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through the Purchase, Shipment, and Sale of U.S. Commodities Is 
Inefficient and Can Cause Adverse Market Impacts' which was released 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

June 2011: 

International Food Assistance: 

Funding Development Projects through the Purchase, Shipment, and Sale 
of U.S. Commodities Is Inefficient and Can Cause Adverse Market 
Impacts: 

GAO-11-636: 

GAO Highlights: 

Highlights of GAO-11-636, a report to congressional requesters. 

Why GAO Did This Study: 

Since the Food Security Act of 1985, Congress has authorized 
monetization—the sale of U.S. food aid commodities in developing 
countries to fund development. In fiscal year 2010, more than $300 
million was used to procure and ship 540,000 metric tons of 
commodities to be monetized by the U.S. Agency for International 
Development and the U.S. Department of Agriculture. Through analysis 
of agency data, interviews with agency officials, and fieldwork in 
three countries, this report (1) assesses the extent to which 
monetization proceeds cover commodity and other associated costs and 
(2) examines the extent to which U.S. agencies meet requirements to 
ensure that monetization does not cause adverse market impacts. 

What GAO Found: 

GAO found that the inefficiency of the monetization process reduced 
funding available to the U.S. government for development projects by 
$219 million over a 3-year period (see figure below). The process of 
using cash to procure, ship, and sell commodities resulted in $503 
million available for development projects out of the $722 million 
expended. The U.S. Agency for International Development (USAID) and 
the U.S. Department of Agriculture (USDA) are not required to achieve 
a specific level of cost recovery for monetization transactions. 
Instead, they are only required to achieve reasonable market price, 
which has not been clearly defined. USAID’s average cost recovery was 
76 percent, while USDA's was 58 percent. Further, the agencies conduct 
limited monitoring of sale prices, which may hinder their efforts to 
maximize cost recovery. Ocean transportation represents about a third 
of the cost to procure and ship commodities for monetization, and 
legal requirements to ship 75 percent of the commodities on U.S.-flag 
vessels further increase costs. Moreover, the number of participating 
U.S.-flag vessels has declined by 50 percent since 2002, and according 
to USAID and USDA, this decline has greatly decreased competition. 
Participation may be limited by rules unique to food aid programs 
which require formerly foreign-flag vessels to wait 3 years before 
they are treated as U.S.-flag vessels. 

Figure: Inefficiency of the Monetization Process: 

[Refer to PDF for image: illustration] 

Funds expended: 
3-year allocation = $722 million: 
USAID: Food for Peace (nonemergency): $386 million; 
USDA: Food for Progress: $336 million. 

Commodities and freight: 
Photographs for freighter and freight. 

Cash proceeds for development: 
3-year proceeds = $503 million: 
USAID: Food for Peace (nonemergency): $295 million; 
USDA: Food for Progress: $208 million. 

$219 million not available for development projects in recipient 
countries: 
USAID: Food for Peace (nonemergency): $91 million; 
USDA: Food for Progress: $128 million. 

Sources: GAO based on selected transactions from data provided by 
USAID and USDA. 

[End of figure] 

USAID and USDA cannot ensure that monetization does not cause adverse 
market impacts because they monetize at high volumes, conduct weak 
market assessments, and do not conduct post-monetization evaluations. 
Adverse market impacts may include discouraging food production by 
local farmers, which could undermine development goals. To help avoid 
adverse market impacts, the agencies conduct market assessments that 
recommend limits on programmable volume of commodities to be 
monetized. However, USAID’s assessments were conducted for just a 
subset of countries and have not yet been updated to reflect changing 
market conditions, and USDA’s assessments contained weaknesses such as 
errors in formulas. Both agencies have at times programmed for 
monetization at volumes in excess of limits recommended by their 
market assessments. Further, the agencies monetized more than 25 
percent of the recipient countries' commercial import volume in more 
than a quarter of cases, increasing the risk of displacing commercial 
trade. Finally, the agencies do not conduct post-monetization impact 
evaluations, so they cannot determine whether monetization caused any 
adverse market impacts. 

What GAO Recommends: 

GAO recommends that Congress consider eliminating the 3-year waiting 
period for foreign vessels that acquire U.S.-flag registry to be 
eligible to transport U.S. food aid. Further, the USAID Administrator 
and the Secretary of Agriculture should develop a benchmark for 
“reasonable market price” for food aid sales; monitor these sales; 
improve market assessments and coordinate efforts; and conduct post- 
market impact evaluations. USAID and USDA generally agreed with our 
recommendations. DOT disagreed with our Matter for Congressional 
Consideration due to its concern that the proposed statutory change 
might be detrimental to the U.S. maritime industry. 

View [hyperlink, http://www.gao.gov/products/GAO-11-636] or key 
components. For more information, contact Thomas Melito at (202) 512-
9601 or melitot@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Funding Generated for Development Projects through Monetization Is 
Less than Originally Expended, and Various Factors Adversely Affect 
Cost Recovery: 

USAID and USDA Cannot Ensure that Monetization Does Not Cause Adverse 
Market Impacts because They Program Monetization at High Volumes, 
Conduct Weak Market Assessments, and Do Not Conduct Post-Monetization 
Evaluations: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Technical Notes on Analysis of Differences in Ocean 
Freight Rates between U.S.-and Foreign-Flag Carriers: 

Appendix III: Program Authorities: 

Appendix IV: Total Volume and Commodities Programmed for Monetization 
by Country from Fiscal Years 2008 through 2010: 

Appendix V: Steps in the Monetization Process from Grant Proposal to 
Development Project Completion: 

Appendix VI: Results from Survey of Implementing Partners: 

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

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

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

Appendix X: GAO Contact and Staff Acknowledgments: 

Related GAO Products: 

Tables: 

Table 1: Summary of USAID and USDA Cost Recovery on Selected 
Monetization Transactions: 

Table 2: Monetization Limits Set by USAID and USDA for the Same 
Commodity in the Same Country and Same Year, between Fiscal Years 2008 
and 2010: 

Table 3: Cases in which USAID and/or USDA Exceeded the Limit 
Recommended by the BEST and/or the UMR between Fiscal Years 2008 and 
2010: 

Table 4: Summary Statistics of KCCO's Data on Food Aid Purchase 
Transactions between Fiscal Years 2007 and 2010: 

Table 5: Freight Rate by Year, Commodity Type, and Carrier Type: 

Table 6: Main Regression Results for Regression Model 1: 

Table 7: Main Regression Results for Regression Model 2: 

Table 8: U.S. Food Aid by Program Authority: 

Table 9: Volumes of Commodity Programmed for Monetization by Country, 
Program, and Fiscal Year between Fiscal Years 2008 and 2010: 

Table 10: Steps in the Monetization Process from Grant Proposal to 
Development Project Completion: 

Table 11: Distribution of Implementing Partners Who Monetized in 
Consortiums versus Monetizing Only Their Own Food Aid: 

Table 12: Ways in Which USAID and USDA Provided Support to 
Implementing Partners During Monetization: 

Table 13: Formats in Which Implementing Partners Collected and 
Reported Monetization Information to USAID and USDA: 

Table 14: Implementing Partners' Assessment of the Quality of 
Coordination between USAID and USDA on Monetization in Country: 

Table 15: Types of Market Analysis Examined by Implementing Partners 
Prior to Monetization: 

Table 16: The Number of Implementing Partners Reporting that the 
Market Analysis on Which Commodities to Monetize was Sufficient: 

Table 17: The Number of Implementing Partners Reporting that the 
Market Analysis on How Much to Monetize was Sufficient: 

Table 18: The Number of Implementing Partners Reporting that the 
Market Analysis on When to Monetize was Sufficient: 

Table 19: Methods Used by Implementing Partners to Calculate Cost 
Recovery: 

Table 20: Methods Used by Implementing Partners to Calculate Fair 
Market Price: 

Table 21: Number of Implementing Partners Who Included Other Costs 
When Calculating their Organization's Cost Recovery: 

Table 22: Implementing Sponsors' Views of How Often Monetization 
Transactions Experience Delays: 

Figures: 

Figure 1: Percentage of Funding for Emergency and Nonemergency Food 
Aid and for Monetization, Fiscal Year 2010: 

Figure 2: Countries that Received Monetized Food Aid, Fiscal Years 
2008 through 2010: 

Figure 3: Steps in the Monetization Process from Grant Proposal to 
Development Project Completion: 

Figure 4: Examples of Development Projects Funded through Food for 
Peace and Food for Progress Grants that Include Monetization: 

Figure 5: Difference in Funds Expended and Cash Proceeds Resulting 
from USAID and USDA Monetization: 

Figure 6: USAID and USDA Cost Recovery Distribution for Selected 
Monetization Transactions: 

Figure 7: Share of Freight Costs and Costs of Cargo Preference for 
Monetized Food Aid between Fiscal Years 2008 and 2010: 

Figure 8: Freight Rate Differentials between U.S.-and Foreign-Flag 
Carriers, Fiscal Years 2008 through 2010: 

Figure 9: Distribution of Total Volume Programmed for Monetization as 
a Percentage of Reported Commercial Imports between Fiscal Years 2008 
and 2010: 

Figure 10: Total Volume Programmed for Monetization by USDA and USAID 
by Country and Year between Fiscal Years 2008 and 2010: 

Figure 11: Commodities Programmed for Monetization by USDA and USAID 
between Fiscal Years 2008 and 2010: 

Figure 12: Number of Implementing Partners Indicating that the 
Following Factors Hindered Them to At Least Some Degree When 
Conducting Monetization: 

Figure 13: Number of Implementing Partners Indicating that the 
Following Steps, if Taken by USAID, Could Greatly or Very Greatly 
Improve the Monetization Process: 

Figure 14: Number of Implementing Partners Indicating that the 
Following Steps, if Taken by USDA, Could Greatly or Very Greatly 
Improve the Monetization Process: 

Figure 15: Number of Implementing Partners Indicating that the 
Following Actions Would Greatly Improve or Very Greatly Improve Cost 
Recovery Rates: 

Abbreviations List: 

BEST: Bellmon Estimation for Title II: 

CCC: Commodity Credit Corporation: 

IPP: import price parity: 

ITSH: inland transportation, shipping, and handling: 

KCCO: Kansas City Commodity Office: 

NGO: nongovernmental organization: 

UMR: Usual Marketing Requirement: 

USAID: U.S. Agency for International Development: 

USDA: U.S. Department of Agriculture: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

June 23, 2011: 

Congressional Requesters: 

The United States provided nearly $2.3 billion to alleviate world 
hunger and support development in 2010.[Footnote 1] This amount 
accounted for more than half of all global food aid supplies, making 
the United States the single largest donor of food aid. For almost 30 
years, since the enactment of the Food Security Act of 1985,[Footnote 
2] Congress has authorized the sale of U.S. food aid commodities in 
local and regional markets in developing countries with the proceeds 
used to fund development activities that address causes and symptoms 
of food insecurity--a practice known as monetization. In 2010, more 
than $300 million was used to procure and ship 540,000 metric tons of 
food assistance to be monetized. To adhere to cargo preference 
requirements,[Footnote 3] 75 percent of all U.S. food aid commodities 
must be shipped on U.S.-flag vessels. According to U.S. agencies, 
nonemergency[Footnote 4] food aid resources, including proceeds from 
monetization, supported development and direct assistance projects 
that benefited more than 7 million people in 35 developing countries. 
These development projects include assistance to improve agricultural 
production, provide health and nutrition activities, and support 
education and humanitarian needs. 

However, the practice of monetizing food aid has long been 
controversial. Advocates view monetization as a tool to meet the 
development needs of chronically food-insecure people in many 
developing countries. Critics view the practice of converting cash to 
commodities and then back to cash as an inefficient use of resources 
that may also have adverse market impacts in recipient countries. 
These market impacts may include displacing commercial trade and 
discouraging local food production. By law,[Footnote 5] the two 
principal agencies that manage U.S. food assistance--the U.S. Agency 
for International Development's (USAID) Office of Food for Peace 
[Footnote 6] and the U.S. Department of Agriculture's (USDA) Foreign 
Agricultural Service--must ensure that monetization transactions do 
not entail substantial disincentive to, or interfere with, domestic 
production or marketing in that country. 

While we recognize the benefits of the development activities that 
monetization funds, in 2007, we reported that monetization was an 
inherently inefficient use of food aid.[Footnote 7] The inefficiencies 
stem from the process of using U.S. government funds to procure food 
aid commodities in the United States which are then shipped to the 
recipient country and sold, with the proceeds used to fund development 
projects. In that report, we identified various costs associated with 
the transporting, handling, and selling of commodities that 
contributed to these inefficiencies.[Footnote 8] Because U.S. agencies 
did not collect monetization proceeds data electronically at the time 
of our review, we found it difficult to assess the extent to which 
monetization revenues covered the commodity and other costs associated 
with the practice. We recommended that USAID and USDA develop an 
information collection system to track monetization transactions, 
which the agencies have begun to implement. 

In this report, we examine issues related to cost recovery and market 
impact assessment for monetization. At your request, as part of our 
work on international food assistance,[Footnote 9] we (1) assessed the 
extent to which monetization proceeds cover commodity and other 
associated costs and (2) examined the extent to which U.S. agencies 
meet requirements to ensure that monetization does not cause adverse 
market impacts. 

To address these objectives, we analyzed food aid program data 
provided by USAID, USDA, and USDA's Kansas City Commodity Office 
(KCCO). USAID has not been collecting monetization cost recovery 
information systematically and thus could not provide us with 
comprehensive and reliable data for transactions prior to 2008. 
Therefore, for the purposes of this report, the agencies generated 
cost recovery data manually, covering fiscal years 2008 through 2010 
for USAID, and fiscal years 2007 through 2009 for USDA.[Footnote 10] 
We worked with the agencies to correct errors in the data and 
determined that the data used in our analysis were sufficiently 
reliable for our purposes. Further, we examined the differences 
between U.S.-and foreign-flag ocean freight rates using KCCO data. We 
also reviewed and analyzed data from the agencies, such as their 
market assessments, volumes programmed for monetization, import data, 
consumption data, and the limits set by the agencies for monetization 
in recipient countries for fiscal years 2008 through 2010. We also 
interviewed officials from USAID; USDA; the Departments of State and 
Transportation; and the Office of Management and Budget in Washington, 
D.C., as well as subject-matter experts in the field of international 
food aid. In addition, we conducted a survey of the 29 implementing 
partners who conducted monetization between fiscal years 2008 and 2010 
and received a 100 percent response rate. We also conducted field work 
in countries that programmed some of the highest volumes of monetized 
nonemergency U.S. food aid from fiscal years 2008 through 2010--
Bangladesh, Mozambique, and Uganda--and met with officials from U.S. 
missions, representatives from nongovernmental organizations (NGO) and 
other implementing partners that directly handle sales and implement 
development activities, and officials from relevant host government 
agencies. (Appendix I provides a detailed discussion of our 
objectives, scope, and methodology. In addition, appendix II provides 
technical notes on our analysis of ocean freight rates.) 

We conducted this performance audit from July 2010 to June 2011 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Based on our findings in this report, we are proposing that, 
consistent with rules that apply to the Maritime Security Fleet and 
vessels transporting other U.S. government cargo, Congress should 
consider amending the Cargo Preference Act of 1954 to eliminate the 3-
year waiting period imposed on foreign vessels that acquire U.S.-flag 
registry before they are eligible for carriage of preference food aid 
cargos. This could potentially increase the number of U.S.-flag 
vessels eligible for carriage of preference food aid cargo, thereby 
increasing competition and possibly reducing costs. The Department of 
Transportation (DOT) disagreed with our Matter for Congressional 
Consideration due to its concern regarding the potentially detrimental 
impact the statutory change may have on the U.S. maritime industry. 
However, we maintain that the elimination of the 3-year waiting period 
can ease entry of new vessels into U.S. food aid programs. We are 
suggesting this proposed amendment on the basis of factors including 
the following: First, as USAID and USDA jointly reported in 2009, the 
number of vessels participating in U.S. food aid programs has 
declined, thereby limiting competition in transportation contracting 
and leading to higher freight rates. Second, our analysis shows that 
food aid shipments on foreign-flag carriers cost the U.S. government, 
on average, $25 per ton less than U.S.-flag carriers. 

Further, we are recommending that the Administrator of USAID and the 
Secretary of Agriculture (1) jointly develop an agreed-upon benchmark 
or indicator to determine "reasonable market price" for sales of U.S. 
food aid for monetization; (2) monitor food aid sales transactions to 
ensure that the benchmark set to achieve "reasonable market price" in 
the country where the commodities are being sold is achieved, as 
required by law; (3) improve market assessments and coordinate to 
develop them in countries where both USAID and USDA may monetize; and 
(4) conduct market impact evaluations after monetization transactions 
have taken place to determine whether they caused adverse market 
impacts. Both USAID and USDA generally concurred with our 
recommendations and noted ongoing efforts and plans to address them. 

Background: 

The Practice of Monetization Has Evolved over Time, and Agencies Are 
Currently Required to Achieve Reasonable Market Price in Monetization 
Transactions: 

The authority to monetize food aid was established by the Food 
Security Act of 1985. The act allowed implementing partners that 
received nonemergency food aid under USAID's Food for Peace program 
and USDA's Food for Progress program to monetize some of the food in 
recipient countries and use the proceeds to cover associated shipping 
costs. In 1988, the authorized use of monetization funds was expanded 
to incorporate funding of food-security-related development projects, 
and in 1995, a minimum monetization level for nonemergency food 
assistance was set at 10 percent, which was then increased to 15 
percent in 1996. The 2002 Farm Bill authorized the McGovern-Dole 
International Food for Education and Child Nutrition Program and 
allowed it to raise cash through monetization. (For a description of 
these program authorities, see appendix III). 

The practice of selling commodities for cash to fund development 
programs originated in part from U.S. government farm subsidies that 
contributed to a surplus of agricultural commodities owned by the U.S. 
government. However, the U.S. government no longer has surplus 
agricultural commodities. Current monetization requires the U.S. 
government to purchase the commodities from the commercial market and 
ship them abroad for implementing partners to sell them in another 
market to generate cash. 

Neither USAID nor USDA has been required to achieve a set level of 
cost recovery following an amendment by the 2002 Farm Bill to the Food 
for Peace Act. Rather, the agencies are required, by statute, to 
achieve "reasonable market price" for sales of food aid in recipient 
countries. Prior to 2002, USAID sought to achieve an average cost 
recovery that was calculated based on the following formula: either 
(1) 80 percent of commodity value plus freight value, including 
associated transport and marketing costs, or (2) 100 percent of free 
alongside ship[Footnote 11] price on its monetization transactions. 
USDA's requirement was to adhere to reasonable market price as its 
benchmark. According to the conference report for the 2002 Farm Bill, 
[Footnote 12] the change from the cost recovery formula to reasonable 
market price for USAID was made to address two primary concerns. The 
first concern was that the cost recovery formula requirement was too 
inflexible, and could either unfairly punish participants where market 
forces were beyond their control, or not reward situations where the 
market price was above the formula value. The second concern was that, 
since both USAID and USDA monetize food aid, sometimes in potentially 
overlapping markets, having a cost recovery requirement for USAID but 
not for USDA could cause inconsistencies in monetization and 
potentially penalizes one or the other agency. The change to a single 
requirement of reasonable market price for both agencies was intended 
to establish similar results in determining sales prices. 

USAID and USDA Together Monetize More than Half of All Nonemergency 
Food Aid, Primarily in a Few Countries: 

In fiscal year 2010, the United States spent about $2.3[Footnote 13] 
billion to provide a total of 2.5 million metric tons of food aid 
commodities to food-insecure countries. Of that amount, almost $800 
million was spent on providing USAID and USDA 890,000 metric tons of 
nonemergency food aid (see figure 1).[Footnote 14] This assistance is 
provided through both monetization and direct distribution, where 
commodities are provided directly to beneficiaries through 
implementing partners. While U.S. food aid legislation mandates that a 
minimum of 15 percent of USAID's Food for Peace nonemergency 
assistance be monetized, actual levels of monetization far exceed the 
minimum. In fiscal year 2010, more than 313,000 metric tons of food 
aid were monetized under USAID's Food for Peace program, accounting 
for 63 percent of food aid tonnage under that program. In fiscal year 
2010, USDA monetized more than 229,000 metric tons of food aid under 
the Food for Progress program, accounting for 95 percent of food aid 
tonnage under that program. Monetization has been less prevalent under 
the McGovern-Dole International Food for Education and Child Nutrition 
Program since the end of its pilot program in 2003, due to an increase 
in the amount of cash provided along with food aid for direct 
distribution. In fiscal year 2010, the McGovern-Dole International 
Food for Education and Child Nutrition Program did not monetize any 
food aid shipments. 

[Side bar: Feed the Future Community Development Fund: 
Under a new strategy to address global hunger called the Feed the 
Future initiative, the administration sought the establishment of a 
Community Development Fund (CDF) to decrease U.S. government reliance 
on the monetization of food aid to fund development activities. The 
CDF fund was designed to expand efforts to narrow the gap between 
humanitarian and development assistance in areas that support food 
security. However, the mechanisms to use the fund to replace 
monetization were not included in the law, and the CDF therefore 
cannot be used to decrease current levels of monetization. According 
to a USAID official, the agency will continue to work with Congress on 
future budgets so that appropriate mechanisms to decrease reliance on 
monetization are incorporated in the law. A $75 million request to 
fund the CDF was included in the fiscal year 2011 Foreign Operations 
Budget. While Congress has appropriated funds for the CDF, the final 
appropriation has not been made public. End of side bar] 

Figure 1: Percentage of Funding for Emergency and Nonemergency Food 
Aid and for Monetization, Fiscal Year 2010: 

[Refer to PDF for image: pie-chart and associated data] 

Emergency food aid: 66%; 
Nonemergency monetized: 13%; 
Nonemergency other: 20%. 

From nonemergency: 

Food for Peace: 
Nonemergency monetized: 313,240 metric tons; 63%; 
Nonemergency other: 178,768 metric tons; 20%; 
Total: 492,008 metric tons. 

Food for Progress: 
Nonemergency monetized: 229,230 metric tons; 95%; 
Nonemergency other: 178,768 metric tons; 12,160 metric tons; 20%; 
Total: 241,390 metric tons. 

Sources: GAO analysis of USDA and USAID data. 

Notes: 

1. The total for funding does not add up to 100 percent due to 
rounding. 

2. The totals for emergency and Food for Peace nonemergency include 
costs for procurement and shipping and do not include administrative 
or other associated costs. However, the Food for Progress nonemergency 
total includes administrative or other associated costs because USDA 
was unable to provide us with this calculation. In fiscal year 2009, 
these costs constituted 1.43 percent of Food for Progress' total 
monetization costs. 

3. The McGovern-Dole International Food for Education and Child 
Nutrition Program is included in the nonemergency total, but the 
program did not monetize in 2010. 

[End of figure] 

According to KCCO data, between fiscal years 2008 and 2010, more than 
1.3 million metric tons of food aid were programmed for 
monetization[Footnote 15] in 34 countries (see figure 2). The 
countries in which the largest volumes of commodities were programmed 
to be monetized during that time period are Bangladesh (220,590 metric 
tons), Mozambique (202,200 metric tons), Haiti (100,000 metric tons), 
and Uganda (88,400 metric tons). Together, these four countries 
accounted for 45 percent of all food aid programmed to be monetized. 
During that same time period, wheat was the commodity most often 
programmed for monetization, accounting for about 77 percent of all 
monetization. Other commodities programmed to be monetized during the 
same period include soy bean meal, milled rice, vegetable oil, and 
crude soybean oil. (For a complete list of commodities and volumes 
programmed to be monetized by country, see appendix IV.) 

Figure 2: Countries that Received Monetized Food Aid, Fiscal Years 
2008 through 2010: 

[Refer to PDF for image: world maps] 

USAID:
Burkina Faso; 
Burundi; 
Chad; 
Democratic Republic of Congo; 
Dominican Republic; 
Guinea; 
Haiti; 
Kenya; 
Mauritania; 
Rwanda; 
Sierra Leone; 
Zambia. 

