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: Published: Jun 23, 2011. Publicly Released: Jun 23, 2011.

Additional Materials:

Contact:

Thomas Melito
(202) 512-3000
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

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.

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. 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. 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. 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 postmarket 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.

Matter for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: In July 2012, Congress amended the Cargo Preference Act of 1954 by repealing the additional 25 percent cargo preference requirement for food assistance (P.L. 112-141 Sec. 100124). However, the amendment did not revise the eligibility requirements for the carriage of preference food aid cargos, which still requires a 3-year waiting period imposed on foreign vessels that acquire U.S.-flag registry. (46 USC 55305(a)).

    Matter: Consistent with rules that apply to the Maritime Security Fleet and vessels transporting other U.S. government cargo, Congress may wish to 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

  1. Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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, the Administrator of USAID and the Secretary of Agriculture should jointly develop an agreed-upon benchmark or indicator to determine "reasonable market price" for sales of U.S. food aid for monetization.

    Agency Affected: United States Agency for International Development

  2. Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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, the Administrator of USAID and the Secretary of Agriculture should jointly develop an agreed-upon benchmark or indicator to determine "reasonable market price" for sales of U.S. food aid for monetization.

    Agency Affected: Department of Agriculture

  3. Status: Closed - Not Implemented

    Comments: USDA was unable to provide GAO with information to support the closure of the recommendation. According to USDA, to better monitor food aid sales transactions and ensure that benchmarks are achieved, USDA expects to award a solicitation in September 2015 for a market analysis of the countries covered under the FY2015 Food for Progress (FFPr) program -- Ghana, Benin and Dominican Republic. This third party analysis aims to provide information regarding the selection and volume of commodities, timing and sales mechanisms for conducting the transactions, logistical and storage considerations and best practices for achieving adequate program proceeds and cost recovery without providing disincentives to the local market. However, despite multiple attempts on GAO's part to obtain documentation, it reamins unclear whether USDA has begun monitoring food aid sales to ensure that reasonable market price had been met or if the solicitation included this activity as part of the planned analysis.

    Recommendation: 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, the Administrator of USAID and the Secretary of Agriculture should 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.

    Agency Affected: Department of Agriculture

  4. Status: Closed - Implemented

    Comments: 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.

    Recommendation: 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, the Administrator of USAID and the Secretary of Agriculture should 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.

    Agency Affected: United States Agency for International Development

  5. Status: Closed - Implemented

    Comments: 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.

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

    Agency Affected: Department of Agriculture

  6. Status: Closed - Implemented

    Comments: 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.

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

    Agency Affected: United States Agency for International Development

  7. Status: Closed - Implemented

    Comments: 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.

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

    Agency Affected: United States Agency for International Development

  8. Status: Closed - Not Implemented

    Comments: USDA has not provided GAO with information to support closing this recommendation as implemented. According to USDA, the agency will evaluate monetization transactions throughout the program cycle and continue to seek input from Post attach?s, country teams and U.S.-based cooperator and trade associations, however it was not clear as of September 2015 that USDA had completed any such evaluations. According to USDA officials, the agency has not completed any post-project evaluations for monetization projects that began after original issuance of the GAO report because the projects are multiyear projects. USDA officials also said that a September 2015 solicitation for a market analysis will make country-specific recommendations for evaluating market impacts. However, is is not clear the soliciation included doing impact evaluations after monetization transactions have taken place.

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

    Agency Affected: Department of Agriculture

 

Explore the full database of GAO's Open Recommendations »

Aug 15, 2016

Jul 14, 2016

Jul 6, 2016

Jul 5, 2016

May 19, 2016

May 12, 2016

Apr 19, 2016

Apr 18, 2016

Looking for more? Browse all our products here