International Food Assistance
Funding Development Projects through the Purchase, Shipment, and Sale of U.S. Commodities Is Inefficient and Can Cause Adverse Market Impacts Gao ID: GAO-11-636 June 23, 2011Since the Food Security Act of 1985, Congress has authorized monetization--the sale of U.S. food aid commodities in developing countries to fund development. In fiscal year 2010, more than $300 million was used to procure and ship 540,000 metric tons of commodities to be monetized by the U.S. Agency for International Development and the U.S. Department of Agriculture. Through analysis of agency data, interviews with agency officials, and fieldwork in three countries, this report (1) assesses the extent to which monetization proceeds cover commodity and other associated costs and (2) examines the extent to which U.S. agencies meet requirements to ensure that monetization does not cause adverse market impacts.
GAO found that the inefficiency of the monetization process reduced funding available to the U.S. government for development projects by $219 million over a 3-year period. The process of using cash to procure, ship, and sell commodities resulted in $503 million available for development projects out of the $722 million expended. The U.S. Agency for International Development (USAID) and the U.S. Department of Agriculture (USDA) are not required to achieve a specific level of cost recovery for monetization transactions. Instead, they are only required to achieve reasonable market price, which has not been clearly defined. USAID's average cost recovery was 76 percent, while USDA's was 58 percent. Further, the agencies conduct limited monitoring of sale prices, which may hinder their efforts to maximize cost recovery. Ocean transportation represents about a third of the cost to procure and ship commodities for monetization, and legal requirements to ship 75 percent of the commodities on U.S.-flag vessels further increase costs. Moreover, the number of participating U.S.-flag vessels has declined by 50 percent since 2002, and according to USAID and USDA, this decline has greatly decreased competition. Participation may be limited by rules unique to food aid programs which require formerly foreign-flag vessels to wait 3 years before they are treated as U.S.-flag vessels. USAID and USDA cannot ensure that monetization does not cause adverse market impacts because they monetize at high volumes, conduct weak market assessments, and do not conduct post-monetization evaluations. Adverse market impacts may include discouraging food production by local farmers, which could undermine development goals. To help avoid adverse market impacts, the agencies conduct market assessments that recommend limits on programmable volume of commodities to be monetized. However, USAID's assessments were conducted for just a subset of countries and have not yet been updated to reflect changing market conditions, and USDA's assessments contained weaknesses such as errors in formulas. Both agencies have at times programmed for monetization at volumes in excess of limits recommended by their market assessments. Further, the agencies monetized more than 25 percent of the recipient countries' commercial import volume in more than a quarter of cases, increasing the risk of displacing commercial trade. Finally, the agencies do not conduct post-monetization impact evaluations, so they cannot determine whether monetization caused any adverse market impacts. GAO recommends that Congress consider eliminating the 3-year waiting period for foreign vessels that acquire U.S.-flag registry to be eligible to transport U.S. food aid. Further, the USAID Administrator and the Secretary of Agriculture should develop a benchmark for "reasonable market price" for food aid sales; monitor these sales; improve market assessments and coordinate efforts; and conduct postmarket impact evaluations. USAID and USDA generally agreed with our recommendations. DOT disagreed with our Matter for Congressional Consideration due to its concern that the proposed statutory change might be detrimental to the U.S. maritime industry.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Thomas Melito Team: Government Accountability Office: International Affairs and Trade Phone: (202) 512-9601GAO-11-636, International Food Assistance: Funding Development Projects through the Purchase, Shipment, and Sale of U.S. Commodities Is Inefficient and Can Cause Adverse Market Impacts
This is the accessible text file for GAO report number GAO-11-636
entitled 'International Food Assistance: Funding Development Projects
through the Purchase, Shipment, and Sale of U.S. Commodities Is
Inefficient and Can Cause Adverse Market Impacts' which was released
on June 23, 2011.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
June 2011:
International Food Assistance:
Funding Development Projects through the Purchase, Shipment, and Sale
of U.S. Commodities Is Inefficient and Can Cause Adverse Market
Impacts:
GAO-11-636:
GAO Highlights:
Highlights of GAO-11-636, a report to congressional requesters.
Why GAO Did This Study:
Since the Food Security Act of 1985, Congress has authorized
monetization”the sale of U.S. food aid commodities in developing
countries to fund development. In fiscal year 2010, more than $300
million was used to procure and ship 540,000 metric tons of
commodities to be monetized by the U.S. Agency for International
Development and the U.S. Department of Agriculture. Through analysis
of agency data, interviews with agency officials, and fieldwork in
three countries, this report (1) assesses the extent to which
monetization proceeds cover commodity and other associated costs and
(2) examines the extent to which U.S. agencies meet requirements to
ensure that monetization does not cause adverse market impacts.
What GAO Found:
GAO found that the inefficiency of the monetization process reduced
funding available to the U.S. government for development projects by
$219 million over a 3-year period (see figure below). The process of
using cash to procure, ship, and sell commodities resulted in $503
million available for development projects out of the $722 million
expended. The U.S. Agency for International Development (USAID) and
the U.S. Department of Agriculture (USDA) are not required to achieve
a specific level of cost recovery for monetization transactions.
Instead, they are only required to achieve reasonable market price,
which has not been clearly defined. USAID‘s average cost recovery was
76 percent, while USDA's was 58 percent. Further, the agencies conduct
limited monitoring of sale prices, which may hinder their efforts to
maximize cost recovery. Ocean transportation represents about a third
of the cost to procure and ship commodities for monetization, and
legal requirements to ship 75 percent of the commodities on U.S.-flag
vessels further increase costs. Moreover, the number of participating
U.S.-flag vessels has declined by 50 percent since 2002, and according
to USAID and USDA, this decline has greatly decreased competition.