USDA: 
Afghanistan; 
Bolivia; 
Mongolia; 
Pakistan; 
Philippines; 
Tanzania 

Both USAID and USDA: 
Armenia; 
Bangladesh; 
Ethiopia; 
Gambia; 
Guatemala; 
Honduras; 
Liberia; 
Madagascar; 
Mail; 
Mozambique; 
Nicaragua; 
Niger; 
Senegal; 
Uganda. 

Sources: GAO; Map Resources (map). 

[End of figure] 

Monetization Is a Complex Process that Involves Multiple Entities: 

Monetization is conducted by implementing partners, usually NGOs that 
receive grants[Footnote 16] from USAID or USDA to monetize agreed-upon 
commodities in certain countries.[Footnote 17] Monetization grants 
generally provide development resources over a 3-to 5-year 
period.[Footnote 18] The process begins with a call for applications 
from either USAID or USDA, to which implementing partners respond by 
submitting grant proposals for development programs that are to be 
funded in part with monetization proceeds. USAID and USDA 
independently issue calls for applications and approve applications at 
different times, based on different guidelines and priorities. Grant 
proposals include, among other things, information on the commodity to 
be monetized, commodity volumes requested, estimated sales price, 
estimated cost recovery, considerations of market impact assessments, 
and projects that will be funded based on the estimated sales 
proceeds. Implementing partners that receive grants have the 
responsibility to manage and oversee the monetization process. As part 
of their responsibilities, implementing partners must secure a buyer 
in the recipient country before a call forward (or purchase order) can 
be approved by the relevant agency. After either USAID or USDA 
receives a call forward request from the implementing partner in their 
Web Based Supply Chain Management (WBSCM) system, the agency approves 
or disapproves the request, which is then routed to KCCO. KCCO 
purchases the requested commodities from U.S. producers in the United 
States and ships them to the implementing partner in the recipient 
country. To adhere to cargo trade preference requirements, DOT assists 
in identifying qualified ocean carriers to ship the commodities to the 
recipient country. The commodities are delivered to the implementing 
partner in the recipient country, where the implementing partner 
executes the sales contract with the buyer and collects payment. The 
implementing partner uses the proceeds to implement the development 
projects. Figure 3 depicts the general steps in the monetization 
process, from submitting a grant proposal to obtaining proceeds to 
completing development projects. (See appendix V for more 
information). According to an implementing partner we interviewed, the 
monetization process consists of nearly 50 substeps, including steps 
to complete the application, conduct market assessments, coordinate 
requests and shipment, identify buyers and obtain bids, deliver 
commodities, and collect payments.[Footnote 19] 

Figure 3: Steps in the Monetization Process from Grant Proposal to 
Development Project Completion: 

[Refer to PDF for image: illustration] 

Conceptual framework of the monetization process: 

Funds expended for monetization; 
Commodities; 
Cash proceeds for development projects. 

Steps in the monetization process: 

Funds expended for monetization: 
Step 1: Grant proposal; 
Step 2: Grant award. 

Commodities: 
Step 3: Call forward; 
Step 4: Procurement; 
Step 5: Shipping and delivery. 

Cash proceeds for development projects: 
Step 6: Development project implementation; 
Step 7: Development project completion. 

Sources: GAO analysis of information provided by USAID, USDA, and 
Implementing partners; GAO and PhotoDisc (photos). 

Multimedia Instructions: 
For more information on the monetization process: 
* In web version, hover your mouse over each step; 
* In print version, see Appendix V. 

[End of figure] 

Implementing Partners Can Monetize Food Aid in Various Ways: 

While implementing partners are not required to follow a particular 
process to conduct food aid sales for monetization, the two most 
common approaches reported by implementing partners are the following: 

* Several implementing partners might form a consortium in which one 
of the partners serves as the selling agent. Consortiums are often 
formed when several implementing partners obtain grants for the same 
country to monetize the same commodity. Generally, one of the 
implementing partners in the consortium takes the lead in conducting 
monetization sales. The lead implementing partner is responsible for 
identifying the buyers; preparing a single call forward drawing from 
each partner's food allocation; arranging for commodities to be 
shipped in a single shipment; finalizing the sale in-country; and 
distributing proceeds among participating consortium members, as 
appropriate. Typically, the lead implementing partner charges a fee of 
3 to 5 percent of total sales to handle monetization, while in some 
cases, the lead is rotated among consortium members. Fifteen of the 29 
implementing partners we interviewed reported being part of a 
monetization consortium. 

* A single implementing partner might independently sell the 
commodities granted to it. When a single implementing partner 
monetizes only its own commodities, it must hire or train staff to 
conduct the sales or contract a selling agent to sell the food. 
Selling agents that we interviewed generally charge a fee of 3 to 5 
percent of monetization sales. Fourteen of the 29 implementing 
partners we interviewed said that they monetize only the food granted 
to their organization. 

Implementing partners generally sell commodities to private buyers in 
the recipient countries in the open market. Sales are generally 
conducted through a public tender process organized by the 
implementing partner or its selling agent, where an open bidding will 
take place. This is the preferred method for both USAID and USDA, on 
the assumption that a public tender process will most likely produce a 
competitive sales price. In some cases, however, implementing partners 
sell commodities through direct negotiation, where the implementing 
partners or their agents enter into a one-on-one dialog with 
individual buyers. According to USDA officials, monetization sales 
through direct negotiation are only permitted when the public tender 
process is not feasible or does not initially result in a sale. 

In some cases, implementing partners work with the recipient country's 
national government to conduct monetization. For example, an 
implementing partner may enter into direct negotiation with the 
government, as in the case of Bangladesh, where the government is the 
buyer and purchases all USAID Food for Peace nonemergency food aid 
that is monetized in the country. In Haiti, the government requires 
that monetization transactions to private buyers be facilitated 
through a government entity called the Monetization Bureau. According 
to an implementing partner, the bureau must approve each transaction 
and charges a monetization fee of 2 to 5 percent. 

Monetization Funds Are Used for a Broad Range of Development Projects: 

Development projects funded through monetization are expected to 
address food insecurity in recipient countries. According to USAID 
guidance, goals of nonemergency food aid programming are to reduce 
risks and vulnerabilities to food insecurity and increase food 
availability, access, utilization, and consumption. Within this 
framework, monetization is built around two main objectives--to 
enhance food security and generate foreign currency to support 
development activities. Therefore, the range of activities that USAID 
funds through monetization includes projects to improve and promote 
sustainable agricultural production and marketing; natural resource 
management; nonagricultural income generation; health, nutrition, 
water and sanitation; education; emergency preparedness and 
mitigation; vulnerable group feeding; and social safety nets. 
According to USDA guidance, commodities for monetization are made for 
use in developing countries and emerging democracies that have made 
commitments to introduce or expand free enterprise elements in their 
agricultural economies. Within these constraints, USDA gives priority 
consideration to proposals for countries that have economic and social 
indicators that demonstrate the need for assistance. These indicators 
include income level, prevalence of child stunting, political freedom, 
USDA overseas coverage, and other considerations such as market 
conditions. Therefore, according to USDA, development projects funded 
through monetization by the agency's Food for Progress program should 
focus on private sector development of agricultural sectors such as 
improved agricultural techniques, marketing systems, and farmer 
education. Figure 4 provides examples of USAID and USDA projects 
funded through monetization in countries that we visited. 

Figure 4: Examples of Development Projects Funded through Food for 
Peace and Food for Progress Grants that Include Monetization: 

[Refer to PDF for image: table with photograph of each activity] 

Activity: Agriculture development; 
Grant information: In 2006, USAID awarded ACDI/VOCA a 5-year, $74 
million Food for Peace grant in Uganda–-the largest award in ACDI/VOCA’s
history; 
Objectives: ACDI/VOCA is working to improve food production and use for
approximately 139,000 smallholder farmer beneficiaries throughout the
life of the project; 
Examples: 
* Provide technical assistance and training in agronomic methods, post-
harvest handling, group savings, and management; 
* By the end of fiscal year 2010, approximately 66,724 farmers had 
received technical trainings to increase their food security and 
resilience to future shocks; 
* During the same time period, farmer groups had accumulated 
approximately $80,000 in group savings. 

Activity: Microfinancing; 
Grant information: In 2009, USDA awarded FINCA a 3-year, $4.58 million 
Food for Progress grant in Uganda; 
Objectives: FINCA program objectives included providing a national 
microfinance program, developing a specialty agricultural loan program,
conducting social and economic client investments, and providing 
agricultural development subgrants; 
Examples: 
* As of December 2010 more than $1 million in microloans provided to
5,912 clients; 
* $250,000 in specialty agricultural loans budgeted for 150 farmers; 
* Two subgrants budgeted for NGOs to train farmers. 

Activity: Education and health; 
Grant information: In 2008, USDA provided Planet Aid a 3-year, $20 
million Food for Progress grant in Mozambique; 
Objectives: Planet Aid’s program objectives include providing food and
assistance for people with HIV/AIDS, including AIDS orphans; 
increasing the number of teachers in rural areas; training farmers; and
developing infrastructure necessary to provide training for teachers; 
Examples: 
* Established seven programs providing 700,000 people with HIV/AIDS 
education and counseling; 
* Through 50 existing soy canteen programs, served 500,000 nutritious
meals to recipients, including people with HIV/AIDS, AIDS orphans, and
community volunteers; 
* Trained 900 teachers through a 2.5-year primary school teacher-
training program; 
* Support the completion and equipment of One World University. 

Activity: Community development; 
Grant information: In 2010, USAID awarded CARE a $120 million, 5-year 
Food for Peace grant in Bangladesh; 
Objectives: CARE will use funds to sponsor the Shouhardo II program, 
which has the goal of reducing vulnerability to food insecurity in 
370,000 poor and extremely poor households; 
Examples: 
* The program will provide access to and utilization of nutritious and
enhanced foods; 
* Empower women in poor and extremely poor households to be actively 
engaged in initiatives to reduce food insecurity; 
* Work with community members, government institutions, and NGOs
to reduce food insecurity and to be better prepared to respond to
disasters. 

Sources: USAID, USDA, and NGO program documents; GAO (photos). 

[End of figure] 

Funding Generated for Development Projects through Monetization Is 
Less than Originally Expended, and Various Factors Adversely Affect 
Cost Recovery: 

Proceeds generated through monetization to fund development projects 
are less than what the U.S. government expends to procure and ship the 
commodities that are monetized. USAID and USDA are not required to 
achieve a specific level of cost recovery for their monetization 
transactions. Instead, they are only required to achieve reasonable 
market price, which has not been clearly defined. More than one-third 
of the monetization transactions we examined fell short of import 
parity price, a quantifiable measure of reasonable market price. 
Various factors can adversely impact cost recovery. For instance, 
ocean transportation constitutes a substantial cost to the U.S. 
government, and cargo preference requirements raise this cost even 
further. Furthermore, USAID and USDA conduct only limited monitoring 
of the sales prices, though monitoring is necessary to ensure that the 
implementing partners generate as much funding as possible for their 
development projects. The agencies' monitoring efforts are further 
hindered by deficiencies in their reporting and information management 
systems. Finally, implementing partners face increased risk and 
uncertainty in their project budgets due to long lag times throughout 
the approval and sales process. 

Funding Generated for Development Projects through Monetization Was 
Less than Originally Expended: 

Proceeds generated to fund development projects through monetization 
were less than what the U.S. government expended to procure and ship 
the monetized commodities. Cost recovery, the ratio between the 
proceeds the implementing partners generate through monetization and 
the cost the U.S. government incurs to procure and ship the 
commodities to recipient countries for monetization, is an important 
measure to assess the efficiency of the monetization process in 
generating development funding. Table 1 shows USAID's and USDA's 
average cost recovery, from fiscal years 2008 through 2010 and fiscal 
years 2007 through 2009, respectively, as well as their lowest and 
highest cost recovery transactions.[Footnote 20] The table also shows 
the difference, in dollars, between the proceeds from monetization 
sales to fund development projects, and the cost to the U.S. 
government to procure and ship the commodities. (For a detailed 
discussion of our methodology for calculating cost recovery, see 
appendix I). 

Table 1: Summary of USAID and USDA Cost Recovery on Selected 
Monetization Transactions: 

Average cost recovery; 
USAID (fiscal years 2008 through 2010): 76%[A]; 
USDA (fiscal years 2007 through 2009): 58%[A]. 

Lowest cost recovery recorded; 
USAID (fiscal years 2008 through 2010): 34%; 
USDA (fiscal years 2007 through 2009): 25%. 

Highest cost recovery recorded; 
USAID (fiscal years 2008 through 2010): 165%; 
USDA (fiscal years 2007 through 2009): 88%. 

Reported difference between proceeds, generated through monetization, 
to fund development projects and the cost the U.S. government incurred 
to procure and ship commodities to recipient countries for 
monetization; 
USAID (fiscal years 2008 through 2010): -$91 million; 
USDA (fiscal years 2007 through 2009): -$128 million; 
Combined reported difference for USAID and USDA equals -$219 million. 

Sources: GAO analysis of USAID and USDA data. 

Notes: 

1. Cost recovery is the ratio between the proceeds the implementing 
partners generate through monetization and the cost the U.S. 
government incurs to procure and ship the commodities to recipient 
countries for monetization. The higher the ratio, the more cash is 
generated to fund development projects. 

2. Since some of the records we received from the agencies contained 
incomplete information, we reported only on those transactions that 
had sufficient information to calculate cost recovery. For USAID, we 
were able to use 189 of the 194 monetization transactions the agency 
reported between fiscal years 2008 and 2010 (99 percent). For USDA, we 
were able to use 61 of the 66 monetization transactions the agency 
reported between fiscal years 2007 and 2009 (92 percent). 

[A] The average cost recovery reported is a weighted average, which we 
calculated by dividing the total sales proceeds by the total commodity 
procurement and shipping cost. 

[End of table] 

We found that between fiscal years 2008 and 2010, USAID achieved an 
average cost recovery of 76 percent, or about $91 million less in 
proceeds than what the U.S. government spent on procuring and shipping 
commodities, over these 3 years. USDA achieved an average cost 
recovery of 58 percent, or about $128 million less than what was 
expended between fiscal years 2007 and 2009. Therefore, a combined 
total of $219 million of appropriated funds was ultimately not 
available for development projects. Figure 5 shows funds being used 
for procuring and shipping commodities, with the commodities then 
being sold for cash, and the difference between the final proceeds and 
the original expended amounts, for both USAID and USDA. 

Figure 5: Difference in Funds Expended and Cash Proceeds Resulting 
from USAID and USDA Monetization: 

[Refer to PDF for image: illustration] 

Funds expended: 
3-year allocation = $722 million: 
USAID: Food for Peace (nonemergency): $386 million; 
USDA: Food for Progress: $336 million. 

Commodities and freight: 
Photographs for freighter and freight. 

Cash proceeds for development: 
3-year proceeds = $503 million: 
USAID: Food for Peace (nonemergency): $295 million; 
USDA: Food for Progress: $208 million. 

$219 million not available for development projects in recipient 
countries: 
USAID: Food for Peace (nonemergency): $91 million; 
USDA: Food for Progress: $128 million. 

Sources: GAO based on selected transactions from data provided by 
USAID and USDA. 

[End of figure] 

USAID's cost recovery rates ranged from 34 percent to 165 percent, 
while USDA's ranged from 25 percent to 88 percent. While USAID's 
monetization transactions most often achieved cost recovery between 60 
and 100 percent, USDA's transactions most often achieved between 40 
and 80 percent cost recovery. Fifteen of USAID's monetization 
transactions achieved cost recovery greater than 100 percent, meaning 
that the amount of proceeds generated exceeded the costs the 
government incurred, while none of USDA's monetization transactions 
did so. Figure 6 shows the distribution of cost recovery over the 3 
years we examined for these selected monetization transactions by 
USAID and USDA, respectively. 

Figure 6: USAID and USDA Cost Recovery Distribution for Selected 
Monetization Transactions: 

[Refer to PDF for image: two vertical bar graphs] 

Number of transactions: 

Percentage of cost recovery rate achieved: Under 20%;	
USAID cost recovery distribution: 0;	
USDA cost recovery distribution: 0. 

Percentage of cost recovery rate achieved: 20-40%;	
USAID cost recovery distribution: 1;	
USDA cost recovery distribution: 9. 

Percentage of cost recovery rate achieved: 40-60%;	
USAID cost recovery distribution: 14;	
USDA cost recovery distribution: 23. 

Percentage of cost recovery rate achieved: 60-80%;	
USAID cost recovery distribution: 79;	
USDA cost recovery distribution: 24. 

Percentage of cost recovery rate achieved: 80-100%;	
USAID cost recovery distribution: 80;	
USDA cost recovery distribution: 5. 

Percentage of cost recovery rate achieved: 100-120%;	
USAID cost recovery distribution: 12;	
USDA cost recovery distribution: 0. 

Percentage of cost recovery rate achieved: 120-140%;	
USAID cost recovery distribution: 3. 	 

Sources: GAO analysis of USAID and USDA data. 

Notes: 

1. Cost recovery is the ratio between the proceeds the implementing 
partners generate through monetization and the amount the U.S. 
government expends to procure and ship the commodities for 
monetization. The higher the ratio, the more cash is generated to fund 
development projects. 

2. Since some of the records we received from the agencies contained 
incomplete information, we reported only on those transactions that 
had sufficient information to calculate cost recovery. For USAID, we 
were able to use 189 of the 194 monetization transactions the agency 
reported between fiscal years 2008 and 2010 (99 percent). For USDA, we 
were able to use 61 of the 66 monetization transactions the agency 
reported between fiscal years 2007 and 2009 (92 percent). 

[End of figure] 

USDA's level of cost recovery is lower for government-to-government 
monetization transactions, which accounted for about 18 percent of 
USDA's monetization from fiscal years 2007 through 2009. While most 
grants involving monetization are provided to NGOs and educational 
institutions, USDA also allows monetization by sovereign governments, 
known as government-to-government monetization.[Footnote 21] These 
transactions are completed by host country governments, largely 
through the same process that is used by other implementing partners. 
Implementing partners of government-to-government monetization between 
fiscal years 2007 and 2010 have included Afghanistan, the Dominican 
Republic, El Salvador, Nicaragua, Niger, and Pakistan. Government-to- 
government transactions achieved an average cost recovery level of 45 
percent from fiscal year 2007 through 2009.[Footnote 22] 

Our cost recovery calculations included costs for commodity 
procurement and ocean shipping but did not include other costs that 
are not solely associated with monetization. USAID and USDA incur 
these additional costs when they provide funding for direct 
distribution and monetization of food aid, as follows: 

* USAID provides its implementing partners with cash from two sources 
to cover administrative costs other than commodity procurement and 
ocean shipping costs that are associated with monetization. The first 
source is internal transportation, shipping, and handling (ITSH), 
which is cash for shipping and handling the commodities, if necessary, 
once they arrive at the destination port, to the final point of sale. 
The second source is funding through Section 202(e) of the Food for 
Peace Act, which is provided to implementing partners to assist in 
meeting administrative, personnel, distribution, and other costs 
associated with Food for Peace programs.[Footnote 23] Since most Food 
for Peace grants include both monetized and direct distribution food 
aid, USAID does not track ITSH and 202(e) specifically for 
monetization purposes. However, in 2010, ITSH and 202(e) costs for all 
of USAID nonemergency assistance, including both monetization and 
direct distribution, were $123.3 million, or about 30 percent of 
USAID's total nonemergency costs for the year. 

* According to agency officials, USDA provides its implementing 
partners with cash through Commodity Credit Corporation (CCC) funds, 
to cover various administrative costs that are associated with food 
aid. While this money primarily covers administrative costs associated 
with the implementation of development projects, some of it pays for 
costs associated with the monetization process. The CCC is an agency 
within USDA that authorizes the sale of agricultural commodities to 
other government agencies and foreign governments and authorizes the 
donation of food to domestic, foreign, or international relief 
agencies. The CCC also assists in the development of new domestic and 
foreign markets and marketing facilities for agricultural commodities. 
According to a USDA official, such costs could include hiring a 
monetization agent to facilitate a monetization transaction, or the 
salaries and benefits of the staff that carry out the monetization 
transaction. USDA provided implementing partners $23 million in CCC 
funding between fiscal years 2008 and 2010. USDA stated that it 
provided $3.57 million in a combination of CCC funding and 
monetization proceeds to cover the administrative costs associated 
with monetization from fiscal years 2007 through 2009. 

Agencies Do Not Have a Cost Recovery Benchmark and Are Only Required 
to Achieve Reasonable Market Price, which Has Not Been Clearly Defined: 

Neither USAID nor USDA currently has a required minimum cost recovery 
benchmark for monetization transactions, and there is no specific 
target that monetization transactions must reach or exceed. Instead, 
the Food for Peace Act requires that monetization transactions through 
both USAID and USDA achieve "reasonable market price" in the recipient 
countries where U.S. commodities are monetized. The statute does not 
define reasonable market price, and does not refer to a specific cost 
recovery benchmark. 

USAID recommends two sales methods in its 1998 Monetization Field 
Manual--which has not been updated since its issuance--to achieve 
reasonable market price, but neither of these methods provides a 
specific metric.[Footnote 24] More than three-quarters of the 
implementing partners we surveyed said they used the field manual as a 
source of guidance on monetization. Both USAID and USDA have stated a 
preference for the first method--conducting sales by public tender--to 
determine a reasonable market price. According to the field manual, 
public tender, generally an open auction where traders are allowed to 
bid on the commodities, allows competitive price information to 
determine the market price for monetized food aid. When public tender 
sales are not feasible, the manual recommends direct negotiation 
between buyers and sellers as a second, alternative method. Both 
agencies recommend taking into account prices for the same or 
comparable commodities from other suppliers in the marketplace in 
order to achieve reasonable market price. Specifically, USAID states 
that reasonable market price is one which "compares favorably with the 
lowest landed price or parity price for the same or comparable 
commodity from competing suppliers." 

More than One-Third of the Monetization Transactions We Examined Fell 
Short of Import Price Parity, a Quantifiable Measure of Reasonable 
Market Price: 

We found that more than one-third of the monetization transactions we 
reviewed, carried out in various years and countries, were conducted 
at prices below a quantitative and objective metric for reasonable 
market price that could be used across time, markets, and individual 
transactions. In the absence of a quantitative benchmark of reasonable 
market price, we used the prices of comparable commercial imports for 
a given country, commodity, and year--the IPP referred to in USAID's 
guidance. Others in the economics field, including researchers of food 
aid and monetization, use IPP as a measure of market price in a given 
country and time frame.[Footnote 25] Additionally, the World Food 
Program, the single largest multilateral provider of food aid in the 
world, uses IPP to determine whether or not to procure its food in a 
given market, in order to gain an accurate picture of the potential 
impact the purchase may have.[Footnote 26] Comparing monetization 
sales prices to the IPP tells us the extent to which the monetization 
transaction occurred at a fair and competitive market price for 
commercially imported commodities.[Footnote 27] We found that more 
than one-third of the 42 transactions we examined, for which we had 
IPP and sales price data, had prices lower than 90 percent of the 
commercial import prices, an indication that they might have been able 
to achieve higher prices.[Footnote 28] For example, in 2008, USAID 
allowed an implementing partner in Burkina Faso to monetize rice at a 
price that was 67 percent of the IPP, while at the same time in 
Guatemala, USAID permitted monetization of vegetable oil at 70 percent 
of the IPP.[Footnote 29] 

Ocean Transportation Costs Can Reduce the Amount of Funding Generated 
through Monetization: 

Ocean freight cost is a significant component of the monetization 
cost,[Footnote 30] and due in part to cargo preference requirements, 
U.S.-flag carriers have higher shipping rates on average than foreign- 
flag carriers, further lowering cost recovery. The cargo preference 
mandate requires that 75 percent of U.S. food aid be shipped on U.S.- 
flag vessels.[Footnote 31] Another 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 32] 
These legal requirements limit competition and potentially reduce food 
aid shipping capacity, leading to higher freight rates. Figure 7 shows 
the share of freight costs in food aid procurement and the costs 
associated with cargo preference for monetized food aid. (For a 
detailed discussion of our methodology in assessing the costs 
associated with cargo preference, see appendix II.) 

