constraints in funding. 

In discussing ways to provide adequate non-food resources in situations 
where such assistance will enhance the effectiveness of food aid, GAO 
neglected to address the significant non-food resources that are 
provided regularly in both the FFP and HE programs. FFP projects, both 
with governments and those with private voluntary organizations, often 
include non-food resources. In fact, the use of monetized proceeds to 
support the proper storage, handling, and processing of foods are 
common elements of FFP agreements and are encouraged where appropriate, 
while funds monetized through the FFE program also are used to support 
school repair and construction, to purchase educational materials, and 
for other such non-food resources. This flexibility to provide support 
for food aid effectiveness by using monetized proceeds is one of the 
outstanding, positive features of monetization that was not included in 
the draft report. Of course, all non-food utilization of monetization 
proceeds entails a dollar-for-dollar reduction in the amount available 
for commodity procurement. 

Finally, as GAO noted, USDA already is taking additional steps to 
address the monitoring of food aid programs. During the recent 
reorganization of the Foreign Agricultural Service (FAS), the agency 
established a Monitoring and Evaluation unit which will have 
responsibility for the evaluation of the development programs. FAS 
hopes that adequate funding will be made available to enable the unit 
to carry out the full reporting, evaluation, and site visit duties 
assigned to it. This joins with the FAIS in representing USDA's renewed 
commitment to improving the monitoring of food aid programs in order to 
ensure their proper management and implementation. 

Again, we commend GAO for providing this most useful report. USDA looks 
forward to taking part in the ongoing discussion of U.S. food aid that 
it already has helped initiate. 

Sincerely, 

Signed by:  

Michael W Yost: 
Administrator: 
Foreign Agricultural Service: 

Signed by: 

Teresa C. Lasseter: 
Administrator: 
Farm Service Agency: 

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. 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Thomas Melito, Director, (202) 512-9601: 

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. 

[End of section] 

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Their Accuracy and Credibility Could Be Enhanced, GAO-07-24. 
Washington, D.C.: Nov. 9, 2006. 

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Washington, D.C.: June 30, 2003. 

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Recover from Food Crisis, GAO-03-644. Washington, D.C.: June 25, 2003. 

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Foreign Assistance: Global Food for Education Initiative Faces 
Challenges for Successful Implementation, GAO-02-328. Washington, D.C.: 
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Mixed Results, GAO/NSIAD-00-175. Washington, D.C.: June 15, 2000. 

Foreign Assistance: Donation of U.S. Planting Seed to Russia in 1999 
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Foreign Assistance: North Korean Constraints Limit Food Aid Monitoring, 
GAO/T-NSIAD-00-47. Washington, D.C.: Oct. 27, 1999. 

Foreign Assistance: North Korea Restricts Food Aid Monitoring, GAO- 
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Food Security: Preparations for the 1996 World Food Summit, GAO/NSIAD- 
97-44. Washington, D.C.: Nov. 1996. 

Food Security: Factors That Could Affect Progress Toward Meeting World 
Food Summit Goals, GAO/NSIAD-99-15. Washington, D.C.: Mar. 1999. 

International Relations: Food Security in Africa, GAO/T-NSIAD-96-217. 
Washington, D.C.: Jul. 31, 1996. 

Food Aid: Competing Goals and Requirements Hinder Title I Program 
Results, GAO/GGD-95-68. Washington, D.C.: June 26, 1995. 

Foreign Aid: Actions Taken to Improve Food Aid Management, GAO/NSIAD- 
95-74. Washington, D.C.: Mar. 23, 1995. 

Maritime Industry: Cargo Preference Laws Estimated Costs and Effects, 
GAO/RCED-95-34. Washington, D.C.: Nov. 30, 1994. 

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NSIAD-95-35. Washington, D.C.: Nov. 23, 1994. 

