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Provides Opportunities to Enhance U.S. Food Aid, but Challenges May 
Constrain Its Implementation' which was released on June 4, 2009. 

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Before the Subcommittee on Africa and Global Health, Committee on 
Foreign Affairs, House of Representatives: 

United States Government Accountability Office: 

For Release on Delivery: 
Expected at 10:30 a.m. EDT:
Thursday, June 4, 2009: 

International Food Assistance: 

Local and Regional Procurement Provides Opportunities to Enhance U.S. 
Food Aid, but Challenges May Constrain Its Implementation: 

Statement of Thomas Melito, Director:
International Affairs and Trade: 


June 4, 2009: 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here to discuss how local and regional procurement 
(LRP)[Footnote 1] can provide opportunities to enhance U.S. food aid, 
though challenges can constrain its implementation. This hearing is of 
particular importance given today's environment of increasing 
emergencies and growing global food insecurity,[Footnote 2] in which 
the United States and other donors face intense pressures to feed the 
world's expanding undernourished population. In September 2008, the 
United Nations (UN) Food and Agriculture Organization (FAO) reported 
that high food prices had resulted in the number of undernourished 
people reaching a record 963 million.[Footnote 3] 

LRP has increasingly become a key element in the multilateral food aid 
response over the past decade. Most bilateral donors of food aid have 
switched from commodity-based in-kind food aid to a cash-based food 
assistance program in recent years. As the largest international food 
aid donor, contributing over half of all food aid supplies to alleviate 
hunger and support development, the United States plays an important 
role in responding to emergency food assistance needs and ensuring 
global food security. The large majority of U.S. food assistance is for 
U.S.-grown commodities purchased competitively in the United States and 
shipped to recipient countries on U.S.-flag carriers. 

My testimony is based on our May 2009 report, which we publicly 
released today.[Footnote 4] I will focus on four topics. First, I will 
discuss the impact of LRP on the efficiency[Footnote 5] of food aid 
delivery. Second, I will discuss the impact of LRP on economies where 
food is procured. Third, I will discuss U.S. legal requirements that 
could affect U.S. agencies' use of LRP. Finally, I will summarize our 
recommendations regarding improvements to U.S. agencies' use of LRP. 

In preparing this testimony, we largely relied on our May 2009 report. 
To address our objectives, we compared the cost of LRP food with in- 
kind food aid from the United States by analyzing the per ton cost of 
similar commodities for the same recipient countries in the same 
quarter of a given year for the World Food Program (WFP) and U.S. 
Agency for International Development (USAID), respectively. We also 
examined WFP data that compared the delivery time[Footnote 6] of LRP 
with in-kind food aid for 10 countries in sub-Saharan Africa for 2004 
through 2008. We conducted fieldwork in four selected African 
countries--South Africa, Kenya, Uganda, and Burkina Faso. In 
Washington, D.C., we interviewed officials from U.S. agencies, 
including USAID, USDA, State, Department of Transportation (DOT), and 
the Treasury; and the Millennium Challenge Corporation (MCC). In 
addition, we met with the Rome-based UN food and agriculture agencies, 
the U.S. Mission to the UN, and several bilateral donors. We conducted 
semi-structured interviews with 11 WFP procurement officers based in 
Africa and Asia. Finally, we convened a roundtable of 10 experts and 
practitioners to discuss key issues and challenges to the 
implementation of LRP. For a full description of our scope and 
methodology, see GAO-09-570. 

We conducted this performance audit from June 2008 to May 2009 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 that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

LRP of Food Aid Can Improve Efficiency, but Challenges Remain: 

We found that locally and regionally procured food costs considerably 
less than U.S. in-kind food aid for sub-Saharan Africa and Asia, though 
the costs are comparable for Latin America. We compared the cost per 
ton of eight similar commodities[Footnote 7] for the same recipient 
countries in the same quarter of a given year and found that the 
average cost of WFP's local procurements in sub-Saharan Africa and Asia 
was 34 percent and 29 percent lower, respectively, than the cost of 
food aid shipped from the United States.[Footnote 8] (See figure 1.) 
Additionally, about 95 percent of WFP local procurements in sub-Saharan 
Africa and 96 percent in Asia cost less than corresponding U.S. in-kind 
food aid. However, the average cost of WFP local procurements in Latin 
America was 2 percent higher than that of U.S. food aid, and the number 
of WFP's transactions with a lower cost than U.S. food aid was close to 
the number of transactions with a higher cost. 

