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Testimony:
Before the Committee on Agriculture, Nutrition, and Forestry:
U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EDT:
Wednesday, March 21, 2007:
Foreign Assistance:
U.S. Agencies Face Challenges to Improving the Efficiency and
Effectiveness of Food Aid:
Statement of Thomas Melito, Director:
International Affairs and Trade:
GAO-07-616T:
GAO Highlights:
Highlights of GAO-07-616T, a testimony before the Chairman and Ranking
Minority Member, Senate Committee on Agriculture, Nutrition, and
Forestry
Why GAO Did This Study:
The United States is the largest provider of food aid in the world,
accounting for over half of all global food aid supplies intended to
alleviate hunger. Since the 2002 reauthorization of the Farm Bill,
Congress has appropriated an average of $2 billion per year for U.S.
food aid programs, which delivered an average of 4 million metric tons
of agricultural commodities per year. Despite growing demand for food
aid, rising business and transportation costs have contributed to a 43-
percent decline in average tonnages delivered over the last 5 years.
For the largest U.S. food aid program, these costs represent
approximately 65 percent of total food aid expenditures, highlighting
the need to maximize the efficiency and effectiveness of food aid. To
inform Congress as it reauthorizes the 2007 Farm Bill, GAO examined
some key challenges to the (1) efficiency of delivery and (2) effective
monitoring of U.S. food aid.
What GAO Found:
Multiple challenges combine to hinder the efficiency of delivery of
U.S. food aid by reducing the amount, quality, and timeliness of food
provided. These challenges include (1) funding and planning processes
that increase delivery costs and lengthen time frames; (2)
transportation contracting practices that create high levels of risk
for ocean carriers, resulting in increased rates; (3) legal
requirements that can result in the awarding of food aid contracts to
more expensive service providers; and (4) inadequate coordination
between U.S. agencies and food aid stakeholders in systematically
addressing food delivery problems, such as spoilage. U.S. agencies have
taken some steps to address timeliness concerns. USAID has been
stocking or prepositioning food commodities domestically and abroad and
USDA has implemented a new transportation bid process, but the long-
term cost effectiveness of these initiatives has not yet been measured.
Figure: Selected Trends in U.S. Food Aid, Fiscal Years 2002 to 2006:
[See PDF for Image]
Source: GAO analysis of USAID and USDA budget data.
Note: Emergency funding reflects USAID only.
[End of figure]
Given limited food aid resources and increasing emergencies, ensuring
that food reaches the most vulnerable populations—such as poor women
who are pregnant or children who are malnourished—is critical to
enhancing its effectiveness. However, USAID and USDA do not
sufficiently monitor the effectiveness of food aid programs,
particularly in recipient countries, due to limited staff, competing
priorities, and restrictions in the use of food aid resources. For
example, although USAID has some non-Title II-funded staff assigned to
monitoring, it had only 23 Title II-funded staff assigned to missions
and regional offices in just 10 countries to monitor programs costing
about $1.7 billion in 55 countries in fiscal year 2006. As a result of
such limitations, U.S. agencies may not be sufficiently accomplishing
their goals of getting the right food to the right people at the right
time.
What GAO Recommends:
In a draft report that is under review by U.S. agencies, GAO recommends
that the Administrator of USAID and the Secretaries of Agriculture and
Transportation work together to enhance the efficiency and
effectiveness of U.S. food aid, by instituting measures to improve
logistical planning, transportation contracting, and monitoring of food
aid programs, among other actions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-616T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Thomas Melito (202) 512-
9601 (MelitoT@gao.gov).
[End of section]
Chairman Harkin, Ranking Member Chambliss, and Members of the
Committee:
I am pleased to be here today to discuss ways to improve the efficiency
and effectiveness of U.S. food aid. The United States is the largest
provider of food aid in the world, accounting for over half of all
global food aid supplies intended to alleviate hunger and support
development in low-income countries. Since its last reauthorization of
the Farm Bill in 2002, Congress has appropriated an average of $2
billion per year in annual and supplemental funding for U.S.
international food aid programs, which delivered an average of 4
million metric tons of agricultural commodities per year. In 2006, U.S.
food aid benefited over 70 million people through emergency and
development-focused programs. However, about 850 million people in the
world are undernourished in 2007--a number that has remained relatively
unchanged since the early 1990s, according to United Nations (UN) Food
and Agriculture Organization (FAO) estimates.[Footnote 1] Furthermore,
the number of food and humanitarian emergencies has doubled from an
average of about 15 per year in the 1980s to more than 30 per year
since 2000, due in large part to increasing conflicts and natural
disasters around the world. Despite growing demand for food aid, rising
transportation and business costs have contributed to a 43 percent
decline in average tonnages delivered over the last 5 years.[Footnote
2] For the largest U.S. food aid program, Title II of the Food for
Peace program, these costs now account for approximately 65 percent of
expenditures, highlighting the need to maximize the efficiency and
effectiveness of U.S. food aid.
My testimony is based on a report that we expect to issue in April
2007. Today, I will primarily focus on the need to improve the
efficiency of delivery of U.S. food aid. I will also focus on the
importance of efforts to monitor U.S. food aid programs in order to
enhance their effectiveness. In addition to these issues, our April
report will address monetization, assessments, targeting, and commodity
quality and nutritional standards.
We conducted the work for the forthcoming report and this testimony
between April 2006 and March 2007 in accordance with generally accepted
U.S. government auditing standards.
Summary:
Multiple challenges combine to hinder the efficiency of delivery of
U.S. food aid by reducing the amount, timeliness, and quality of food
provided. These challenges include:
* funding and planning processes that increase delivery costs and
lengthen time frames. These processes make it difficult to time food
procurement and transportation to avoid commercial peaks in demand,
often resulting in higher prices than if such purchases were more
evenly distributed throughout the year.
* transportation and contracting practices that differ from commercial
practices and create high levels of risk for ocean carriers, increasing
food aid costs. For example, food aid transportation contracts often
hold ocean carriers responsible for costly delays that may result when
food aid cargo is not ready for loading onto an ocean vessel, or when a
destination port is not ready to receive cargo. Ocean carriers factor
these costs into their freight rates, driving up the cost of food aid.
* legal requirements that result in the awarding of food aid contracts
to more expensive providers and contribute to delivery delays. For
example, cargo preference laws require 75 percent of food aid to be
shipped on U.S.-flag carriers, which are generally more costly than
foreign-flag carriers. The Department of Transportation (DOT)
reimburses certain transportation costs, but the sufficiency of these
reimbursements varies.
* inadequate coordination between U.S. agencies and stakeholders in
tracking and responding to food delivery problems. For example, while
food spoilage has been a long-standing concern, the U.S. Agency for
International Development (USAID) and the U.S. Department of
Agriculture (USDA) lack a shared, coordinated system to track and
respond to food quality complaints systematically.
However, to enhance the efficiency of delivery of food aid, U.S.
agencies have taken measures to improve their ability to provide food
aid on a more timely basis. Specifically, USAID has been stocking food
commodities, or prepositioning them, in Lake Charles (Louisiana) and
Dubai (United Arab Emirates) for the past several years and is in the
process of expanding this practice. Additionally, in February 2007,
USAID and USDA implemented a new transportation bid process in an
attempt to increase competition and reduce procurement time frames.
Although both efforts may result in food aid reaching vulnerable
populations more quickly in an emergency, their long-term cost
effectiveness has not yet been measured.
Despite the importance of ensuring the effective use of food aid to
alleviate hunger, U.S. agencies' efforts to monitor food aid programs
in recipient countries are insufficient. Given limited food aid
resources and increasing emergencies, ensuring that food reaches the
most vulnerable populations, such as poor women who are pregnant or
children who are malnourished, is critical to enhancing its
effectiveness and avoiding negative market impact. However, USAID and
USDA do not sufficiently monitor food aid programs, particularly in
recipient countries, due to limited staff, competing priorities, and
restrictions in the use of food aid resources. For example, although
USAID has some non-Title II staff assigned to monitoring, it had only
23 Title II-funded staff assigned to missions and regional offices in
just 10 countries to monitor programs costing about $1.7 billion in 55
countries in fiscal year 2006. USDA has even less of a field presence
for monitoring than USAID. As a result, U.S. agencies may not be
sufficiently accomplishing their goals of getting the right food to the
right people at the right time.
In our draft report, which is under review by U.S. agencies, we
recommend that the Administrator of USAID, the Secretary of
Agriculture, and the Secretary of Transportation take actions to
improve the efficiency and effectiveness of U.S. food aid. These
actions include (1) improving food aid logistical planning; (2)
modernizing transportation contracting practices; (3) minimizing the
cost impact of cargo preference regulations on food aid transportation
expenditures; (4) tracking and resolving food quality complaints
systematically; and (5) improving the monitoring of food aid programs.
USAID, USDA, and DOT reviewed a draft of this testimony statement and
provided us with oral comments, including technical comments that we
have incorporated as appropriate. We also provided DOD, State, FAO, and
WFP an opportunity to provide technical comments, which we have
incorporated as appropriate.