Participation may be limited by rules unique to food aid programs
which require formerly foreign-flag vessels to wait 3 years before
they are treated as U.S.-flag vessels.
Figure: Inefficiency of the Monetization Process:
[Refer to PDF for image: illustration]
Funds expended:
3-year allocation = $722 million:
USAID: Food for Peace (nonemergency): $386 million;
USDA: Food for Progress: $336 million.
Commodities and freight:
Photographs for freighter and freight.
Cash proceeds for development:
3-year proceeds = $503 million:
USAID: Food for Peace (nonemergency): $295 million;
USDA: Food for Progress: $208 million.
$219 million not available for development projects in recipient
countries:
USAID: Food for Peace (nonemergency): $91 million;
USDA: Food for Progress: $128 million.
Sources: GAO based on selected transactions from data provided by
USAID and USDA.
[End of figure]
USAID and USDA cannot ensure that monetization does not cause adverse
market impacts because they monetize at high volumes, conduct weak
market assessments, and do not conduct post-monetization evaluations.
Adverse market impacts may include discouraging food production by
local farmers, which could undermine development goals. To help avoid
adverse market impacts, the agencies conduct market assessments that
recommend limits on programmable volume of commodities to be
monetized. However, USAID‘s assessments were conducted for just a
subset of countries and have not yet been updated to reflect changing
market conditions, and USDA‘s assessments contained weaknesses such as
errors in formulas. Both agencies have at times programmed for
monetization at volumes in excess of limits recommended by their
market assessments. Further, the agencies monetized more than 25
percent of the recipient countries' commercial import volume in more
than a quarter of cases, increasing the risk of displacing commercial
trade. Finally, the agencies do not conduct post-monetization impact
evaluations, so they cannot determine whether monetization caused any
adverse market impacts.
What GAO Recommends:
GAO recommends that Congress consider eliminating the 3-year waiting
period for foreign vessels that acquire U.S.-flag registry to be
eligible to transport U.S. food aid. Further, the USAID Administrator
and the Secretary of Agriculture should develop a benchmark for
’reasonable market price“ for food aid sales; monitor these sales;
improve market assessments and coordinate efforts; and conduct post-
market impact evaluations. USAID and USDA generally agreed with our
recommendations. DOT disagreed with our Matter for Congressional
Consideration due to its concern that the proposed statutory change
might be detrimental to the U.S. maritime industry.
View [hyperlink, http://www.gao.gov/products/GAO-11-636] or key
components. For more information, contact Thomas Melito at (202) 512-
9601 or melitot@gao.gov.
[End of section]
Contents:
Letter:
Background:
Funding Generated for Development Projects through Monetization Is
Less than Originally Expended, and Various Factors Adversely Affect
Cost Recovery:
USAID and USDA Cannot Ensure that Monetization Does Not Cause Adverse
Market Impacts because They Program Monetization at High Volumes,
Conduct Weak Market Assessments, and Do Not Conduct Post-Monetization
Evaluations:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Technical Notes on Analysis of Differences in Ocean
Freight Rates between U.S.-and Foreign-Flag Carriers:
Appendix III: Program Authorities:
Appendix IV: Total Volume and Commodities Programmed for Monetization
by Country from Fiscal Years 2008 through 2010:
Appendix V: Steps in the Monetization Process from Grant Proposal to
Development Project Completion:
Appendix VI: Results from Survey of Implementing Partners:
Appendix VII: Comments from the U.S. Agency for International
Development:
Appendix VIII: Comments from the U.S. Department of Agriculture:
Appendix IX: Comments from the U.S. Department of Transportation:
Appendix X: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Summary of USAID and USDA Cost Recovery on Selected
Monetization Transactions:
Table 2: Monetization Limits Set by USAID and USDA for the Same
Commodity in the Same Country and Same Year, between Fiscal Years 2008
and 2010:
Table 3: Cases in which USAID and/or USDA Exceeded the Limit
Recommended by the BEST and/or the UMR between Fiscal Years 2008 and
2010:
Table 4: Summary Statistics of KCCO's Data on Food Aid Purchase
Transactions between Fiscal Years 2007 and 2010:
Table 5: Freight Rate by Year, Commodity Type, and Carrier Type:
Table 6: Main Regression Results for Regression Model 1:
Table 7: Main Regression Results for Regression Model 2:
Table 8: U.S. Food Aid by Program Authority:
Table 9: Volumes of Commodity Programmed for Monetization by Country,
Program, and Fiscal Year between Fiscal Years 2008 and 2010:
Table 10: Steps in the Monetization Process from Grant Proposal to
Development Project Completion:
Table 11: Distribution of Implementing Partners Who Monetized in
Consortiums versus Monetizing Only Their Own Food Aid:
Table 12: Ways in Which USAID and USDA Provided Support to
Implementing Partners During Monetization:
Table 13: Formats in Which Implementing Partners Collected and
Reported Monetization Information to USAID and USDA:
Table 14: Implementing Partners' Assessment of the Quality of
Coordination between USAID and USDA on Monetization in Country:
Table 15: Types of Market Analysis Examined by Implementing Partners
Prior to Monetization:
Table 16: The Number of Implementing Partners Reporting that the
Market Analysis on Which Commodities to Monetize was Sufficient:
Table 17: The Number of Implementing Partners Reporting that the
Market Analysis on How Much to Monetize was Sufficient:
Table 18: The Number of Implementing Partners Reporting that the
Market Analysis on When to Monetize was Sufficient:
Table 19: Methods Used by Implementing Partners to Calculate Cost
Recovery:
Table 20: Methods Used by Implementing Partners to Calculate Fair
Market Price:
Table 21: Number of Implementing Partners Who Included Other Costs
When Calculating their Organization's Cost Recovery:
Table 22: Implementing Sponsors' Views of How Often Monetization
Transactions Experience Delays:
Figures:
Figure 1: Percentage of Funding for Emergency and Nonemergency Food
Aid and for Monetization, Fiscal Year 2010:
Figure 2: Countries that Received Monetized Food Aid, Fiscal Years
2008 through 2010:
Figure 3: Steps in the Monetization Process from Grant Proposal to
Development Project Completion:
Figure 4: Examples of Development Projects Funded through Food for
Peace and Food for Progress Grants that Include Monetization:
Figure 5: Difference in Funds Expended and Cash Proceeds Resulting
from USAID and USDA Monetization:
Figure 6: USAID and USDA Cost Recovery Distribution for Selected
Monetization Transactions:
Figure 7: Share of Freight Costs and Costs of Cargo Preference for
Monetized Food Aid between Fiscal Years 2008 and 2010:
Figure 8: Freight Rate Differentials between U.S.-and Foreign-Flag
Carriers, Fiscal Years 2008 through 2010:
Figure 9: Distribution of Total Volume Programmed for Monetization as
a Percentage of Reported Commercial Imports between Fiscal Years 2008
and 2010:
Figure 10: Total Volume Programmed for Monetization by USDA and USAID
by Country and Year between Fiscal Years 2008 and 2010:
Figure 11: Commodities Programmed for Monetization by USDA and USAID
between Fiscal Years 2008 and 2010:
Figure 12: Number of Implementing Partners Indicating that the
Following Factors Hindered Them to At Least Some Degree When
Conducting Monetization:
Figure 13: Number of Implementing Partners Indicating that the
Following Steps, if Taken by USAID, Could Greatly or Very Greatly
Improve the Monetization Process:
Figure 14: Number of Implementing Partners Indicating that the
Following Steps, if Taken by USDA, Could Greatly or Very Greatly
Improve the Monetization Process:
Figure 15: Number of Implementing Partners Indicating that the
Following Actions Would Greatly Improve or Very Greatly Improve Cost
Recovery Rates:
Abbreviations List:
BEST: Bellmon Estimation for Title II:
CCC: Commodity Credit Corporation:
IPP: import price parity:
ITSH: inland transportation, shipping, and handling:
KCCO: Kansas City Commodity Office:
NGO: nongovernmental organization:
UMR: Usual Marketing Requirement:
USAID: U.S. Agency for International Development:
USDA: U.S. Department of Agriculture:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
June 23, 2011:
Congressional Requesters:
The United States provided nearly $2.3 billion to alleviate world
hunger and support development in 2010.[Footnote 1] This amount
accounted for more than half of all global food aid supplies, making
the United States the single largest donor of food aid. For almost 30
years, since the enactment of the Food Security Act of 1985,[Footnote
2] Congress has authorized the sale of U.S. food aid commodities in
local and regional markets in developing countries with the proceeds
used to fund development activities that address causes and symptoms
of food insecurity--a practice known as monetization. In 2010, more
than $300 million was used to procure and ship 540,000 metric tons of
food assistance to be monetized. To adhere to cargo preference
requirements,[Footnote 3] 75 percent of all U.S. food aid commodities
must be shipped on U.S.-flag vessels. According to U.S. agencies,
nonemergency[Footnote 4] food aid resources, including proceeds from
monetization, supported development and direct assistance projects
that benefited more than 7 million people in 35 developing countries.
These development projects include assistance to improve agricultural
production, provide health and nutrition activities, and support
education and humanitarian needs.
However, the practice of monetizing food aid has long been
controversial. Advocates view monetization as a tool to meet the
development needs of chronically food-insecure people in many
developing countries. Critics view the practice of converting cash to
commodities and then back to cash as an inefficient use of resources
that may also have adverse market impacts in recipient countries.
These market impacts may include displacing commercial trade and
discouraging local food production. By law,[Footnote 5] the two
principal agencies that manage U.S. food assistance--the U.S. Agency
for International Development's (USAID) Office of Food for Peace
[Footnote 6] and the U.S. Department of Agriculture's (USDA) Foreign
Agricultural Service--must ensure that monetization transactions do
not entail substantial disincentive to, or interfere with, domestic
production or marketing in that country.
While we recognize the benefits of the development activities that
monetization funds, in 2007, we reported that monetization was an
inherently inefficient use of food aid.[Footnote 7] The inefficiencies
stem from the process of using U.S. government funds to procure food
aid commodities in the United States which are then shipped to the
recipient country and sold, with the proceeds used to fund development
projects. In that report, we identified various costs associated with
the transporting, handling, and selling of commodities that
contributed to these inefficiencies.[Footnote 8] Because U.S. agencies
did not collect monetization proceeds data electronically at the time
of our review, we found it difficult to assess the extent to which
monetization revenues covered the commodity and other costs associated
with the practice. We recommended that USAID and USDA develop an
information collection system to track monetization transactions,
which the agencies have begun to implement.
In this report, we examine issues related to cost recovery and market
impact assessment for monetization. At your request, as part of our
work on international food assistance,[Footnote 9] we (1) assessed the
extent to which monetization proceeds cover commodity and other
associated costs and (2) examined the extent to which U.S. agencies
meet requirements to ensure that monetization does not cause adverse
market impacts.