According to WFP data, LRPs in sub-Saharan Africa generally have a 
shorter delivery time than food aid procured internationally. We 
compared the median delivery time for LRP to the median delivery time 
for food aid either procured or donated internationally for 10 sub- 
Saharan countries. We selected these countries because they had 
received both LRP and international food aid. We found that 
international in-kind donation took the longest, averaging 147 days. 
Local and regional procurements took on average 35 and 41 days, 
shortening the delivery time from international donations by 112 days 
and 106 days, respectively. 

Figure 1: Comparison of Cost and Time in Food Aid Delivery: 

[Refer to PDF for image: horizontal bar graph] 

Average Cost Differential (percentage by which the cost of U.S. in-kind 
food aid differs from the cost of local procurement): 

Worldwide: 25% more; 
Sub-Saharan Africa: 34% more; 
Asia: 29% more; 
Latin America: 2% less. 

Average Delivery Time[A] for 10 Countries in Sub-Saharan Africa: 

In-kind donations (international): 
Time (in-kind donations): 147 days. 

Cash donations, International: 
Time (cash donations): 91 days; 
Time saved (cash donations): 56 days. 

Cash donations, Regional: 
Time (cash donations): 41 days; 
Time saved (cash donations): 106 days; 

Cash donations, Local: 
Time (cash donations): 35 days; 
Time saved (cash donations): 112 days. 

Source: GAO analysis of USAID and WFP data. 

[A] Time elapsed between the purchase order date and the date WFP takes 
possession of the food in the recipient country. Additional time is 
required for the food to reach intended beneficiaries. 

[End of figure] 

Despite potential benefits, factors such as a lack of reliable 
suppliers, limited logistical capacity, weak legal systems, and donor 
funding restrictions have limited the efficiency of LRP. Of the 11 WFP 
procurement officers we interviewed, 9 identified finding reliable 
suppliers and preventing supplier default as a challenge to 
implementing LRP. In addition, limited infrastructure and logistical 
capacity could delay delivery. For example, according to some WFP 
officials and private traders we met with, South Africa's rail system 
and ports are underinvested and have limited capacity to handle food 
aid during peak seasons. Furthermore, a weak legal system could limit 
buyers' ability to enforce contracts. WFP generally requires suppliers 
to purchase bonds, which they will lose if they do not fulfill their 
obligations under the contracts. However, this requirement is not 
always feasible to implement, especially when procuring from small 

Local and regional procurement can provide food that is more acceptable 
to the dietary needs and preferences of beneficiaries in recipient 
countries. Experts and practitioners have mixed views on how LRP 
affects donors' ability to adhere to product specifications and quality 
standards--such as moisture content and the level of broken and foreign 
matter--which ensure food safety and nutritional content. However, 
donors have yet to systematically collect evidence that demonstrates 
whether food procured in different locations varies significantly in 
meeting product specifications and quality. 

LRP of Food Aid Has Potential for Adverse Market Impacts That Can Be 
Mitigated by Better Market Intelligence: 

LRP can make food more costly to consumers by increasing demand and 
driving up prices.[Footnote 9] Although most of the WFP procurement 
officers we interviewed stated that local procurements of food aid 
generally do not affect market prices, our review of the literature and 
interviews during fieldwork show that there have been instances where 
LRP contributed to price hikes and price volatility in markets from 
which food is procured. Despite these concerns, almost all of the WFP 
procurement officers we interviewed stated that they supported the idea 
of the United States increasing its funding for LRP. However, WFP 
procurement officers we spoke to, NGO officials in countries we 
visited, and other experts we met with agreed that increased use of LRP 
should be done incrementally and that significant challenges remain to 
expanding market capacity in many countries, particularly in sub- 
Saharan Africa. 

The most significant challenge to avoiding potential adverse market 
impacts when conducting LRP is unreliable market intelligence. While 
WFP and other food aid providers rely on market intelligence to 
understand market conditions, a number of WFP studies, NGO evaluations, 
and donor assessments show that some pre-purchase market analyses have 
been incomplete and inaccurate--contributing to unintended consequences 
such as price hikes and reduced access to food. For example, in 2007, 
the government of Malawi decided to export 400,000 metric tons of maize 
to Zimbabwe.[Footnote 10] In the same year, WFP also procured 48,445 
metric tons of food aid from Malawi to support its operations in other 
countries. USAID Food for Peace, Famine Early Warning Systems Network 
(FEWS NET), and other private-sector officials working in southern 
Africa told us that Malawi's decision to export to Zimbabwe and sell to 
WFP was based on inaccurate production estimates. A few months later, 
Malawi experienced higher food prices and food shortages. WFP has 
significantly increased its mandate and ability to collect and analyze 
local and regional market information in the last decade, but WFP 
analyses and procurement officers confirmed that WFP's market 
intelligence, while improved, is often inaccurate or incomplete. In 
many low-income countries, national market intelligence systems are 
weak and unreliable, and timely data are not always available, which 
may limit the effectiveness of WFP's market intelligence efforts, 
according to a WFP report.[Footnote 11] 