Background:
Food aid comprises all food-supported interventions by foreign donors
to individuals or institutions within a country. It has helped to save
millions of lives and improve the nutritional status of the most
vulnerable groups, including women and children, in developing
countries. Food aid is one element of a broader global strategy to
enhance food security[Footnote 3] by reducing poverty and improving
availability, access to, and use of food in low-income, less-developed
countries. Donors provide food aid as both a humanitarian response to
address acute hunger in emergencies and as a development-focused
response to address chronic hunger. Large-scale conflicts, poverty,
weather calamities, and severe health-related problems are among the
underlying causes of both acute and chronic hunger.
Countries Provide Food Aid through In-Kind or Cash Donations, with the
United States as the Largest Donor:
Countries provide food aid through either in-kind donations or cash
donations for local procurement. In-kind food aid is food procured and
delivered to vulnerable populations,[Footnote 4] while cash donations
are given to implementing organizations for the purchase of food in
local markets. U.S. food aid programs are all in-kind, and no cash
donations are allowed under current legislation. However, the
Administration has proposed legislation to allow up to 25 percent of
appropriated food aid funds for purchase of commodities in locations
closer to where they are needed. Other food aid donors have also
recently moved from providing less in-kind to more or all cash
donations for local, regional, or donor-market procurement. While there
are ongoing debates as to which form of assistance is more effective
and efficient, the largest international food aid organization, the
World Food Program (WFP), continues to accept both.[Footnote 5] The
United States is both the largest overall and in-kind provider of food
aid, supplying over one-half of all global food aid.
Most U.S. Food Aid Goes to Africa:
In fiscal year 2006, the United States delivered food aid to over 50
countries, with about 78 percent of its funding allocations for in-kind
food donations going to Africa, 12 percent to Asia and the Near East, 9
percent to Latin America, and 1 percent to Eurasia. Of the 78 percent
of the food aid funding going to Africa, 30 percent went to Sudan, 27
percent to the Horn of Africa, 17 percent to Southern Africa, 14
percent to West Africa, and 12 percent to Central Africa.
Emergencies Represent an Increasing Share of U.S. Food Aid:
Food aid is used for both emergency[Footnote 6] and non-emergency
purposes. Over the last several years, the majority of U.S. food aid
has shifted from a non-emergency to an emergency focus. In fiscal year
2005, the United States directed approximately 80 percent or $1.6
billion of its $2.1 billion expenditure for international food aid
programs to emergencies. In contrast, in fiscal year 2002, the United
States directed approximately 40 percent or $678 million of its $1.7
billion food aid expenditure to emergency programs (see fig. 1).
Figure 1: Emergencies Represent an Increasing Share of U.S. Food Aid
Funding from Fiscal Year 2002 to Fiscal Year 2005:
[See PDF for image]
Source: GAO analysis of USAID data.
[A] These data represent all food aid programs administered by USAID
and USDA.
[End of figure]
U.S. Food Aid Is Delivered Through Multiple Programs with Multiple
Mandates:
U.S. food aid is funded under four program authorities and delivered
through six programs administered by USAID and USDA,[Footnote 7] which
serve a range of objectives including humanitarian goals, economic
assistance, foreign policy, market development and international trade
(see app. I).[Footnote 8] The largest program, Public Law (P.L.) 480
Title II, is managed by USAID and averaged approximately 74 percent of
total in-kind food aid allocations over the past 4 years, most of which
funded emergency programs (see fig. 2). In addition, P.L. 480, as
amended, authorizes USAID to preposition food aid both domestically and
abroad with a cap on storage expenses of $2 million per fiscal year.
Figure 2: Average Shares of Total Funding for U.S. International Food
Aid by Program Authority from Fiscal Year 2002 to Fiscal Year 2006
(Dollars in millions):
[See PDF for image]
Source: GAO analysis of USAID data.
[A] This includes the Bill Emerson Humanitarian Trust.
[End of figure]
U.S. food aid programs also have multiple legislative and regulatory
mandates that affect their operations. One mandate that governs U.S.
food aid transportation is cargo preference, which is designed to
support a U.S.-flag commercial fleet for national defense purposes.
Cargo preference requires that 75 percent of the gross tonnage of all
government-generated cargo be transported on U.S.-flag vessels. A
second transportation mandate, known as the "Great Lakes Set Aside,"
requires that up to 25 percent of Title II bagged food aid tonnage be
allocated to Great Lakes ports each month.[Footnote 9] Other mandates
require that a minimum of 2.5 million metric tons of food aid be
provided through Title II programs, and that of this amount, a "sub-
minimum" of 1.825 million metric tons be provided for non-emergency
programs.[Footnote 10] (For a summary of congressional mandates for
P.L. 480, see app. I.)
Multiple U.S. Government Agencies and Stakeholders Participate in U.S.
Food Aid Programs:
U.S. food aid programs involve multiple U.S. government agencies and
stakeholders. For example, USAID and USDA administer the programs,
USDA's Kansas City Commodity Office (KCCO) manages the purchase of all
commodities, and the U.S. Maritime Administration (MARAD) of DOT is
involved in supporting their ocean transport on U.S. vessels. These and
other government agencies coordinate food aid programs through the Food
Assistance Policy Council, which oversees the Bill Emerson Humanitarian
Trust, an emergency food reserve.[Footnote 11] Other stakeholders
include donors, implementing organizations such as WFP and NGOs,
agricultural commodity groups, and the maritime industry. Some of these
stakeholders are members of the Food Aid Consultative Group, which is
led by USAID's Office of Food for Peace and addresses issues concerning
the effectiveness of the regulations and procedures that govern food
assistance programs.
Multiple Challenges Hinder the Efficiency of Delivery of U.S. Food Aid:
Multiple challenges reduce the efficiency of U.S. food aid, including
logistical constraints that impede food aid delivery and reduce the
amount, timeliness, and quality of food provided. While agencies have
tried to expedite food aid delivery in some cases, the majority of food
aid program expenditures is on logistics, and the delivery of food from
vendor to village is generally too time-consuming to be responsive in
emergencies. Factors that increase logistical inefficiencies include
uncertain funding and inadequate planning; transportation contracting
practices that disproportionately increase risks for ocean carriers
(who then factor those risks into freight rates); legal requirements;
and inadequate coordination to systematically track and respond to
logistical problems, such as food spoilage or contamination. While U.S.
agencies are pursuing initiatives to improve food aid logistics, such
as prepositioning food commodities, their long-term cost effectiveness
has not yet been measured.
Food Aid Procurement and Transportation are Costly and Time-Consuming:
Transportation costs represent a significant share of food aid
expenditures. For the largest U.S. food aid program (Title II),
approximately 65 percent of expenditures are on inland transportation
(to the U.S. port for export), ocean transportation, in-country
delivery, associated cargo handling costs, and administration.
According to USAID, these non-commodity expenditures have been rising
in part due to the increasing number of emergencies and the expensive
nature of logistics in such situations. To examine procurement costs
(expenditures on commodities and ocean transportation)[Footnote 12] for
all U.S. food aid programs, we obtained KCCO procurement data for
fiscal years 2002 through 2006. KCCO data also suggest that ocean
transportation has been accounting for a larger share of procurement
costs with average freight rates rising from $123 per metric ton in
fiscal year 2002 to $171 per metric ton in fiscal year 2006 (see fig.
3).[Footnote 13] Further, U.S. food aid ocean transportation costs are
relatively expensive compared with those of some other donors. WFP
transports both U.S. and non-U.S. food aid worldwide at reported ocean
freight costs averaging around $100 per metric ton--representing less
than 20 percent of its total procurement costs.[Footnote 14] At current
U.S. food aid budget levels, every $10 per metric ton reduction in
freight rates could feed about 1.2 million more people during a typical
hungry season.[Footnote 15]
Figure 3: U.S. Food Aid Ocean Transportation Costs:
[See PDF for image]
Source: GAO analysis of Kansas City Commodity Office data; GAO
(photos).
Note: Total procurement costs include commodity and ocean
transportation costs. Costs incurred to transport the cargo to the U.S.
port for export are included in the commodity and ocean transportation
costs, dependent on contract terms.
[End of figure]
Delivering U.S. food aid from vendor to village is also a relatively
time-consuming task, requiring on average 4 to 6 months. Food aid
purchasing processes and example time frames are illustrated in figure
4. While KCCO purchases food aid on a monthly basis, it allows
implementing partners' orders to accumulate for 1 month prior to
purchase in order to buy in scale. KCCO then purchases the commodities,
receives transportation offers, and awards transportation contracts
over the following month. Commodity vendors bag the food and ship it to
a U.S. port for export during the next 1 to 2 months.[Footnote 16]
After an additional 40 to 50 days for ocean transportation to
Africa,[Footnote 17] for example, the food arrives at an overseas port,
where it is trucked or railroaded to the final distribution location
over the next few weeks. While agencies have tried to expedite food aid
delivery in some cases, the entire logistics process often lacks the
timeliness required to meet humanitarian needs in emergencies and may
at times result in food spoilage. Additionally, the largest tonnages of
U.S. food aid are purchased during the months of August and September.
Average tonnages purchased during the fourth quarter of the last 5
fiscal years have exceeded those purchased during the second and third
quarters by more than 40 percent. Given a 6-month delivery window,
these tonnages do not arrive in country until the end of the peak
hungry season (from October through January in southern Africa, for
example) in most cases.[Footnote 18]
Figure 4: An Example of a U.S. Food Aid Purchase and Its Delivery from
Vendor to Village:
[See PDF for image]
Sources: GAO analysis of USAID and USDA information; photos (GAO).