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Aid Programs, GAO/GGD-94-215. Washington, D.C.: Sept. 29, 1994: 

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Status Report on GAO's Reviews on P.L. 480 Food Aid Programs, GAO/T- 
NSIAD-90-23. Washington, D.C.: Mar. 21, 1990. 

FOOTNOTES 

[1] According to FAO's 2006 The State of Food and Agriculture report, 
conditions in Asia have improved while those in Africa have worsened. 

[2] While we acknowledge that commodity prices also affect tonnage, 
there has been no clear trend in total average commodity prices for 
food aid programs from fiscal years 2002 through 2006. 

[3] We define efficiency as the extent to which a program is acquiring, 
protecting, and using its resources in the most productive manner--in 
terms of the cost, time, and quality of food aid. We define 
effectiveness as the extent to which U.S. food aid programs achieve 
their goals and objectives. 

[4] USDA administers Public Law (P.L.) 480 Title I, Food for Progress, 
Section 416(b), and the McGovern-Dole International Food for Education 
and Child Nutrition programs. USAID administers P.L. 480 Title II. 

[5] Food security exists when all people at all times have both 
physical and economic access to sufficient food to meet their dietary 
needs for a productive and healthy life. 

[6] In-kind food aid usually comes in two forms: nonprocessed foods and 
value-added foods. Nonprocessed foods consist of whole grains like 
wheat, corn, peas, beans, and lentils. Value-added foods consist of 
processed foods that are manufactured and fortified to particular 
specifications and include milled grains, such as cornmeal and bulgur, 
and fortified milled products, such as corn soy blend (CSB) and wheat 
soy blend (WSB). 

[7] WFP relies entirely on voluntary contributions to finance its 
humanitarian and development projects, and national governments are its 
principal source of funding. More than 80 countries fund the 
humanitarian and development projects of WFP. 

[8] WFP defines emergencies as "urgent situations in which there is 
clear evidence that an event or series of events has occurred which 
causes human suffering or imminently threatens human lives or 
livelihoods and which the government concerned has not the means to 
remedy; and it is a demonstrably abnormal event or series of events 
which produces dislocation in the life of a community on an exceptional 
scale." 

[9] The authority for these U.S. international food aid programs is 
provided through P.L. 480 (the Agricultural Trade Development and 
Assistance Act of 1954, as amended, 7 USC § 1701 et seq.); the Food for 
Progress Act of 1985, as amended, 7 USC § 1736o; section 416(b) of the 
Agricultural Act of 1949, as amended, 7 USC § 1431; and the Farm 
Security and Rural Investment Act of 2002 (P.L. 107-171). Funding 
sources for U.S. international food assistance other than these six 
USAID-and USDA-administered food aid programs include (1) the 
International Disaster and Famine Assistance fund and (2) State's 
Bureau of Population, Refugees, and Migration. (See app. II for a 
description of these sources of funding.) 

[10] See GAO, Food Aid: Experience of U.S. Programs Suggests 
Opportunities for Improvement, GAO-02-801T (Washington, D.C.: June 4, 
2002). 

[11] P.L. 104-239, 110 Stat. 3138. See GAO, Maritime Security Fleet: 
Many Factors Determine Impact of Potential Limits on Food Aid 
Shipments, GAO-04-1065 (Washington, D.C.: Sept. 13, 2004). 

[12] Due to increasing emergency food aid needs, the USAID 
Administrator has requested that Congress waive this subminimum 
requirement; as a result, this mandate has not been met since 1995. 

[13] The Bill Emerson Humanitarian Trust, a reserve of up to 4 million 
metric tons of grain, can be used to help fulfill P.L. 480 food aid 
commitments to meet unanticipated emergency needs in developing 
countries or when U.S. domestic supplies are short. The Secretary of 
Agriculture authorizes the use of the trust in consultation with the 
Food Assistance Policy Council, which includes senior USAID 
representatives. The trust, as presently constituted, was enacted in 
the 1998 Africa Seeds of Hope Act (P.L. 105-385) and replaced the Food 
Security Wheat Reserve of 1980. 