To address these objectives, we analyzed food aid program data
provided by USAID, USDA, and USDA's Kansas City Commodity Office
(KCCO). USAID has not been collecting monetization cost recovery
information systematically and thus could not provide us with
comprehensive and reliable data for transactions prior to 2008.
Therefore, for the purposes of this report, the agencies generated
cost recovery data manually, covering fiscal years 2008 through 2010
for USAID, and fiscal years 2007 through 2009 for USDA.[Footnote 10]
We worked with the agencies to correct errors in the data and
determined that the data used in our analysis were sufficiently
reliable for our purposes. Further, we examined the differences
between U.S.-and foreign-flag ocean freight rates using KCCO data. We
also reviewed and analyzed data from the agencies, such as their
market assessments, volumes programmed for monetization, import data,
consumption data, and the limits set by the agencies for monetization
in recipient countries for fiscal years 2008 through 2010. We also
interviewed officials from USAID; USDA; the Departments of State and
Transportation; and the Office of Management and Budget in Washington,
D.C., as well as subject-matter experts in the field of international
food aid. In addition, we conducted a survey of the 29 implementing
partners who conducted monetization between fiscal years 2008 and 2010
and received a 100 percent response rate. We also conducted field work
in countries that programmed some of the highest volumes of monetized
nonemergency U.S. food aid from fiscal years 2008 through 2010--
Bangladesh, Mozambique, and Uganda--and met with officials from U.S.
missions, representatives from nongovernmental organizations (NGO) and
other implementing partners that directly handle sales and implement
development activities, and officials from relevant host government
agencies. (Appendix I provides a detailed discussion of our
objectives, scope, and methodology. In addition, appendix II provides
technical notes on our analysis of ocean freight rates.)
We conducted this performance audit from July 2010 to June 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Based on our findings in this report, we are proposing that,
consistent with rules that apply to the Maritime Security Fleet and
vessels transporting other U.S. government cargo, Congress should
consider amending the Cargo Preference Act of 1954 to eliminate the 3-
year waiting period imposed on foreign vessels that acquire U.S.-flag
registry before they are eligible for carriage of preference food aid
cargos. This could potentially increase the number of U.S.-flag
vessels eligible for carriage of preference food aid cargo, thereby
increasing competition and possibly reducing costs. The Department of
Transportation (DOT) disagreed with our Matter for Congressional
Consideration due to its concern regarding the potentially detrimental
impact the statutory change may have on the U.S. maritime industry.
However, we maintain that the elimination of the 3-year waiting period
can ease entry of new vessels into U.S. food aid programs. We are
suggesting this proposed amendment on the basis of factors including
the following: First, as USAID and USDA jointly reported in 2009, the
number of vessels participating in U.S. food aid programs has
declined, thereby limiting competition in transportation contracting
and leading to higher freight rates. Second, our analysis shows that
food aid shipments on foreign-flag carriers cost the U.S. government,
on average, $25 per ton less than U.S.-flag carriers.
Further, we are recommending that the Administrator of USAID and the
Secretary of Agriculture (1) jointly develop an agreed-upon benchmark
or indicator to determine "reasonable market price" for sales of U.S.
food aid for monetization; (2) monitor food aid sales transactions to
ensure that the benchmark set to achieve "reasonable market price" in
the country where the commodities are being sold is achieved, as
required by law; (3) improve market assessments and coordinate to
develop them in countries where both USAID and USDA may monetize; and
(4) conduct market impact evaluations after monetization transactions
have taken place to determine whether they caused adverse market
impacts. Both USAID and USDA generally concurred with our
recommendations and noted ongoing efforts and plans to address them.
Background:
The Practice of Monetization Has Evolved over Time, and Agencies Are
Currently Required to Achieve Reasonable Market Price in Monetization
Transactions:
The authority to monetize food aid was established by the Food
Security Act of 1985. The act allowed implementing partners that
received nonemergency food aid under USAID's Food for Peace program
and USDA's Food for Progress program to monetize some of the food in
recipient countries and use the proceeds to cover associated shipping
costs. In 1988, the authorized use of monetization funds was expanded
to incorporate funding of food-security-related development projects,
and in 1995, a minimum monetization level for nonemergency food
assistance was set at 10 percent, which was then increased to 15
percent in 1996. The 2002 Farm Bill authorized the McGovern-Dole
International Food for Education and Child Nutrition Program and
allowed it to raise cash through monetization. (For a description of
these program authorities, see appendix III).
The practice of selling commodities for cash to fund development
programs originated in part from U.S. government farm subsidies that
contributed to a surplus of agricultural commodities owned by the U.S.
government. However, the U.S. government no longer has surplus
agricultural commodities. Current monetization requires the U.S.
government to purchase the commodities from the commercial market and
ship them abroad for implementing partners to sell them in another
market to generate cash.
Neither USAID nor USDA has been required to achieve a set level of
cost recovery following an amendment by the 2002 Farm Bill to the Food
for Peace Act. Rather, the agencies are required, by statute, to
achieve "reasonable market price" for sales of food aid in recipient
countries. Prior to 2002, USAID sought to achieve an average cost
recovery that was calculated based on the following formula: either
(1) 80 percent of commodity value plus freight value, including
associated transport and marketing costs, or (2) 100 percent of free
alongside ship[Footnote 11] price on its monetization transactions.