[End of figure]
Various Factors Cause Inefficiencies in Food Aid Logistics:
Food aid logistics are costly and time-consuming for a variety of
reasons. First, uncertain funding processes for emergencies can result
in bunching of food aid purchases, which increases food and
transportation costs and lengthens delivery time frames. Many experts,
officials, and stakeholders emphasized the need for improved logistical
planning. Second, transportation contracting practices--such as freight
and payment terms, claims processes and time penalties--further
increase ocean freight rates and contribute to delivery delays. A large
percentage of the carriers we interviewed strongly recommended taking
actions to address these contracting issues. Third, legal requirements
such as cargo preference can increase delivery costs. Although food aid
agencies are reimbursed by DOT for certain transportation expenditures,
the sufficiency of reimbursement levels varies. Fourth, when food
delivery problems arise, such as food spoilage or contamination, U.S.
agencies and stakeholders lack adequately coordinated mechanisms to
systematically track and respond to complaints.
Funding and Planning Processes Increase Costs and Lengthen Time Frames:
Uncertain funding processes, combined with reactive and insufficiently
planned procurement, increase food aid delivery costs and time frames.
Food emergencies are increasingly common and now account for 80 percent
of USAID program expenditures. To respond to sudden emergencies--such
as Afghanistan in 2002, Iraq in 2003, Sudan, Eritrea, and Ethiopia in
2005, and Sudan and the Horn of Africa in 2006--U.S. agencies largely
rely on supplemental appropriations and the Bill Emerson Humanitarian
Trust (BEHT) to augment annual appropriations by up to a quarter of
their budget. Figure 5, for example, illustrates that USAID
supplemental appropriations have ranged from $270 million in fiscal
year 2002 and $350 million in fiscal year 2006 to over $600 million in
fiscal years 2003 and 2005. Agency officials and implementing partners
told us that the uncertainty of whether, when, and at what levels
supplemental appropriations would be forthcoming hampers their ability
to plan both emergency and non-emergency food aid programs on a
consistent, long-term basis and to purchase food at the best price.
Although USAID and USDA instituted multi-year planning approaches in
recent years, according to agency officials, uncertain supplemental
funding has caused them to adjust or redirect funds from prior
commitments.
Figure 5: Funding for U.S. Food Aid Programs, Annual and Supplemental
Appropriations, Fiscal Year 2002 to Fiscal Year 2006 (Dollars in
millions):
[See PDF for image]
Source: GAO analysis based on USAID budget data.
[End of figure]
Agencies and implementing organizations also face uncertainty about the
availability of Bill Emerson Humanitarian Trust funds. As of January
2007, the Emerson Trust held about $107.2 million in cash and about
915,350 metric tons of wheat valued at $133.9 million--a grain balance
that could support about two major emergencies based on an existing
authority to release up to 500,000 metric tons per fiscal year and
another 500,000 of commodities that could have been, but were not,
released from previous fiscal years. Although the Secretary of
Agriculture and the USAID Administrator have agreed that the $341
million combined value of commodity and cash currently held in the
trust is more than adequate to cover expected usage over the period of
the current authorization, the authorization is scheduled to expire on
September 30, 2007. Resources have been drawn from the Emerson Trust on
12 occasions since 1984. For example, in fiscal year 2005, $377 million
from the trust was used to procure 700,000 metric tons of commodities
for Ethiopia, Eritrea, and Sudan. However, experts and stakeholders
with whom we met noted that the trust lacks an effective replenishment
mechanism--withdrawals from the trust must be reimbursed by the
procuring agency or by direct appropriations for reimbursement, and
legislation establishing the Emerson Trust capped the annual
replenishment at $20 million.[Footnote 19]
Inadequately planned food and transportation procurement reflects the
uncertainty of food aid funding. As previously discussed, KCCO
purchases the largest share of food aid tonnage during the last quarter
of each fiscal year. This "bunching" of procurement occurs in part
because USDA requires 6 months to approve programs and/or because funds
for both USDA and USAID programs may not be received until mid-fiscal
year (after OMB has approved budget apportionments for the agencies) or
through a supplemental appropriation. USAID officials stated that they
have reduced procurement bunching through improved cash flow
management.[Footnote 20] Although USAID has had more stable monthly
purchases in fiscal years 2004 and 2005, food aid procurement in total
has not been consistent enough to avoid the higher prices associated
with bunching. Higher food and transportation prices result from
procurement bunching as suppliers try to smooth earnings by charging
higher prices during their peak seasons and as food aid contracts must
compete with commercial demand that is seasonally high. According to
KCCO data for fiscal years 2002 through 2006, average commodity and
transportation prices were each $12 to $14 per metric ton higher in the
fourth quarter than in the first quarter of each year.[Footnote 21]
Procurement bunching also stresses KCCO operations and can result in
costly and time-consuming congestion for ports, railways, and trucking
companies.
While agencies face challenges to improving procurement planning given
the uncertain nature of supplemental funding in particular,
stakeholders and experts emphasized the importance of such efforts. For
example, 11 of the 14 ocean carriers we interviewed reported that
reduced procurement bunching could greatly reduce transportation costs.
When asked about bunching, agency officials, stakeholders and experts
suggested the following potential improvements:
* Improved communication and coordination. KCCO and WFP representatives
suggested that USAID and USDA improve coordination of purchases to
reduce bunching. KCCO has also established a web-based system for
agencies and implementing organizations to enter up to several years'
worth of commodity requests. However, implementing organizations are
currently only entering purchases for the next month. Additionally,
since the Food Aid Consultative Group (FACG) does not include
transportation stakeholders, DOT officials and ocean carriers strongly
recommended establishing a formal mechanism for improving coordination
and transportation planning.
* Increased flexibility in procurement schedules. USAID expressed
interest in an additional time slot each month for food aid purchases.
Several ocean carriers expressed interest in shipping food according to
cargo availability rather than through pre-set shipping windows that
begin 4 weeks and 6 weeks after each monthly purchase. Although KCCO
has established shipping windows to avoid port congestion, DOT
representatives believe that carriers should be able to manage their
own schedules within required delivery time frames.
* Increased use of historical analysis. DOT representatives, experts,
and stakeholders emphasized that USAID and USDA should increase their
use of historical analysis and forecasting to improve procurement.
USAID has examined historical trends to devise budget proposals
prepared 2 years in advance, and it is now beginning to use this
analysis to improve timing of procurement. However, neither USAID nor
USDA has used historical analysis to establish more efficient
transportation practices, such as long-term agreements commonly used by
DOD.[Footnote 22] Furthermore, WFP is now using forecasting to improve
purchasing patterns through advanced financing but is unable to use
this financing for U.S. food aid programs due to legal and
administrative constraints.
Transportation Contracting Practices Increase Delivery Costs and
Contribute to Delays:
Transportation contracting practices are a second factor contributing
to higher food aid costs. DOT officials, experts, and ocean carriers
emphasized that commercial transportation contracts include shared risk
between buyers, sellers, and ocean carriers. In food aid transportation
contracts, risks are disproportionately placed on ocean carriers,
discouraging participation and resulting in expensive freight
rates.[Footnote 23] Examples of costly contracting practices include:
* Non-commercial and non-standardized freight terms. Food aid contracts
define freight terms differently than commercial contracts and place
increased liability on ocean carriers.[Footnote 24] For example, food
aid contracts hold ocean carriers responsible for logistical problems
such as improperly filled containers that may occur at the load port
before they arrive. Food aid contracts also hold ocean carriers
responsible for logistical problems such as truck delays or improper
port documentation that may occur at the discharge port after they
arrive. Further, several carriers reported that food aid contracts are
not sufficiently standardized. Although USAID and USDA created a
standard contract for non-bulk shipments, contracts for bulk shipments
(which currently account for 63 percent of food aid tonnage delivered)
have not yet been standardized. To account for risks that are unknown
or outside their control, carriers told us that they charge higher
freight rates.
* Impractical time requirements. Food aid contracts may include
impractical time requirements, although agencies disagree on how
frequently this occurs. Although USAID officials review contract time
requirements and described them as reasonable, they also indicated that
transportation delays are a common result of poor carrier performance
and the diminishing number of ocean carriers participating in food aid
programs.[Footnote 25] Several implementing organizations also
complained about inadequate carrier performance. WFP representatives,
for example, provided several examples of ocean shipments in 2005 and
2006 that were more than 20 days late. While acknowledging that
transportation delays occur, DOT officials indicated that some
contracts include time requirements that are impossible for carriers to
meet. For example, one carrier complained about a contract that
required the same delivery date for four different ports. When carriers
do not meet time requirements, they must pay costly penalties. Carriers
reported that they review contracts in advance and, where time
requirements are deemed implausible, factor the anticipated penalty
into the freight rate.[Footnote 26] While agencies do not
systematically collect data on time requirements and penalties
associated with food aid contracts, DOT officials examined a subset of
contracts from December 2005 to September 2006 and estimated that 13
percent of them included impractical time requirements. Assuming that
the anticipated penalties specified in the contracts analyzed were
included in freight rates, food aid costs may have increased by almost
$2 million (monies that could have been used to provide food to an
additional 66,000 beneficiaries).