[14] See 7 U.S.C. 1725. 

[15] If U.S. food aid programs were to provide the same level of 
tonnage in fiscal year 2006 as they did in fiscal year 2002, they could 
have fed over 35 million more people during a typical peak hungry 
season lasting 3 months. Our estimates of additional beneficiaries 
served with potential savings use USAID's estimate that 1 metric ton 
can feed approximately 1,740 people per day. 

[16] Costs to transport food to the U.S. port for export are included 
in commodity and ocean transportation contracts. 

[17] In addition to rising fuel prices and greater global demand for 
shipping, one factor contributing to the rise in freight rates is the 
rising share of U.S. tonnage sent to Africa, which had a slightly 
higher average cost of $180 per metric ton in 2006. 

[18] World Food Program, WFP in Statistics (Rome, Italy: July 2006) and 
Review of Indirect Support Costs Rate, WFP/EB/A/2006/6-C/1 (Rome, 
Italy: May 2006). 

[19] Based on USAID and USDA data, the fiscal year 2006 average 
commodity and transportation cost for 1 metric ton of food aid was 
$670. If that average cost had been reduced by $10 per metric ton 
through a reduction in ocean transportation freight rates or any other 
cost factor, the fiscal year 2006 food-aid budget could have funded an 
additional 43,900 metric tons--enough to feed almost 850,00 people 
during a peak hungry season, which typically lasts 3 months. 

[20] KCCO data suggest that there is some variation in the time 
required from the contract award date until the commodity reaches a 
U.S. port for export. For example, for fiscal years 2002 through 2006, 
this time period varied from less than 30 days for several shipments to 
more than 90 days for several others. 

[21] Ocean transportation time frames may include loading and unloading 
of vessels. 

[22] GAO has previously reported on the poor timing of food aid 
delivery. See Famine in Africa: Improving U.S. Response Time for 
Emergency Relief, GAO/NSIAD-86-56 (Washington, D.C.: Apr. 3, 1986). 

[23] Additionally, Congress can appropriate funds to augment BEHT. The 
Emergency Wartime Supplemental Appropriations Act, 2003 (P. L. 108-11) 
appropriated $69 million for that purpose. 

[24] USAID has taken steps to improve its management of (1) committed 
and anticipated cash outflows for development and emergency programs, 
prepositioning, and other accounts and (2) anticipated cash inflows 
from annual and supplemental budgets, DOT reimbursements, and other 
carryover accounts. According to a KCCO study, while both USDA and 
USAID experience an upsurge in purchasing at the end of the year 
(particularly in September), USDA's is more pronounced. 

[25] These figures exclude prices for nonfat dry milk and vegetable 
oil. 

[26] To improve coordination on transportation, DOT officials and ocean 
carriers suggested that food aid programs include groups similar to 
DOD's Expert Working Group and Joint Planning Advisory Group. 

[27] Several years ago, USAID asked DOD to calculate the cost for a 
sample set of food aid shipments using long-term transportation 
agreements managed by DOD. This analysis indicated a lack of potential 
savings. However, DOD and DOT officials subsequently found that the 
analysis contained flaws and recommend that a new analysis be 
conducted. DOD officials suggested that USAID conduct a pilot program 
using DOD's Universal Service Contract. DOT officials indicated that 
cost savings could be realized if USAID were to manage its own 
contracts and that they had offered to assist USAID in doing so. DOT 
also provided examples of contracts that would not discourage cargo 
consolidation or reduce competition. 

[28] While various factors distinguish food aid shipments from 
commercial shipments, including cargo preference and the percentage of 
cargo that is shipped bulk or packaged, KCCO data suggest that food aid 
freight rates from the Gulf of Mexico to Djibouti, East Africa averaged 
over $150 per ton in 2006. Commercial freight rates from the Gulf of 
Mexico to Djibouti in 2006 averaged around one-third the price at $55 
per ton. 