Figure 7: Share of Freight Costs and Costs of Cargo Preference for 
Monetized Food Aid between Fiscal Years 2008 and 2010: 

[Refer to PDF for image: 2 pie-charts] 

Cost of Procurement and Shipping: 
Commodity cost: $480 million; 68%; 
Freight cost: $235 million; 32%. 

Cost of Shipping and Cargo Preference: 
Basic freight cost: $205 million; 85%; 
Potential cost of cargo preference: $30 million; 15%. 

Source: GAO analysis of KCCO data. 

[End of figure] 

Between fiscal years 2008 and 2010, ocean shipping accounted for about 
one-third, or $235 million, of the cost to procure and ship monetized 
food aid (see figure 7). For low-value commodities, such as bulk 
wheat, ocean shipping costs take up a higher percentage of the total 
cost. In 15 percent of the monetization transactions between fiscal 
years 2008 and 2010, shipping costs accounted for more than 40 percent 
of the total cost of procurement and shipping, amounting to more than 
$91 million in ocean shipping. For several of these transactions, 
shipping cost was higher than commodity procurement cost. For example, 
while it cost $3.9 million to purchase the shipment of 10,000 metric 
tons of wheat to be sent to Malawi in 2008 for monetization, it cost 
$4.5 million in ocean shipping. 

The freight rate for USAID and USDA food aid shipments on foreign-flag 
carriers cost on average $25 per ton[Footnote 33] less than the 
freight rate on U.S.-flag carriers, controlling for shipping routes, 
the shipping time and term, and the type of commodities shipped. The 
difference in freight rate between U.S.-and foreign-flag carriers also 
depends on the type of commodities shipped. Figure 8 shows the 
difference in the average freight rate per metric ton between U.S.-and 
foreign-flag carriers. The freight rate for bulk commodities averaged 
$8 per ton lower and the rate for non-bulk commodities averaged $30 
per ton lower for foreign-flag carriers than U.S.-flag carriers for 
shipments with the same shipping routes and the same shipping times 
and terms. We estimate that between fiscal years 2008 and 2010, cargo 
preference potentially cost the food aid programs approximately $30 
million because of the higher rates U.S.-flag carriers charged. When 
surveyed, 19 of the 29 implementing partners stated that allowing more 
shipping on foreign-flag carriers would "greatly improve" or "very 
greatly improve" cost recovery rates.[Footnote 34] 

Figure 8: Freight Rate Differentials between U.S.-and Foreign-Flag 
Carriers, Fiscal Years 2008 through 2010: 

[Refer to PDF for image: horizontal bar graph] 

Dollars per metric ton: 

Fiscal year: 2008; 
Bulk commodities shipped on foreign-flag carriers: $170.47;	
Bulk commodities shipped on U.S.-flag carriers:	$177.99;	
Non-bulk commodities shipped on foreign-flag carriers:	$214.05;	
Non-bulk commodities shipped on U.S.-flag carriers: $264.19. 

Fiscal year: 2009; 
Bulk commodities shipped on foreign-flag carriers: $132.12;	
Bulk commodities shipped on U.S.-flag carriers:	$171.24;	
Non-bulk commodities shipped on foreign-flag carriers:	$200.13;	
Non-bulk commodities shipped on U.S.-flag carriers: $219.63. 

Fiscal year: 2010; 
Bulk commodities shipped on foreign-flag carriers: $150.16;	
Bulk commodities shipped on U.S.-flag carriers:	$173.05;	
Non-bulk commodities shipped on foreign-flag carriers:	$177.7;	
Non-bulk commodities shipped on U.S.-flag carriers: $235.03. 

Source: GAO analysis of KCCO data. 

[End of figure] 

Food aid shipping competition may be further limited by the 
requirement in the Cargo Preference Act that foreign-built vessels 
that reflag into the U.S. registry wait 3 years before participating 
in the transportation of food aid cargo. According to a DOT official, 
the 3-year requirement was established in 1961 to provide employment 
opportunities to U.S. shipyards by discouraging vessels from 
reflagging into and out of the U.S. registry. The requirement, which 
does not apply to the Maritime Security Fleet[Footnote 35] or to 
vessels transporting cargos financed by the U.S. Export-Import Bank, 
seeks to ensure that vessels transporting 75 percent of food aid are 
not only U.S.-flagged, but also constructed in U.S. shipyards. 
However, since 2005, U.S. shipyards have built only two new U.S-flag 
vessels appropriate for transporting food aid and these vessels have 
not been awarded a food aid contract. Further, DOT has no record of an 
ocean transportation contract awarded to a U.S.-flag vessel that 
reflagged into the U.S. registry and waited the 3 years prior to 
applying for food aid contracts. 

Limited competition contributes to fewer ships winning the majority of 
the food aid shipping contracts. Based on KCCO data, from fiscal years 
2002 to 2010, the number of U.S.-flag vessels awarded food aid 
contracts declined by 50 percent, from 134 to 67 vessels.[Footnote 36] 
In a 2009 report to Congress,[Footnote 37] USAID and USDA stated that, 
due to the declining size of the U.S.-flag commercial fleet, USAID and 
USDA are forced to compete with the Department of Defense and other 
exporters for space aboard the few remaining U.S.-flag vessels, 
thereby limiting competition in transportation contracting and leading 
to higher freight rates. When surveyed about what could be done to 
improve the monetization process, 13 implementing partners with USAID 
and 16 with USDA stated that exploring options for lowering 
transportation costs would lead to "great" or "very great" 
improvement.[Footnote 38] 

USAID's and USDA's Monitoring of the Sales Prices that Implementing 
Partners Achieve through Monetization Is Limited: 

USAID and USDA conduct only limited monitoring of the sales prices 
that implementing partners achieve through monetization to ensure that 
the transactions generate as much funding as possible for the 
development projects funded by monetization proceeds. While 
implementing partners report cost recovery data to USAID and USDA, the 
agencies do not use the data to monitor sales prices over time. USAID 
requires annual reports on multiyear assistance programs (MYAP), 
referred to as pipeline and resource estimate proposals, to be 
submitted for the coming fiscal year. Additionally, implementing 
partners report their monetization proceeds in Annual Results Reports. 
These reports include fiscal year levels of metric tonnage to be 
called forward, anticipated monetization proceeds, and any 202(e) or 
ITSH funds used for the program, which encompass both direct 
distribution and monetization activities.[Footnote 39] In addition, 
they record the results of any monetization transactions from the 
previous year. USDA requires semiannual reports, known as Logistics 
and Monetization Reports. These reports record the metric tonnage of 
commodity monetized in that time period. In addition, they record the 
date and price at which the commodity was sold, as well as the date 
received and a breakdown of the specific use of the funds. 

As part of the review and evaluation criteria of proposals, USAID's 
1998 Monetization Field Manual requires verification that the amount 
of money generated in the monetization transaction(s) meets or exceeds 
the cost recovery benchmark. However, USAID officials said that they 
no longer hold implementing partners accountable for meeting the cost 
recovery benchmark of 80 percent referenced in the field manual, 
because (1) the 2002 Farm Bill changed the requirement to achieving 
"reasonable market price," and (2) USAID has not officially reissued 
the field manual since 1998. Although the USAID mission in-country can 
recommend against monetization transactions if it disagrees with the 
sales price analysis conducted by the implementing partner in its 
attempts to sell the commodity, USAID officials told us that the 
missions have never made such recommendations. Furthermore, USAID 
stated that the agency has not established criteria to monitor sale 
prices. According to USAID officials, because food aid monetization 
transactions are governed by grants, not contracts, the agency cannot 
be overly directive towards its implementing partners. USAID works to 
have ongoing conversations with the implementing partners in order to 
identify potential problems, troubleshoot, and help with potential 
alternatives. 

USDA does not have a process to monitor sale prices either. USDA 
officials in charge of the Food for Progress program told us that they 
did not know what the level of cost recovery of monetization 
transactions is and did not have enough information to develop an 
estimate. USDA officials said that they rely on their agricultural 
attachés to act as a "reality check" in determining reasonable market 
price, and determine acceptable cost recovery on a case-by-case basis, 
looking at the U.S. prices and the circumstances surrounding the sale. 

The agencies' monitoring of monetization cost recovery is further 
hindered by deficiencies in their reporting and information management 
systems. USAID and USDA acknowledged that their current information 
systems are not capable of systematically capturing cost recovery 
information, which would help them monitor the sales prices 
implementing partners achieve. Both agencies had to manually generate 
the cost recovery information to fulfill our data request by going 
through the individual reports submitted by implementing partners to 
collect the information needed to calculate cost recovery for 
monetization transactions, inputting them into a spreadsheet for us to 
conduct our analysis. Furthermore, these spreadsheets contained 
numerous errors and inconsistencies. Examples include transactions 
that were recorded in the incorrect year, double-counted, or not 
counted at all. In other instances, the calculation of cost recovery 
was incorrect, due to incorrect values inputted into the cells. In 
addition, multiple transactions were missing the actual sales prices. 
In our 2007 report, we recommended that both USAID and USDA develop an 
information collection system to track monetization transactions. 
Despite this recommendation, both USAID and USDA acknowledged that 
their current information systems are still not capable of 
systematically capturing cost recovery information. Both USAID and 
USDA are in the process of implementing information systems that aim 
to better capture the information generated by the implementing 
partners regarding monetization transactions. USAID plans to have its 
new information system fully operational by summer 2012, including 
monitoring and evaluation components. USDA's Food Aid Information 
System will tie into its procurement, payment, and accounting system-- 
Web Based Supply Chain Management--tracking budgeting and planning, 
solicitations, proposals and negotiations, payment and compliance for 
the Foreign Agricultural Service. The final components of the system 
are due to come online in fall 2011. 

Long Lag Times Increase Market Risk for Implementing Partners and 
Hinder Their Ability to Accurately Budget for Project Implementation: 

Long lag times between a monetization proposal's approval by USAID or 
USDA and the time of the commodities' final sale increases the 
transaction's exposure to market volatility. This makes it difficult 
to accurately project the funding level monetization can generate, and 
to design and implement the development projects accordingly. Two-
thirds of the implementing partners we surveyed said that if they 
received less funding than expected, they would curtail the scope of 
their projects as well as the number of beneficiaries served. One 
implementing partner commented that while monetization transactions 
must do their best to achieve "reasonable market price," timing is a 
constraint. The process of getting a proposal approved, finding a 
foreign buyer, and conducting an actual sale can be time-consuming, 
and market conditions can change significantly from when the 
implementing partners first submitted the proposals. For example, when 
an implementing partner monetized through USDA's Food for Progress 
program in Bangladesh, it submitted its initial proposal in August 
2008, including the volume and estimated sales prices for the proposed 
commodity, but the sale of the commodities was not made until 17 
months later, in December 2009. Market conditions changed 
significantly during the process from the time of the initial proposal 
to the final sale, and the commodity price fell by close to 40 
percent, leading to a diminished return on the transaction. The 
implementing partner's actual sales price of $800 per metric ton was 
more than a third less than the estimated price in the original 
proposal of $1,300 per metric ton. In another example, an implementing 
partner stated that it wanted to monetize its commodities at a certain 
point when prices were high, but missed the opportunity to do so due 
to delays in the approval process. As a result, its cost recovery was 
lower than estimated. This situation forced the implementing partner 
to reduce its number of beneficiaries by roughly a third, and 
eliminate one of its targeted geographical regions within the country. 
All but 2 of the 29 implementing partners we surveyed reported that 
they experienced delays during monetization transactions at least 
"sometimes." In addition, 19 of the 29 implementing partners we 
surveyed reported that delivery delays were a factor that hindered 
their ability to conduct monetization.[Footnote 40] 

USAID and USDA Cannot Ensure that Monetization Does Not Cause Adverse 
Market Impacts because They Program Monetization at High Volumes, 
Conduct Weak Market Assessments, and Do Not Conduct Post-Monetization 
Evaluations: 

By law, USAID and USDA must ensure that monetization transactions do 
not entail substantial disincentive to, or interference with, domestic 
production or marketing of the same or similar commodities.[Footnote 
41] In addition, the agencies are to ensure that the transactions do 
not cause disruption in normal patterns of commercial trade. However, 
we found that the volume programmed[Footnote 42] for monetization was 
more than 25 percent of the commercial import volume, in more than a 
quarter of the cases, increasing the risk of displacing commercial 
trade.[Footnote 43] As part of an effort to meet its legal 
requirements, in 2008, USAID hired a private contractor as an 
independent third party to conduct market analyses and recommend 
commodities and volumes to monetize without causing adverse market 
impact. Separately, USDA conducts assessments called the Usual 
Marketing Requirement (UMR) that determine the maximum volume of a 
given commodity to be programmed for monetization without disrupting 
commercial trade, and relies on its implementing partners to conduct 
broader market analyses to address the Bellmon requirements. However, 
we found that USAID's assessments were conducted for a limited number 
of countries and have not yet been updated to reflect changing market 
conditions. We also found that USDA's UMRs contained weaknesses, such 
as a lack of methodology and errors in formulas. Further, we found 
that USAID's and USDA's recommended limits for monetization differed 
significantly from each other, and that the volume of commodity 
programmed for monetization by the agencies has at times exceeded the 
recommended limits. Finally, because both agencies do not conduct post-
monetization market impact evaluations, they cannot determine the 
effectiveness of steps taken to ensure that monetization transactions 
do not cause adverse market impacts and what, if any, adverse impacts 
may have resulted. These adverse impacts may include discouraging food 
production by local farmers, which in turn could undermine the food 
security goals of the development projects funded by monetization. 

USAID and USDA Are Required to Ensure that Monetization Does Not Cause 
Adverse Market Impacts, but the Volume Programmed for Monetization in 
More than a Quarter of Cases May Have Increased the Risk of Displacing 
Commercial Trade: 

USAID and USDA Are Required by Law to Ensure that Monetization Does 
Not Cause Adverse Market Impacts that May Run Counter to Development 
Goals: 

By law, USAID and USDA are required to ensure that monetization 
transactions do not lead to adverse market impacts, such as causing 
disincentives to, or interference with, domestic production or 
marketing of the same or similar commodities. Additionally, the 
agencies are to ensure that the transactions avoid causing disruption 
in normal patterns of commercial trade, which is also an adverse 
market impact. Monetization has the potential to discourage food 
production by local farmers, and as a result may undermine the broader 
agricultural development and food security goals of the Food for Peace 
and Food for Progress programs. For example, when large volumes of 
food are monetized at once, the prices of the same or competitive 
commodities in the recipient country may be depressed, creating 
disincentives to local producers and possibly resulting in a decline 
in local production. The risk of depressing prices increases when the 
commodities arrive while supply is at a peak, such as during a harvest 
period for the same or competitive commodities. Monetization also has 
the potential to displace commercial trade, especially if the 
monetized food is sold on more favorable terms than what is available 
commercially. Buyers in the recipient country, such as domestic 
importers and millers, would then have an incentive to purchase 
monetized commodities over commercial ones. When sold in significant 
volumes, monetized food has the potential to substantially reduce 
demand for exports from the United States, other developed countries, 
and regional partners, thus hurting competitive commercial trade. 
Furthermore, if local production decreases or if commercial trade is 
displaced, repeated monetization of food aid commodities over time can 
increase the risk of market dependency on this source of food. 

Food Aid Programmed for Monetization Constituted More than 25 Percent 
of Commercial Import Volume in More than a Quarter of Cases, 
Increasing the Risk of Displacing Commercial Trade: 

Food aid programmed for monetization constituted more than 25 percent 
of commercial import volume in more than a quarter of cases for 
certain commodities between fiscal years 2008 and 2010. As mentioned 
earlier, monetized food aid has the potential to displace commercial 
trade from developed countries or regional partners, a cost that 
impacts U.S. agribusiness and other exporters of the same commodity. 
Monetizing large volumes of food aid relative to commercial import 
volume increases the risk that commercial trade is displaced. Fintrac 
recommends that the total volume monetized of a given commodity should 
not exceed 10 percent of the commodity's commercial import volume in a 
given country in a given year.[Footnote 44] We examined the total 
volume programmed for monetization by both agencies for each commodity 
in each country and each year between fiscal years 2008 and 2010, for 
which we could obtain the commercial import volume--a total of 87 
cases.[Footnote 45] For each country and year, we compared the total 
volume programmed for monetization of a given commodity to the 
commodity's reported commercial import volume. We found that the total 
volume programmed for monetization as a percentage of the reported 
commercial import volume ranged from less than 1 percent to 1,190 
percent during this period. In about half of the 87 cases, the total 
volume programmed for monetization exceeded 10 percent of the 
commercial import volume. Further, in 24 of the 87 cases, the total 
volume programmed for monetization exceeded 25 percent of the reported 
commercial import volume for that commodity. Moreover, in 10 of the 87 
cases, the total volume programmed for monetization was more than 100 
percent of the reported commercial import volume. For example, about 
30,000 metric tons of wheat were programmed for monetization in Uganda 
in 2008, which was more than 1.5 times the reported commercial import 
volume of wheat for that year. Figure 9 shows the distribution of the 
total volume programmed for monetization by both agencies as a 
percentage of the reported commercial imports. 

Figure 9: Distribution of Total Volume Programmed for Monetization as 
a Percentage of Reported Commercial Imports between Fiscal Years 2008 
and 2010: 

[Refer to PDF for image: vertical bar graph] 

Total volume programmed for monetization as a percentage of reported 
commercial imports: 

Percentage: 0-10; 
Number of cases: 42. 

Percentage: 10.01-25; 
Number of cases: 21. 

Percentage: 25.01-50; 
Number of cases: 12. 

Percentage: 50.01-75; 
Number of cases: 1. 

Percentage: 75.01-100; 
Number of cases: 1. 

Percentage: 100.01 or more; 
Number of cases: 10. 

Sources: GAO analysis of USAID and USDA data. 

[End of figure] 

USAID and USDA Conduct Market Assessments to Meet Legal Requirements 
but These Market Assessments Contain Weaknesses: 

USAID Conducts Market Assessments to Determine Recommended 
Monetization Levels but These Have Been Conducted For a Limited Number 
of Countries and Do Not Include Projection Analyses: 

USAID uses a private contractor to conduct market assessments to help 
ensure that monetization transactions do not entail substantial 
disincentive to domestic production, as required by the Bellmon 
Amendment, for its 20 priority countries. In August 2008, USAID hired 
Fintrac to improve the market analysis required before food aid 
programs are approved in recipient countries, known as the Bellmon 
Estimation for Title II (BEST).[Footnote 46] Prior to 2008, USAID made 
determinations about market impact based solely on the Bellmon 
analyses conducted by its implementing partners, who as the recipients 
of monetization grants are not independent. As of May 2011, 13 of the 
20 BEST analyses had been completed.[Footnote 47] According to USAID, 
the BEST analysis is to complement and not substitute the implementing 
partners' market analyses and surveillance. Therefore, in many cases 
implementing partners continue to conduct their own market analysis, 
which estimates the price they are likely to receive for the commodity 
to be monetized. Overall, 17 of the 29 implementing partners we 
surveyed stated that the BEST analysis was sufficient for determining 
which commodities to monetize and 13 of the 29 implementing partners 
stated that it was sufficient for determining how much to monetize. 

The methodology for the BEST analysis includes identifying potential 
commodities to be monetized, ensuring that recipient country policies 
and regulations are favorable (i.e., there are no barriers or 
restrictions on the commodity to be monetized), reviewing local market 
structure as well as previous and planned food aid initiatives, and 
examining the likelihood of achieving fair and competitive market 
price. In conducting its analysis, Fintrac also considers the latest 5-
year trends in import volumes and domestic production data to ensure 
that the commodity to be monetized has been imported in significant 
volumes and that local production is insufficient to meet demand. As 
noted above, another important step in the analysis is to assess the 
likelihood that the monetized commodity will achieve fair and 
competitive market price. Fintrac uses the IPP as the most precise 
estimate of fair and competitive price for commercially-imported 
commodities. As discussed earlier, the IPP is the price a commercial 
importer in the recipient country pays to import the same or similar 
commodities from the most common exporting country.[Footnote 48] Based 
on all of these components, Fintrac makes a recommendation on 
monetization. When Fintrac recommends monetization, it does so in 
volumes that generally do not exceed 10 percent of the commodity's 
commercial import volume in order to avoid substantial displacement of 
trade. Fintrac's analysis also relies on field visits to obtain 
additional data, and interviews with stakeholders in the recipient 
country such as implementing partners; commercial importers; and 
potential buyers, including millers and processors. According to 
Fintrac, its methodology allows it to replicate these market 
assessments from country to country and ensures that all implementing 
partners are provided with the same information for their monetization 
applications. 

USAID's ability to ensure that monetization does not cause adverse 
market impact is limited, because the BEST analyses have only been 
conducted for a limited number of countries and have not yet been 
updated to reflect changes in market conditions. While Fintrac has 
conducted 13 BEST analyses, these analyses were available for only 11 
of 63 cases in which USAID monetized since 2008.[Footnote 49] For the 
remaining cases, USAID relied on Bellmon analyses conducted by their 
implementing partners, which are not independent. In addition, while 
the BEST offers an independent and consistent methodology and 
considers the latest 5 year trends in import volumes and domestic 
production data, it is not updated to capture changes in market 
conditions that may occur by the time sales transactions take place. 
We found that in certain cases, in the interval between the completion 
of the BEST and the sale of the monetized commodity, there was a 
relatively long lag, during which market conditions may have changed. 
Further, MYAPs generally last for 3 to 5 years, and monetization sales 
can take place in each of those years. The BEST would likely not be 
useful for monetization transactions that take place beyond the 
initial MYAP approval. According to USAID, while there is market 
information that changes rapidly and requires continued assessments, 
the BEST includes historical and cyclical information that can be used 
for many years. However, we found that the BEST does not include 
projection analysis that could take into account potential price 
spikes and the volatile nature of the market. As a result, the 
findings in the BEST have the potential to be irrelevant by the time 
the commodities reach the recipient country and implementing partners 
may not have adequately considered the impact of monetization on local 
markets and trade when applying for grants. 

USDA Conducts Market Assessments to Determine Recommended Monetization 
Levels but These Assessments Contain Weaknesses: 

USDA relies on its implementing partners to conduct market analyses 
that are used to address the Bellmon requirements. As the recipients 
of both the monetized commodities and the proceeds of their sales, 
implementing partners lack independence in conducting market analyses. 
Further, USDA does not provide guidance to the implementing partners 
on what methodology should be used for the market assessments that are 
intended to address Bellmon requirements. USDA does not conduct its 
own Bellmon requirement assessments to verify whether or not the 
conclusions reached by the implementing partners are reliable or 
reasonable. Without doing so, USDA cannot accurately determine whether 
monetization will result in substantial disincentive to, or 
interference with, domestic production or marketing of the same or 
similar commodities. USDA officials explained that they are currently 
unable to conduct independent analyses, such as those conducted by 
Fintrac, due to lack of resources. However, these officials also 
stated that they encouraged implementing partners to use the BEST 
analysis when available. 