* Lengthy claims processes. Lengthy processes for resolving
transportation disputes discourage both carriers and implementing
organizations from filing claims. According to KCCO officials,
obtaining needed documentation for a claim can require several years
and disputed claims must be resolved by the Department of Justice.
USAID's Inspector General reported that inadequate and irregular review
of claims by USAID and USDA has also contributed to delayed
resolution.[Footnote 27] Currently, KCCO has over $6 million in open
claims, some of which were filed prior to fiscal year 2001. For ocean
carriers, the process is burdensome and encourages them to factor
potential losses into freight rates rather than pursue claims.
Incentives for most implementing organizations are even weaker given
that monies recovered from claims reimburse the overall food aid budget
rather than the organization that experienced the loss.[Footnote 28]
According to KCCO and WFP officials, transportation claims are filed
for less than 2 percent of cargo. However, several experts and
implementing organizations suggested that actual losses are likely
higher. In 2003, KCCO proposed a new administrative appeals process for
ocean freight claims that would establish a hearing officer within USDA
and a 285-day timeframe. While DOT and some carriers agreed that a
faster process was needed, DOT officials suggested that the process for
claims review should include hearing officers outside of USDA to ensure
independent findings. To date, KCCO's proposed process has not been
implemented.
* Lengthy payment time frames and burdensome administration. Payment of
food aid contracts is slow and paperwork is insufficiently streamlined.
When carriers are not paid for several months, they incur large
interest costs that are factored into freight rates. While USDA now
provides freight payments within a few weeks, several ocean carriers
complained that USAID often requires 2 to 4 months to provide payment.
USDA freight payments are timelier due to a new electronic payment
system, [Footnote 29] but USAID officials said this system is too
expensive, so they are considering other payment options. In addition,
a few carriers suggested that paperwork in general needs streamlining
and modernization. The 2002 Farm Bill required both USDA and USAID to
pursue streamlining initiatives that the agencies are in the process of
implementing. KCCO officials indicated that they are updating food aid
information technology systems (to be in place in fiscal year 2009).
Through structured interviews, ocean carriers confirmed the cost impact
of food aid transportation contracting practices. For example, 9 (60
percent) and 14 (100 percent) of the carriers reported that
"inefficient claims processes" and "liabilities outside the carriers'
control" increase costs, respectively. To quantify the impact, two
carriers estimated that non-standardized freight terms increase costs
by 5 percent (about $8 per metric ton) while another carrier suggested
that slow payment increases costs by 10 percent (about $15 per metric
ton). Over 70 percent of the carriers strongly recommended actions to
address contracting practices.
Legal Requirements Can Increase Delivery Costs and Time Frames:
Legal requirements governing food aid procurement are a third factor
that can increase delivery costs and time frames, with program impacts
dependent on the sufficiency of associated reimbursements. In awarding
contracts, KCCO must meet various procurement requirements such as
cargo preference and the Great Lakes Set Aside. Each requirement may
result in higher commodity and freight costs. Cargo preference laws,
for example, require 75 percent of food aid to be shipped on U.S.-flag
carriers, which are generally more expensive than foreign-flag carriers
by an amount that is known as the ocean freight differential (OFD). The
total annual value of this cost differential between U.S.-and foreign-
flag carriers averaged $134 million from fiscal years 2001 to 2005.
Additionally, since only a relatively small percentage of cargo can be
shipped on foreign-flag vessels, agency and port officials believe that
cargo preference regulations discourage foreign-flag participation in
the program and result in delays when a U.S.-flag carrier is not
available. DOT officials emphasize that USAID and USDA receive
reimbursements for most if not all of the total OFD cost--DOT
reimbursements varied from $126 million in fiscal year 2002 to $153
million in fiscal year 2005. [Footnote 30] However, USAID officials
expressed concern that the OFD calculations do not fully account for
the costs of cargo preference or the uncertainties regarding its
application. For example, OFD reimbursements do not account for the
additional costs of shipping on U.S.-flag vessels that are older than
24 years (approximately half of these vessels) or shipments for which a
foreign-flag vessel has not submitted a bid.[Footnote 31] USAID
officials estimate that the actual cost of cargo preference in fiscal
year 2003 exceeded the total OFD cost by about $50 million due to these
factors. Finally, USAID and DOT officials have not yet agreed on
whether cargo preference applies to shipments from prepositioning
sites.
Inadequate Coordination Limits Agencies' and Stakeholders' Response to
Food Delivery Problems:
U.S. agencies and stakeholders do not coordinate adequately to respond
to food and delivery problems when they arise. USAID and USDA lack a
shared, coordinated system to systematically track and respond to food
quality complaints, and food aid working groups and forums are not
inclusive of all stakeholders.[Footnote 32] Food quality concerns have
been long-standing issues provoking the concern of both food aid
agencies and the U.S. Congress.[Footnote 33] In 2003, for example,
USAID's Inspector General reported some Ethiopian warehouses in poor
condition, with rodent droppings near torn bags of corn soy blend
(CSB), rainwater seepage, pigeons flying into one warehouse, and holes
in the roof of another. Implementing organizations we spoke with also
frequently complained about receiving heavily infested and contaminated
cargo. For example, in Durban, South Africa we saw 1,925 metric tons of
heavily infested cornmeal that arrived late in port because it had been
erroneously shipped to the wrong countries first. This food could have
fed over 37,000 people. When food arrives heavily infested, NGOs hire a
surveyor to determine how much is salvageable for human consumption or
for use as animal feed, and destroy what is deemed unfit.
When such food delivery problems arise, U.S. agencies and food aid
stakeholders face a variety of coordination challenges in addressing
them. For example:
* KCCO, USDA and USAID have disparate quality complaint tracking
mechanisms that monitor different levels of information. As a result,
they are unable to determine the total quantity of and trends in food
quality problems. In addition, because implementing organizations track
food quality concerns differently, if at all, they cannot coordinate to
share concerns with each other and with U.S. government agencies. For
example, since WFP--which accounts for 60 percent of U.S. food aid
shipments--independently handles its own claims, KCCO officials are
unable to track the quality of food aid delivery program-wide. Agencies
and stakeholders have suggested that food quality tracking and
coordination could be improved if USAID and USDA shared the same
database and created an integrated food quality complaint reporting
system.
* Agency country offices are often unclear about their roles in
tracking food quality, creating gaps in monitoring and reporting. For
example, USAID has found that some missions lack clarity on their
responsibilities in independently verifying claims stemming from food
spoilage, often relying on the implementing organization to research
the circumstances surrounding losses. One USAID country office also
noted that rather than tracking all food quality problems reported, it
only recorded and tracked commodity losses for which an official claim
had been filed. Further, in 2004, the Inspector General for USAID found
that USAID country offices were not always adequately following up on
commodity loss claims to ensure that they were reviewed and resolved in
a timely manner. To improve food quality monitoring, agencies and
stakeholders have suggested updating regulations to include separate
guidance for complaints, as well as developing a secure website for all
agencies and their country offices to use to track both complaints and
claims.
* When food quality issues arise, there is no clear and coordinated
process for seeking assistance, creating costly delays in response. For
example, when WFP received 4,200 metric tons of maize in Angola in 2003
and found a large quantity to be wet and moldy, it did not receive a
timely response from USAID officials on how to handle the problem. WFP
incurred $176,000 in costs in determining the safety of the remaining
cargo, but was later instructed by USAID to destroy the whole shipment.
WFP claims it lost over $640,000 in this case, including destruction
costs and the value of the commodity. Although KCCO established a
hotline to provide assistance on food quality complaints, KCCO
officials stated that it was discontinued because USDA and USAID
officials wanted to receive complaints directly, rather than from KCCO.
Nevertheless, agencies and stakeholders have suggested that providing a
standard questionnaire to implementing organizations would ensure more
consistent reporting on food quality issues.
While Agencies Have Taken Steps to Improve Efficiency, Their Costs and
Benefits Have Not Yet Been Measured:
To improve timeliness in food aid delivery, USAID has been
prepositioning commodities in two locations and KCCO is implementing a
new transportation bid process. Prepositioning enabled USAID to respond
more rapidly to the 2005 Asian tsunami emergency than would have been
otherwise possible. KCCO's bid process is also expected to reduce
delivery time frames and ocean freight rates. However, the long-term
cost effectiveness of both initiatives has not yet been measured.