[29] International commercial (InCo) terms are internationally accepted 
terms defining responsibilities of exporters and importers in 
shipments. For example, InCo terms define free alongside ship (FAS) as 
a contract where cargo is placed at the load port under the seller's 
responsibility and any vessel loading charges, freight, and other costs 
incurred, including "detention and demurrage" (costs for detaining a 
vessel or equipment at a discharge port longer than specified in the 
contract), are the buyer's responsibility. For both USAID and USDA food 
aid programs that ship packaged cargo, FAS contracts specify that cargo 
is loaded and discharged at the carrier's time, risk, and expense. When 
USDA ships bulk cargo, however, contracts include a prenegotiated 
demurrage rate. 

[30] The vessel that was delivering food aid to Madagascar was carrying 
one shipment for a USDA program and one shipment for a USAID program. 
Estimated financial losses reported by this carrier were for the USAID 
program shipment, for which its contract did not allow demurrage or 
detention. 

[31] This standard contract is called the Food Aid Booking Note and is 
based on recommendations from a booking note committee that included 
agency officials, ocean carriers, implementing organizations, and 
freight forwarders. 

[32] The net cost impact of shifting risk from ocean carriers to other 
food aid stakeholders, such as commodity suppliers or implementing 
organizations, has not been studied. However, savings could potentially 
arise through aligning the fiduciary responsibility for food delivery 
risks with those stakeholders that can 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. 

[33] The number of vessels participating in food aid programs varies 
over time due to global market opportunities. We reported in 2004 that 
between fiscal years 1999 and 2003, an annual average of 108 U.S.-flag 
vessels participated in U.S. food aid programs (see GAO-04-1065). 
According to DOT estimates, 87 U.S.-flag vessels participated in food 
aid programs in fiscal year 2006. Due to fleet changes, USAID officials 
estimate that there are now even fewer U.S.-flag vessels available to 
carry U.S. food aid. 

[34] Contracts for USDA programs rarely include penalties for delayed 
delivery. Such penalties are included in contracts for USAID programs. 

[35] Various stakeholders questioned whether penalties are effective. 
USAID officials emphasized that penalties are their most practical tool 
to compel ocean carrier performance because Federal Acquisition 
Regulations make it very difficult to suspend carriers from 
participating in food aid programs if they perform poorly. 

[36] See USAID, Office of Inspector General Report No. 4-663-04-002-P 
(Washington, D.C.: Nov. 21, 2003). 

[37] WFP handles food aid claims independently through an insurance 
program. 

[38] This system is entitled PowerTrack and is also currently used by 
DOD and State. According to DOD and DOT, PowerTrack has provided the 
government with visibility of payment history and has reduced 
administrative and handling costs and expedited vendor payments. 
However, ocean carriers are responsible for paying transaction fees and 
USAID officials believe these fees---which are a percentage (seven- 
tenths of 1 percent) of the contract value--may be too expensive for 
large contracts. They are researching whether they can find a similar 
service with a flat transaction fee. 

[39] U.S.-flag rates are subject to DOT's Fair and Reasonable Rate 
guidelines, which take into account operating and capital costs, cargo 
handling costs, and depreciation. See 46 C.F.R. 382.3. 

[40] The Food Security Act of 1985 requires DOT to reimburse food aid 
agencies for a portion of the OFD cost and for ocean transportation 
costs that exceed 20 percent of total program costs. Reimbursement 
methodologies are governed by a 1987 interagency memorandum of 
understanding. According to DOT officials, the OFD cost was relatively 
low in fiscal year 2005 due to high global demand for freight services 
and relatively high foreign-flag freight rates. These factors raised 
ocean transport costs as a percentage of program costs, so that DOT's 
total reimbursement was higher as well. 