USDA conducts its own market assessment--the UMR--to meet its 
requirement to determine that monetization does not cause disruption 
in normal patterns of commercial trade. The UMR for a given commodity 
is an Excel spreadsheet that contains data on the recipient country's 
consumption needs or apparent consumption, imports, and production. 
USDA determines the maximum allowable volume for U.S. programming, 
including monetization, for a given commodity in a specific country 
and year by subtracting the volume of imports and production from that 
of the consumption needs or apparent consumption,[Footnote 50] as 
follows: 

Maximum Allowable Volume for U.S. Programming = Consumption + Exports 
+ Stocks - (Domestic Production + Imports): 

USDA officials told us that the UMRs are conducted after they receive 
monetization grant applications and that they issue about 30 to 40 
UMRs per year. According to USDA officials, UMRs are not shared with 
the public because the information is intended solely for the use of 
U.S. government agencies, and the UMRs are considered market-sensitive 
because they include forecasts about consumption needs. Further, USDA 
officials told us that the UMRs are not held to the same rigorous 
review and verification processes that official USDA documents 
intended for external distribution must undergo. 

We found weaknesses in the UMRs, such as no explanation or source for 
values used to calculate the consumption needs or apparent consumption 
in each UMR. In addition, some of the UMRs we reviewed included errors 
in formulas and mistakes in calculations. The standard methodology for 
estimating consumption would show it as the sum of production and 
imports minus exports adjusted for the changes in stock. However, the 
consumption needs and apparent consumption figures in the spreadsheets 
are not based on any formula and appear as a data entry. For example, 
the consumption need noted in one UMR was more than double the 
consumption need that was calculated for that commodity using the 
standard methodology mentioned above. In another UMR, the consumption 
need was 80 percent greater than the calculated amount using the 
standard methodology. Further, our review of the UMRs showed that 
while data sources are listed at the bottom of these spreadsheets, it 
is impossible to identify which information came from which of the 
listed sources. In addition, we found errors in formulas and mistakes 
in calculations in 8 of the 12 UMRs that we reviewed.[Footnote 51] For 
example, columns in the Excel spreadsheets were not added correctly 
and resulted in totals that were smaller than the components summed to 
create them. We also found inconsistencies in how numbers and formulas 
were created. In addition, averages that were supposed to be based on 
5 years' worth of data were based on only 3 years' worth of data and 
treated as averages of 5 years' worth of data. In other cases, 
calculations included figures that should have been excluded, such as 
concessionary sales. Further, we found that some formulas included 
circular references, meaning that the total of the summation was also 
included as part of the summation itself. When we shared these 
findings with USDA, the agency corrected the eight UMRs. Such 
weaknesses impact the calculation for the maximum volume of 
recommended food aid programming and ultimately the decisions on how 
much food aid can be monetized. USDA officials told us that they 
conduct ad-hoc spot checks of the UMRs but do not have a formal 
quality control process in place. 

USAID and USDA Recommend Differing Limits for Monetization and In Some 
Cases Have Exceeded the Recommended Limits: 

USAID's and USDA's Recommended Limits for Monetization Differ 
Significantly from Each Other: 

The assessments that USAID and USDA use to help set recommended limits 
for monetization volumes vary widely in their conclusions. In all of 
the 12 cases in which we could compare USAID's and USDA's limits, 
these limits were significantly different from each another. In some 
cases, the UMR analyses recommended monetization of a commodity, while 
the BEST did not. For example, the 2010 UMR for wheat in Burundi 
concluded that up to 6,000 metric tons of wheat could be monetized, 
but the 2010 BEST analysis for Burundi concluded that the market was 
not suitable for monetization of any commodity, including wheat, and 
recommended that regional monetization be considered. Further, in all 
12 cases, the maximum allowable volume for U.S. programming found in 
the UMR was higher than the recommended maximum volume found in the 
BEST (see table 2). According to Fintrac, these volumes vary greatly 
because USAID conducts its assessments based on multiple factors, 
including the purchasing power of the buyers, which impacts the 
ability of the market to absorb additional commodities. 

Table 2: Monetization Limits Set by USAID and USDA for the Same 
Commodity in the Same Country and Same Year, between Fiscal Years 2008 
and 2010: 

Country: Bangladesh; 
Commodity: Vegetable oil; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 56,000; 
USDA's maximum allowable for programming found in UMR (metric tons): 
85,000. 

Country: Bangladesh; 
Commodity: Wheat; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 169,000; 
USDA's maximum allowable for programming found in UMR (metric tons): 
268,100. 

Country: Burkina Faso; 
Commodity: Rice; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 22,094; 
USDA's maximum allowable for programming found in UMR (metric tons): 
90,600. 

Country: Burundi; 
Commodity: Wheat; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 0; 
USDA's maximum allowable for programming found in UMR (metric tons): 
6,000. 

Country: Liberia; 
Commodity: Rice; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 3,427; 
USDA's maximum allowable for programming found in UMR (metric tons): 
34,500. 

Country: Liberia; 
Commodity: Vegetable oil; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 0; 
USDA's maximum allowable for programming found in UMR (metric tons): 
45,700. 

Country: Liberia; 
Commodity: Wheat; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 1,994; 
USDA's maximum allowable for programming found in UMR (metric tons): 
8,300. 

Country: Malawi; 
Commodity: Vegetable oil; 
Year: 2009; 
USAID's recommended maximum found in BEST (metric tons): 3,800; 
USDA's maximum allowable for programming found in UMR (metric tons): 
8,000. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2009; 
USAID's recommended maximum found in BEST (metric tons): 8,000; 
USDA's maximum allowable for programming found in UMR (metric tons): 
29,200. 

Country: Sierra Leone; 
Commodity: Wheat; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 0; 
USDA's maximum allowable for programming found in UMR (metric tons): 
15,900. 

Country: Uganda; 
Commodity: Wheat; 
Year: 2009; 
USAID's recommended maximum found in BEST (metric tons): 31,000[A]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
53,000. 

Country: Uganda; 
Commodity: Wheat; 
Year: 2010; 
USAID's recommended maximum found in BEST (metric tons): 31,000[A]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
109,300. 

Sources: GAO analysis of USAID and USDA data. 

[A] This BEST analysis included limits for both USAID and USDA. The 
total of those limits equaled 31,000 metric tons, of which a 23,500 
metric ton limit was set for USAID programming and a 7,500 metric ton 
limit for USDA programming. 

[End of table] 

The Volume of Commodity Programmed for Monetization by the Agencies 
Has at Times Exceeded Recommended Monetization Limits: 

The volume of commodity programmed for monetization has at times 
exceeded the recommended limits set by the agencies. The purpose of 
setting these limits is to help ensure that these transactions do not 
cause adverse market impacts. However, the limits have been exceeded 
by the very agencies that set them. We examined the total volume 
programmed for monetization by each agency and the aggregate of both 
agencies for each commodity in each country and each year between 
fiscal years 2008 and 2010 (for a complete list, see table 5 in 
appendix IV). We then compared these totals to the recommended limits 
found in the BEST and UMRs.[Footnote 52] We found that USAID exceeded 
the limits recommended by the BEST analyses in 6 of 11 possible cases. 
For example, the 2010 BEST analysis for Liberia recommended that a 
maximum of 3,427 metric tons of rice could be monetized; however, 
USAID programmed 10,100 metric tons of rice to be monetized in Liberia 
in 2010. In addition, USDA exceeded the recommended limit found in the 
BEST in 2 of 3 possible cases. For example, in 2009 USDA programmed 
15,000 metric tons of wheat in Uganda to be monetized, despite a 
recommendation in the BEST analysis that USDA should not monetize more 
than 7,500 metric tons of wheat. We also found that USDA exceeded the 
limit set by its UMR in 5 of 34 possible cases. For example, in 2008 
USDA programmed 6,000 metric tons of soybean meal to be monetized in 
Armenia when the maximum allowable volume was set at 200 metric tons 
in the corresponding UMR. USAID exceeded the UMR's limit for U.S. 
programming in 10 of 59 possible cases. For example, in 2009, USAID 
monetized 2,390 metric tons of rice in Senegal even though the 
corresponding UMR did not recommend programming any rice for 
monetization. See table 3 for all the cases in which USAID and/or USDA 
exceeded the limit recommended by the BEST analysis and/or set by the 
UMR between fiscal years 2008 and 2010. 

Table 3: Cases in which USAID and/or USDA Exceeded the Limit 
Recommended by the BEST and/or the UMR between Fiscal Years 2008 and 
2010: 

Cases in which the volume USAID programmed for monetization exceeded 
the limit recommended by the BEST: 

Country: Burundi; 
Commodity: Wheat; 
Year: 2010; 
Volume programmed by USAID (metric tons): 8,000 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 8,000; 
USAID's recommended maximum found in BEST (metric tons): 0 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
6,000. 

Country: Liberia; 
Commodity: Rice; 
Year: 2010; 
Volume programmed by USAID (metric tons): 10,100 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 10,100; 
USAID's recommended maximum found in BEST (metric tons): 3,427 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
34,500. 

Country: Liberia; 
Commodity: Vegetable oil; 
Year: 2010; 
Volume programmed by USAID (metric tons): 500 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 500 
USAID's recommended maximum found in BEST (metric tons): 0 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
45,700. 

Country: Liberia; 
Commodity: Wheat; 
Year: 2010; 
Volume programmed by USAID (metric tons): 3,080 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 3,080; 
USAID's recommended maximum found in BEST (metric tons): 1,994 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
8,300. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 21,140 [gray highlight]; 
Volume programmed by USDA (metric tons): 30,000; 
Total volume programmed by both agencies (metric tons): 51,140; 
USAID's recommended maximum found in BEST (metric tons): 8,000 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
29,200. 

Country: Sierra Leone; 
Commodity: Wheat; 
Year: 2010; 
Volume programmed by USAID (metric tons): 1,900 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 1,900; 
USAID's recommended maximum found in BEST (metric tons): 0 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
15,090. 

Cases in which the volume USDA programmed for monetization exceeded 
the limit recommended by the BEST: 

Country: Malawi; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 21,140; 
Volume programmed by USDA (metric tons): 30,000 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 51,140; 
USAID's recommended maximum found in BEST (metric tons): 8,000 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
29,200. 

Country: Uganda; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 21,550; 
Volume programmed by USDA (metric tons): 15,000 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 36,550; 
USAID's recommended maximum found in BEST (metric tons): 31,000[A] 
[gray highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
53,000. 

Cases in which the volume USDA programmed for monetization exceeded 
the maximum allowable for programming found in the UMR: 

Country: Armenia; 
Commodity: Soybean meal; 
Year: 2008; 
Volume programmed by USAID (metric tons): 0; 
Volume programmed by USDA (metric tons): 6,000 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 6,000; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
200 [gray highlight]. 

Country: Gambia; 
Commodity: Vegetable oil; 
Year: 2008; 
Volume programmed by USAID (metric tons): 0; 
Volume programmed by USDA (metric tons): 4,500 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 4,500; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-37,000[B] [gray highlight]. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2008; 
Volume programmed by USAID (metric tons): 9,140; 
Volume programmed by USDA (metric tons): 10,000 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 19,140; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-18,100[C] [gray highlight]. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 21,140; 
Volume programmed by USDA (metric tons): 30,000 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 51,140; 
USAID's recommended maximum found in BEST (metric tons): 8,000; 
USDA's maximum allowable for programming found in UMR (metric tons): 
29,200 [gray highlight]. 

Country: Senegal; 
Commodity: Vegetable oil; 
Year: 2008; 
Volume programmed by USAID (metric tons): 0; 
Volume programmed by USDA (metric tons): 2,840 [gray highlight]; 
Total volume programmed by both agencies (metric tons): 2,840; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-1,000 [gray highlight]. 

Cases in which the volume USAID programmed for monetization exceeded 
the maximum allowable for programming found in the UMR: 

Country: Burkina Faso; 
Commodity: Rice; 
Year: 2008; 
Volume programmed by USAID (metric tons): 4,780 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 4,780; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-64,900 [gray highlight]. 

Country: Burundi; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 13,090 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 13,090; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
6,700 [gray highlight]. 

Country: Burundi; 
Commodity: Wheat; 
Year: 2010; 
Volume programmed by USAID (metric tons): 8,000 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 8,000; 
USAID's recommended maximum found in BEST (metric tons): 0; 
USDA's maximum allowable for programming found in UMR (metric tons): 
6,000 [gray highlight]. 

Country: Haiti; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 45,710 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 45,710; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
35,800 [gray highlight]. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2008; 
Volume programmed by USAID (metric tons): 9,140 [gray highlight]; 
Volume programmed by USDA (metric tons): 10,000; 
Total volume programmed by both agencies (metric tons): 19,140; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-18,100[C] [gray highlight]. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2010; 
Volume programmed by USAID (metric tons): 11,500 [gray highlight]; 
Volume programmed by USDA (metric tons): 0; 
Total volume programmed by both agencies (metric tons): 11,500; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
8,600 [gray highlight]. 

Country: Niger; 
Commodity: Rice; 
Year: 2009; 
Volume programmed by USAID (metric tons): 11,360 [gray highlight]; 
Volume programmed by USDA (metric tons): 0.00; 
Total volume programmed by both agencies (metric tons): 11,360; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
800 [gray highlight]. 

Country: Rwanda; 
Commodity: Vegetable oil; 
Year: 2009; 
Volume programmed by USAID (metric tons): 760 [gray highlight]; 
Volume programmed by USDA (metric tons): 0.00; 
Total volume programmed by both agencies (metric tons): 760; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
500 [gray highlight]. 

Country: Senegal; 
Commodity: Rice; 
Year: 2008; 
Volume programmed by USAID (metric tons): 2,900 [gray highlight]; 
Volume programmed by USDA (metric tons): 0.00; 
Total volume programmed by both agencies (metric tons): 2,900; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
2,500 [gray highlight]. 

Country: Senegal; 
Commodity: Rice; 
Year: 2009; 
Volume programmed by USAID (metric tons): 2,390 [gray highlight]; 
Volume programmed by USDA (metric tons): 0.00; 
Total volume programmed by both agencies (metric tons): 2,390; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-97,700 [gray highlight]. 

Cases in which the total volume programmed for monetization by both 
USAID and USDA exceeded the limit recommended by the BEST and/or the 
UMR: 

Country: Malawi; 
Commodity: Wheat; 
Year: 2008; 
Volume programmed by USAID (metric tons): 9,140; 
Volume programmed by USDA (metric tons): 10,000; 
Total volume programmed by both agencies (metric tons): 19,140 [gray 
highlight]; 
USAID's recommended maximum found in BEST (metric tons): n/a; 
USDA's maximum allowable for programming found in UMR (metric tons): 
-18,100[C] [gray highlight]. 

Country: Malawi; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 21,140; 
Volume programmed by USDA (metric tons): 30,000; 
Total volume programmed by both agencies (metric tons): 51,140 [gray 
highlight]; 
USAID's recommended maximum found in BEST (metric tons): 8,000 [gray 
highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
29,200 [gray highlight]. 

Country: Uganda; 
Commodity: Wheat; 
Year: 2009; 
Volume programmed by USAID (metric tons): 21,550; 
Volume programmed by USDA (metric tons): 15,000; 
Total volume programmed by both agencies (metric tons): 36,550 [gray 
highlight]; 
USAID's recommended maximum found in BEST (metric tons): 31,000[A] 
[gray highlight]; 
USDA's maximum allowable for programming found in UMR (metric tons): 
53,000 [gray highlight]. 

Sources: GAO analysis of USAID and USDA data. 

Notes: 

1. Areas shaded in gray highlight the volume programmed for 
monetization and the limit that was exceeded. 

2. "0" denotes that the BEST analysis did not recommend monetization 
of the commodity in that country and year and "n/a" indicates that a 
BEST analysis was not available for this country and year. 

3. According to USDA, when the UMR's maximum allowable for U.S. 
programming is a negative number, programming for monetization is not 
recommended for the commodity in that country and year. 

[A] This BEST analysis included limits for both USAID and USDA. The 
total of those limits equaled 31,000 metric tons, of which a 23,500 
metric ton limit was set for USAID programming and a 7,500 metric ton 
limit for USDA programming. 

[B] Upon reviewing a draft of this report that we provided the 
agencies for comment, USDA provided us with a version of the 2008 UMR 
for Gambia vegetable oil that was dated a month after the UMR that was 
originally provided. We did not include this UMR in our analysis 
because agency officials previously stated that UMRs are not updated 
monthly. 

[C] In the comments USDA provided to us on the draft of this report, 
USDA stated that the 2008 UMR for Malawi wheat contained information 
in a footnote that it recognized as relevant to programming decisions. 
However, we found that USDA did not adjust the maximum allowable for 
U.S. programming in that specific UMR to account for the information 
included in the footnote. 

[End of table] 

Further, for 3 of 6 possible cases in which both agencies programmed 
the same commodity for monetization in the same country and the same 
year, the combined volume programmed for monetization by both agencies 
exceeded the recommendation in the BEST and/or the UMR. For example, 
for wheat in Malawi in 2009, the BEST recommended 8,000 metric tons 
and the UMR set the limit at 29,200 metric tons; however, both 
agencies programmed wheat for monetization and their combined total of 
51,140 metric tons was more than six times the BEST's recommendation 
and 75 percent above the UMR's limit. 

According to USAID officials, the recommended limits are at times 
exceeded because these market assessments are part of a larger 
decision-making process, which includes informal discussions between 
headquarters, the field-mission, and the implementing partners. 
Officials stated that through these discussions a decision on the 
commodity choice and volume to be monetized is made. However, USAID 
acknowledged that these discussions and the rationale for the 
decisions are not systematically documented. According to USDA 
officials, the agency considers other market information after 
agreements are signed and the UMRs are not the only information used 
to make programming decisions. Further, USDA officials stated that in 
some cases, they have documented the justification to exceed the 
programming limits set by the UMR. However, USDA did not provide this 
documentation for the cases that are discussed in this report. 

USAID and USDA Do Not Conduct Impact Evaluations after Monetization 
Transactions Have Taken Place to Determine Actual Market Impact: 

The actual impacts of programming monetization and monetizing above 
the limits recommended by the BEST and UMR have not been determined, 
since neither USAID nor USDA conduct evaluations after monetization 
transactions have taken place. Both agencies require implementing 
partners to report the sales price achieved for their monetization 
transactions, and USAID's Monetization Field Manual recommends that 
implementing partners establish a process for regularly monitoring 
local market prices. However, USAID and USDA have neither used the 
data on sale prices reported by the implementing partners to assess 
the impact monetization had on local production and trade nor 
established ways to systematically monitor the local markets in 
countries where they monetize. USAID and USDA have depended on the 
BEST, UMR, and market assessments conducted by their implementing 
partners to help meet their requirement to ensure that monetization 
does not result in adverse market impacts in the recipient countries. 
However, without conducting evaluations after monetization has 
occurred, they cannot determine the impact the sale of donated food 
had on local production and trade. Furthermore, they cannot assess the 
effectiveness of the BEST and UMR in preventing adverse market impact. 
According to a 2009 study by the Partnership to Cut Hunger and Poverty 
in Africa,[Footnote 53] for the United States to demonstrate 
commitment to minimizing market risks in recipient countries, more 
systematic evaluation of the monetization process is needed. 

Conclusions: 

Providing developing countries with assistance to improve food 
security is a vital humanitarian and foreign policy objective. 
However, monetization of U.S. food aid--the U.S. government's primary 
approach to meeting this objective--is an inherently inefficient way 
to fund development projects and can cause adverse market impacts in 
recipient countries. The monetization process results in the 
expenditure of a significant amount of appropriated funds in unrelated 
areas such as transportation and logistics, rather than development 
projects. Moreover, the potential for adverse market impacts, such as 
artificially suppressing the price of a commodity due to excessive 
monetization, could work against the agricultural development goals 
for which the funding was originally provided. The inefficiencies of 
monetization stem directly from the multiple transactions required by 
the process and, except in rare cases, prevent full cost recovery on 
monetization transactions. Therefore, as a source of funding for 
development assistance, monetization cannot be as efficient as a 
standard development program which provides cash grants directly to 
implementing partners. 

While monetization continues, however, it is important that the 
agencies strive to maximize the resources available for implementing 
development projects funded through monetization. The absence of a 
clearly defined benchmark or indicator for reasonable market price 
hinders their efforts to forestall transactions that provide a very 
low rate of return. In addition, since the agencies conduct only 
limited monitoring of the sales prices that implementing partners 
achieve through monetization, they cannot ensure that the transactions 
obtain the highest price and thereby generate as much funding as 
possible for development projects. The agencies are required by law to 
ensure that monetization does not cause adverse market impacts, but 
their market assessments contain weaknesses that diminish their 
usefulness for informing decisions on what, where, whether, and how 
much to monetize. Moreover, whatever limits these assessments attempt 
to establish are often exceeded and could contribute to disincentives 
to local food production and displacement of commercial trade. 
Furthermore, without conducting post-monetization transaction impact 
evaluations, the agencies cannot determine the actual impacts of 
monetization, even when the volume of the commodity monetized is more 
than 25 percent of the commodity's commercial import volume. Finally, 
transportation costs constitute about a third of the overall costs of 
monetization over the 3-year period we examined, and the 3-year 
reflagging rule--which only applies to food aid and not to the defense 
agencies and the U.S. Export-Import Bank--can limit competition among 
ships eligible to transport U.S. food aid, further increasing cost. 

Matter for Congressional Consideration: 

Consistent with rules that apply to the Maritime Security Fleet and 
vessels transporting other U.S. government cargo, Congress should 
consider amending the Cargo Preference Act of 1954 to eliminate the 3- 
year waiting period imposed on foreign vessels that acquire U.S.-flag 
registry before they are eligible for carriage of preference food aid 
cargos. This could potentially increase the number of U.S.-flag 
vessels eligible for carriage of preference food aid cargo, thereby 
increasing competition and possibly reducing costs. 

Recommendations for Executive Action: 

To improve the extent to which monetization proceeds cover commodity 
and other associated costs and the agencies' ability to meet 
requirements to ensure that monetization does not cause adverse market 
impacts, we recommend that the Administrator of USAID and the 
Secretary of Agriculture take the following four actions: 

1. jointly develop an agreed-upon benchmark or indicator to determine 
"reasonable market price" for sales of U.S. food aid for monetization; 

2. monitor food aid sales transactions to ensure that the benchmark 
set to achieve "reasonable market price" in the country where the 
commodities are being sold is achieved, as required by law; 

3. improve market assessments and coordinate to develop them in 
countries where both USAID and USDA may monetize; and: 

4. conduct market impact evaluations after monetization transactions 
have taken place to determine whether they caused adverse market 
impacts. 

Agency Comments and Our Evaluation: 

USAID and USDA, the two principal agencies that manage U.S. food aid 
monetization programs, and DOT, the principal agency responsible for 
the implementation of cargo preference rules, provided written 
comments on a draft of this report. We have reprinted their comments 
in appendixes VII, VIII, and IX, respectively. These agencies also 
provided technical comments and updated information, which we have 
incorporated throughout this report, as appropriate. The Department of 
State and the Office of Management and Budget did not provide written 
comments. 

DOT disagreed with our Matter for Congressional Consideration on the 
basis of its concern regarding the potentially detrimental impact the 
statutory change may have on the U.S. maritime industry. However, we 
maintain that Congress should consider amending the Cargo Preference 
Act of 1954 to eliminate the 3-year waiting period imposed on foreign 
vessels that acquire U.S.-flag registry before they are eligible for 
carriage of preference food aid cargos. We are suggesting this 
proposed amendment on the basis of the following four factors: First, 
the number of vessels participating in U.S. food aid programs has 
declined. In a 2009 report to Congress, USAID and USDA jointly stated 
that, due to the declining size of the U.S.-flag commercial fleet, 
USAID and USDA are forced to compete with the Department of Defense 
and other exporters for space aboard the few remaining U.S.-flag 
vessels, thereby limiting competition in transportation contracting 
and leading to higher freight rates. Second, our analysis of ocean 
transportation costs showed that food aid shipments on foreign-flag 
carriers cost the U.S. government, on average, $25 per ton less than 
U.S.-flag carriers. Third, although the 3-year requirement was 
established to provide employment opportunities to U.S. shipyards, 
since 2005, U.S. shipyards have built only two new U.S.-flag vessels 
appropriate for transporting food and the vessels have not been 
awarded a food aid contract. Fourth, the 3-year rule applies only to 
food aid and not to defense agencies and the U.S. Export-Import Bank. 
The elimination of the 3-year waiting period can ease entry of new 
vessels into the U.S. food aid program, with the potential to increase 
competition among eligible U.S.-flag ships and reduce the cost of 
transportation. DOT also said that we overstated the overall cost of 
transportation. Our calculation of transportation cost was based on an 
analysis of all actual monetization transactions over a 3-year period 
and is thus a precise calculation of the actual cost to the U.S. 
government. In addition, DOT said that the number of vessels 
participating in the program has declined by less than what we found. 
However, our analysis was based on the number of actual vessels booked 
for all food aid contracts awarded from fiscal years 2002 to 2010. 