USDA's requirement was to adhere to reasonable market price as its
benchmark. According to the conference report for the 2002 Farm Bill,
[Footnote 12] the change from the cost recovery formula to reasonable
market price for USAID was made to address two primary concerns. The
first concern was that the cost recovery formula requirement was too
inflexible, and could either unfairly punish participants where market
forces were beyond their control, or not reward situations where the
market price was above the formula value. The second concern was that,
since both USAID and USDA monetize food aid, sometimes in potentially
overlapping markets, having a cost recovery requirement for USAID but
not for USDA could cause inconsistencies in monetization and
potentially penalizes one or the other agency. The change to a single
requirement of reasonable market price for both agencies was intended
to establish similar results in determining sales prices.
USAID and USDA Together Monetize More than Half of All Nonemergency
Food Aid, Primarily in a Few Countries:
In fiscal year 2010, the United States spent about $2.3[Footnote 13]
billion to provide a total of 2.5 million metric tons of food aid
commodities to food-insecure countries. Of that amount, almost $800
million was spent on providing USAID and USDA 890,000 metric tons of
nonemergency food aid (see figure 1).[Footnote 14] This assistance is
provided through both monetization and direct distribution, where
commodities are provided directly to beneficiaries through
implementing partners. While U.S. food aid legislation mandates that a
minimum of 15 percent of USAID's Food for Peace nonemergency
assistance be monetized, actual levels of monetization far exceed the
minimum. In fiscal year 2010, more than 313,000 metric tons of food
aid were monetized under USAID's Food for Peace program, accounting
for 63 percent of food aid tonnage under that program. In fiscal year
2010, USDA monetized more than 229,000 metric tons of food aid under
the Food for Progress program, accounting for 95 percent of food aid
tonnage under that program. Monetization has been less prevalent under
the McGovern-Dole International Food for Education and Child Nutrition
Program since the end of its pilot program in 2003, due to an increase
in the amount of cash provided along with food aid for direct
distribution. In fiscal year 2010, the McGovern-Dole International
Food for Education and Child Nutrition Program did not monetize any
food aid shipments.
[Side bar: Feed the Future Community Development Fund:
Under a new strategy to address global hunger called the Feed the
Future initiative, the administration sought the establishment of a
Community Development Fund (CDF) to decrease U.S. government reliance
on the monetization of food aid to fund development activities. The
CDF fund was designed to expand efforts to narrow the gap between
humanitarian and development assistance in areas that support food
security. However, the mechanisms to use the fund to replace
monetization were not included in the law, and the CDF therefore
cannot be used to decrease current levels of monetization. According
to a USAID official, the agency will continue to work with Congress on
future budgets so that appropriate mechanisms to decrease reliance on
monetization are incorporated in the law. A $75 million request to
fund the CDF was included in the fiscal year 2011 Foreign Operations
Budget. While Congress has appropriated funds for the CDF, the final
appropriation has not been made public. End of side bar]
Figure 1: Percentage of Funding for Emergency and Nonemergency Food
Aid and for Monetization, Fiscal Year 2010:
[Refer to PDF for image: pie-chart and associated data]
Emergency food aid: 66%;
Nonemergency monetized: 13%;
Nonemergency other: 20%.
From nonemergency:
Food for Peace:
Nonemergency monetized: 313,240 metric tons; 63%;
Nonemergency other: 178,768 metric tons; 20%;
Total: 492,008 metric tons.
Food for Progress:
Nonemergency monetized: 229,230 metric tons; 95%;
Nonemergency other: 178,768 metric tons; 12,160 metric tons; 20%;
Total: 241,390 metric tons.
Sources: GAO analysis of USDA and USAID data.
Notes:
1. The total for funding does not add up to 100 percent due to
rounding.
2. The totals for emergency and Food for Peace nonemergency include
costs for procurement and shipping and do not include administrative
or other associated costs. However, the Food for Progress nonemergency
total includes administrative or other associated costs because USDA
was unable to provide us with this calculation. In fiscal year 2009,
these costs constituted 1.43 percent of Food for Progress' total
monetization costs.
3. The McGovern-Dole International Food for Education and Child
Nutrition Program is included in the nonemergency total, but the
program did not monetize in 2010.
[End of figure]
According to KCCO data, between fiscal years 2008 and 2010, more than
1.3 million metric tons of food aid were programmed for
monetization[Footnote 15] in 34 countries (see figure 2). The
countries in which the largest volumes of commodities were programmed
to be monetized during that time period are Bangladesh (220,590 metric
tons), Mozambique (202,200 metric tons), Haiti (100,000 metric tons),
and Uganda (88,400 metric tons). Together, these four countries
accounted for 45 percent of all food aid programmed to be monetized.
During that same time period, wheat was the commodity most often
programmed for monetization, accounting for about 77 percent of all
monetization. Other commodities programmed to be monetized during the
same period include soy bean meal, milled rice, vegetable oil, and
crude soybean oil. (For a complete list of commodities and volumes
programmed to be monetized by country, see appendix IV.)
Figure 2: Countries that Received Monetized Food Aid, Fiscal Years
2008 through 2010:
[Refer to PDF for image: world maps]
USAID:
Burkina Faso;
Burundi;
Chad;
Democratic Republic of Congo;
Dominican Republic;
Guinea;
Haiti;
Kenya;
Mauritania;
Rwanda;
Sierra Leone;
Zambia.
USDA:
Afghanistan;
Bolivia;
Mongolia;
Pakistan;
Philippines;
Tanzania
Both USAID and USDA:
Armenia;
Bangladesh;
Ethiopia;
Gambia;
Guatemala;
Honduras;
Liberia;
Madagascar;
Mail;
Mozambique;
Nicaragua;
Niger;
Senegal;
Uganda.
Sources: GAO; Map Resources (map).