In an effort to significantly reduce the risk of contributing to price 
hikes and long-term food price inflation, WFP uses import parity 
pricing. In addition to serving as a measure for cost-efficiency, 
comparing local prices with import parity prices helps those involved 
in local procurement to determine whether a local procurement will "do 
no harm" to local markets and consumers by not making local 
procurements when local prices are higher than international prices. 

While the primary purpose of LRP is to provide food assistance in 
humanitarian emergencies in a timely and efficient manner, a potential 
secondary benefit is contributing to the development of the local 
economies from which food is purchased. The development benefits to 
local economies from LRP are secondary because in almost all cases WFP 
and NGO purchases are not large enough or reliable enough to sustain 
increased demand over time. Only recently has WFP acknowledged that LRP 
can contribute to local development. In several of the countries we 
visited, we observed WFP LRP initiatives under way that might support 
local economies in the long term and connect LRP to other food security 
initiatives. However, many of them are new and limited in scale. 

Legal Requirements for U.S. Food Aid May Constrain U.S. Agencies' Use 
of LRP: 

Legal Requirement to Purchase U.S.-Grown Food Limits Funding for 
Foreign-Grown Food: 

Most funding for U.S. food aid is authorized under the Food for Peace 
Act[Footnote 12] and cannot be used to purchase foreign-grown food. 
Funding under the act, approximately $2 billion per year, is restricted 
to the purchase of U.S.-grown agricultural commodities. However, a 
limited amount of U.S. funding has been authorized through the 2008 
Farm Bill, the Foreign Assistance Act, 2008/2009 bridge supplemental, 
and the 2009 Omnibus Appropriations.[Footnote 13] 

Uncertainty Regarding Cargo Preference Could Constrain Agencies' 
Implementation of LRP: 

Because the leading U.S. food assistance agencies and DOT disagree on 
how to implement the Cargo Preference Act, their use of LRP could be 
constrained. The Cargo Preference Act, as amended, requires that up to 
75 percent of the gross tonnage of agricultural foreign assistance 
cargo be transported on U.S.-flag vessels. DOT issues and administers 
regulations necessary to enforce cargo preference. Among other things, 
the department has the authority to require the transportation on U.S.- 
flag vessels of cargo shipments not otherwise subject to cargo 
preference (hereafter referred to as "make-up requirements") when it 
determines that an agency has failed to sufficiently utilize U.S.-flag 

Table 1 summarizes differences in agency officials' interpretations of 
cargo preference requirements. 

Table 1: U.S. Agencies' Interpretations of Cargo Preference 
Requirements as They Pertain to Implementation of LRP: 

1. Agency responsible for determining availability of U.S.-flag 
Agency interpretations: DOT: DOT is the sole determining agency for 
U.S.-flag vessel availability; 
Agency interpretations: USAID: USAID is the determining agency for U.S.-
flag vessel availability based on USAID program needs. However, USAID 
seeks DOT concurrence; 
Agency interpretations: USDA: USDA is the determining agency for U.S.-
flag vessel availability based on USDA program needs. DOT is not 
permitted to provide input into a determination of programmatic need. 

2. Make-up requirements when U.S.-flag vessels are unavailable or an 
agency uses notwithstanding authority; 
Agency interpretations: DOT: Tonnage shipped on foreign-flag vessels 
when U.S.-flag vessels are unavailable or under USAID's notwithstanding 
authority[A] is counted toward the 25 to 50 percent maximum tonnage 
allowed on foreign-flag vessels. Any foreign-flag tonnage exceeding the 
25 to 50 percent maximum must be made up[B]; 
Agency interpretations: USAID: When U.S.-flag vessels are unavailable 
or when USAID uses notwithstanding authority, tonnage shipped on 
foreign-flag vessels should not be counted toward the 50 percent 
maximum tonnage allowed; 
Agency interpretations: USDA: Tonnage shipped on foreign-flag vessels 
is counted toward the 25 percent maximum tonnage allowed on foreign- 
flag vessels. USDA does not have notwithstanding authority since it 
does not implement emergency programs. 