[41] USAID and USDA are required to apply cargo preference regulations 
for vessels of any age. However, total OFD costs are based on an 
average OFD for vessels that are 25 years or older or have been rebuilt 
within the past 5 years and are certified by the Secretary of 
Transportation as having a useful life of at least 5 years after that 
rebuilding. USAID officials argue that the cost difference between U.S.-
flag and foreign-flag rates is larger for older vessels. Further, since 
opportunities for foreign-flag participation are limited, USAID argues 
that it is not reimbursed for the higher cost of shipping on a U.S.-
flag vessel when foreign-flag bids are not received. Using KCCO data, 
we found that 14 percent of food aid commodity requests in fiscal year 
2005 received no foreign-flag bid. 

[42] GAO uses the term food quality to refer to the degree of food 
spoilage, infestation, contamination and/or damage that can result from 
factors such as inadequate fumigation, poor warehouse conditions, and 
transportation delays. 

[43] In the Senate report accompanying H.R. 5522, the 2007 Department 
of State, Foreign Operations, and Related Programs Appropriations Act, 
the Senate Foreign Relations Committee stated its concern about reports 
that food aid distribution overseas had been disrupted, suspended, and 
in some instances rejected due to quality concerns and indicated its 
support of efforts by USAID and other agencies to investigate these 
concerns. (S. Rept. 109-277, 61). GAO has also reported on food quality 
issues. See Foreign Assistance: U.S. Food Aid Program to Russia Had 
Weak Internal Controls, GAO/NSIAD/AIMD-00-329 (Washington, D.C.: Sept. 
29, 2000). 

[44] P.L. 480 authorizes USAID to preposition food aid both 
domestically and abroad with a cap on storage expenses of $2 million 
per fiscal year. 

[45] Purchases for the Lake Charles prepositioning site must reach the 
warehouse and may not be diverted in advance. 

[46] USAID representatives said they might consider pursuing a long- 
term transportation agreement for prepositioned tonnage to Djibouti. 
KCCO officials suggested that as part of such a program, reduced 
bunching of purchases could also reduce commodity prices. In addition 
to considering long-term transportation agreements, USAID officials 
stated that they are expanding their practice of specifying 
transportation contracts that include multiple discharge port options 
in order to reduce costs associated with high-seas diversions. 

[47] USAID awards these contracts based on three factors: (1) storage 
and warehouse costs; (2) technical criteria such as the port's plan of 
operations, port personnel capacity, and the frequency of service 
provided by ocean carriers; and (3) past performance. 

[48] USAID is considering building inventory management into warehouse 
contracts and establishing standard operating procedures. 

[49] A phytosanitary certificate is a document required by many states 
and foreign countries for the import of nonprocessed plant products. As 
specified by the importing country or state, exported products must 
meet various plant health requirements pertaining to pests, plant 
diseases, chemical treatments and weeds. 

[50] From 1996 to 2005, processed, fortified, or bagged commodities 
accounted for less than 20 percent of Title II monetization--much less 
than the requirement that 75 percent of food aid be value-added. 

[51] USDA, Foreign Agricultural Service, Report to Congress on Food Aid 
Monetization, (Washington, D.C.: Aug. 10, 2001). 

[52] CARE USA,White Paper on Food Aid Policy (June 6, 2006). 

[53] Because of this objective, sales prices were deliberately set at 
less than market values. Participating retailers were required to sell 
at predetermined prices that allowed them a reasonable margin and were 
considered generally affordable to most low-income consumers. 

[54] In 1990, Congress increased the minimum monetization rate to 10 
percent and the permissible use of monetized revenues was expanded to 
include broad development purposes, including agricultural development. 
In 1996, the minimum monetization level was further increased to 15 
percent for non-emergency Title II. 

[55] OMB, The President's Management Agenda, Fiscal Year 2002, 
[Hyperlink, http://www.whitehouse.gov/omb/budget/fy2002/mgmt.pdf]. 