Prepositioning and Transportation Procurement Could Improve Timeliness:
USAID has prepositioned food aid on a limited basis to improve
timeliness in delivery.[Footnote 34]
USAID has used warehouses in Lake Charles (Louisiana) since 2002 and
Dubai (United Arab Emirates) since 2004 to stock commodities in
preparation for food aid emergencies and it is now adding a third site
in Djibouti, East Africa. USAID has used prepositioned food to respond
to recent emergencies in Lebanon, Somalia, and Southeast Asia, among
other areas. Prepositioning is beneficial because it allows USAID to
bypass lengthy procurement processes and to reduce transportation
timeframes. USAID officials told us that diverting food aid cargo to
the site of an emergency before it reaches a prepositioning warehouse
further reduces response time and eliminates storage costs.[Footnote
35] When the 2005 Asian tsunami struck, for example, USAID quickly
provided 7,000 metric tons of food to victims by diverting the carrier
at sea, before it reached the Dubai warehouse. According to USAID
officials, prepositioning warehouses also offer the opportunity to
improve logistics when USAID is able to begin the procurement process
before an emergency occurs, or if it is able to implement long-term
agreements with ocean carriers for tonnage levels that are more
certain.[Footnote 36]
Despite its potential for improved timeliness, prepositioning has not
yet been studied in terms of its long-term cost effectiveness. Table 1
shows that over fiscal years 2005 and 2006, USAID purchased about
200,000 metric tons of processed food for prepositioning (about 3
percent of total food aid tonnage), diverted about 36,000 metric tons
en route, and incurred contract costs of about $1.5 million for food
that reached the warehouse (averaging around $10 per metric ton). In
addition to contract costs, ocean carriers generally charge higher
freight rates for prepositioned cargo to account for additional cargo
loading or unloading, additional days at port, and additional risk of
damage associated with cargo that has undergone extra handling. USAID
officials have suggested that average freight rates for prepositioned
cargo could be $20 per metric ton higher.
Table 1: USAID Tonnage and Costs for Prepositioning, Fiscal Year 2005
to Fiscal Year 2006:
Tonnage purchased for prepositioning sites;
Lake Charles: 99,630 MT;
Dubai: 100,520 MT.
* Tonnage shipped to prepositioning site;
Lake Charles: 99,630 MT;
Dubai: 64,606 MT.
* Tonnage diverted before reaching prepositioning site;
Lake Charles: 0 MT;
Dubai: 35,644 MT.
Contract costs for storage and cargo handling services;
Lake Charles: $839,380;
Dubai: $715,668.
Source: USAID.
[End of table]
In addition to costs of prepositioning, agencies face several
challenges to their effective management of this program, including the
following:
* Food aid experts and stakeholders expressed mixed views on the
appropriateness of current prepositioning locations.[Footnote 37] Only
5 of the 14 ocean carriers we interviewed rated existing sites
positively and most indicated interest in alternative sites. KCCO
officials and experts also expressed concern with the quality of the
Lake Charles warehouse and the lack of ocean carriers providing service
to that location. For example, many carriers must move cargo by truck
from Lake Charles to Houston before shipping it, which adds as much as
an extra 21 days for delivery.
* Inadequate inventory management increases risk of cargo infestation.
KCCO and port officials suggested that USAID had not consistently
shipped older cargo out of the warehouses first. USAID officials
emphasized that inventory management has been improving but that
limited monitoring and evaluation funds constrain their oversight
capacity.[Footnote 38] For example, the current USAID official
responsible for overseeing the Lake Charles prepositioning stock was
able to visit the site only once in fiscal year 2006--at his own
expense.
* Agencies have had difficulties ensuring phytosanitary certification
for prepositioned food because they do not know the country of final
destination when they request phytosanitary certification from
APHIS.[Footnote 39] According to USDA, since prepositioned food is not
imported directly from a U.S. port, it requires either a U.S.-reissued
phytosanitary certificate or a foreign-issued phytosanitary certificate
for re-export. USDA officials told us they do not think that it is
appropriate to reissue these certificates, as once a food aid shipment
leaves the United States, they cannot make any statements about the
phytosanitary status of the commodities, which may not meet the entry
requirements of the country of destination. USDA officials are
concerned that USAID will store commodities for a considerable period
of time during which their status may change, thus making the
certificate invalid. Although USDA and USAID officials are willing to
let foreign government officials issue these certificates, U.S.
inspection officials remain concerned that the foreign officials might
not have the resources or be willing to recertify these commodities.
Without phytosanitary certificates, food aid shipments could be
rejected, turned away, or destroyed by recipient country governments.
* Certain regulations applicable to food aid create challenges for
improving supply logistics. For example, food aid bags must include
various markings reflecting contract information, when the commodity
should be consumed, and whether the commodity is for sale or direct
distribution. Marking requirements vary by country (some require
markings in local language), making it difficult for USAID to divert
cargo. Also, due to the small quantity of total food aid tonnage (about
3 percent) allocated for the prepositioning program, USAID is unable to
use the program to consistently purchase large quantities of food aid
earlier in the fiscal year.
New Transportation Bid Process Could Reduce Procurement Time Frames:
In addition to prepositioning, KCCO is implementing a new
transportation bid process to reduce procurement time frames and
increase competition between ocean carriers. In the prior two-step
system, during a first procurement round, commodity vendors bid on
contracts and ocean carriers indicated potential freight rates.
Carriers provided actual rate bids during a second procurement round,
once the location of the commodity vendor had been determined. In the
new 1-step system, ocean carriers will bid at the same time as
commodity vendors. KCCO expects the new system to cut 2 weeks from the
procurement process and potentially provide average annual savings of
$25 million in reduced transportation costs. KCCO also expects this new
bid process will reduce cargo handling costs as cargo loading becomes
more consolidated. When asked about the new system, many carriers
reported uncertainty as to what its future impact would be, while
several expressed concern that USDA's testing of the system had not
been sufficiently transparent.
Various Challenges Prevent Effective Monitoring of Food Aid:
Despite the importance of ensuring the effective use of food aid to
alleviate hunger, U.S. agencies' efforts to monitor food aid programs
are insufficient. Limited food aid resources make it important for
donors and implementers to ensure that food aid reaches the most
vulnerable populations, thereby enhancing its effectiveness. However,
USAID and USDA do not sufficiently monitor food aid programs,
particularly in recipient countries, due to limited staff, competing
priorities, and legal restrictions in use of food aid resources.
U.S. Agencies Do Not Sufficiently Monitor Food Aid Programs:
Although USAID and USDA require implementing organizations to regularly
monitor and report on the use of food aid, these agencies have
undertaken limited field-level monitoring of food aid programs. Agency
inspectors general have reported that monitoring has not been regular
and systematic, and that in some cases intended recipients have not
received food aid or the number of recipients could not be verified.
Our audit work also indicates that monitoring has been insufficient due
to various factors including limited staff, competing priorities, and
restrictions in use of food aid resources.
USAID and USDA require NGOs and WFP to conduct regular monitoring of
food aid programs. USAID Title II guidance for multi-year programs
requires implementing organizations to provide a monitoring plan, which
includes information such as the percentage of the target population
reached, as well as mid-term and final evaluations of program impact.
USDA requires implementing organizations to report semi-annually on
commodity logistics and the use of food. According to WFP's agreement
with the U.S. government, WFP field staff should undertake periodic
monitoring at food distribution sites to ensure that commodities are
distributed according to an agreed-upon plan. Additionally, WFP is to
provide annual reports for each of its U.S.-funded programs.
In addition to monitoring by implementing organizations, agency
monitoring is important to ensure targeting of food aid is adjusted to
changes in conditions as they occur, and to modify programs to improve
their effectiveness, according to USAID officials. However, various
USAID and USDA Inspectors General reports have cited problems with
agencies' monitoring of programs. For example, according to various
USAID Inspector General reports on non-emergency programs in 2003,
while food aid was generally delivered to intended recipients, USAID
officials did not conduct regular and systematic monitoring.[Footnote
40] One such assessment of direct distribution programs in Madagascar,
for example, noted that as a result of insufficient and ad hoc site
visits, USAID officials were unable to detect an NGO reallocation of
significant quantities of food aid to a different district that,
combined with late arrival of U.S. food aid, resulted in severe
shortages of food aid for recipients in a USAID-approved district. The
Inspector General's assessment of food aid programs in Ghana stated
that the USAID mission's annual report included data, such as number of
recipients, that were directly reported by implementing organizations
without any procedures to review the completeness and accuracy of this
information over a 3-year period. As a result, the Inspector General
concluded, the mission had no assurance as to the quality and accuracy
of this data.
Limited Staff Constrain Monitoring of Food Aid Programs in Recipient
Countries:
Limited staff and other demands in USAID missions and regional offices
have constrained their field-level monitoring of food aid
programs.[Footnote 41] In fiscal year 2006, although USAID has some non-
Title II staff assigned to monitoring, it had only 23 Title II- funded
staff assigned to missions and regional offices in just 10 countries to
monitor programs costing about $1.7 billion in 55 countries.[Footnote
42] For example, USAID's Zambia mission had only one Title-II funded
foreign-national and one U.S.-national staff to oversee $4.6 million in
U.S. food aid funding in fiscal year 2006. Moreover, the U.S.-national
staff only spent about one-third of his time on food aid activities and
two-thirds on the President's Emergency Plan for AIDS Relief program.
USAID regional offices' monitoring of food aid programs has also been
limited. These offices oversee programs in multiple countries,
especially where USAID missions lack human-resource capacity. For
example, USAID's East Africa regional office, which is located in
Kenya, is responsible for oversight in 13 countries in East and Central
Africa, of which 6 had limited or no capacity to monitor food aid
activities, according to USAID officials.[Footnote 43] This regional
office, rather than USAID's Kenya mission, provided monitoring staff to
oversee about $100 million in U.S. food aid to Kenya in fiscal year
2006.[Footnote 44] While officials from the regional office reported
that their program officers monitor food aid programs, according to an
implementing organization official we interviewed, USAID officials
visited the project site only 3 times in 1 year. USAID officials told
us that they may have multiple project sites in a country and may
monitor selected sites based on factors such as severity of need and
level of funding. In another case, monitoring food aid programs in the
Democratic Republic of Congo (DRC) from the USAID regional office had
been difficult due to poor transportation and communication
infrastructure, according to USAID officials. Therefore, USAID decided
to station one full-time employee in the capital of the DRC to monitor
U.S. food aid programs that cost about $51 million in fiscal year 2006.