3. Applicability of cargo preference requirements to public 
international organizations; 
Agency interpretations: DOT: The grants to international organizations 
are governed by regulations and guidance issued by DOT; 
Agency interpretations: USAID: Cargo preference regulations apply when 
the authority for LRP is Food for Peace. However, the regulations do 
not apply when LRP is carried out under authority of the Foreign 
Assistance Act; 
Agency interpretations: USDA: Cargo preference applies to international 

4. Reimbursement methodology; 
Agency interpretations: DOT: DOT reimburses food aid agencies for a 
portion of the ocean freight and transportation costs that exceed 20 
percent of total program costs; 
Agency interpretations: USAID: DOT reimbursement methodology is not 
specified for all possible scenarios; 
Agency interpretations: USDA: DOT reimbursement methodology is not 
specified for all possible scenarios. 

Source: DOT, USAID, and USDA. 

[A] Section 491 of the Foreign Assistance Act authorizes international 
disaster assistance to be carried out notwithstanding any other 
provision of law. 

[B] DOT's position is that the cargo preference compliance threshold 
for tonnage of LRP is 50 percent for those purchases not funded under 
authority of the Food for Peace Act. Where LRP purchases are funded 
under the Food for Peace Act, DOT stated that the threshold would be 75 

[End of table] 

The lack of clarity on how to interpret and implement cargo preference 
regulations may constrain agencies' ability to utilize LRP. For 
example, USAID's and USDA's LRP pilot programs could be hindered if 
U.S.-flag vessels are unavailable. USAID officials indicated that, 
given the limited volume of regional shipments relative to regular 
Title II shipments, the agency would probably not be able to meet the 
U.S.-flag compliance threshold if even one shipment could not be 
transported on a U.S.-flag vessel. According to a USDA official, 
countries chosen for its LRP pilot field-based projects will likely 
receive food shipments only once in a fiscal year. If U.S.-flag vessels 
are unavailable for service at that time, it is unclear how USDA will 
make up tonnage by country and program the following year since the 
pilot is of limited duration. 

The memorandum of understanding (MOU) that outlines the manner in which 
USAID, USDA, and DOT coordinate the administration of cargo preference 
requirements was last updated in 1987 and does not reflect modern 
transportation practices or the areas of ambiguity related to LRP. In 
our 2007 review of U.S. food aid,[Footnote 14] we found that cargo 
preference can increase delivery costs and time frames, with program 
impacts dependent on the sufficiency of DOT reimbursements. Therefore, 
we recommended that USAID, USDA, and DOT seek to minimize the cost 
impact of cargo preference regulations by updating implementation and 
reimbursement methodologies of cargo preference as it applies to U.S. 
food aid. Since 2007, USAID and USDA have proposed a working group with 
DOT to renegotiate the MOU. To date, however, there have been few 
meetings and no agreement has been reached between the agencies. 

Implementation of Recommendations Could Help Enhance U.S. Food Aid: 

To address the concerns I have just summarized, we recommend in the 
report we publicly released today that the Administrator of the U.S. 
Agency for International Development and the Secretary of Agriculture: 

* systematically collect evidence on LRP's adherence to quality 
standards and product specifications to ensure food safety and 
nutritional content; 

* work with implementing partners to improve the reliability and 
utility of market intelligence in areas where U.S.-funded LRP occurs, 
thereby ensuring that U.S.-funded LRP practices minimize adverse 
impacts and maximize potential benefits; and: 

* work with the Secretary of Transportation and relevant parties to 
expedite updating the MOU between U.S. food assistance agencies and the 
Department of Transportation, consistent with our 2007 recommendation, 
to minimize the cost impact of cargo preference regulations on food aid 
transportation expenditures and to resolve uncertainties associated 
with the application of cargo preference to regional procurement. 

USAID generally concurred with our recommendations. USDA generally 
concurred but noted that aggregating some of the products into 
commodity groups caused a loss of precision in our methodology. In 
conducting our overall analysis, we worked to ensure that we included 
the largest number of procurement transactions over the longest 
possible time period for which we had data, so some aggregation was 
required. DOT noted that it implements its mandate through regulation, 
not the MOU. Nevertheless, the regulations contain ambiguities and we 
believe these ambiguities can be resolved by updating the MOU. WFP 
welcomed our timely examination of LRP but noted the lack of evidence 
showing that LRP introduces quality challenges that are not already 
challenges to internationally procured and donor provided food aid. 