[56] GAO, Foreign Assistance: Global Food for Education Initiative 
Faces Challenges for Successful Implementation, GAO-02-328 (Washington, 
D.C.: Feb. 28, 2002). 

[57] A USDA official told us that the coordination between USAID and 
USDA in Mozambique has improved since then. 

[58] Studies investigating the impact of food aid on markets have been 
largely inconclusive, according to a number of reviews that have 
examined empirical studies on market impact. In part, this is because 
the effect of food aid on the production, prices, and consumption of 
food depends on factors specific to particular situations. 

[59] For example, according to one study, the poorly timed arrival of 
maize food aid close to the harvest season in Mozambique resulted in a 
drop in the market prices of maize. D. Tschirly, C. Donovan, and M. T. 
Weber, "Food Aid and Food Markets, Lessons from Mozambique," Food 
Policy, Vol. 21, No. 1 (1996), 189-209. 

[60] The impact of food aid on recipient country markets also depends 
on the extent to which local markets are integrated into national, 
regional, and global markets. For well integrated markets, the effects 
of any one food aid distribution may dissipate quickly. 

[61] Christopher B. Barrett, Food Aid's Unintended Consequences, ESA 
Working Paper No. 06-05, FAO (May 2006). 

[62] GAO, Foreign Assistance: Sustained Efforts Needed to Help Southern 
Africa Recover from Food Crisis, GAO-03-644 (Washington, D.C.: June 
2003). 

[63] GAO, Darfur Crisis: Progress in Aid and Peace Monitoring 
Threatened by Ongoing Violence and Operational Challenges, GAO-07-9 
(Washington, D.C.: Nov. 9, 2006). 

[64] WFP and the FAO's Crop and Food Supply Assessment Missions focus 
on both macro-level conditions, such as the national food balance, and 
household data on food insecurity, including food consumption and 
dietary diversity of households in selected areas. WFP's Vulnerability 
Analysis and Mapping--as well as various methods used by NGOs such as 
CARE, Save the Children, and Catholic Relief Services--also focus on 
livelihood areas and household-level assessments. 

[65] The SENAC initiative aims to improve the accuracy and credibility 
of assessments by (1) enhancing their transparency, (2) developing 
better methods and guidance, (3) improving the availability of 
precrisis information in countries exposed to repeated emergencies, and 
(4) strengthening WFP's field capacity by deploying assessment 
specialists in its six regional bureaus. 

[66] According to USAID officials, originally FAM received funding as 
part of an implementing organization's grant agreement with USAID. This 
organization also contributed some resources towards FAM's operations. 
Subsequently, FAM received funding through highly competitive 
institutional capacity-building grants. The decision to stop funding 
FAM was made after a detailed technical review of the FAM proposal, 
which was competing with 19 other proposals and was ranked low among 
the proposals seeking renewed funding. Additionally, according to 
USAID, the implementing organizations did not adequately explain their 
reasons for not funding FAM on their own. 

[67] Bonnard, Patricia, Patricia Haggerty and Anne Swindale, Report of 
the Food Aid and Food Security Assessment: A Review of the Title II 
Development Food Aid Program, Food and Nutrition Technical Assistance 
(Washington D.C.: March 2002). 

[68] Chronic vulnerability to food insecurity refers to the risk of 
experiencing persistent food shortages over a long period of time. This 
condition is strongly associated with structural disadvantages that are 
difficult to reverse quickly. On the other hand, transitory 
vulnerability to food insecurity involves a temporary inability to meet 
food needs or smooth consumption levels. This condition is primarily 
due to seasonal income fluctuations, adverse price movements, and 
temporary shocks. (Timothy R. Frankenberger, Nancy Mock, and Paul Jere, 
Vulnerability Assessment Methodology Review, a report prepared by TANGO 
International, Inc., for the Southern Africa Development Community: 
Food, Agriculture, and Natural Resources, Regional Vulnerability 
Assessment Committee, October 2005.) 