[End of figure]
Monetization Is a Complex Process that Involves Multiple Entities:
Monetization is conducted by implementing partners, usually NGOs that
receive grants[Footnote 16] from USAID or USDA to monetize agreed-upon
commodities in certain countries.[Footnote 17] Monetization grants
generally provide development resources over a 3-to 5-year
period.[Footnote 18] The process begins with a call for applications
from either USAID or USDA, to which implementing partners respond by
submitting grant proposals for development programs that are to be
funded in part with monetization proceeds. USAID and USDA
independently issue calls for applications and approve applications at
different times, based on different guidelines and priorities. Grant
proposals include, among other things, information on the commodity to
be monetized, commodity volumes requested, estimated sales price,
estimated cost recovery, considerations of market impact assessments,
and projects that will be funded based on the estimated sales
proceeds. Implementing partners that receive grants have the
responsibility to manage and oversee the monetization process. As part
of their responsibilities, implementing partners must secure a buyer
in the recipient country before a call forward (or purchase order) can
be approved by the relevant agency. After either USAID or USDA
receives a call forward request from the implementing partner in their
Web Based Supply Chain Management (WBSCM) system, the agency approves
or disapproves the request, which is then routed to KCCO. KCCO
purchases the requested commodities from U.S. producers in the United
States and ships them to the implementing partner in the recipient
country. To adhere to cargo trade preference requirements, DOT assists
in identifying qualified ocean carriers to ship the commodities to the
recipient country. The commodities are delivered to the implementing
partner in the recipient country, where the implementing partner
executes the sales contract with the buyer and collects payment. The
implementing partner uses the proceeds to implement the development
projects. Figure 3 depicts the general steps in the monetization
process, from submitting a grant proposal to obtaining proceeds to
completing development projects. (See appendix V for more
information). According to an implementing partner we interviewed, the
monetization process consists of nearly 50 substeps, including steps
to complete the application, conduct market assessments, coordinate
requests and shipment, identify buyers and obtain bids, deliver
commodities, and collect payments.[Footnote 19]
Figure 3: Steps in the Monetization Process from Grant Proposal to
Development Project Completion:
[Refer to PDF for image: illustration]
Conceptual framework of the monetization process:
Funds expended for monetization;
Commodities;
Cash proceeds for development projects.
Steps in the monetization process:
Funds expended for monetization:
Step 1: Grant proposal;
Step 2: Grant award.
Commodities:
Step 3: Call forward;
Step 4: Procurement;
Step 5: Shipping and delivery.
Cash proceeds for development projects:
Step 6: Development project implementation;
Step 7: Development project completion.
Sources: GAO analysis of information provided by USAID, USDA, and
Implementing partners; GAO and PhotoDisc (photos).
Multimedia Instructions:
For more information on the monetization process:
* In web version, hover your mouse over each step;
* In print version, see Appendix V.
[End of figure]
Implementing Partners Can Monetize Food Aid in Various Ways:
While implementing partners are not required to follow a particular
process to conduct food aid sales for monetization, the two most
common approaches reported by implementing partners are the following:
* Several implementing partners might form a consortium in which one
of the partners serves as the selling agent. Consortiums are often
formed when several implementing partners obtain grants for the same
country to monetize the same commodity. Generally, one of the
implementing partners in the consortium takes the lead in conducting
monetization sales. The lead implementing partner is responsible for
identifying the buyers; preparing a single call forward drawing from
each partner's food allocation; arranging for commodities to be
shipped in a single shipment; finalizing the sale in-country; and
distributing proceeds among participating consortium members, as
appropriate. Typically, the lead implementing partner charges a fee of
3 to 5 percent of total sales to handle monetization, while in some
cases, the lead is rotated among consortium members. Fifteen of the 29
implementing partners we interviewed reported being part of a
monetization consortium.
* A single implementing partner might independently sell the
commodities granted to it. When a single implementing partner
monetizes only its own commodities, it must hire or train staff to
conduct the sales or contract a selling agent to sell the food.
Selling agents that we interviewed generally charge a fee of 3 to 5
percent of monetization sales. Fourteen of the 29 implementing
partners we interviewed said that they monetize only the food granted
to their organization.
Implementing partners generally sell commodities to private buyers in
the recipient countries in the open market. Sales are generally
conducted through a public tender process organized by the
implementing partner or its selling agent, where an open bidding will
take place. This is the preferred method for both USAID and USDA, on
the assumption that a public tender process will most likely produce a
competitive sales price. In some cases, however, implementing partners
sell commodities through direct negotiation, where the implementing
partners or their agents enter into a one-on-one dialog with
individual buyers. According to USDA officials, monetization sales
through direct negotiation are only permitted when the public tender
process is not feasible or does not initially result in a sale.
In some cases, implementing partners work with the recipient country's
national government to conduct monetization. For example, an
implementing partner may enter into direct negotiation with the
government, as in the case of Bangladesh, where the government is the
buyer and purchases all USAID Food for Peace nonemergency food aid
that is monetized in the country. In Haiti, the government requires
that monetization transactions to private buyers be facilitated
through a government entity called the Monetization Bureau. According
to an implementing partner, the bureau must approve each transaction
and charges a monetization fee of 2 to 5 percent.
Monetization Funds Are Used for a Broad Range of Development Projects:
Development projects funded through monetization are expected to
address food insecurity in recipient countries. According to USAID
guidance, goals of nonemergency food aid programming are to reduce
risks and vulnerabilities to food insecurity and increase food
availability, access, utilization, and consumption. Within this
framework, monetization is built around two main objectives--to
enhance food security and generate foreign currency to support
development activities. Therefore, the range of activities that USAID
funds through monetization includes projects to improve and promote
sustainable agricultural production and marketing; natural resource
management; nonagricultural income generation; health, nutrition,
water and sanitation; education; emergency preparedness and
mitigation; vulnerable group feeding; and social safety nets.