Limited Resources and Restrictions in Their Use Further Constrain
Monitoring Efforts:
Field-level monitoring is also constrained by limited resources and
restrictions in their use. Title II resources provide only part of the
funding for USAID's food aid monitoring activities and there are legal
restrictions on the use of these funds for non-emergency programs.
Other funds, such as from the agency's overall operations expense and
development assistance accounts, are also to be used for food aid
activities such as monitoring. However, these additional resources are
limited due to competing priorities and their use is based on agency-
wide allocation decisions, according to USAID officials. As a result,
resources available to hire food aid monitors are limited. For example,
about 5 U.S.-national and 5 foreign-national staff are responsible for
monitoring all food aid programs in 7 countries in the Southern Africa
region, according to a USAID food aid regional coordinator. Moreover,
because its operations expense budget is limited and Title II funding
only allows food monitors for emergency programs, USAID relies
significantly on Personal Services Contractors (PSCs) --both U.S.-
national and foreign-national hires--to monitor and manage food aid
programs in the field.[Footnote 45] For example, while PSCs can use
food aid project funds for travel, USAID's General Schedule staff
cannot. Restrictions in the use of Title II resources for monitoring
non-emergency programs further reduce USAID's monitoring of these
programs.
USDA administers a smaller proportion of food aid programs than USAID,
and its field-level monitoring of food aid programs is more limited
than for USAID-funded programs. In March 2006, USDA's Inspector General
reported that USDA's Foreign Agricultural Service (FAS) had not
implemented a number of recommendations made in a March 1999 report on
NGO monitoring. Furthermore, several NGOs informed GAO that the quality
of USDA oversight from Washington, D.C. is generally limited in
comparison to oversight by USAID. USDA has fewer overseas staff who are
usually focused on monitoring agricultural trade issues and foreign
market development. For example, the agency assigns a field attaché--
with multiple responsibilities in addition to food aid monitoring--to
U.S. missions in some countries. However, FAS officials informed us
that in response to past USDA Inspector General and GAO
recommendations, a new monitoring and evaluation unit has been
established recently with an increased staffing level to monitor the
semiannual reports, conduct site visits, and evaluate programs.
Without adequate monitoring from U.S. agencies, food aid programs are
vulnerable to not effectively directing limited food aid resources to
those populations most in need. As a result, agencies may not be
sufficiently accomplishing their goals of getting the right food to the
right people at the right time.
Objectives, Scope, and Methodology:
To address these objectives, we analyzed food aid procurement and
transportation data provided by USDA's KCCO and food aid budget data
provided by USDA, USAID and WFP. We determined that the food aid data
obtained was sufficiently reliable for our purposes. We reviewed
economic literature on the implications of food aid on local markets
and recent reports, studies, and papers issued on U.S. and
international food aid programs. We conducted a structured interview of
the 14 U.S.-and foreign-flag ocean carriers that transport over 80
percent of U.S. food aid tonnages. We supplemented our structured
interview evidence with information from other ocean carriers and
shipping experts. In Washington, D.C., we interviewed officials from
USAID, USDA, the Departments of State (State), DOD, DOT, and the Office
of Management and Budget (OMB). We also met with a number of officials
representing NGOs that serve as implementing partners to USAID and USDA
in carrying out U.S. food aid programs overseas; freight forwarding
companies; and agricultural commodity groups. In Rome, we met with
officials from the U.S. Mission to the UN Agencies for Food and
Agriculture, the UN World Food Program headquarters, and FAO. We also
conducted field work in three countries that are recipients of food
aid--Ethiopia, Kenya, and Zambia--and met with officials from U.S.
missions, implementing organizations, and relevant host government
agencies in these countries and South Africa. We visited a port in
Texas from which food is shipped; two food destination ports in South
Africa and Kenya; and two sites in Louisiana and Dubai where U.S. food
may be stocked prior to shipment to destination ports. For the
countries we visited, we also reviewed numerous documents on U.S. food
aid, including all the proposals that USDA approved from 2002 to 2006
for the food aid programs it administers, and approximately half of the
proposals that USAID approved from 2002 to 2006 for the food aid
programs it administers.[Footnote 46] Finally, in January 2007, we
convened a roundtable of 15 experts and practitioners including
representatives from academia, think tanks, implementing organizations,
the maritime industry, and agricultural commodity groups to further
delineate, based on GAO's initial work, some key challenges to the
efficient delivery and effective use of U.S. food aid and to explore
options for improvement. We took the roundtable participants' views
into account as we finalized our analysis of these challenges and
options. We conducted our work between April 2006 and March 2007 in
accordance with generally accepted U.S. government auditing standards.
Conclusions:
U.S. international food aid programs have helped hundreds of millions
of people around the world survive and recover from crises since the
Agricultural Trade Development and Assistance Act (P.L. 480) was signed
into law in 1954. Nevertheless, in an environment of increasing
emergencies, tight budget constraints, and rising transportation and
business costs, U.S. agencies must explore ways to optimize the
delivery and use of food aid. U.S. agencies have taken some measures to
enhance their ability to respond to emergencies and streamline the
myriad processes involved in delivering food aid. However,
opportunities for further improvement in such areas as logistical
planning and transportation contracting remain. Moreover, inadequate
coordination among food aid stakeholders has hampered ongoing efforts
to address some of these logistical challenges. Finally, U.S. agencies'
lack of monitoring leaves U.S. food aid programs vulnerable to wasting
increasingly limited resources, not putting them to their most
effective use, or not reaching the most vulnerable populations on a
timely basis.
In a draft report that is under review by U.S. agencies, we recommend
that to improve the efficiency of U.S. food aid--in terms of amount,
timeliness, and quality--USDA, USAID, and DOT work together and with
stakeholders to:
* improve food aid logistical planning through cost-benefit analysis of
supply-management options, such as long-term transportation agreements
and prepositioning--including consideration of alternative methods,
such as those used by WFP;
* modernize transportation contracting procedures to include, to the
extent possible, commercial principles of shared risks, streamlined
administration, and expedited payment and claims resolution;
* seek to minimize the cost impact of cargo preference regulations on
food aid transportation expenditures by updating implementation and
reimbursement methodologies to account for new supply practices, such
as prepositioning, and potential costs associated with older vessels or
limited foreign-flag participation; and:
* establish a coordinated system for tracking and resolving food
quality complaints.
To optimize the effectiveness of food aid, we recommend that USAID and
USDA improve monitoring of food aid programs to ensure proper
management and implementation.
Agency Comments and Our Evaluation:
USAID, USDA, and DOT provided oral comments on a draft of this
statement and we incorporated them as appropriate. We also provided
DOD, State, FAO, and WFP an opportunity to offer technical comments
that we have incorporated as appropriate.
Mr. Chairman and Members of the Committee, this concludes my prepared
statement. I would be pleased to answer any questions that you may
have.
GAO Contact and Staff Acknowledgments:
Should you have any questions about this testimony, please contact
Thomas Melito, Director, at (202) 512-9601 or MelitoT@gao.gov. Other
major contributors to this testimony were Phillip Thomas (Assistant
Director), Carol Bray, Ming Chen, Debbie Chung, Martin De Alteriis,
Leah DeWolf, Mark Dowling, Etana Finkler, Kristy Kennedy, Joy Labez,
Kendall Schaefer, and Mona Sehgal.
[End of section]
Appendix I: Program Authorities and Congressional Mandates:
The United States has principally employed six programs to deliver food
aid: P.L. 480 Titles I, II, and III; Food for Progress; McGovern-Dole
Food for Education and Child Nutrition; and Section 416(b). Table 2
provides a summary of these food aid programs by program authority.
Table 2: U.S. Food Aid by Program Authority:
Program: Total funding allocation[A];
P.L. 480: Title I: $20 million;
P.L. 480: Title II: $1,668 million;
P.L. 480: Title III: 0[B];
Food for Progress: $195.1 million;
McGovern-Dole Food for Education and Child Nutrition: $89.5 million;
Section 416(b): $76.3 million[C].
Program: Managing agency;
P.L. 480: Title I: USDA;
P.L. 480: Title II: USAID;
P.L. 480: Title III: USAID;
Food for Progress: USDA;
McGovern-Dole Food for Education and Child Nutrition: USDA[D];
Section 416(b): USDA.
Program: Year established;
P.L. 480: Title I: 1954;
P.L. 480: Title II: 1954;
P.L. 480: Title III: 1954;
Food for Progress: 1985; McGovern-Dole Food for Education and Child
Nutrition: 2003;
Section 416(b): 1949.