In summary, the timely provision of food aid is critical in responding 
to humanitarian emergencies and food crises, and LRP has the potential 
to better meet the needs of hungry people by providing food aid in both 
a more timely and less costly manner. To fully realize this potential, 
however, challenges to its effective implementation must be addressed. 

Mr. Chairman, this concludes my statement. I would be pleased to 
respond to any questions you or other Members of the Subcommittee may 

Contacts and Acknowledgments: 

For questions about this statement, please contact Thomas Melito at 
(202) 512-9601 or Individuals who made key 
contributions to this testimony include Phillip Thomas (Assistant 
Director), Sada Aksartova, Kathryn Bernet, Carol Bray, Ming Chen, 
Debbie Chung, Lynn Cothern, Martin De Alteriis, Mark Dowling, Etana 
Finkler, Katrina Greaves, Kendall Helm, Joy Labez, Andrea Miller, Julia 
A. Roberts, Jerry Sandau, and David Schneider. 

[End of section] 


[1] We define local and regional procurement (LRP) as the purchase of 
food aid by donors in countries affected by disasters and food crises 
or in a different country within the same region. Procurements of food 
aid can be categorized geographically as (1) international: donor- 
financed purchases of food aid in world markets, which may include both 
developed and developing countries; (2) regional: donor-financed 
purchases of food aid in a different country in the same region; or (3) 
local: donor-financed purchases of food aid in countries affected by 
disasters and food crises. 

[2] Food insecurity is the lack of access of all people at all times to 
sufficient, nutritionally adequate, and safe food, without undue risk 
of losing such access. The Food and Agriculture Organization (FAO) of 
the United Nations defines the elements of food security to include (1) 
food availability, (2) access, and (3) utilization. 

[3] GAO, International Food Security: Insufficient Efforts by Host 
Governments and Donors Threaten Progress to Halve Hunger in Sub-Saharan 
Africa by 2015, [hyperlink,] 
(Washington, D.C.: May 29, 2008). In this report, we cited FAO 
estimates that indicate that sub-Saharan Africa is the region with the 
highest prevalence of food insecurity; one out of every three people 
there are considered undernourished. 

[4] GAO, International Food Assistance: Local and Regional Procurement 
Can Enhance the Efficiency of U.S. Food Aid, but Challenges May 
Constrain Its Implementation, [hyperlink,] (Washington, D.C.: May 29, 

[5] We define "efficiency" as the extent to which a program is 
acquiring, protecting, and using its resources in the most productive 
manner in terms of cost, delivery time, and appropriateness of food 

[6] In this testimony, we use the term "delivery time" to refer to the 
number of days that elapses from the purchase order date to the date 
WFP takes possession of the food in the recipient country (also 
referred to as "lead time"). Additional time is required for the food 
to reach intended beneficiaries. 

[7] The eight commodities were beans, corn soy blend (CSB), maize, 
maize meal, rice, sorghum/millet, vegetable oil, and wheat, which 
represent the majority of food aid that WFP and USAID provided. 

[8] The cost comparison demonstrates the difference in cost of 
delivering similar food products in a similar time frame to the same 
countries. It does not suggest that if the United States had purchased 
the same amount of food through LRP, it would have cost the same 
because additional demand in the market could have driven up the prices 
and there might not have been enough food available for purchase. 
However, LRP could have offered the United States the flexibility to 
explore other potential cost-saving opportunities in the region. 

[9] Transoceanic shipments of in-kind food aid, if not carefully 
targeted, can have the opposite but also detrimental market impact of 
depressing market prices by rapidly increasing the supply of food in 

[10] Not all of it was ultimately delivered. 

[11] Food Procurement in Developing Countries, World Food Program, 
Executive Board First Regular Session (Rome: February 2006). 

[12] The 2008 Farm Bill changed the title of the underlying legislation 
from the Agricultural Trade Development and Assistance Act of 1954, 
also known as P.L. 480, to the Food for Peace Act. 

[13] Since July 2008, Congress has appropriated $50 million to USAID 
that can be used for LRP in addition to $75 million that the 
Administration allocated for LRP in International Disaster Assistance 
funding. The 2009 Omnibus Appropriations Act provided another $75 
million to USAID for global food security, including LRP and 
distribution of food. 

[14] GAO, Foreign Assistance: Various Challenges Impede the Efficiency 
and Effectiveness of U.S. Food Aid, [hyperlink,] (Washington, D.C.: Apr. 13, 

[End of section] 

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