USAID generally concurred with our recommendations, noting ongoing and 
planned actions to address them. Specifically, USAID stated that it 
will work with USDA to explore options of setting a benchmark or 
indicator for the sale of U.S. food aid through monetization. USAID 
noted that it has regional and country-based food aid monitoring and 
evaluation specialists who review U.S. food aid programs, including 
monetization sales, and that the agency's BEST project is well-
accepted by its implementing partners. Additionally, USAID is updating 
its Monetization Field Manual, which includes market assessment 
guidance. Finally, USAID stated that it will explore possible cost-
effective ways to conduct post-sale market impact evaluations with its 
partners. 

USDA also generally concurred with our recommendations, stating that 
they will be useful in ongoing efforts to generate cash development 
resources and improve overall program management. USDA noted that an 
advantage of monetization is that it can encourage commercial markets 
for agricultural products and contribute to other market-building 
activities. However, we found that the agencies cannot ensure that 
monetization does not cause adverse market impacts, including 
discouraging food production by local farmers. USDA also noted actions 
it is exploring to reduce the cost of food aid shipments, such as the 
recipient host government paying for the cost of ocean transportation 
and combining shipments to obtain volume discounts. Further, USDA 
stated that it will work with USAID to develop improved benchmarks for 
reasonable local market prices. Finally, USDA stated that it will 
coordinate with USAID to improve market assessments and it will 
consider revising its regulations to require market impact evaluations. 

We are sending copies of this report to interested members of 
Congress, the Administrator of USAID, the Secretary of Agriculture, 
and relevant agency heads. The report is also available at no charge 
on the GAO Web site at [hyperlink, 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 Office 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 X. 

Signed by: 

Thomas Melito: 
Director, International Affairs and Trade: 

List of Requesters: 

The Honorable Debbie Stabenow: 
Chairwoman: 
The Honorable Pat Roberts: 
Ranking Member: 
Committee on Agriculture, Nutrition, and Forestry: 
United States Senate: 

The Honorable Richard G. Lugar: 
Ranking Member: 
Committee on Foreign Relations: 
United States Senate: 

The Honorable Frank D. Lucas: 
Chairman: 
The Honorable Collin C. Peterson: 
Ranking Member: 
Committee on Agriculture:
House of Representatives: 

The Honorable Ileana Ros-Lehtinen: 
Chairman: 
The Honorable Howard L. Berman: 
Ranking Member: 
Committee on Foreign Affairs: 
House of Representatives: 

The Honorable Donald M. Payne: 
Ranking Member: 
Subcommittee on Africa, Global Health, and Human Rights: 
Committee on Foreign Affairs: 
House of Representatives: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to (1) assess the extent to which monetization 
proceeds cover commodity and other associated costs and (2) examine 
the extent to which U.S. agencies meet requirements to ensure that 
monetization does not cause adverse market impacts. 

To address these objectives, we analyzed emergency and nonemergency 
food aid program data provided by the U.S. Agency for International 
Development (USAID), the U.S. Department of Agriculture (USDA), and 
USDA's Kansas City Commodity Office (KCCO). Our analysis focused on 
nonemergency food aid that was monetized. The agencies relied on 
various reports their implementing partners submitted to manually 
generate the cost recovery data for fiscal years 2008 through 2010 for 
our review. We worked with the agencies to correct errors in the data 
and determined that the data used in our analysis were sufficiently 
reliable for our purposes. 

We surveyed all the nongovernmental organizations (NGO) that served as 
implementing partners under USAID and USDA and conducted monetization 
between fiscal years 2008 through 2010. To determine the universe of 
NGOs that served as implementing partners during this time period, we 
obtained a list of all implementing partners with call forwards for 
monetized food aid from KCCO between fiscal years 2008 and 2010, which 
consisted of a total of 33 implementing partners. Three of these 
implementing partners were foreign governments and we excluded these 
from our sample. A fourth implementing partner was excluded because it 
had not conducted monetization before the end of fiscal year 2010. As 
a result, we determined that the universe of implementing partners 
that had monetized between fiscal years 2008 and 2010 was 29. We 
developed a structured instrument for our survey in October of 2010, 
and pre-tested it on two implementing partners. The instrument 
contained both closed and open ended questions in four general areas: 
(1) the monetization process, (2) the U.S. government role, (3) market 
analysis, and (4) cost recovery. We sent the instrument to all 29 
implementing partners via e-mail in November 2010 and received 
completed instruments from all 29 of them. As part of our process for 
this survey, we conducted phone interviews with each implementing 
partner after we received its completed instrument to ensure the 
accuracy of their responses. 

In Washington, D.C., we interviewed officials from USAID, USDA, the 
Departments of State and Transportation, and the Office of Management 
and Budget. We also met with a number of subject matter experts, as 
well as officials representing NGOs that serve as implementing 
partners to USAID and USDA in carrying out U.S. food aid monetization 
programs overseas. In addition, we conducted field work in three of 
the four countries that programmed some of the highest volumes of 
nonemergency monetized U.S. food aid between fiscal years 2008 and 
2010--Bangladesh, Mozambique, and Uganda--and met with officials from 
U.S. missions, representatives from NGOs and other implementing 
partners that directly handle sales and implement development 
activities, and in Uganda and Mozambique, officials from relevant host 
government agencies. 

To determine the level of cost recovery, we obtained data from USAID 
and USDA on commodity costs, which include the procurement and ocean 
freight cost, and sales price for each monetization transaction. For 
the purposes of this report, we defined cost recovery as the ratio 
between sales proceeds from monetization and the cost to the U.S. 
government to procure and ship the commodities. We did not include 
transactions for which the agencies did not have actual sales prices. 
We analyzed cost recovery by agency, year, commodity, and recipient 
country to study the variations in the level of cost recovery. In 
order to analyze cost recovery, we took the following steps: 

* Cleaned the data. We found many errors and discrepancies in the data 
we obtained from USAID and USDA, and sent questions asking them to 
explain the discrepancies we found and make corrections. 

* Calculated cost recovery. Using the cleaned data, we calculated the 
cost recovery for each transaction and for the USAID and USDA programs 
in total. The program average we reported is a weighted average, the 
ratio between the sum of sales proceeds and the sum of commodity and 
freight costs. 

* Estimated the difference between the proceeds generated through 
monetization and the cost the U.S. government incurred to procure and 
ship the commodities. To do so, subtracted the total cost the U.S. 
government incurred on procurement and shipping monetized food aid 
commodities from the total proceeds generated. 

We also estimated the extent to which freight costs account for the 
cost to the U.S. government for U.S. food aid procurement and 
shipping. In addition, we looked at how cargo preference affects cost 
recovery by examining the freight rate differentials between U.S.-and 
foreign-flag carriers, in shipping U.S. food aid. (For a detailed 
description of our methodology for this analysis, see appendix II.) 

To examine the extent to which USAID and USDA meet requirements to 
ensure that monetization does not cause adverse market impacts, we 
conducted a literature search to identify relevant studies and papers 
on the effect of monetization on recipient countries and trade. In 
addition, we conducted interviews with officials from USAID and USDA; 
representatives from NGOs engaged in monetization; and experts from 
academia with extensive research, published work, and experience in 
the field. We reviewed the federal requirements and agency documents 
such as policies and guidelines, the Bellmon Estimate for Title II 
(BEST) analyses, and the Usual Marketing Requirement (UMR). We also 
analyzed data from KCCO, USAID, and USDA on commodities that were 
programmed for monetization between fiscal years 2008 and 2010, 
including volumes programmed for monetization, import data, and 
consumption data in recipient countries. Specifically, we: 

* Examined the total volume programmed for monetization by both 
agencies for each commodity in each country and each year between 
fiscal years 2008 and 2010, for which we could obtain the commercial 
import volume using the UMR. We compared the total volume monetized of 
a given commodity to the commodity's commercial import volume. To 
assess the data, we interviewed cognizant agency officials at USDA and 
reviewed documentation; however, we did not independently verify the 
underlying source data. We determined that the data we used were 
sufficiently reliable for our purposes. 

* Reviewed the 7 BESTs and 87 UMRs that were available for all of the 
monetization cases that occurred between fiscal years 2008 and 2010. 
For the purposes of this report, we define the term "case" as the 
total volume of a given commodity programmed for monetization by 
either USAID and/or USDA in a given country in a given year. 

* Examined the limits set by the BEST and the UMR and compared them to 
each other. 

* Examined the monetization cases that occurred between fiscal years 
2008 and 2010 and compared them to limits set by the BEST and/or the 
UMR. As we created a data set from the agencies' documents and 
calculations to assess the extent to which USDA and USAID had exceeded 
the limits they set for monetization, we determined that it was beyond 
the scope of this engagement to assess the agencies' underlying data. 
We did, however, check the internal logic of the agencies' documents 
and their calculations. We consulted with the agencies if we found 
discrepancies and either had the agencies make the necessary 
corrections or did not use the data in our analysis. 

We also assessed both agencies' efforts to monitor and evaluate the 
impact of monetization transactions. 

We conducted this performance audit from July 2010 to June 2011 in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

[End of section] 

Appendix II: Technical Notes on Analysis of Differences in Ocean 
Freight Rates between U.S.-and Foreign-Flag Carriers: 

To determine whether, and the extent to which, ocean freight rates 
differ between U.S.-and foreign-flag carriers in shipping U.S. food 
aid, we obtained data from the Kansas City Commodity Office (KCCO) and 
developed two regression models to estimate the differences in freight 
rates between U.S.-and foreign-flag carriers while controlling for 
various factors that affect the freight rate. 

Data: 

We obtained data from KCCO, a division of the Department of 
Agriculture (USDA) responsible for procuring U.S. food aid 
commodities. The data contain more than 5,000 food aid purchase 
transactions between 2007 and 2010. For each transaction, we had the 
following information: 

1. Name of program: Food for Peace, Food for Progress, or McGovern-
Dole International Food for Education and Child Nutrition Program: 

2. Request number: 

3. Name of the recipient country: 

4. Name of the implementing partner: 

5. Name of the commodity: 

6. Type of food aid: monetization or direct delivery: 

7. Fiscal year the program is approved: 

8. Name of the port where commodity is loaded in the U.S: 

9. Date when commodity arrives at load port: 

10. Name of the port where commodity is discharged: 

11. Metric tons of commodity: 

12. Total commodity cost: 

13. Total freight cost: 

14. Shipping term: 

Table 4 presents the summary statistics of the data. 

Table 4: Summary Statistics of KCCO's Data on Food Aid Purchase 
Transactions between Fiscal Years 2007 and 2010: 

Variable: Metric tons; 
Mean: 1,469; 
Standard deviation: 4,291; 
Maximum: 54,000; 
Minimum: 0.64. 

Variable: Commodity costs; 
Mean: $570,917; 
Standard deviation: $1,064,689; 
Maximum: $14,400,000; 
Minimum: $0. 

Variable: Freight costs; 
Mean: $258,061; 
Standard deviation: $598,893; 
Maximum: $8,347,336; 
Minimum: $0. 

Source: GAO analysis of KCCO data. 

Note: This table presents the average, standard deviation, and maximum 
and minimum of the numeric variables in the 5,440 food aid procurement 
and shipping transactions between fiscal years 2007 and 2010. 

[End of table] 

We generated a new variable called pertonfreight, measured in dollars 
per metric ton, by dividing total freight cost by metric tons. Table 5 
compares the difference in freight rate between foreign and U.S.-flag 
carriers by commodity type (bulk vs. non-bulk) and by year without 
controlling for shipping routes or shipping terms. The results show 
that in general U.S. flag carriers charge higher freight rates than 
foreign flag carriers. However, part of the difference could be 
explained by shipping routes or shipping terms, which we incorporated 
in the regression analysis. 

Table 5: Freight Rate by Year, Commodity Type, and Carrier Type: 

Year: 2008; 
Non-bulk (dollars per ton): U.S.-flag carrier: $264; 
Non-bulk (dollars per ton): Foreign-flag carrier: $214; 
Bulk (dollars per ton): U.S.-flag carrier: $178; 
Bulk (dollars per ton): Foreign-flag carrier: $170. 

Year: 2009; 
Non-bulk (dollars per ton): U.S.-flag carrier: $220; 
Non-bulk (dollars per ton): Foreign-flag carrier: $200; 
Bulk (dollars per ton): U.S.-flag carrier: $171; 
Bulk (dollars per ton): Foreign-flag carrier: $132. 

Year: 2010; 
Non-bulk (dollars per ton): U.S.-flag carrier: $235; 
Non-bulk (dollars per ton): Foreign-flag carrier: $178; 
Bulk (dollars per ton): U.S.-flag carrier: $173; 
Bulk (dollars per ton): Foreign-flag carrier: $150. 

Source: GAO analysis of KCCO data. 

Note: Since the 2007 data are incomplete, we did not include them in 
this table. 

[End of table] 

Regression Model Specification and Results: 

Regression Model 1 and Results: 

In order to analyze the difference in ocean freight rate between U.S.- 
and foreign-flag carriers while controlling for various factors which 
affect freight rates, we performed a multivariate regression analysis. 
We attempted to explain the differences in freight rates using the 
shipping routes, shipping time, shipping terms, commodities shipped, 
and the ownership of the carriers.[Footnote 54] 

Equation 1: 

Freight rate = a0 + (a1 * load port dummy) + (a2 * discharge port 
dummy) + (a3 * year dummy) + (a4 * bulk dummy) + (a5 * shipping term 
dummy) + (a6 *flag dummy): 

Where: 

* load port dummy is a set of variables indicating where commodities 
were loaded. 

* discharge port dummy is a set of variables indicating where 
commodities were unloaded. 

* year dummy is a set of variables indicating the year the commodities 
were shipped. 

* bulk dummy is a variable indicating if the commodities shipped were 
bulk (bulk dummy=1) or non-bulk (bulk dummy=0); 

* term dummy is a set of variables indicating which of the four 
different shipping terms we used. 

* flag dummy is a variable indicating if the ocean carriers were 
foreign-flag carriers (flag dummy=1) or U.S.-flag carriers (flag 
dummy=0). 

A negative and significant coefficient a6 would indicate that foreign- 
flag carriers charge a lower freight rate than U.S.-flag carriers 
after controlling for shipping routes, shipping time, commodity type, 
and shipping terms. Table 6 presents the main regression results for 
model 1. 

Table 6: Main Regression Results for Regression Model 1: 

Observations: 5416; 
R-square: 70%. 

Constant (a0): 

Observations: Constant; 
Coefficient: -74.5; 
Standard error: 49.8; 
T-value: -1.5; 
P-value: 0.1. 

Year dummy (a3): 

Observations: Year 2 (2008); 
Coefficient: 17.03; 
Standard error: 3.9; 
T-value: 4.5; 
P-value: 0. 

Observations: Year 3 (2009); 
Coefficient: -22.1; 
Standard error: 3.9; 
T-value: 4.5; 
P-value: 0. 

Observations: Year 4 (2010); 
Coefficient: 21.4; 
Standard error: 4; 
T-value: -5.3; 
P-value: 0. 

Bulk dummy (a4): 

Observations: Bulk; 
Coefficient: -89.3; 
Standard error: 4; 
T-value: -22.6; 
P-value: 0. 

Flag dummy (a6): 

Observations: Flag; 
Coefficient: -25.2; 
Standard error: 2.7; 
T-value: -9.2; 
P-value: 0. 

Source: GAO analysis of KCCO data. 

Note: In addition to the variables listed above, our regression also 
included dummy variables for 34 load ports, 116 discharge ports, and 3 
different shipping terms. 

[End of table] 

Regression Model 2 and Results: 

In order to capture the difference in freight rate between U.S.-and 
foreign-flag carriers on bulk and non-bulk commodities, we ran a 
regression with an interactive term flag * bulk. 

Equation 2: 

Freight rate = a0 + (a1 * load port dummy) + (a2 * discharge port 
dummy) + (a3 * year dummy) + (a4 * bulk dummy) + (a5 * shipping term 
dummy) + (a6 *flag dummy) + (a7 * (flag * bulk): 

For bulk commodities (bulk=1), and foreign-flag carriers (flag=1), 
Equation 2 becomes: 

Equation 3: 

Freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port 
dummy) + (a3 * year dummy) + (a4 * 1) + (a5 * shipping term dummy) + 
(a6 *1)+[a7*(1*1)] 

For bulk commodities (bulk=1) and U.S.-flag carriers (flag=0), 
Equation 2 becomes: 

Equation 4: 

freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port 
dummy) + (a3 * year dummy) + (a4 * 1) + (a5 * shipping term dummy) + 
(a6 
*0)+[a7*(0*1)] 

The difference between Equation 3 and Equation 4 yields a6+a7, which 
is the difference in freight rate between U.S.-and foreign-flag 
carriers for bulk commodities. 

Similarly, for non-bulk commodities (bulk=0), and foreign-flag 
carriers (flag=1), Equation 2 becomes: 

Equation 5: 

freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port 
dummy) + (a3 * year dummy) + (a4 * 0) + (a5 * shipping term dummy) + 
(a6 *1)+[a7*(0*1)] 

For bulk commodities (bulk=0) and U.S.-flag carriers (flag=0), 
Equation 2 becomes: 

Equation 6: 

freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port 
dummy) + (a3 * year dummy) + (a4 * 0) + (a5 * shipping term dummy) + 
(a6 *0)+[a7*(0*0)] 

The difference between Equation 5 and Equation 6 yields a6, which is 
the difference in freight rate between U.S.-and foreign-flag carriers 
for non-bulk commodities. 

Table 7 presents the main regression results for model 2. 

Table 7: Main Regression Results for Regression Model 2: 

Observations: 5416; 
R-Square: 70%. 

Constant (a0): 

Observations: Constant; 
Coefficient: -75.6; 
Standard error: 49.8; 
T-value: -1.5; 
P-value: 0.1. 

Year dummy (a3): 

Observations: Year 2 (2008); 
Coefficient: 18.1; 
Standard error: 3.9; 
T-value: 4.7; 
P-value: 0. 

Observations: Year 3 (2009); 
Coefficient: -21.1; 
Standard error: 3.9; 
T-value: -5.4; 
P-value: 0. 

Observations: Year 4 (2010); 
Coefficient: -20.8; 
Standard error: 4.0; 
T-value: -5.2; 
P-value: 0. 

Bulk dummy (a4): 

Observations: Bulk; 
Coefficient: -92.0; 
Standard error: 4.0; 
T-value: -22.8; 
P-value: 0. 

Flag dummy (a6): 

Observations: Flag; 
Coefficient: -30.1; 
Standard error: 3.1; 
T-value: -9.7; 
P-value: 0. 

Flag*bulk (a7): 

Observations: Flag*bulk; 
Coefficient: 22.4; 
Standard error: 6.6; 
T-value: 3.4; 
P-value: 0. 

Source: GAO analysis of KCCO data. 

Note: In addition to the variables listed above, our regression also 
included dummy variables for 34 load ports, 116 discharge ports, and 3 
different shipping terms. 

[End of table] 

[End of section] 

Appendix III: Program Authorities: 

The United States has principally employed six programs to deliver 
food aid: Public Law 480 Titles I, II, and III; Food for Progress; the 
McGovern-Dole International Food for Education and Child Nutrition; 
and the Local and Regional Procurement Project. Three of these 
programs allow for monetization: Title II (renamed Food for Peace), 
Food for Progress, and McGovern-Dole International Food for Education 
and Child Nutrition. Table 8 provides a summary of these food aid 
programs by program authority. 

Table 8: U.S. Food Aid by Program Authority: 

Program: Total cost in fiscal year 2010 (thousands of dollars); 
Food for Peace: Title I: $19,698.9; 
Food for Peace: Title II [Shaded gray]: $1,932,471.6; 
Food for Peace: Title III: $0; 
Food for Progress [Shaded gray]: $146,423.1; 
McGovern-Dole International Food for Education and Child Nutrition 
[Shaded gray]: $174,489.7; 
Local and Regional Procurement Project: $23,811. 

Program: Managing agency; 
Food for Peace: Title I: USDA; 
Food for Peace: Title II [Shaded gray]: USAID; 
Food for Peace: Title III: USAID; 
Food for Progress [Shaded gray]: USDA; 
McGovern-Dole International Food for Education and Child Nutrition 
[Shaded gray]: USDA; 
Local and Regional Procurement Project: USDA. 

Program: Year established; 
Food for Peace: Title I: 1954; 
Food for Peace: Title II [Shaded gray]: 1954; 
Food for Peace: Title III: 1954; 
Food for Progress [Shaded gray]: 1985; 
McGovern-Dole International Food for Education and Child Nutrition 
[Shaded gray]: 2003; 
Local and Regional Procurement Project: 2008. 

Program: Description of assistance; 
Food for Peace: Title I: Concessional sales of agricultural 
commodities; 
Food for Peace: Title II [Shaded gray]: Donation of commodities to 
meet emergency and nonemergency needs; 
commodities may be monetized; 
Food for Peace: Title III: Donation of commodities to governments of 
least developed countries; 
Food for Progress [Shaded gray]: Donation of commodities to developing 
countries and emerging democracies; 
commodities may be monetized; 
McGovern-Dole International Food for Education and Child Nutrition 
[Shaded gray]: Donation of commodities and provision of financial and 
technical assistance in foreign countries; 
commodities may be monetized; 
Local and Regional Procurement Project: 4-year pilot program to 
examine the timeliness and efficiency of local and regional 
procurement as a tool to enhance U.S. government food assistance 
programs. 

Program: Type of assistance; 
Food for Peace: Title I: Nonemergency; 
Food for Peace: Title II [Shaded gray]: Emergency and nonemergency; 
Food for Peace: Title III: Nonemergency; 
Food for Progress [Shaded gray]: Emergency and nonemergency; 
McGovern-Dole International Food for Education and Child Nutrition 
[Shaded gray]: Nonemergency; 
Local and Regional Procurement Project: Emergency. 

Program: Implementing partners; 
Food for Peace: Title I: Governments and private entities; 
Food for Peace: Title II [Shaded gray]: World Food Program and NGOs; 
Food for Peace: Title III: Governments; 
Food for Progress [Shaded gray]: Governments, agricultural trade 
organizations, inter-governmental organizations, NGOs, and 
cooperatives; 
McGovern-Dole International Food for Education and Child Nutrition 
[Shaded gray]: Governments, private entities, inter-governmental 
organizations; 
Local and Regional Procurement Project: See implementing partners for 
Title II, Title III, and Food for Progress programs. 

Sources: GAO analysis of USAID and USDA data. 

Note: Programs that allow for monetization are shaded in gray. 

[End of table] 

[End of section] 

Appendix IV: Total Volume and Commodities Programmed for Monetization 
by Country from Fiscal Years 2008 through 2010: 

As previously mentioned, between fiscal years 2008 and 2010, more than 
1.3 million metric tons of food aid were programmed for monetization 
in 34 countries. Figure 10 shows the total volume of commodities 
programmed for monetization in each country by the U.S. Agency for 
International Development (USAID) and U.S. Department of Agriculture 
(USDA) between fiscal years 2008 and 2010. Table 9 shows the volume of 
each commodity programmed for monetization by country, program, and 
year. Figure 11 provides a percentage breakdown of the commodities 
programmed for monetization by USAID and USDA between fiscal years 
2008 and 2010. 