[69] Cross-border trade between Nigeria and Niger also exacerbated food 
shortages in Niger, according to WFP and USAID assessments, because the 
large market in Nigeria created incentives to grow commercial crops 
rather than food crops for Niger's bordering areas. The indebtedness of 
households in this area also increased because laborers often took 
loans of grain from traders during the hungry season, when the monetary 
value of grain was at its highest, and repaid them at the same monetary 
value after the harvest, when grain tended to be much cheaper, 
according to the USAID assessment. To better understand the role of 
local and regional markets, WFP has begun to examine ways to 
incorporate information on local and regional markets into needs 
assessments as part of its SENAC initiative. Since households depend on 
markets for their livelihoods and needs, improved understanding of the 
effect of emergencies and food aid on markets is important to assess 
needs and determine appropriate responses to crises. 

[70] According to this WFP evaluation, WFP operations tend to use 
multiple targeting modalities or mechanisms as a matter of practice 
rather than assessing the need and effectiveness of these mechanisms to 
address a given situation. According to this study, indiscriminate use 
of multiple targeting mechanisms can result in double coverage of 
populations and place excessive administrative demands on WFP and its 
partners. 

[71] In response to a joint statement by 11 donors, including the 
United States, WFP's Executive Board issued a draft policy on targeting 
in emergencies in February 2006. 

[72] See Assessing the Effectiveness of Community-Based Targeting of 
Emergency Food Aid in Bangladesh, Ethiopia, and Malawi, International 
Food Policy Research Institute and World Food Program Brief 
(Washington, D.C., 2005). 

[73] The Ethiopian government-led Productive Safety Net Program 
provides food and cash assistance to chronically vulnerable people. In 
2005, its first year of operation, the program provided assistance to 
about 5 million people. By 2006, the program had expanded to cover 7.2 
million people. 

[74] USAID provides NGOs limited funding through institutional capacity-
building grants that are not directly linked to proposals requesting 
food for projects. Additionally, in some cases, USAID has provided 
resources other than Title II to undertake assessments and data 
collection efforts. For example, the USAID mission in Ethiopia provided 
almost $20 million to build capacity and conduct baseline surveys to 
inform assessments of the Disaster Prevention and Preparedness Agency's 
Livelihood Integration Unit. 

[75] According to WFP officials, the European Commission's Humanitarian 
Office provided about $20 million for the SENAC project. WFP South 
Africa officials noted that other donors, such as the United Kingdom's 
Department for International Development, are funding assessments in 
the region. 

[76] To ensure that limited food aid resources are targeted to areas 
where they are most needed, USAID identified 15 priority countries in 
2006 for nonemergency or development programs. According to USAID 
officials, focusing resources on the most vulnerable countries will 
help to build their resilience and ensure that food aid will be less 
necessary in the future. 

[77] GAO, Foreign Assistance: Lack of Strategic Focus and Obstacles to 
Agricultural Recovery Threaten Afghanistan's Stability, GAO-03-607 
(Washington, D.C.: June 2003). 

[78] Food aid commodity specifications include specific requirements 
that the commodity vendor must follow to meet USDA's contracts for 
producing and delivering the commodities. The specifications contain 
standards relating to the quality, appearance, and delivery of the 
product; conditions under which it is to be grown or produced; explicit 
descriptions regarding its nutrient content; and details of the 
inspection process. 

[79] Micronutrient assessments are important to determine the levels of 
fortificants used in different commodities and different contexts as 
different formulas are needed to target the nutritional needs of 
various recipients--i.e., children under 5 years of age and people with 
HIV/AIDS. 

[80] TQSA is a method implemented by USDA's Farm Service Agency to 
verify suppliers' established quality management systems for providing 
commodities and other products that meet USDA specifications. Using 
TQSA's checklist and guidelines, auditors review and assess a firm's 
documented quality management system and assign it a numerical rating. 
A minimum TQSA score, set by KCCO, is required for a commodity supplier 
to be considered for a bid on a food aid contract. 