According to USDA guidance, commodities for monetization are made for
use in developing countries and emerging democracies that have made
commitments to introduce or expand free enterprise elements in their
agricultural economies. Within these constraints, USDA gives priority
consideration to proposals for countries that have economic and social
indicators that demonstrate the need for assistance. These indicators
include income level, prevalence of child stunting, political freedom,
USDA overseas coverage, and other considerations such as market
conditions. Therefore, according to USDA, development projects funded
through monetization by the agency's Food for Progress program should
focus on private sector development of agricultural sectors such as
improved agricultural techniques, marketing systems, and farmer
education. Figure 4 provides examples of USAID and USDA projects
funded through monetization in countries that we visited.
Figure 4: Examples of Development Projects Funded through Food for
Peace and Food for Progress Grants that Include Monetization:
[Refer to PDF for image: table with photograph of each activity]
Activity: Agriculture development;
Grant information: In 2006, USAID awarded ACDI/VOCA a 5-year, $74
million Food for Peace grant in Uganda–-the largest award in ACDI/VOCA‘s
history;
Objectives: ACDI/VOCA is working to improve food production and use for
approximately 139,000 smallholder farmer beneficiaries throughout the
life of the project;
Examples:
* Provide technical assistance and training in agronomic methods, post-
harvest handling, group savings, and management;
* By the end of fiscal year 2010, approximately 66,724 farmers had
received technical trainings to increase their food security and
resilience to future shocks;
* During the same time period, farmer groups had accumulated
approximately $80,000 in group savings.
Activity: Microfinancing;
Grant information: In 2009, USDA awarded FINCA a 3-year, $4.58 million
Food for Progress grant in Uganda;
Objectives: FINCA program objectives included providing a national
microfinance program, developing a specialty agricultural loan program,
conducting social and economic client investments, and providing
agricultural development subgrants;
Examples:
* As of December 2010 more than $1 million in microloans provided to
5,912 clients;
* $250,000 in specialty agricultural loans budgeted for 150 farmers;
* Two subgrants budgeted for NGOs to train farmers.
Activity: Education and health;
Grant information: In 2008, USDA provided Planet Aid a 3-year, $20
million Food for Progress grant in Mozambique;
Objectives: Planet Aid‘s program objectives include providing food and
assistance for people with HIV/AIDS, including AIDS orphans;
increasing the number of teachers in rural areas; training farmers; and
developing infrastructure necessary to provide training for teachers;
Examples:
* Established seven programs providing 700,000 people with HIV/AIDS
education and counseling;
* Through 50 existing soy canteen programs, served 500,000 nutritious
meals to recipients, including people with HIV/AIDS, AIDS orphans, and
community volunteers;
* Trained 900 teachers through a 2.5-year primary school teacher-
training program;
* Support the completion and equipment of One World University.
Activity: Community development;
Grant information: In 2010, USAID awarded CARE a $120 million, 5-year
Food for Peace grant in Bangladesh;
Objectives: CARE will use funds to sponsor the Shouhardo II program,
which has the goal of reducing vulnerability to food insecurity in
370,000 poor and extremely poor households;
Examples:
* The program will provide access to and utilization of nutritious and
enhanced foods;
* Empower women in poor and extremely poor households to be actively
engaged in initiatives to reduce food insecurity;
* Work with community members, government institutions, and NGOs
to reduce food insecurity and to be better prepared to respond to
disasters.
Sources: USAID, USDA, and NGO program documents; GAO (photos).
[End of figure]
Funding Generated for Development Projects through Monetization Is
Less than Originally Expended, and Various Factors Adversely Affect
Cost Recovery:
Proceeds generated through monetization to fund development projects
are less than what the U.S. government expends to procure and ship the
commodities that are monetized. USAID and USDA are not required to
achieve a specific level of cost recovery for their monetization
transactions. Instead, they are only required to achieve reasonable
market price, which has not been clearly defined. More than one-third
of the monetization transactions we examined fell short of import
parity price, a quantifiable measure of reasonable market price.
Various factors can adversely impact cost recovery. For instance,
ocean transportation constitutes a substantial cost to the U.S.
government, and cargo preference requirements raise this cost even
further. Furthermore, USAID and USDA conduct only limited monitoring
of the sales prices, though monitoring is necessary to ensure that the
implementing partners generate as much funding as possible for their
development projects. The agencies' monitoring efforts are further
hindered by deficiencies in their reporting and information management
systems. Finally, implementing partners face increased risk and
uncertainty in their project budgets due to long lag times throughout
the approval and sales process.
Funding Generated for Development Projects through Monetization Was
Less than Originally Expended:
Proceeds generated to fund development projects through monetization
were less than what the U.S. government expended to procure and ship
the monetized commodities. Cost recovery, the ratio between the
proceeds the implementing partners generate through monetization and
the cost the U.S. government incurs to procure and ship the
commodities to recipient countries for monetization, is an important
measure to assess the efficiency of the monetization process in
generating development funding. Table 1 shows USAID's and USDA's
average cost recovery, from fiscal years 2008 through 2010 and fiscal
years 2007 through 2009, respectively, as well as their lowest and
highest cost recovery transactions.[Footnote 20] The table also shows
the difference, in dollars, between the proceeds from monetization
sales to fund development projects, and the cost to the U.S.
government to procure and ship the commodities. (For a detailed
discussion of our methodology for calculating cost recovery, see
appendix I).