Figure 10: Total Volume Programmed for Monetization by USDA and USAID 
by Country and Year between Fiscal Years 2008 and 2010: 

[Refer to PDF for image: stacked vertical bar graph] 

Metric tons (in thousands): 

Country: Bangladesh; 
2008: 64.24; 
2009: 63.97; 
2010: 92.38. 

Country: Mozambique; 
2008: 87.6; 
2009: 65.56; 
2010: 49.04. 

Country: Haiti; 
2008: 34.69; 
2009: 45.71; 
2010: 19.6 

Country: Uganda; 
2008: 30.14; 
2009: 36.55; 
2010: 21.71 

Country: Malawi; 
2008: 22.19; 
2009: 52.691; 
2010: 13. 

Country: Guatemala; 
2008: 30.56; 
2009: 12.72; 
2010: 13.17. 

Country: Democratic Republic of Congo; 
2008: 9.71; 
2009: 13.6; 
2010: 32.07. 

Country: Pakistan; 
2009: 50. 

Country: Ethiopia; 
2008: 24.49; 
2009: 23. 

Country: Afghanistan; 
2008: 22.15; 
2009: 20.6; 
2010: 4.5. 

Country: Nicaragua; 
2008: 35.05. 

Country: Philippines; 
2009: 31.93. 

Country: Liberia; 
2008: 11.66; 
2009: 4.86; 
2010: 13.69. 

Country: Niger; 
2008: 4.91; 
2009: 11.36; 
2010: 13.38. 

Country: Dominican Republic; 
2009: 26.25. 

Country: Burundi; 
2008: 4.31; 
2009: 13.09; 
2010: 8. 

Country: Mongolia; 
2008: 25. 

Country: Senegal; 
2008: 5.74; 
2009: 17.59. 

Country: Madagascar; 
2008: 12.45; 
2010: 7.3. 

Country: Mauritania; 
2008: 7.11; 
2009: 5.65; 
2010: 6.81. 

Country: Mali; 
2009: 4.46; 
2010: 13.98. 

Country: Tanzania; 
2008: 15.75. 

Country: Bolivia; 
2008: 15.37. 

Country: Sierra Leone; 
2009: 7.5; 
2010: 7.5. 

Country: Honduras; 
2008: 14.56. 

Country: Burkina Faso; 
2008: 4.78; 
2009: 2.91; 
2010: 2.5. 

Country: Kenya; 
2008: 9.5. 

Country: Chad; 
2008: 2.18; 
2009: 3.6; 
2010: 2.76. 

Country: Ghana; 
2008: 2.54; 
2009: 3.68; 

Country: Armenia; 
2008: 6. 

Country: Gambia; 
2008: 4.5. 

Country: Zambia; 
2008: 3.76. 

Country: Rwanda; 
2008: 2.54; 
2009: 0.76. 

Country: Guinea; 
2008: 1; 
2009: 0.65. 

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

[End of figure] 

Table 9: Volumes of Commodity Programmed for Monetization by Country, 
Program, and Fiscal Year between Fiscal Years 2008 and 2010: 

Country: Afghanistan; 
Commodity: Bread flour; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 10,940; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 10,940. 

Country: Afghanistan; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 10,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 10,000. 

Country: Afghanistan; 
Commodity: Vegetable oil; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 11,210; 
Fiscal year 2009 (metric tons): 10,600; 
Fiscal year 2010 (metric tons): 4,500; 
Grand total (metric tons): 26,310. 

Country: Armenia; 
Commodity: Soybean meal (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 6,000; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 6,000. 

Country: Bangladesh; 
Commodity: Crude, degummed soybean oil (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 4,850; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 4,850. 

Country: Bangladesh; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 39,380; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 39,380. 

Country: Bangladesh; 
Commodity: Soft white wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 24,860; 
Fiscal year 2009 (metric tons): 59,120; 
Fiscal year 2010 (metric tons): 92,380; 
Grand total (metric tons): 176,360. 

Country: Bolivia; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 15,370; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 15,370. 

Country: Burkina Faso; 
Commodity: Milled rice; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 4,780; 
Fiscal year 2009 (metric tons): 2,910; 
Fiscal year 2010 (metric tons): 2,500; 
Grand total (metric tons): 10,190. 

Country: Burundi; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 4,310; 
Fiscal year 2009 (metric tons): 13,090; 
Fiscal year 2010 (metric tons): 8,000; 
Grand total (metric tons): 25,400. 

Country: Chad; 
Commodity: Bread flour; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 2,180; 
Fiscal year 2009 (metric tons): 3,600; 
Fiscal year 2010 (metric tons): 2,760; 
Grand total (metric tons): 8,540. 

Country: Democratic Republic of Congo; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 9,710; 
Fiscal year 2009 (metric tons): 13,600; 
Fiscal year 2010 (metric tons): 32,070; 
Grand total (metric tons): 55,380. 

Country: Dominican Republic; 
Commodity: Crude, degummed soybean oil (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 1,250; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 1,250. 

Country: Dominican Republic; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 25,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 25,000. 

Country: Ethiopia; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 20,000; 
Fiscal year 2009 (metric tons): 23,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 43,000. 

Country: Ethiopia; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 4,490; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 4,490. 

Country: Gambia; 
Commodity: Vegetable oil; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 4,500; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 4,500. 

Country: Ghana; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 2,540; 
Fiscal year 2009 (metric tons): 3,680; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 6,220. 

Country: Guatemala; 
Commodity: Crude, degummed soybean oil (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 5,420; 
Fiscal year 2009 (metric tons): 6,730; 
Fiscal year 2010 (metric tons): 13,170; 
Grand total (metric tons): 25,320. 

Country: Guatemala; 
Commodity: Soybean meal (bulk); 
Program: Food for Education; 
Fiscal year 2008 (metric tons): 10,140; 
Fiscal year 2009 (metric tons): 5,990; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 16,130. 

Country: Guatemala; 
Commodity: Soybean meal (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 15,000; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 15,000. 

Country: Guinea; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 1,000; 
Fiscal year 2009 (metric tons): 650; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 1,650. 

Country: Haiti; 
Commodity: Bread flour; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 19,000; 
Grand total (metric tons): 19,000. 

Country: Haiti; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons):34,690; 
Fiscal year 2009 (metric tons):45,710; 
Fiscal year 2010 (metric tons):0; 
Grand total (metric tons): 80,400. 

Country: Haiti; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 600; 
Grand total (metric tons): 600. 

Country: Honduras; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 5,760; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 5,760. 

Country: Honduras; 
Commodity: Soybean meal (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 8,800; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 8,800. 

Country: Kenya; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 9,500; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 9,500. 

Country: Liberia; 
Commodity: All purpose flour; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 1,900; 
Grand total (metric tons): 1,900. 

Country: Liberia; 
Commodity: Bread flour; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 1,000; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 1,000. 

Country: Liberia; 
Commodity: Hard red winter wheat; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 1,180; 
Grand total (metric tons): 1,180. 

Country: Liberia; 
Commodity: Milled rice; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 8,300; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 8,300. 

Country: Liberia; 
Commodity: Milled rice; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 4,860; 
Fiscal year 2010 (metric tons): 10,110; 
Grand total (metric tons): 14,970. 

Country: Liberia; 
Commodity: Vegetable oil; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 2,360; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 2,360. 

Country: Liberia; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 500; 
Grand total (metric tons): 500. 

Country: Madagascar; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 12,450; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 12,450. 

Country: Madagascar; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 7,300; 
Grand total (metric tons): 7,300. 

Country: Malawi; 
Commodity: Crude, degummed soybean oil (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 3,050; 
Fiscal year 2009 (metric tons): 1,550; 
Fiscal year 2010 (metric tons): 1,500; 
Grand total (metric tons): 6,100. 

Country: Malawi; 
Commodity: Hard red spring wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 10,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 10,000. 

Country: Malawi; 
Commodity: Hard red winter wheat; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 10,000; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 10,000. 

Country: Malawi; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 9,140; 
Fiscal year 2009 (metric tons): 21,140; 
Fiscal year 2010 (metric tons): 11,500; 
Grand total (metric tons): 41,780. 

Country: Malawi; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 20,001; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 20,001. 

Country: Mali; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 10,000; 
Grand total (metric tons): 10,000. 

Country: Mali; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 4,460; 
Fiscal year 2010 (metric tons): 3,980; 
Grand total (metric tons): 8,440. 

Country: Mauritania; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 7,110; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 6,810; 
Grand total (metric tons): 13,920. 

Country: Mauritania; 
Commodity: Soft red winter; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 5,650; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 5,650. 

Country: Mongolia; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 25,000; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 25,000. 

Country: Mozambique; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 56,660; 
Fiscal year 2009 (metric tons): 20,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 76,660. 

Country: Mozambique; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 30,940; 
Fiscal year 2009 (metric tons): 45,560; 
Fiscal year 2010 (metric tons): 49,040; 
Grand total (metric tons): 125,540. 

Country: Nicaragua; 
Commodity: Crude, degummed soybean oil (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 1,000; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 1,000. 

Country: Nicaragua; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 27,340; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 27,340. 

Country: Nicaragua; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 6,710; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 6,710. 

Country: Niger; 
Commodity: Milled rice; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 11,360; 
Fiscal year 2010 (metric tons): 13,380; 
Grand total (metric tons): 24,740. 

Country: Niger; 
Commodity: Vegetable oil; 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 4,910; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 4,910. 

Country: Pakistan; 
Commodity: Soft white wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 50,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 50,000. 

Country: Philippines; 
Commodity: Soybean meal (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 31,930; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 31,930. 

Country: Rwanda; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 2,540; 
Fiscal year 2009 (metric tons): 760; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 3,300. 

Country: Senegal; 
Commodity: Crude, degummed soybean oil (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 2,840; 
Fiscal year 2009 (metric tons): 4,200; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 7,040. 

Country: Senegal; 
Commodity: Milled rice; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 2,900; 
Fiscal year 2009 (metric tons): 2,390; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 5,290. 

Country: Senegal; 
Commodity: Soybean meal (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 11,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 11,000. 

Country: Sierra Leone; 
Commodity: Bread flour; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 1,900; 
Grand total (metric tons): 1,900. 

Country: Sierra Leone; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 7,500; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 7,500. 

Country: Sierra Leone; 
Commodity: Milled rice; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 5,550; 
Grand total (metric tons): 5,550. 

Country: Sierra Leone; 
Commodity: Vegetable oil; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 50; 
Grand total (metric tons): 50. 

Country: Tanzania; 
Commodity: Northern spring wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 15,750; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 15,750. 

Country: Uganda; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Progress; 
Fiscal year 2008 (metric tons): 0; 
Fiscal year 2009 (metric tons): 15,000; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 15,000. 

Country: Uganda; 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 30,140; 
Fiscal year 2009 (metric tons): 21,550; 
Fiscal year 2010 (metric tons): 21,710; 
Grand total (metric tons): 73,400. 

Country: Zambia; 
Commodity: Hard red winter wheat (bulk); 
Program: Food for Peace; 
Fiscal year 2008 (metric tons): 3,760; 
Fiscal year 2009 (metric tons): 0; 
Fiscal year 2010 (metric tons): 0; 
Grand total (metric tons): 3,760. 

Country: Grand total; 
Fiscal year 2008 (metric tons): 514,480; 
Fiscal year 2009 (metric tons): 518,691; 
Fiscal year 2010 (metric tons): 321,390; 
Grand total (metric tons): 1,354,561. 

Source: GAO analysis of KCCO data. 

[End of table] 

Figure 11: Commodities Programmed for Monetization by USDA and USAID 
between Fiscal Years 2008 and 2010: 

[Refer to PDF for image: pie-chart] 

Wheat: 77%; 
Soybean meal (bulk): 7%; 
Milled rice: 5%; 
Vegetable oil: 5%; 
Crude, degummed soybean oil (bulk): 3%; 
Flour: 3%. 

Source: GAO analysis of KCCO data. 

[End of figure] 

[End of section] 

Appendix V: Steps in the Monetization Process from Grant Proposal to 
Development Project Completion: 

The following table further outlines the steps in the monetization 
process from grant application through development project completion 
depicted in figure 3. 

Table 10: Steps in the Monetization Process from Grant Proposal to 
Development Project Completion: 

Step 1: Grant proposal: 
* The U.S. Agency for International Development (USAID) and the U.S. 
Department of Agriculture (USDA) independently issue calls for 
proposals and approve proposals at different times, based on each 
agency's individual guidelines and priorities; 
* Market assessments are considered in the application process to 
address Bellmon requirements; 
* Grant proposals for both agencies must include, among other things, 
information on the commodity to be monetized, commodity volumes 
requested, estimated sales price, estimated cost recovery, and 
projects that will be implemented based on the estimates. 

Step 2: Grant award:
* USAID evaluates the proposals and makes award decisions. USAID 
provides multi-year grants that can last for 3 to 5 years. USAID 
grants generally include a combination of food aid for direct 
distribution and monetization. Grants specify the amount of 
commodities granted to an implementing partner for monetization; 
* USDA evaluates the proposals and makes award decisions. USDA 
provides multi-year grants that can last 1 to 3 years. USDA authorizes 
100 percent monetization grants, but some can include food for direct 
distribution. The grant agreements specify the volume of commodities 
granted to an implementing partner for monetization. 

Step 3: Call forward:
* As a general practice USAID and USDA require implementing partners 
to obtain sale contacts before submitting a call forward (request 
order) for food shipments; 
* Implementing partners seek potential buyers in-country through open 
tender/bidding (the preferred method of sale by USAID and USDA) or 
direct negotiation; 
* Implementing partners enter into sales contracts with buyers; these 
contracts specify the terms of delivery and sales prices. 

Step 4: Procurement: 
* The implementing partner submits a commodity request to USAID's 
Office of Food for Peace (FFP) or USDA's Foreign Agriculture Service 
(FAS); 
* USAID-FFP or USDA-FAS reviews and approves the commodity request or 
call forward and sends it to USDA's Farm Service Agency's Kansas City 
Commodity Office (KCCO) through the Web-Based Supply Chain Management 
System; 
* KCCO issues invitation for bids to commodity vendors and ocean 
freight bids to ocean carriers to offer their products to USDA, makes 
recommendations to USAID-FFP or USDA-FAS as to the reasonableness of 
the commodity prices, and procures commodities as instructed; 
* Commodity vendor delivers commodities to the ocean vessel either at 
the vendor's facility (plant), a bridge location, or a domestic port, 
based on the terms of the contract. 

Step 5: Shipping and delivery: 
Ocean transport: 
* The implementing partners select a licensed freight forwarder to 
arrange for shipment to the recipient country; 
* The freight forwarder receives offers from steamship companies 
interested in transporting commodities. These offers are combined with 
commodity offers and evaluated to determine the lowest landed cost to 
purchase and ship the commodities; 
* Implementing partners obtain information from USAID or USDA on the 
lowest landed cost and award ocean transportation contracts based on 
this information, provided the vessels can meet their programmatic 
needs; 
* USAID's Transportation Division and USDA-FAS, with input from the 
Department of Transportation's Maritime Administration, confirm that 
the rates received from the ocean carrier are fair and reasonable in 
those cases where a fair and reasonable rate guideline is required; 
* Ocean vessel departs from the domestic port; 
* Ocean vessel arrives at the foreign port; 
Discharge and delivery to purchaser: 
* The commodities are delivered to the implementing partner in the 
beneficiary country; the implementing partner executes the sales 
contract and collects payment from the buyer; 
* The implementing partner can take possession of the commodities 
either at the ocean vessel or at its final destination, or possession 
can be transferred to the buyer at the port, depending on sales 
contract; 
* Some host government officials conduct quality inspections by 
sampling and testing the commodities. 

Step 6: Development project implementation: 
* Development projects funded through monetization are expected to 
address food insecurity in priority countries; 
* Development projects funded by USAID through monetization include 
programs to improve and promote sustainable agricultural production 
and marketing, natural resource management, nonagricultural income 
generation, health, nutrition, water and sanitation, education, 
emergency preparedness and mitigation, vulnerable group feeding, and 
social safety nets; 
* According to USDA, development projects funded by USDA through 
monetization should focus on private sector development of 
agricultural sectors such as improved agricultural techniques, 
marketing systems, and farmer education. Figure 4 provides examples of 
USAID and USDA projects funded through monetization in countries that 
we visited. 

Step 7: Development project completion: 
* Implementing partners provide status reports to USAID or USDA; 
* Implementing partners complete the projects and fulfill their close-
out requirements. 

Sources: GAO based on information provided by USAID and USDA. 

Note: This is a general description of the monetization process, not 
every step may be included, and steps may vary from transaction to 
transaction. 

[End of table] 

[End of section] 

Appendix VI: Results from Survey of Implementing Partners: 

We conducted a survey of 29 implementing partners that monetized 
either through U.S. Agency for International Development (USAID) or 
and U.S. Department of Agriculture (USDA) between fiscal years 2008 
and 2010, and we received a 100 percent response rate. Of the 29 
implementing partners, 6 monetized through USAID only, 13 monetized 
through USDA only, and 10 monetized through both agencies. The tables 
that follow summarize selected results of the implementing partners' 
responses to our survey. 

Table 11: Distribution of Implementing Partners Who Monetized in 
Consortiums versus Monetizing Only Their Own Food Aid: 

In general, do you only monetize your organization's own food aid? 
Yes: 10; 
Do you coordinate with other implementing partners in a monetization 
consortium? 
No: 3; 
Yes: 1; 
Total: 14. 

In general, do you only monetize your organization's own food aid? 
No: 0; 
Do you coordinate with other implementing partners in a monetization 
consortium? 
No: 1; 
Yes: 14; 
Total: 15. 

In general, do you only monetize your organization's own food aid? 
Total: 10; 
Do you coordinate with other implementing partners in a monetization 
consortium? 
No: 4; 
Yes: 15; 
Total: 29. 

Source: GAO analysis. 

[End of table] 

Figure 12: Number of Implementing Partners Indicating that the 
Following Factors Hindered Them to At Least Some Degree When 
Conducting Monetization: 

[Refer to PDF for image: horizontal bar graph] 

Total number of respondents: 29. 

Factor: Market uncertainty; 
Number of respondents: 19. 

Factor: Delivery delays; 
Number of respondents: 19. 

Factor: Shortage of buyers; 
Number of respondents: 17. 

Factor: Lack of reliable market information; 
Number of respondents: 17. 

Factor: Shortage of staff with market expertise; 
Number of respondents: 14. 

Factor: Host country government opposition; 
Number of respondents: 11. 

Factor: Lack of commercial credit at reasonable rates for buyers; 
Number of respondents: 10. 

Factor: Inability of market to absorb the quantity of commodity 
intended for monetization; 
Number of respondents: 9. 

Factor: Lack of funding to cover the gaps in the process; 
Number of respondents: 9. 

Factor: Lack of information on planned USDA sales (when PVO is 
operating under a USAID program); 
Number of respondents: 9. 

Factor: Host government's quality, sanitary, and phyto-sanitary import 
policies; 
Number of respondents: 8. 

Factor: Lack of information on planned USAID sales (when PVO is 
operating under a USDA program); 
Number of respondents: 8. 

Factor: Lack of reliable transportation in country; 
Number of respondents: 6. 

Factor: Commodities allowed for monetization are inappropriate for 
country; 
Number of respondents: 6. 

Factor: Lack of ocean transportation information from|MARAD; 
Number of respondents: 5. 

Factor: Other host country group opposition (e.g. farmer unions); 
Number of respondents: 5. 

Factor: Lack of technical support from U.S. government; 
Number of respondents: 4. 

Factor: Other; 
Number of respondents: 4. 

Factor: Inability to ensure food aid reaches vulnerable populations; 
Number of respondents: 2. 

Source: GAO analysis. 

[End of figure] 

Table 12: Ways in Which USAID and USDA Provided Support to 
Implementing Partners During Monetization: 

Technical assistance (beyond the BEST) with market analysis: 
USAID implementing partners (n=16): 
Yes: 4; 
No: 12; 
USDA implementing partners (n=23): 
Yes: 10; 
No: 12. 

Facilitating contacts within host government: 
USAID implementing partners (n=16): 
Yes: 8; 
No: 8; 
USDA implementing partners (n=23): 
Yes: 10; 
No: 12. 

Facilitating business contacts in country: 
USAID implementing partners (n=16): 
Yes: 2; 
No: 14; 
USDA implementing partners (n=23): 
Yes: 7; 
No: 15. 

Workshops for conducting monitoring and evaluation of the monetization 
process: 
USAID implementing partners (n=16): 
Yes: 2; 
No: 14; 
USDA implementing partners (n=23): 
Yes: 5; 
No: 17. 

Telling implementing partners when to monetize: 
USAID implementing partners (n=16): 
Yes: 2; 
No: 14; 
USDA implementing partners (n=23): 
Yes: 5; 
No: 17. 

Telling implementing partners when not to monetize: 
USAID implementing partners (n=16): 
Yes: 6; 
No: 10; 
USDA implementing partners (n=23): 
Yes: 4; 
No: 18. 

Other: 
USAID implementing partners (n=16): 
Yes: 2; 
No: 4; 
USDA implementing partners (n=23): 
Yes: 3; 
No: 5. 

Source: GAO analysis. 

[End of table] 

Table 13: Formats in Which Implementing Partners Collected and 
Reported Monetization Information to USAID and USDA: 

Quarterly reports: 
USAID implementing partners (n=16): 
Yes: 6; 
No: 9; 
USDA implementing partners (n=23): 
Yes: 14; 
No: 7. 

Annual results reports: 
USAID implementing partners (n=16): 
Yes: 15; 
No: 0; 
USDA implementing partners (n=23): 
Yes: 11; 
No: 9. 

Pipeline and resource estimate proposal reports: 
USAID implementing partners (n=16): 
Yes: 15; 
No: 0; 
USDA implementing partners (n=23): 
Yes: 1; 
No: 18. 

End of project report: 
USAID implementing partners (n=16): 
Yes: 14; 
No: 1; 
USDA implementing partners (n=23): 
Yes: 17; 
No: 4. 

Cost recovery reports: 
USAID implementing partners (n=16): 
Yes: 13; 
No: 2; 
USDA implementing partners (n=23): 
Yes: 7; 
No: 13. 

Assessment of post-monetization market impact: 
USAID implementing partners (n=16): 
Yes: 5; 
No: 10; 
USDA implementing partners (n=23): 
Yes: 2; 
No: 17. 

Logistics and monetization reports: 
USAID implementing partners (n=16): 
Yes: 5; 
No: 10; 
USDA implementing partners (n=23): 
Yes: 0; 
No: 22. 

Other: 
USAID implementing partners (n=16): 
Yes: 3; 
No: 5; 
USDA implementing partners (n=23): 
Yes: 6; 
No: 4. 

Source: GAO analysis. 

[End of table] 

Table 14: Implementing Partners' Assessment of the Quality of 
Coordination between USAID and USDA on Monetization in Country: 

Very poor: 
All implementing partners (n=29): 3. 

Poor: 
All implementing partners (n=29): 8. 

Fair: 
All implementing partners (n=29): 8. 

Good: 
All implementing partners (n=29): 5. 

Very good: 
All implementing partners (n=29): 0. 

Source: GAO analysis. 

[End of table] 

Figure 13: Number of Implementing Partners Indicating that the 
Following Steps, if Taken by USAID, Could Greatly or Very Greatly 
Improve the Monetization Process: 

[Refer to PDF for image: horizontal bar graph] 

Total number of respondents: 16. 

Steps USAID could take: Explore options for lowering transportation 
costs; 
Number of respondents: 13. 

Steps USAID could take: Provide support for PVOs when complications in 
the monetization process arise; 
Number of respondents: 12. 

Steps USAID could take: Assist in negotiating with host country 
governments to provide tax and duty-free exemptions; 
Number of respondents: 12. 

Steps USAID could take: Streamline the proposal process; 
Number of respondents: 10. 

Steps USAID could take: Coordinate market analysis efforts with USDA; 
Number of respondents: 10. 