[81] Ash refers to the ash mass that remains after a sample of flour is 
incinerated in a laboratory oven. This is an easy way to verify the 
fraction of the whole grain that ended up in the flour. 

[82] According to USAID, NGOs are required to undertake monitoring to 
comply with OMB Circular A-110 and USAID regulations (22 C.F.R. 
226.51). 

[83] USAID Inspector General, Audit of USAID/Madagascar's Distribution 
of P.L. 480 Title II Non-Emergency Assistance in Support of its Direct 
Food Aid Distribution Program (Washington, D.C., September 2003). See 
also Audit of USAID/Ghana's Distribution of P.L. 480 Title II Non- 
Emergency Assistance in Support of Its Direct Food Aid Distribution 
Program (Dakar, Senegal: October 2003); and Audit of USAID/Ethiopia's 
Distribution of P.L. 480 Title II Non-Emergency Assistance in Support 
of Its Direct Food Aid Distribution Program (Pretoria, South Africa: 
November 2003). 

[84] As part of the 2002 Farm Bill, the Congress directed USAID to 
streamline program management as well as procedures and guidelines, 
including "information collection and reporting systems by identifying 
critical information that needs to be monitored and reported on by 
eligible organizations." In its report to the Congress in 2003, USAID 
identified actions to help achieve legislative directives, which 
included a re-examination of its staffing and human resources 
requirements to ensure timeliness and efficiency, especially due to the 
workload imposed by the $1.4 billion Title II program. However, USAID 
did not systematically assess the workload and staffing requirements of 
the Office of Food for Peace to determine appropriate levels required 
to monitor its operations in over 50 countries. 

[85] In addition to Title II-funded positions, USAID missions and 
regional offices have positions that are funded through other sources, 
such as development assistance or operating budgets for these offices. 
Although staff in these positions may participate in monitoring food 
aid programs, they also administer other development assistance 
programs. 

[86] In 2005, USAID's East Africa regional office had oversight 
responsibilities for $1.3 billion in food aid distributed in the 
region, including about $377 million from the Bill Emerson Humanitarian 
Trust, to meet emergency needs in Ethiopia, Eritrea, and Sudan. 

[87] In contrast, while USAID's mission in Ethiopia also comes under 
the purview of USAID's East Africa regional office, it has its own 
staff to monitor its food aid programs. Specifically, two U.S. national 
and four foreign national staff manage and monitor U.S. food aid 
programs in Ethiopia, funded at $143 million in fiscal year 2006. 

[88] USAID hires foreign nationals and U.S. citizens under personal 
service contracts to complement its workforce of U.S. foreign service 
and civil service personnel. These PSCs serve in USAID's overseas 
offices or missions and are generally considered to be more cost- 
effective by the agency. 

[89] We did not systematically examine transportation contracts for 
foreign inland cargo given that 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. 

[90] Cynthia Donovan, Megan McGlinchy, John Staatz, and David 
Tschirley, Emergency Needs Assessment and the Impact of Food Aid on 
Local Markets, MSU International Development Working Paper #87, 2007; 
Christopher B. Barrett, Food Aid's Intended and Unintended 
Consequences, ESA Working Paper No. 06-05, FAO (May 2006). 

[91] Overall demand may remain inelastic, however, because the very 
poor may represent a very small part of the total market. 

[92] Note the comparison on page 17 of the draft report between 
commercial and food aid cargoes may not be fully comparable, as much of 
the food aid is shipped as bag cargo and requires substantially more 
handling than the bulk cargo shipped under commercial terms. As a 
result, these terms may actually account for a larger proportion of the 
difference in rates. 

[93] DOT must finance any increased ocean freight charges resulting 
from the 1985 increase in the cargo preference requirement from 50 
percent to 75 percent U.S.-flag. 

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