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

USAID and USDA generally concurred with our recommendations. More specifically, USAID noted ongoing and planned action to work with USDA to explore options of setting a benchmark or indicator for the sale of U.S. food aid through monetization, while USDA stated that GAO's recommendations would be useful in ongoing efforts to generate cash development resources and improve overall program management. Congress cited our report in the Conference Report that accompanied the Agricultural Act of 2014, stating that it agreed that both USDA and USAID should have consistent policies governing both agencies' monetization activities. The Agricultural Act of 2014, amending the Food for Peace Act, identified a 70 percent monetization cost recovery rate, or rate of return, as a "reasonable market price" for sales of U.S. food aid for monetization.

USAID and USDA generally concurred with our recommendations. More specifically, USAID noted ongoing and planned action to work with USDA to explore options of setting a benchmark or indicator for the sale of U.S. food aid through monetization, while USDA stated that GAO's recommendations would be useful in ongoing efforts to generate cash development resources and improve overall program management. Congress cited our report in the Conference Report that accompanied the Agricultural Act of 2014, stating that it agreed that both USDA and USAID should have consistent policies governing both agencies' monetization activities. The Agricultural Act of 2014, amending the Food for Peace Act, identified a 70 percent monetization cost recovery rate, or rate of return, as a "reasonable market price" for sales of U.S. food aid for monetization.

USAID generally concurred with our recommendations. In response, USAID officials noted that it had ongoing and planned actions. Specifically, USAID updated its 2013 Annual Results Report Guidance, to require that awardees provide data on expected and actual monetization proceeds and cost recovery figures as well as a short narrative analysis of their monetization transactions and results that explains how monetization proceeds were maximized. Moreover, USAID is now required to provide detailed explanations for programs that do not satisfy the "reasonable market price" bench mark of 70%, as established under Section 403 of the Food for Peace Act which was amended by the Agricultural Act of 2014.

In response to the GAO recommendation, USAID has taken steps to ensure that all countries with Food for Peace development food assistance programs have a detailed market analysis through Bellmon Estimation for Title II studies. These studies analyze local markets to assess the potential impact of a planned food aid project on local economies, with recommendations including practical steps to ensure that the project design supports local markets to reach critical food security goals. USAID shares drafts of these with USDA for review and comment; final studies are shared with USDA and posted publicly at www.usaidbest.org. According to USAID, differences in program objectives, activities, and award and evaluation timelines inhibit further coordination with USDA beyond these steps. Sharing market assessment drafts with USDA is a step forward, but additional collaboration between the two agencies, including leveraging efforts, would more fully address the market assessment issues identified in our report.

USAID and USDA generally concurred with our recommendations. In response to the GAO recommendation, USAID directed Fintrac, Inc. to conduct a series of monetization monitoring pilot studies to assess the impact of ongoing USAID Title II monetization activities and determine the most cost-effective manner in which to monitor the potential market impact of these activities. These post-monetization monitoring pilot studies -- Bellmon Estimation for Title II (BEST) -- were conducted in Bangladesh and the Democratic Republic of Congo and published in September 2012 and January 2013, respectively. USAID staff noted that the market analyses conducted as part of the BEST studies include an examination of past monetization transactions to generate recommendations for possible future activities. According to USAID a second BEST report for Bangladesh is forthcoming, and the agency will continue to monitor monetization activities through annual results reporting.

In response to the GAO recommendation, USAID has taken steps to ensure that all countries with Food for Peace development food assistance programs have a detailed market analysis through Bellmon Estimation for Title II studies. These studies analyze local markets to assess the potential impact of a planned food aid project on local economies, with recommendations including practical steps to ensure that the project design supports local markets to reach critical food security goals. USAID shares drafts of these with USDA for review and comment; final studies are shared with USDA and posted publicly at www.usaidbest.org. According to USAID, differences in program objectives, activities, and award and evaluation timelines inhibit further coordination with USDA beyond these steps. Sharing market assessment drafts with USDA is a step forward, but additional collaboration between the two agencies, including leveraging efforts, would more fully address the market assessment issues identified in our report.