Steps USAID could take: Coordinate with USDA on agreements signed with 
host country government relating to monetization; 
Number of respondents: 9. 

Steps USAID could take: Harmonize planning time frames with USDA 
monetization programs; 
Number of respondents: 9. 

Steps USAID could take: Coordinate better with USDA on its food aid 
monetization projects; 
Number of respondents: 8. 

Steps USAID could take: Support the updating of written guidance; 
Number of respondents: 8. 

Steps USAID could take: Provide training; 
Number of respondents: 8. 

Steps USAID could take: Be more supportive of third country 
monetization; 
Number of respondents: 8. 

Steps USAID could take: Allow regional monetization; 
Number of respondents: 8. 

Steps USAID could take: Allow for monetization of everything up front, 
rather than in stages; 
Number of respondents: 7. 

Steps USAID could take: Complete development of electronic 
database|for collecting monetization data; 
Number of respondents: 6. 

Steps USAID could take: Conduct more monitoring and oversight; 
Number of respondents: 5. 

Steps USAID could take: Use commercial industry standards; 
Number of respondents: 4. 

Steps USAID could take: Other; 
Number of respondents: 2. 

Source: GAO analysis. 

[End of figure] 

Figure 14: Number of Implementing Partners Indicating that the 
Following Steps, if Taken by USDA, Could Greatly or Very Greatly 
Improve the Monetization Process: 

[Refer to PDF for image: horizontal bar graph] 

Number of respondents: 23. 

Steps USDA could take: Explore options for lowering transportation 
costs; 
Number of respondents: 16. 

Steps USDA could take: Provide support for PVOs when complications in 
the monetization process arise; 
Number of respondents: 14. 

Steps USDA could take: Coordinate with USAID on agreements signed with 
host country government relating to monetization; 
Number of respondents: 14. 

Steps USDA could take: Assist in negotiating with host country 
governments to provide tax and duty-free exemptions; 
Number of respondents: 14. 

Steps USDA could take: Be more supportive of third country 
monetization; 
Number of respondents: 14. 

Steps USDA could take: Allow regional monetization; 
Number of respondents: 14. 

Steps USDA could take: Coordinate market analysis efforts with USAID; 
Number of respondents: 11. 

Steps USDA could take: Harmonize planning time frames with USAID 
monetization programs; 
Number of respondents: 10. 

Steps USDA could take: Streamline the proposal process; 
Number of respondents: 10. 

Steps USDA could take: Coordinate better with USAID on its food aid 
monetization projects; 
Number of respondents: 10. 

Steps USDA could take: Support the updating of written guidance; 
Number of respondents: 9. 

Steps USDA could take: Provide training; 
Number of respondents: 9. 

Steps USDA could take: Complete development of electronic database for 
collecting monetization data; 
Number of respondents: 6. 

Steps USDA could take: Conduct more monitoring and oversight; 
Number of respondents: 6. 

Steps USDA could take: Other; 
Number of respondents: 2. 

Source: GAO analysis. 

[End of figure] 

Table 15: Types of Market Analysis Examined by Implementing Partners 
Prior to Monetization: 

Their organization's market analysis: 
USAID-only implementing partners (n=6): 5; 
USDA-only implementing partners (n=13): 11; 
USAID and USDA implementing partners (n=10): 10; 
All implementing partners (n=29): 26. 

Third party contractor's assessment: 
USAID-only implementing partners (n=6): 4; 
USDA-only implementing partners (n=13): 11; 
USAID and USDA implementing partners (n=10): 6; 
All implementing partners (n=29): 21. 

Agricultural attaché reports: 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 10; 
USAID and USDA implementing partners (n=10): 7; 
All implementing partners (n=29): 20. 

Usual marketing requirement (UMR): 
USAID-only implementing partners (n=6): 4; 
USDA-only implementing partners (n=13): 7; 
USAID and USDA implementing partners (n=10): 8; 
All implementing partners (n=29): 19. 

BEST market analysis done by Fintrac: 
USAID-only implementing partners (n=6): 5; 
USDA-only implementing partners (n=13): 4; 
USAID and USDA implementing partners (n=10): 9; 
All implementing partners (n=29): 18. 

FEWSNET reports: 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 8; 
USAID and USDA implementing partners (n=10): 6; 
All implementing partners (n=29): 17. 

USDA's Production, Supply, and Distribution (PSD) online database: 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 5; 
USAID and USDA implementing partners (n=10): 6; 
All implementing partners (n=29): 14. 

Other: 
USAID-only implementing partners (n=6): 0; 
USDA-only implementing partners (n=13): 3; 
USAID and USDA implementing partners (n=10): 2; 
All implementing partners (n=29): 5. 

Source: GAO analysis. 

[End of table] 

Table 16: The Number of Implementing Partners Reporting that the 
Market Analysis on Which Commodities to Monetize was Sufficient: 

Type of analysis: BEST; 
USAID-only implementing partners (n=6): 5; 
USDA-only implementing partners (n=13): 4; 
USAID and USDA implementing partners (n=10): 8; 
All implementing partners (n=29): 17. 

Type of analysis: UMR; 
USAID-only implementing partners (n=6): 4; 
USDA-only implementing partners (n=13): 7; 
USAID and USDA implementing partners (n=10): 4; 
All implementing partners (n=29): 15. 

Source: GAO analysis. 

[End of table] 

Table 17: The Number of Implementing Partners Reporting that the 
Market Analysis on How Much to Monetize was Sufficient: 

Type of analysis: BEST; 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 2; 
USAID and USDA implementing partners (n=10): 8; 
All implementing partners (n=29): 13. 

Type of analysis: UMR; 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 7; 
USAID and USDA implementing partners (n=10): 4; 
All implementing partners (n=29): 14. 

Source: GAO analysis. 

[End of table] 

Table 18: The Number of Implementing Partners Reporting that the 
Market Analysis on When to Monetize was Sufficient: 

Type of analysis: BEST; 
USAID-only implementing partners (n=6): 2; 
USDA-only implementing partners (n=13): 3; 
USAID and USDA implementing partners (n=10): 5; 
All implementing partners (n=29): 10. 

Type of analysis: UMR; 
USAID-only implementing partners (n=6): 0; 
USDA-only implementing partners (n=13): 5; 
USAID and USDA implementing partners (n=10): 0; 
All implementing partners (n=29): 5. 

Source: GAO analysis. 

[End of table] 

Table 19: Methods Used by Implementing Partners to Calculate Cost 
Recovery: 

Follow guidance provided by USAID; 
USAID-only implementing partners( n=6): 6; 
USDA-only implementing partners (n=13): 1; 
USAID and USDA implementing partners (n=10): 9; 
All implementing partners (n=29): 16. 

Follow guidance provided by USDA; 
USAID-only implementing partners( n=6): 0; 
USDA-only implementing partners (n=13): 5; 
USAID and USDA implementing partners (n=10): 3; 
All implementing partners (n=29): 8. 

Follow their own calculation; 
USAID-only implementing partners( n=6): 2; 
USDA-only implementing partners (n=13): 8; 
USAID and USDA implementing partners (n=10): 2; 
All implementing partners (n=29): 12. 

Other; 
USAID-only implementing partners( n=6): 0; 
USDA-only implementing partners (n=13): 3; 
USAID and USDA implementing partners (n=10): 0; 
All implementing partners (n=29): 3. 

Source: GAO analysis. 

[End of table] 

Table 20: Methods Used by Implementing Partners to Calculate Fair 
Market Price: 

Follow guidance provided by USAID; 
USAID-only implementing partners (n=6): 4; 
USDA-only implementing partners (n=13): 1; 
USAID and USDA implementing partners (n=10): 6; 
All implementing partners (n=29): 11. 

Follow guidance provided by USDA; 
USAID-only implementing partners (n=6): 0; 
USDA-only implementing partners (n=13): 5; 
USAID and USDA implementing partners (n=10): 3; 
All implementing partners (n=29): 8. 

Follow their own calculation; 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 9; 
USAID and USDA implementing partners (n=10): 8; 
All implementing partners (n=29): 20. 

Use Import parity price as an estimation; 
USAID-only implementing partners (n=6): 3; 
USDA-only implementing partners (n=13): 3; 
USAID and USDA implementing partners (n=10): 5; 
All implementing partners (n=29): 11. 

Other; 
USAID-only implementing partners (n=6): 1; 
USDA-only implementing partners (n=13): 1; 
USAID and USDA implementing partners (n=10): 1; 
All implementing partners (n=29): 3. 

Source: GAO analysis. 

[End of table] 

Table 21: Number of Implementing Partners Who Included Other Costs 
When Calculating their Organization's Cost Recovery: 

Import fees or duties on monetized commodities; 
All implementing partners (n=29): 13. 

Transaction fees paid to the host country government; 
All implementing partners (n=29): 9. 

Hiring local host country staff specifically to conduct monetization; 
All implementing partners (n=29): 8. 

Additional U.S. staff; 
All implementing partners (n=29): 6. 

Outside contractors to do market assessments; 
All implementing partners (n=29): 5. 

Other; 
All implementing partners (n=29): 4. 

Source: GAO analysis. 

[End of table] 

Table 22: Implementing Sponsors' Views of How Often Monetization 
Transactions Experience Delays: 

Very Often; 
All implementing partners (n=29): 1. 

Often; 
All implementing partners (n=29): 11. 

Sometimes; 
All implementing partners (n=29): 15. 

Rarely; 
All implementing partners (n=29): 2. 

Never; 
All implementing partners (n=29): 0. 

Source: GAO analysis. 

[End of table] 

Figure 15: Number of Implementing Partners Indicating that the 
Following Actions Would Greatly Improve or Very Greatly Improve Cost 
Recovery Rates: 

[Refer to PDF for image: horizontal bar graph] 

Number of respondents: 29. 

Action: Allow more shipping on non-U.S.-flag carriers; 
Number of respondents: 19. 

Action: Reduce approval process time; 
Number of respondents: 14. 

Action: Increase third country monetization; 
Number of respondents: 14. 

Action: Allow for regional monetization; 
Number of respondents: 13. 

Action: Improve market intelligence; 
Number of respondents: 12. 

Action: Reduce proposal process time; 
Number of respondents: 11. 

Action: Increase number of countries in which|monetization can take 
place; 
Number of respondents: 10. 

Action: Provide more commodity trading training; 
Number of respondents: 8. 

Action: Harmonize project to be monetized with the|fiscal year; 
Number of respondents: 8. 

Action: Increase commodity choices; 
Number of respondents: 6. 

Action: Other; 
Number of respondents: 2. 

Source: GAO analysis. 

[End of figure] 

[End of section] 

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

Note: GAO received USAID's letter on June 14, 2011. 

USAID: 
From the American People: 

Thomas Melito: 
Director, International Affairs and Trade: 
U.S. Government Accountability Office:	
Washington, DC 20548:	 

Dear Mr. Melito:	 

I am pleased to provide the U.S. Agency for International 
Development's formal	response to the GAO draft report entitled 
"International Food Assistance: Funding Development	through the 
Purchase, Shipment and Sale of U.S. Commodities is Inefficient and Can 
Cause	Adverse Market Impacts " (GAO-11-636).	 

The enclosed USAID comments are provided for incorporation with this 
letter as an	appendix to the final report.	 

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 audit 
review.	 

Sincerely,	 

Signed by: 

Sean C. Carroll:	
Chief Operating Officer:	
U.S. Agency for International Development:	 

Enclosure: a/s. 

[End of letter] 

USAID Comments on GAO Draft Report No. GA0-11-636: 

To improve the extent to which monetization proceeds cover commodity 
and other associated costs and the agencies' ability to meet 
requirements to ensure that monetization does not cause adverse market 
and trade impacts: 

Recommendation 1: We recommend that the Administrator of USAID and the 
Secretary of Agriculture jointly develop an agreed-upon benchmark or 
indicator to determine "reasonable market price" for sales of US food 
aid for monetization. 

Management Comments: Section 403 of the Food for Peace states that the 
"Sales of agricultural commodities...shall be made at a reasonable 
market price in the economy where the agricultural commodity is to be 
sold...." To date, USAID has not utilized a specific cost recovery 
barometer. USAID will work with USDA to explore options of setting a 
benchmark or indicator for the sales of U.S. food aid monetization. 

Recommendation 2: We recommend that the Administrator of USAID and the 
Secretary of Agriculture monitor food aid sales transactions to ensure 
that the benchmark set to achieve "reasonable market price" in the 
country where they are being sold is achieved as required by law. 

Management Comments: USAID has regional and country-based food aid 
monitoring & evaluation specialists who review all aspects of USAID 
food aid programs including monetizations sales. 

Recommendation 3: We recommend that the Administrator of USAID and the 
Secretary of Agriculture improve market assessments and coordinate to 
develop them in countries where both USAID and USDA may monetize. 

Management Comments: To improve market assessments and conduct 
independent market analyses, USAID established the Bellmon Estimation 
for Title II (BEST) Project. Standard methodological approaches have 
been designed and applied for assessing the potential impacts of 
monetized food aid. This project is well accepted by USAID food aid 
implementing partners. The information collected by the BEST Project 
is posted on the USAID public website and is accessible to all 
interested parties. Additionally, USAID is also in the process of 
updating our Field Monetization Manual which includes market 
assessment guidance. 

Recommendation 4: We recommend that the Administrator of USAID and the 
Secretary of Agriculture conduct market impact evaluations after 
monetization transactions have taken place to determine whether they 
caused adverse market impacts. 

Management Comments: USAID food aid implementing partners are 
requested to stay abreast of the conditions of the markets in which 
they monetize food aid. Implementing partners are required to provide 
considerable information in their proposals related to the local, 
national and regional markets, especially for those markets that could 
be affected by the proposed monetization programs. USAID will explore 
possible cost-effective ways to conduct post-sale market impact 
evaluations with our partners. 

[End of section] 

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

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

USDA: 
United States Department of Agriculture: 
Farm and Foreign Agricultural Services: 
1400 Independence Ave, SW: 
Stop 1034:	
Washington, DC	20250-1034: 

June 10, 2011: 

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

Dear Mr. Melito: 

The U.S. Department of Agriculture (USDA) appreciates this opportunity 
to respond to the Government Accountability Office (GAO) draft report 
"Funding Development through the Purchase, Shipment, and Sale of 
Commodities is Inefficient and Can Cause Adverse Market Impacts" (GAO-
11-636). The report provides valuable insights regarding the 
monetization of U.S. commodities for development projects in the Food 
for Progress and Food for Peace programs. Many of the recommendations 
are consistent with our understanding of monetization and will be 
useful in ongoing efforts to generate cash development resources and 
improve program management. 

General Comments: 

This GAO report and recommendations will help USDA improve overall 
program management. The Department will be able to manage, monitor, 
and evaluate the monetization process better, particularly by focusing 
resources on achieving higher prices for the monetized commodities, 
and by better coordinating our resources with those of the U.S. Agency 
for International Development (USAID). 

In the report, GAO uses the spread between the final monetization 
sales price and	USDA's total costs as a means to measure efficiency. 
This definition of efficiency is clearly intuitive and easily 
calculated to provide useful information for program administrators. 

However, there are additional benefits not captured by this definition 
of efficiency. In addition to the economic benefits of development 
projects funded by monetization, these sales can encourage commercial 
markets for agricultural products and enhance the sophistication of 
participants in the market. This is an especially important outcome in 
countries that receive funding from the Food for Progress program. In 
fact, many countries in the Former Soviet Union and Africa received 
this market-building benefit as they were taking steps toward private 
enterprise. [See comment] 

Participants in USDA monetizations also often benefit from the sales 
process itself	Unlike cash grants and food aid distributions, 
monetizations are market-mediated, encourage the development of 
private sector institutions, and can stimulate the emergence of a 
competitive domestic food distribution channel. USDA is aware of many 
instances where the monetization of a U.S. product helped developing 
country traders enter into new markets and use more sophisticated 
trading instruments such as letters of credit, credit insurance, and 
other risk management tools. 

Two examples provide insight into the benefits of monetization. In 
Kenya, a U.S.-based private voluntary organization monetized wheat in 
2005 that provided funds for an agricultural development project. 
Follow-on commercial sales of wheat were recorded in both 2010 and 
2011. Millers in Kenya reported that they became familiar with the 
quality of imported wheat through food aid monetizations and grew to 
understand its superior milling characteristics. A second example is 
from Afghanistan, where soybean oil was provided through a 2006 
government-to-government agreement. Afghan buyers of U.S. soybean oil 
participated in an open auction managed by a professional monetization 
agency. These auctions exposed Afghan traders to a competitive bidding 
process, in which that they had no previous experience. This ancillary 
benefit, while certainly difficult to calculate, was not captured in 
the GAO report. 

Costs of Monetization: 

The Department has been actively exploring ways to reduce the cost of 
food aid shipments, including those designated for monetization. One 
example is a food aid agreement with the Government of the Philippines 
(GOP) that required the GOP to pay for the cost of ocean 
transportation. Through this, the Food for Progress program realized 
approximately $1.3 million in freight savings. USDA also reviews 
commodity selections and specifications to make sure that commodities 
fit the market and mesh with the traditional standards in the market. 
During the procurement process, USDA looks for shipments that can he 
combined so that volume discounts can be obtained. USDA's implementing 
organizations regularly re-tender for ocean freight when the offers 
are considered to be high or when ship availability is an issue. 

Joint Development of an Agreed upon Benchmark to Determine a Reasonable
Market Price: 

As recommended in the report, USDA will work with USAID to develop 
improved benchmarks for reasonable local market prices. Setting ranges 
for reasonable local market prices is challenging given the lack of 
market information in many recipient countries. Under current 
practices, implementing organizations regularly survey the local 
market and establish price ranges. The use of public tenders and 
establishment of floor prices provide safeguards which limit 
disruptions to local production and markets. 

In this report, GAO uses the Import Parity Price (IPP) to identify the 
extent to which a monetization transaction is a normal commercial 
transaction in a market setting. The use of IPP is relevant when 
comparing like products to each other; for example, comparing locally 
produced rice in Nigeria to rice imported from Liberia, on similar 
terms of delivery, quantity, and quality. 

However, this methodology has limitations when comparing a product 
shipped from the United States to one locally produced or imported 
from a nearby market. The quality of the product from the United 
States will usually be higher and would command a premium price in a 
developed market. Obtaining that price premium in less developed 
markets is difficult. 

In its grant agreements, USDA requires sales contracts and financing 
arrangements to be in place before a commodity can be purchased in the 
United States. These requirements reduce credit and contractual risks. 
While this benefits implementing organizations, it is accomplished by 
having the buyer absorb additional price risk during the time between 
the execution of the sales contract and financing, and the actual 
delivery of the commodity. Buyers often offer reduced prices to 
compensate for this greater price risk. 

Monitor Food Aid Sales Transactions to Ensure that the Reasonable 
Market Price is Achieved: 

Regarding the monitoring of food aid sales transactions, USDA will 
work with its network of attaches and enhance its reporting system to 
improve the monitoring of market prices. Since January 2010, USDA has 
hired four new staff members in order to devote more resources to 
reviewing project reports and conducting site visits. USDA has also 
tripled the number of site visits to monetization projects since 2009, 
and has established a target of assessing each project in the field at 
least once every two years. 

USDA also has developed a field monitoring guide for staff in order to 
standardize the results of monitoring trips. USDA will work to 
establish a systematic process for choosing which projects to visit, 
and will finalize its monitoring guidance. 

As noted by GAO, USDA will complete its Food Aid Information System 
(FAIS) by the end of this fiscal year. This system will enable USDA to 
manage its food assistance programs and coordinate interactions with 
food assistance program participants. Future program participants will 
he required to submit all required reports through FAIS. FAIS will 
allow USDA track reported results against the requirements in the 
grant agreements. With FAIS and additional staff, USDA will be able to 
monitor program implementation and engage more quickly with 
implementing organizations. 

Improve Market Assessments and Coordinate to Develop Them in Countries 
Where Both USDA and USAID May Monetize: 

USDA will work with USAID to ensure that coordinated monetization 
objectives are achieved. USDA is impressed by the quality and overall 
depth of analysis provided by the Bellmon Estimation for Title II 
(BEST) project, funded by USAID. We will continue to encourage USDA 
program participants to review the BEST studies where applicable.
Further, USDA will conduct an ad-hoc analysis of its own to identify 
opportunities to improve cost recovery. We will focus additional 
resources for monitoring and evaluation on coordination with USAID on 
monetization. 

Conduct Market Impact Evaluations after Monetization Transactions Have 
Taken Place: 

USDA and USAID will explore options for market impact evaluations. 
Currently, USDA requires all participants to describe in detail the 
outcomes of their monetization transactions in twice-a-year mandatory 
reporting. Further, USDA revised its regulations in 2008 to require 
mid-term and final evaluations of its programs. USDA will consider 
adding market impact requirements to its policy guidance for these 
evaluations. Currently USDA is administering a pilot project on Local 
and Regional Procurement, which requires extensive tracking of market 
impacts. Lessons learned from that pilot and the upcoming third-party 
evaluation will be incorporated into the Food for Progress program 
where appropriate. 

USDA again thanks GAO for its review of monetization and appreciates 
many of its finding and recommendations. All GAO comments and 
recommendations will be taken into account as USDA works to finalize 
all needed policies and procedures. 

Sincerely, 

Signed by: 

Michael T. Scuse: 
Acting Under Secretary: 
Farm and Foreign Agricultural Services: 

The following are GAO's comments on the U.S. Department of Agriculture 
letter dated June 10, 2011. 

GAO Comment: 

The U.S. Department of Agriculture noted some advantages in addition 
to the economic benefits of development projects funded by 
monetization, such as encouraging commercial markets for agricultural 
products and other market-building benefits. However, the potential 
for adverse market impacts, such as artificially suppressing the price 
of a commodity due to excessive monetization, could work against the 
agricultural development goals for which the funding was originally 
provided. 

[End of section] 

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

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

U.S. Department of Transportation: 
Office of the Secretary of Transportation: 
1200 New Jersey Avenue, SE: 
Washington, DC 20590: 

June 14, 2011: 

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

Dear Mr. Melito, 

While the Department of Transportation and its Maritime Administration 
(MARAD) appreciates GAO's efforts over the years to bring a more 
business-like approach to ocean shipping for the Nation's food aid 
programs, we have significant concerns regarding the nature and basis 
of findings pertaining to ocean shipping in the current draft report. 
The GAO report offers a Matter for Congressional Consideration that is 
potentially detrimental to the U.S. maritime industry,[Footnote 1] 
without offering a complete analytical perspective on the impact of 
the recommended action. Before offering such a far-reaching 
recommendation to the Congress, one would expect to see an analysis of 
the potential outcomes of the action on U.S.-flag carriers and the 
sustainability of the U.S. fleet, along with an overall quantitative 
analytical assessment of the potential costs and benefits of the 
action. Such analysis is not apparent in the draft report. [See 
comment 1] 

The GAO draft report does not adequately recognize that food aid 
shipping agencies are reimbursed the cost differential between U.S.- 
and foreign-flag carriers. [See comment 2] MARAD reimburses the 
additional cost of using U.S.-flag vessels to USAID and USDA through 
Ocean Freight Differential and excess freight payments, so these 
agencies are not financially affected by cargo preference 
requirements. Based on MARAD's analysis of the transportation costs 
for the P.L. 480 Title II food aid program, which includes an 
adjustment for the amount reimbursed by MARAD, we believe the costs 
identified in the GAO draft report are significantly overstated. [See 
comment 3] Between fiscal year (FY) 2005 and 2009, transportation 
costs ranged from a low of 8.0 percent in FY 2008 to a high of 10.8 
percent during FY 2005. These values are considerably less than the 33 
percent asserted in the report. 