Program: Description of assistance;
P.L. 480: Title I: Concessional sales of agricultural commodities;
P.L. 480: Title II: Donation of commodities to meet emergency and non-
emergency needs; commodities may be sold in-country for development
purposes;
P.L. 480: Title III: Donation of commodities to governments of least
developed countries;
Food for Progress: Donation or credit sale of commodities to developing
countries and/or emerging democracies;
McGovern-Dole Food for Education and Child Nutrition: Donation of
commodities and provision of financial and technical assistance in
foreign countries;
Section 416(b): Donations of surplus commodities to carry out purposes
of P.L. 480 (Title II and Title III) and Food for Progress programs.
Program: Type of assistance;
P.L. 480: Title I: Non-emergency;
P.L. 480: Title II: Emergency and non-emergency;
P.L. 480: Title III: Non-emergency;
Food for Progress: Emergency and non-emergency;
McGovern-Dole Food for Education and Child Nutrition: Non-emergency;
Section 416(b): Emergency and non-emergency.
Program: Implementing partners;
P.L. 480: Title I: Governments and private entities;
P.L. 480: Title II: World Food Program and NGOs;
P.L. 480: Title III: Governments;
Food for Progress: Governments, agricultural trade organizations,
intergovernmental organizations, NGOs, and cooperatives;
McGovern-Dole Food for Education and Child Nutrition: Governments,
private entities, and intergovernmental organizations;
Section 416(b): See implementing partners for Title II, Title III, and
Food for Progress programs.
Source: GAO analysis based on USAID and USDA data.
[A] Funding data are for fiscal year 2005. USDA data represents
programmed funding, while USAID data represents appropriated funds.
[B] This program has not been funded in recent years.
[C] This program is currently inactive due to the unavailability of
government-owned commodities. Because it is permanently authorized, it
does not require reauthorization under the Farm Bill.
[D] USDA administers this program as stipulated by law, which states
that the President shall designate one or more federal agencies.
[End of table]
In addition to these programs, resources for U.S. food aid can be
provided through other sources, which include the following:
* International Disaster and Famine Assistance funds, designated for
famine prevention and relief, as well as mitigation of the effects of
famine by addressing its root causes. Over the past 3 years, USAID has
programmed $73.8 million in famine prevention funds. Most of these
funds have been programmed in the Horn of Africa, where USAID officials
told us that famine is now persistent. According to USAID officials,
experience thus far demonstrates that one of the advantages of these
funds is that they enable USAID to combine emergency responses with
development approaches to address the threat of famine. Approaches
should be innovative and catalytic, while providing flexibility in
assisting famine-prone countries or regions. Famine prevention
assistance funds should generally be programmed for no more than 1 year
and seek to achieve significant and measurable results during that time
period. Funding decisions are made jointly by USAID's regional bureaus
and the Bureau for Democracy, Conflict and Humanitarian assistance, and
are subject to OMB concurrence and congressional consultations. In
fiscal year 2006, USAID programmed $19.8 million to address the chronic
failure of the pastoralist livelihood system in the Mandera Triangle--
a large, arid region encompassing parts of Ethiopia, Somalia, and Kenya
that was the epicenter of that year's hunger crisis in the Horn of
Africa. In fiscal year 2005, USAID received $34.2 million in famine
prevention funds for activities in Ethiopia and six Great Lakes
countries. The activities in Ethiopia enabled USAID to intervene early
enough in the 2005 drought cycle to protect the livelihoods--as well as
the lives--of pastoralist populations in the Somali Region, which were
not yet protected by Ethiopia's Productive Safety Net program. In
fiscal year 2004, the USAID mission in Ethiopia received $19.8 million
in famine prevention funds to enhance and diversify the livelihoods of
the chronically food insecure.
* State's Bureau of Population, Refugees, and Migration (PRM), which
provides limited amounts of cash to WFP to purchase food locally and
globally in order to remedy shortages in refugee feeding pipeline
breaks. In these situations, PRM generally provides about 1 month's
worth of refugee feeding needs--PRM will not usually provide funds
unless USAID's resources have been exhausted. Funding from year to year
varies. In fiscal year 2006, PRM's cash assistance to WFP to fund
operations in 14 countries totaled about $15 million, including $1.45
million for humanitarian air service. In addition, PRM also funds food
aid and food security programs for Burmese refugees in Thailand. In
fiscal year 2006, PRM provided $7 million in emergency supplemental
funding to the Thailand-Burma Border Consortium, most of which
supported food-related programs. PRM officials told us that they
coordinate efforts with USAID as needed.
Table 3 lists congressional mandates for the P.L. 480 food aid programs
and the target for fiscal year 2006.
Table 3: Congressional Mandates for P.L. 480:
Mandate: Minimum;
Description: Total approved metric tons programmed under Title II;
FY 2006 target: 2.5 million MT.
Mandate: Subminimum;
Description: Metric tons for approved non- emergency programs;
FY 2006 target: 1.875 million MT.
Mandate: Monetization;
Description: Percentage of approved non- emergency Title II programs
that are monetization programs;
FY 2006 target: 15%.
Mandate: Value-added;
Description: Percentage of approved non- emergency program commodities
that are processed, fortified, or bagged;
FY 2006 target: 75%.
Mandate: Bagged in the United States;
Description: Percentage of approved non-emergency whole grain
commodities that are bagged in the United States;
FY 2006 target: 50%.
Source: GAO analysis, based on USAID data.
[End of table]
[End of section]
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FOOTNOTES
[1] According to FAO's 2006 The State of Food and Agriculture report,
conditions in Asia have improved while those in Africa have worsened.
[2] While we acknowledge that commodity prices also affect tonnages,
there has been no clear trend in total average commodity prices for
food aid programs from fiscal year 2002 to fiscal year 2006.
[3] Food security exists when all people at all times have both
physical and economic access to sufficient food to meet their dietary
needs for a productive and healthy life.
[4] In-kind food aid usually comes in two forms: non-processed foods
and value-added foods. Non-processed foods consist of whole grains such
as wheat, corn, peas, beans, and lentils. Value-added foods consist of
processed foods that are manufactured and fortified to particular
specifications, and include milled grains such as cornmeal and bulgur,
and fortified milled products such as corn soy blend (CSB) and wheat
soy blend (WSB).
[5] WFP relies entirely on voluntary contributions to finance its
humanitarian and development projects, and national governments are its
principal source of funding. More than 60 governments fund the
humanitarian and development projects of WFP.
[6] WFP defines emergencies as "urgent situations in which there is
clear evidence that an event or series of events has occurred which
causes human suffering or imminently threatens human lives or
livelihoods and which the government concerned has not the means to
remedy; and it is a demonstrably abnormal event or series of events
which produces dislocation in the life of a community on an exceptional
scale."
[7] The authority for these U.S. international food aid programs is
provided through P.L. 480 (the Agricultural Trade Development and
Assistance Act of 1954, as amended, 7 USC § 1701 et seq.); the Food for
Progress Act of 1985, as amended, 7 USC § 1736o; section 416(b) of the
Agricultural Act of 1949, as amended, 7 USC § 1431; and the Farm
Security and Rural Investment Act of 2002 (P.L. 107-171). Funding
sources for U.S. international food assistance other than these six
USAID-and USDA-administered food aid programs include (1) International
Disaster and Famine Assistance funds and (2) State's Bureau of
Population, Refugees, and Migration. (See app. I for a description of
these sources of funding.)
[8] See GAO, Food Aid: Experience of U.S. Programs Suggests
Opportunities for Improvement, GAO-02-801T (Washington, D.C.: June 4,
2002).
[9] P.L. 104-239, 110 Stat. 3138. See GAO, Maritime Security Fleet:
Many Factors Determine Impact of Potential Limits on Food Aid
Shipments, GAO-04-1065 (Washington, D.C.: Sept. 13, 2004).
[10] Due to increasing emergency food aid needs, USAID has not met this
sub-minimum requirement since 1995 and has regularly requested and
received a waiver from Congress.
[11] The Bill Emerson Humanitarian Trust, a reserve of up to 4 million
metric tons of grain, can be used to help fulfill P.L. 480 food aid
commitments to meet unanticipated emergency needs in developing
countries or when U.S. domestic supplies are short. The Secretary of
Agriculture authorizes the use of the Trust in consultation with the
Food Assistance Policy Council, which includes senior USAID
representatives. The Trust, as presently constituted, was enacted in
the 1998 Africa Seeds of Hope Act (P.L. 105-385) and replaced the Food
Security Wheat Reserve of 1980.
[12] Inland transportation costs are included in commodity and ocean
transportation contracts.
[13] In addition to rising fuel prices and greater global demand for
shipping, one factor contributing to the rise in freight rates is the
rising share of U.S. tonnage sent to Africa, which had a slightly
higher average cost of $180 per metric ton in 2006.
[14] World Food Program, WFP in Statistics, July, 2006 and Review of
Indirect Support Costs Rate, Report WFP/DB/A.2006/6-C1 (Rome, Italy:
May 2006).
[15] In this testimony, we use USAID's estimate that 1 metric ton can
feed approximately 1,740 people per day. Given that the current average
U.S. program cost for 1 metric ton of food aid is $585, if that average
cost had been reduced by $10 per metric ton through a reduction in
ocean transportation freight rates, the fiscal year 2006 food-aid
budget could have funded an additional 62,500 metric tons--enough to
feed approximately 1.2 million people for a typical peak hungry season
lasting 3 months.