The draft report's analysis is also unduly focused on the number of 
ships rather than their carrying capacity. MARAD records show that 
food aid cargo tonnage was 46 percent higher in FY 2010 than in FY 
2002 despite using fewer ships. [See comment 4] As a result, reaching 
a conclusion based on an analysis of the number of ships alone could 
yield misleading results.[Footnote 2] [See comment 5] Further, the GAO 
draft report's argument that competition has declined is not supported 
by any specific analysis of cargo freight bids. Finally, any decline 
in the number of US flag vessels should not adversely affect shipping 
costs as these vessels are subject to a cost-based rate limit imposed by
MARAD. 

The Congress created the Cargo Preference Program and applied it to 
food aid shipments in a way that provides vital support to the U.S.-
flag fleet and the U.S. Merchant Marine to help maintain key defense 
capabilities while protecting the generosity of the American people in 
conveying food supplies to nations in need around the world. The 
Department continues to believe that more complete implementation of 
modern transportation contracting practices, including commercial 
principles of shared risks, supply chain partnerships, streamlined 
administration methods, and expedited payment methods offers potential 
savings to the American taxpayer while maintaining the generous level 
of support this nation now offers those in need. 

We appreciate the opportunity to comment on this draft report. The 
attachment contains additional specific and technical comments on the 
draft report. Please contact Christopher J. McMahon, Acting Associate 
Administrator for Business and Finance Development on 202-366-7018 if 
there are any questions. 

Sincerely, 

Signed by: 

Brodi L. Fontenot: 
Deputy Assistant Secretary for Administration: 

Footnotes: 

[1] The GAO draft report suggests eliminating the 3-year waiting 
period imposed on foreign vessels that acquire US-flag registry before 
they are eligible to transport U.S. food aid cargos. 

[2] MARAD is unable to replicate GAO's analysis of the decline in the 
number of food aid ships. MARAD data show that there were 84 ships in 
2002, and 67 in 2010, a decrease of 20 percent, not the 50 percent 
drop portrayed in the report. [See comment 6] 

The following are GAO's comments on the U.S. Department of 
Transportation letter dated June 14, 2011. 

GAO Comments: 

1. We are making this proposed amendment on the basis of the following 
four factors: First, the number of vessels participating in the food 
aid program has declined. In a 2009 report to Congress, U.S. Agency 
for International Development (USAID) and U.S. Department of 
Agriculture (USDA) jointly stated that, due to the declining size of 
the U.S.-flag commercial fleet, USAID and USDA are forced to compete 
with the Department of Defense and other exporters for space aboard 
the few remaining U.S.-flag vessels, thereby limiting competition in 
transportation contracting and leading to higher freight rates. 
Second, our analysis of ocean transportation costs showed that food 
aid shipments on foreign-flag carriers cost the U.S. government, on 
average, $25 per ton less than U.S.-flag carriers. Third, although the 
3-year requirement was established to provide employment opportunities 
to U.S. shipyards, since 2005, U.S. shipyards have built only two new 
U.S.-flag vessels appropriate for transporting food and the vessels 
have not been awarded a food aid contract. Fourth, the 3-year 
requirement applies only to food aid and not to defense agencies and 
the U.S. Export-Import Bank. The elimination of the 3-year waiting 
period can ease entry of new vessels into U.S. food aid programs, with 
the potential to increase competition among eligible U.S.-flag ships 
and reduce the cost of transportation. 

2. We added clarifying language to describe the U.S. Department of 
Transportation's reimbursement to USAID and USDA for the ocean freight 
differential (OFD). However, the OFD represents a cost to the U.S. 
government. In addition, according to USAID and USDA, the OFD 
reimbursements for monetization are transferred to the general food 
aid accounts of both agencies, can be used to fund either emergency or 
nonemergency programs, and are likely not fully available to fund 
development assistance. 

3. Our analysis of transportation cost was based on Kansas City 
Commodity Office (KCCO) data covering all monetization transactions 
for both agencies for fiscal years 2008 through 2010 and is thus a 
precise calculation of the actual cost to the U.S. government. 

4. In a 2009 report to Congress, USAID and USDA jointly stated that, 
due to the declining size of the U.S.-flag commercial fleet, USAID and 
USDA are forced to compete with the Department of Defense and other 
exporters for space aboard the few remaining U.S.-flag vessels, 
thereby limiting competition in transportation contracting and leading 
to higher freight rates. 

5. While we did not analyze cargo freight bids, our analysis of KCCO 
data included more than 5,000 food aid purchase transactions for 
fiscal years 2007 to 2010. We included in this data the number of 
vessels awarded all food aid contracts, not just Title II, by fiscal 
year and determined that both the number of vessels and the tonnage 
shipped per year had declined. We also determined the actual 
difference in cost to the U.S. government between U.S.-and foreign-
flag vessels. 

6. According to KCCO data, the number of U.S.-flag vessels awarded 
food aid contracts in fiscal year 2002 was 134. 

[End of section] 

Appendix X: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Thomas Melito, (202) 512-9601 or melitot@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Joy Labez (Assistant 
Director), Carol Bray, Ming Chen, Debbie Chung, Kathryn Crosby, Martin 
De Alteriis, Mark Dowling, Francisco Enriquez, Etana Finkler, Sarah M. 
McGrath, Julia Ann Roberts, Jerry Sandau, Jena Sinkfield, Sushmita 
Srikanth, Phillip J. Thomas, Seyda Wentworth, and Judith Williams made 
key contributions to this report. 

[End of section] 

Related GAO Products: 

International School Feeding: USDA's Oversight of the McGovern-Dole 
Food for Education Program Needs Improvement. [hyperlink, 
http://www.gao.gov/products/GAO-11-544]. Washington, D.C.: May 19, 
2011. 

International Food Assistance: Better Nutrition and Quality Control 
Can Further Improve U.S. Food Aid. [hyperlink, 
http://www.gao.gov/products/GAO-11-491]. Washington, D.C.: May 12, 
2011. 

Global Food Security: U.S. Agencies Progressing on Governmentwide 
Strategy, but Approach Faces Several Vulnerabilities. [hyperlink, 
http://www.gao.gov/products/GAO-10-352]. Washington, D.C.: March 11, 
2010. 

International Food Assistance: A U.S. Governmentwide Strategy Could 
Accelerate Progress toward Global Food Security. [hyperlink, 
http://www.gao.gov/products/GAO-10-212T]. Washington, D.C.: October 
29, 2009. 

International Food Assistance: Key Issues for Congressional Oversight. 
[hyperlink, http://www.gao.gov/products/GAO-09-977SP]. Washington, 
D.C.: September 30, 2009. 

International Food Assistance: USAID Is Taking Actions to Improve 
Monitoring and Evaluation of Nonemergency Food Aid, but Weaknesses in 
Planning Could Impede Efforts. [hyperlink, 
http://www.gao.gov/products/GAO-09-980]. Washington, D.C.: September 
28, 2009. 

International Food Assistance: Local and Regional Procurement Provides 
Opportunities to Enhance U.S. Food Aid, but Challenges May Constrain 
Its Implementation. [hyperlink, 
http://www.gao.gov/products/GAO-09-757T]. Washington, D.C.: June 4, 
2009. 

International Food Assistance: Local and Regional Procurement Can 
Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain 
Its Implementation. [hyperlink, 
http://www.gao.gov/products/GAO-09-570]. Washington, D.C.: May 29, 
2009. 

Foreign Aid Reform: Comprehensive Strategy, Interagency Coordination, 
and Operational Improvements Would Bolster Current Efforts. 
[hyperlink, http://www.gao.gov/products/GAO-09-192]. Washington, D.C.: 
April 17, 2009. 

Foreign Assistance: State Department Foreign Aid Information Systems 
Have Improved Change Management Practices but Do Not Follow Risk 
Management Best Practices. [hyperlink, 
http://www.gao.gov/products/GAO-09-52R]. Washington, D.C.: November 
21, 2008. 

International Food Security: Insufficient Efforts by Host Governments 
and Donors Threaten Progress to Halve Hunger in Sub-Saharan Africa by 
2015. [hyperlink, http://www.gao.gov/products/GAO-08-680]. Washington, 
D.C.: May 29, 2008. 

Foreign Assistance: Various Challenges Limit the Efficiency and 
Effectiveness of U.S. Food Aid. [hyperlink, 
http://www.gao.gov/products/GAO-07-905T]. Washington, D.C.: May 24, 
2007. 

Foreign Assistance: Various Challenges Impede the Efficiency and 
Effectiveness of U.S. Food Aid. [hyperlink, 
http://www.gao.gov/products/GAO-07-560]. Washington, D.C.: April 13, 
2007. 

Foreign Assistance: U.S. Agencies Face Challenges to Improving the 
Efficiency and Effectiveness of Food Aid. [hyperlink, 
http://www.gao.gov/products/GAO-07-616T]. Washington, D.C.: March 21, 
2007. 

Maritime Security Fleet: Many Factors Determine Impact of Potential 
Limits on Food Aid Shipments. [hyperlink, 
http://www.gao.gov/products/GAO-04-1065]. Washington, D.C.: September 
13, 2004. 

[End of section] 

Footnotes: 

[1] The majority of U.S. food assistance--about two-thirds--represents 
emergency food aid to respond to immediate food needs created by man- 
made or natural disasters, with nonemergency food aid representing the 
remainder. 

[2] Pub. L. No. 99-198, Sec. 1111. 

[3] In 1985, the Merchant Marine Act of 1936 (Pub. L. No. 83-664) was 
amended to require that 75 percent of certain foreign food aid be 
shipped on privately owned U.S.-flag vessels. See 46 U.S.C. 55314. 

[4] Nonemergency food aid programs, also known as multi-year 
development programs, are approved to operate for 3 to 5 years and 
target chronically food-insecure populations. These nonemergency 
programs include monetization and/or direct distribution of food aid. 

[5] In 1977, Congress passed the Bellmon Amendment to the Food for 
Peace Act. The amendment requires that before agencies supply food 
aid, they must determine (1) that adequate storage facilities are 
available in the recipient country at the time of exportation of the 
commodity to prevent spoilage and waste of the commodity and (2) that 
the distribution of the commodities in the recipient country will not 
result in a substantial disincentive to, or interference with, 
domestic production or marketing. 

[6] USAID administers Title II programs of the Food for Peace Act, 
formerly titled The Trade Development and Assistance Act of 1954 and 
commonly referred to as Pub. L. No. 480. For the purposes of this 
report, we use the term "Food for Peace" to refer to USAID's food aid 
activities under Title II. Food for Peace activities include the 
direct donation of U.S.-grown agricultural commodities for emergency 
relief and development. 

[7] GAO, Foreign Assistance: Various Challenges Impede the Efficiency 
and Effectiveness of U.S. Food Aid, [hyperlink, 
http://www.gao.gov/products/GAO-07-560] (Washington, D.C.: Apr. 13, 
2007). 

[8] In 2002, the Office of Management and Budget (OMB) recommended 
decreasing monetization, indicating that the practice 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. That same 
year, the President's Management Agenda suggested that directly 
feeding the hungry, rather than providing food for development, should 
be the primary goal of U.S. food aid programs. See [hyperlink, 
http://www.gao.gov/products/GAO-07-560]. 

[9] GAO, International Food Assistance: Better Nutrition and Quality 
Control Can Further Improve U.S. Food Aid, GAO-11-491 (Washington, 
D.C.: May 12, 2011); and GAO, International School Feeding: USDA's 
Oversight of the McGovern-Dole Food for Education Program Needs 
Improvement, [hyperlink, http://www.gao.gov/products/GAO-11-544] 
(Washington, D.C.: May 19, 2011). 

[10] Since some of the records we received from the agencies contained 
incomplete information, we reported only on those transactions that 
had sufficient information to calculate cost recovery. For USAID, we 
were able to use 189 of the 194 monetization transactions the agency 
reported between fiscal years 2008 and 2010 (99 percent). For USDA, we 
were able to use 61 of the 66 monetization transactions the agency 
reported between fiscal years 2007 and 2009 (92 percent). We did not 
include USDA monetization transactions for fiscal year 2010 because 
the sales proceeds data provided by the agency for that year were 
recorded as estimates, not as actual sales data like the other 
transactions we used in our calculation. In its technical comments, 
USDA stated that it provided estimated data in situations where 
implementing partners had not yet called forward for 2010 agreements, 
or had not yet reached the semiannual reporting deadline, and 
therefore actual data were unavailable. 

[11] According to DOT, free alongside ship is a term of sale for which 
the seller is responsible for delivering the goods to be placed 
alongside the vessel, and the buyer has to bear all costs and risks of 
loss of or damage to the goods from that point on. 

[12] H. Rept. 107-424. 

[13] All costs represent commodities, freight, and distribution. 

[14] The 2008 Farm Bill, Pub. L. No. 110-246, required a minimum level 
of nonemergency food assistance under Title II--known as the "safe 
box"--of no less than $375 million in fiscal year 2009. This minimum 
level goes up to $450 million in fiscal year 2012 and up to $450 
million in fiscal year 2012. 

[15] We define the term "programmed" as the total volume for a given 
commodity that was approved in a given fiscal year to be monetized, 
even though the actual shipments of the commodity may occur in 
subsequent years. 

[16] Monetization occurs in agreements structured as grants, rather 
than contracts. A federal grant is defined as "an award of financial 
assistance from a federal agency to a recipient to carry out a public 
purpose of support or stimulation authorized by a law of the United 
States." See [hyperlink, http://www.grants.gov/aboutgrants/grants.jsp] 
(last accessed June 21, 2011). 

[17] Qualified entities for USAID's Food for Peace programs include 
NGOs and intergovernmental organizations (such as the World Food 
Program). Qualified entities for USDA's Food for Progress program may 
be foreign governments or private entities including non-profit 
organizations based in the United States but operating programs 
overseas. 

[18] USAID has traditionally called these Multi-Year Assistance 
Programs (MYAP). However, USAID now refers to them officially as 
development programs. USDA also typically refers to these grants as 
Food for Progress agreements. 

[19] For a description of the food aid supply chain, including an 
interactive graphic and videos of the transportation and logistics 
process, see [hyperlink, http://www.gao.gov/products/GAO-11-491]. 

[20] We calculated cost recovery over a 3-year period for each agency. 
USAID's data cover fiscal years 2008 through 2010 and USDA's data 
cover fiscal years 2007 through 2009. USDA provided us with estimated 
sales prices for all but one fiscal year 2010 monetization 
transaction. We did not include USDA monetization transactions for 
fiscal year 2010 because the sales proceeds data provided by the 
agency for that year were recorded as estimates, not as actual sales 
data like the other transactions we used in our calculation. In its 
technical comments, USDA stated that it provided estimated data in 
situations where implementing partners had not yet called forward for 
fiscal year 2010 agreements, or had not yet reached the semiannual 
reporting deadline, and therefore actual data were unavailable. 

[21] USAID did not provide any monetization grants to sovereign 
governments through Food for Peace in the time period we examined, 
fiscal years 2008 through 2010. 

[22] In the time period we examined, fiscal years 2007 through 2009, 
we found eight government-to-government transactions for which we were 
able to obtain sufficient information. When government-to-government 
monetization transactions are excluded from the calculation of an 
overall USDA cost recovery average, the average increases from 58 to 
61 percent. 

[23] Section 202(e) of the Food for Peace Act (7 U.S.C. 1722(e)) 
authorizes USAID to make cash available to implementing partners to 
support Food for Peace programs in (1) establishing new programs; (2) 
meeting specific administrative, management, personnel, and internal 
transportation and distribution costs for carrying out Food for Peace 
programs; and (3) improving methodologies for food aid programs. 

[24] According to USAID, as of June 2011 the manual was being revised, 
but had not yet been officially reissued. 

[25] For example, see David Tschirley, Cynthia Donovan, and Michael T. 
Weber, "Food Aid and Food Markets: Lessons from Mozambique," Food 
Policy, vol. 21, no. 2 (1996): 189-209. 

[26] See GAO, International Food Assistance: Local and Regional 
Procurement Can Enhance the Efficiency of U.S. Food Aid, but 
Challenges May Constrain Its Implementation, [hyperlink, 
http://www.gao.gov/products/GAO-09-570] (Washington, D.C.: May 29, 
2009). 

[27] Specifically, we used IPPs that were calculated by Fintrac, the 
independent contractor hired by USAID to conduct market assessments 
for countries where Food for Peace nonemergency food aid is monetized. 
Fintrac's detailed methodology for calculating IPP is included in its 
market analyses of each country, provided to USAID and available 
publicly. See [hyperlink, 
http://www.usaid.gov/our_work/humanitarian_assistance/ffp/bellmonana.htm
l] (last accessed June 21, 2011). 

[28] When calculating the IPPs, Fintrac uses a margin of error of plus 
or minus 10 percent around the IPP to account for imperfect market 
information. Similarly, we allowed for a margin of error of plus or 
minus 10 percent around the IPP when we compared the IPPs to 
implementing partners' sales prices. We did not independently assess 
the underlying data of Fintrac's IPP, but reviewed their methods and 
data sources, which we found reasonable for the purpose of 
establishing that a number of transactions have prices lower than 90 
percent of commercial import prices. 

[29] In another example, in 2000 the USDA Inspector General reported 
that 95 percent of the commodities monetized in the transactions it 
investigated in one country, amounting to more than 307,000 metric 
tons, were sold for less than the competitive price in 1994. 

[30] In the context of monetization cost recovery, commodity cost 
includes commodity procurement cost and ocean freight cost. 

[31] The difference between the costs of shipping U.S. food aid on 
U.S.-flag rather than foreign-flag vessels as a result of cargo 
preference requirements is known as the ocean freight differential 
(OFD). 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. 
This report analyzes the freight rate differences between U.S.-and 
foreign-flag carriers, using the ocean freight rates that U.S. 
agencies paid prior to cargo freight differential reimbursement. 
According to DOT, the total amount of OFD for fiscal years 2008 
through 2010 was $342 million. We estimated the OFD for monetization 
transactions from this time period is approximately $64 million. USAID 
and USDA stated that the OFD reimbursements for monetization are 
transferred to general food aid accounts for the agencies, and can be 
used to fund either emergency or nonemergency programs. 

[32] For further discussion of cargo preference, see GAO, Maritime 
Security Fleet: Many Factors Determine Impact of Potential Limits on 
Food Aid Shipments, [hyperlink, 
http://www.gao.gov/products/GAO-04-1065] (Washington, D.C.: Sept. 13, 
2004). 

[33] The 95 percent confidence interval is between $20 per ton and $31 
per ton. (For a detailed discussion of the regression analysis, see 
appendix II). 

[34] Numerous other factors were cited by the implementing partners we 
surveyed as factors that would greatly or very greatly improve cost 
recovery, including increasing third-country monetization, allowing 
for regional monetization, and reducing proposal process time. (For a 
full list of these factors, see figure 15 in appendix VI). 

[35] The Maritime Security Fleet comprises vessels that participate in 
the Maritime Security Program, a program established by the Maritime 
Security Act of 1996 that provides funding to U.S. vessels 
participating in international trade, to support the Department of 
Defense. See [hyperlink, http://www.gao.gov/products/GAO-04-1065]. 

[36] The decline in the number of U.S.-flag vessels could be due to a 
variety of reasons besides capacity, including a reduction in tonnage 
of food aid shipped over this period, and increased demand by the 
Department of Defense. Studying the cause of this decline was outside 
the scope of our review. 

[37] USAID and USDA, Report Regarding Efforts to Improve Procurement 
Planning (Washington, D.C.: Jan. 21, 2009). 

[38] The implementing partners we surveyed cited other steps that the 
agencies could take to greatly or very greatly improve the 
monetization process, including providing support for implementing 
partners when complications arise, streamlining the proposal process, 
and harmonizing planning time frames between USAID and USDA. (For a 
full list of these steps, see figure 13 and figure 14 in appendix VI). 

[39] Beginning in its fiscal year 2010 guidance, USAID has stated that 
it will no longer approve proposals for 100 percent monetization. 
Instead, it states that Title II nonemergency MYAPs must be some mix 
of direct distribution and monetization. As such, 202(e) and ITSH 
funds are provided to the entire program, and not segmented out 
between monetization and direct distribution, making it extremely 
difficult to quantify the amount used solely for monetization 
activities. 

[40] Numerous other factors were cited by the implementing partners we 
surveyed as hindering monetization, including shortage of buyers, host 
country government opposition, and shortage of staff with market 
expertise. (For a full list of these factors, see figure 12 in 
appendix VI.) 

[41] In 1977, Congress passed the Bellmon Amendment to the Food for 
Peace Act. The amendment requires that before agencies supply food 
aid, they must determine (1) that adequate storage facilities are 
available in the recipient country at the time of exportation of the 
commodity to prevent spoilage and waste of the commodity and (2) that 
the distribution of the commodities in the recipient country will not 
result in a substantial disincentive to, or interference with, 
domestic production or marketing. 

[42] We define the term "programmed" as the total volume for a given 
commodity that was approved in a given fiscal year to be monetized, 
even though the actual shipments of the commodity may occur in 
subsequent years. 

[43] For the purposes of this report, we define the term "case" as the 
total volume of a given commodity programmed for monetization by USAID 
and/or USDA in a given country in a given year. 

[44] In August 2008, USAID hired a private contractor--Fintrac--under 
a 3-year pilot program to carry out an independent market analysis, 
known as the Bellmon Estimation for Title II, for 20 priority 
countries identified by the agency. According to Fintrac, the "10-
percent rule" is only a general guideline and is not always followed 
by USAID. However, we were told by Fintrac that monetizing amounts 
that are below the 10 percent limit would not cause substantial trade 
disruption. 

[45] We used the reported commercial import volumes found in USDA's 
UMR assessments. We were able to examine 87 cases, for which a UMR was 
available, of a total of 93 cases between fiscal years 2008 and 2010. 

[46] USAID was authorized $22 million in the 2008 Farm Bill to improve 
monitoring of nonemergency food aid, part of which was used to fund 
BEST. 

[47] USAID's contract with Fintrac is slated to end in 2011, and USAID 
has not determined whether the program will be extended or if this 
approach will become permanent. However, according to a USAID 
official, the agency is committed to continue conducting independent 
market analysis after the initial program comes to an end, and will 
seek resources to do so. 

[48] To calculate the IPP, Fintrac adds such costs as ocean freight to 
point of import; duties, taxes and other charges; and inland 
transportation to final destination. Because these components are 
estimates that are imprecise, the analysis allow for a margin of error 
of plus or minus 10 percent, (i.e., the sale price of a commodity to 
be monetized is likely to be within 10 percent of the IPP). 

[49] As mentioned earlier, for the purposes of this report, we define 
the term "case" as the total volume of a given commodity programmed 
for monetization by either USAID and/or USDA in a given country in a 
given year. We examined 63 cases between fiscal years 2008 and 2010 in 
which a commodity was programmed for monetization by USAID. 

[50] Two other factors--stocks and export--also enter the computation, 
but these tend to be relatively small. 

[51] We requested UMRs for every monetization transaction conducted 
between 2008 and 2010 and received a total of 87 UMRs in multiple 
deliveries. We reviewed all 87 UMRs. However, our comments concerning 
errors are limited to the initial delivery of 12 UMRs. 

[52] Our analysis is based on the cases in which USAID and/or USDA 
programmed monetization for a commodity and a recommended limit was 
set by the BEST analysis and/or the UMR. Specifically, for USAID we 
examined the 11 cases in which USAID programmed monetization for a 
commodity and a BEST was available and the 59 cases in which USAID 
programmed monetization for a commodity and a UMR was available. For 
USDA, we examined the 3 cases in which USDA programmed monetization 
for a commodity and a BEST was available and the 34 cases in which 
USDA programmed monetization for a commodity and a UMR was available. 
Further, there were 6 cases in which both USAID and USDA programmed 
monetization for the same commodity in the same country and same year. 
For all 6 of those cases a BEST and/or a UMR was available. 

[53] Emmy Simmons, "Monetization of Food Aid: Reconsidering U.S. 
Policy and Practice," Partnership to Cut Hunger and Poverty in Africa 
(June 2009). 

[54] We assume these variables are independent of each other and are 
not correlated. 

[End of section] 

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