[16] KCCO data suggest that there is some variation in the time
required from the contract award date until the commodity reaches a
U.S. port for export. For example, for fiscal years 2002 through 2006,
this time period varied from less than 30 days for several shipments to
more than 90 days for several others.
[17] Ocean transportation time frames may include loading and unloading
of vessels.
[18] GAO has previously reported on the poor timing of food aid
delivery. See Famine in Africa: Improving U.S. Response Time for
Emergency Relief, GAO/NSIAD-86-56 (Washington, D.C.: Apr. 3, 1986).
[19] Additionally, Congress can appropriate funds to augment the Trust.
The Emergency Wartime Supplemental Appropriations Act, 2003 (Pub. L.
108-11) appropriated $69 million for that purpose.
[20] USAID has taken steps to improve its management of (1) committed
and anticipated cash outflows for development and emergency programs,
prepositioning, and other accounts; and (2) anticipated cash inflows
from annual and supplemental budgets, DOT reimbursements, and other
carryover accounts. However, according to a KCCO study, though both
USDA and USAID experience an upsurge in purchasing at the end of the
year (particularly in September), USDA's is more pronounced.
[21] These figures exclude prices for non-fat dry milk and vegetable
oil.
[22] Several years ago, USAID asked DOD to calculate the cost for a
sample set of food aid shipments using long-term transportation
agreements managed by DOD. This analysis indicated a lack of potential
savings. However, DOD and DOT officials subsequently found that the
analysis contained flaws and they recommend that a new analysis be
conducted. DOD officials suggested that USAID conduct a pilot program
using DOD's Universal Service Contract. DOT officials indicated that
cost savings could be realized if USAID were to manage its own
contracts, and that they had offered to assist USAID in doing so. DOT
also provided examples of contracts that would not discourage cargo
consolidation or reduce competition.
[23] Various factors distinguish food aid shipments from commercial
shipments, making freight rates between these activities not directly
comparable. Nonetheless, KCCO data suggest that average food aid
freight rates from the Gulf of Mexico to Djibouti, East Africa were
over $150 per ton in 2006. Average commercial freight rates for grain
shipments from these ports were about one-third the price at $55 per
ton.
[24] International commercial terms (InCo terms) are internationally
accepted terms defining responsibilities of exporters and importers in
shipments. InCo terms define free alongside ship ("FAS"), for example,
as a contract where cargo is placed at the load port under the seller's
responsibility and any vessel loading charges, freight, and other costs
incurred including "detention and demurrage" (costs for detaining
vessel or equipment at a discharge port longer than specified in the
contract) are the buyer's responsibility. For food aid programs, FAS
contracts specify that cargo is loaded and discharged at the carrier's
time, risk, and expense.
[25] We reported in 2004 that, between fiscal years 1999 and 2003,
there was an annual average of 108 U.S.-flag vessels participating in
U.S. food aid programs (see GAO-04-1065). According to DOT estimates,
fewer than 90 U.S.-flag vessels participated in food aid programs in
fiscal year 2006. Due to fleet changes, USAID officials estimate that
there are now even fewer U.S.-flag vessels available to carry U.S. food
aid.
[26] Various stakeholders questioned whether penalties are effective.
USAID officials emphasized that penalties are their most practical tool
to compel ocean carrier performance because FAR regulations make it
very difficult to suspend carriers from participating in food aid
programs due to poor performance.
[27] See USAID, Office of Inspector General Report No. 4-663-04-002-P
(Washington, D.C.: Nov. 21, 2003).
[28] WFP handles food aid claims independently through an insurance
program.
[29] This system is entitled "PowerTrack" and is also currently used by
DOD. According to DOD, PowerTrack has provided the government with
visibility of payment history, reduced administrative and handling
costs and expedited vendor payments. However, ocean carriers are
responsible for paying transaction fees and USAID officials believe
these fees - which are a percentage of the contract value -may be too
expensive for large contracts. They are researching whether they can
find a similar service with a fixed transaction fee.
[30] The Food Security Act of 1985 requires DOT to reimburse food aid
agencies for the portion of the OFD cost and for ocean transportation
costs that exceed 20 percent of total program costs. Reimbursement
methodologies are governed by a 1987 interagency memorandum of
understanding. According to DOT officials, the OFD cost was relatively
low in fiscal year 2005 due to high global demand for freight services
and relatively high foreign-flag freight rates. These factors raised
ocean transport costs as a percentage of program costs, however, such
that DOT's total reimbursement was higher as well.
[31] USAID and USDA are required to apply cargo preference regulations
for vessels of any age. However, total OFD costs are based on an
average OFD for vessels that are 24 years or younger. USAID officials
argue that the cost difference between U.S.-flag and foreign-flag rates
is larger for older vessels. Further, since opportunities for foreign-
flag participation are limited, USAID argues that they are not
reimbursed for the higher cost of shipping on a U.S.-flag vessel when
foreign-flag bids are not received. Using KCCO data, we found that 14
percent of food aid commodity requests in fiscal year 2005 received no
foreign-flag bid.
[32] Food quality pertains to the degree of food spoilage, infestation,
contamination and/or damage that can result from factors such as
inadequate fumigation, poor warehouse conditions, and transportation
delays.
[33] In a report accompanying H.R. 5522, the 2007 Department of State,
Foreign Operations, and Related Programs Appropriations Act, the Senate
Foreign Relations Committee stated its concern for reports that food
aid distribution overseas had been disrupted, suspended and in some
instances rejected due to quality concerns, and supported efforts by
USAID and other agencies to investigate these concerns. S. Rept. 109-
277, p. 61. GAO has also reported on food quality issues. See Foreign
Assistance: U.S. Food Aid Program to Russia Had Weak Internal Controls,
GAO/NSIAD/AIMD-00-329. (Washington, D.C.: Sept. 29, 2000).
[34] P.L. 480 authorizes USAID to preposition food aid both
domestically and abroad with a cap on storage expenses of $2 million
per fiscal year.
[35] Purchases for the Lake Charles prepositioning site must reach the
warehouse and may not be diverted in advance.
[36] USAID representatives suggested they might consider pursuing a
long-term transportation agreement for prepositioned tonnage to
Djibouti. KCCO officials suggested that, as part of such a program,
earlier purchases of food could also reduce commodity prices.
[37] USAID chooses prepositioning locations based on three factors: (1)
storage and warehouse costs; (2) technical criteria such as the port's
plan of operations and personnel capacity, and the frequency of service
provided by ocean carriers; and (3) past performance.
[38] USAID is considering building inventory management into warehouse
contracts and establishing standard operating procedures.
[39] A phytosanitary certificate is a document required by many states
and foreign countries for the import of non-processed, plant products.
As specified by the importing country or state, exported products must
meet various plant health requirements pertaining to pests, plant
diseases, chemical treatments and weeds.
[40] USAID Inspector General, Audit of USAID/Madagascar's Distribution
of PL 480 Title II Non-Emergency Assistance in Support of its Direct
Food Aid Distribution Program, 2003. See also Audit of USAID/Ghana's
Distribution of P.L. 480 Title II Non-Emergency Assistance in Support
of Its Direct Food Aid Distribution Program, 2003; and Audit of USAID/
Ethiopia's Distribution of P.L. 480 Title II Non-Emergency Assistance
in Support of Its Direct Food Aid Distribution Program, 2003.
[41] As part of the 2002 Farm Bill, the Congress directed USAID to
streamline program management as well as procedures and guidelines,
including "information collection and reporting systems by identifying
critical information that needs to be monitored and reported on by
eligible organizations." In its report to the Congress in 2003, USAID
identified actions to help achieve legislative directives, which
included a re-examination of its staffing and human resources
requirements to ensure timeliness and efficiency, especially due to the
workload imposed by a $1.4 billion Title II program. However, USAID did
not conduct a systematic assessment of its workload and staffing
requirements for the Office of Food for Peace to determine appropriate
levels to monitor its operations in over 50 countries.
[42] In addition to Title II-funded positions, USAID missions and
regional offices have positions that are funded through other sources
such as development assistance or operating budgets for these offices.
Although these staff in this positions may monitor food aid programs,
they would also be responsible for monitoring other programs.
[43] In 2005, USAID's East Africa regional office had oversight
responsibilities for $1.3 billion in food aid distributed in the
region, including about $377 million from the Bill Emerson Humanitarian
Trust to meet emergency needs in Ethiopia, Eritrea, and Sudan.
[44] In contrast, while USAID's mission in Ethiopia also comes under
the purview of USAID's East Africa regional office, it has its own
staff to monitor its food aid programs. Specifically, 2 U.S.-national
and 4 foreign-national staff manage and monitor U.S. food aid programs
in Ethiopia, funded at $143 million in 2006.
[45] USAID hires U.S. and foreign nationals under personal service
contracts to complement its workforce of U.S. foreign service and civil
service personnel. These personal service contractors, or PSCs, serve
in USAID's overseas offices or missions and are generally considered to
be more cost-effective by the agency.
[46] USDA administers Public Law (P.L.) 480 Title I, Food for Progress,
Section 416(b), and the McGovern-Dole International Food for Education
and Child Nutrition programs. USAID administers P.L. 480 Title II.
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