Table 1: Summary of USAID and USDA Cost Recovery on Selected
Monetization Transactions:
Average cost recovery;
USAID (fiscal years 2008 through 2010): 76%[A];
USDA (fiscal years 2007 through 2009): 58%[A].
Lowest cost recovery recorded;
USAID (fiscal years 2008 through 2010): 34%;
USDA (fiscal years 2007 through 2009): 25%.
Highest cost recovery recorded;
USAID (fiscal years 2008 through 2010): 165%;
USDA (fiscal years 2007 through 2009): 88%.
Reported difference between proceeds, generated through monetization,
to fund development projects and the cost the U.S. government incurred
to procure and ship commodities to recipient countries for
monetization;
USAID (fiscal years 2008 through 2010): -$91 million;
USDA (fiscal years 2007 through 2009): -$128 million;
Combined reported difference for USAID and USDA equals -$219 million.
Sources: GAO analysis of USAID and USDA data.
Notes:
1. Cost recovery is the ratio between the proceeds the implementing
partners generate through monetization and the cost the U.S.
government incurs to procure and ship the commodities to recipient
countries for monetization. The higher the ratio, the more cash is
generated to fund development projects.
2. Since some of the records we received from the agencies contained
incomplete information, we reported only on those transactions that
had sufficient information to calculate cost recovery. For USAID, we
were able to use 189 of the 194 monetization transactions the agency
reported between fiscal years 2008 and 2010 (99 percent). For USDA, we
were able to use 61 of the 66 monetization transactions the agency
reported between fiscal years 2007 and 2009 (92 percent).
[A] The average cost recovery reported is a weighted average, which we
calculated by dividing the total sales proceeds by the total commodity
procurement and shipping cost.
[End of table]
We found that between fiscal years 2008 and 2010, USAID achieved an
average cost recovery of 76 percent, or about $91 million less in
proceeds than what the U.S. government spent on procuring and shipping
commodities, over these 3 years. USDA achieved an average cost
recovery of 58 percent, or about $128 million less than what was
expended between fiscal years 2007 and 2009. Therefore, a combined
total of $219 million of appropriated funds was ultimately not
available for development projects. Figure 5 shows funds being used
for procuring and shipping commodities, with the commodities then
being sold for cash, and the difference between the final proceeds and
the original expended amounts, for both USAID and USDA.
Figure 5: Difference in Funds Expended and Cash Proceeds Resulting
from USAID and USDA Monetization:
[Refer to PDF for image: illustration]
Funds expended:
3-year allocation = $722 million:
USAID: Food for Peace (nonemergency): $386 million;
USDA: Food for Progress: $336 million.
Commodities and freight:
Photographs for freighter and freight.
Cash proceeds for development:
3-year proceeds = $503 million:
USAID: Food for Peace (nonemergency): $295 million;
USDA: Food for Progress: $208 million.
$219 million not available for development projects in recipient
countries:
USAID: Food for Peace (nonemergency): $91 million;
USDA: Food for Progress: $128 million.
Sources: GAO based on selected transactions from data provided by
USAID and USDA.
[End of figure]
USAID's cost recovery rates ranged from 34 percent to 165 percent,
while USDA's ranged from 25 percent to 88 percent. While USAID's
monetization transactions most often achieved cost recovery between 60
and 100 percent, USDA's transactions most often achieved between 40
and 80 percent cost recovery. Fifteen of USAID's monetization
transactions achieved cost recovery greater than 100 percent, meaning
that the amount of proceeds generated exceeded the costs the
government incurred, while none of USDA's monetization transactions
did so. Figure 6 shows the distribution of cost recovery over the 3
years we examined for these selected monetization transactions by
USAID and USDA, respectively.
Figure 6: USAID and USDA Cost Recovery Distribution for Selected
Monetization Transactions:
[Refer to PDF for image: two vertical bar graphs]
Number of transactions:
Percentage of cost recovery rate achieved: Under 20%;
USAID cost recovery distribution: 0;
USDA cost recovery distribution: 0.
Percentage of cost recovery rate achieved: 20-40%;
USAID cost recovery distribution: 1;
USDA cost recovery distribution: 9.
Percentage of cost recovery rate achieved: 40-60%;
USAID cost recovery distribution: 14;
USDA cost recovery distribution: 23.
Percentage of cost recovery rate achieved: 60-80%;
USAID cost recovery distribution: 79;
USDA cost recovery distribution: 24.
Percentage of cost recovery rate achieved: 80-100%;
USAID cost recovery distribution: 80;
USDA cost recovery distribution: 5.
Percentage of cost recovery rate achieved: 100-120%;
USAID cost recovery distribution: 12;
USDA cost recovery distribution: 0.
Percentage of cost recovery rate achieved: 120-140%;
USAID cost recovery distribution: 3.
Sources: GAO analysis of USAID and USDA data.
Notes:
1. Cost recovery is the ratio between the proceeds the implementing
partners generate through monetization and the amount the U.S.
government expends to procure and ship the commodities for
monetization. The higher the ratio, the more cash is generated to fund
development projects.
2. Since some of the records we received from the agencies contained
incomplete information, we reported only on those transactions that
had sufficient information to calculate cost recovery. For USAID, we
were able to use 189 of the 194 monetization transactions the agency
reported between fiscal years 2008 and 2010 (99 percent). For USDA, we
were able to use 61 of the 66 monetization transactions the agency
reported between fiscal years 2007 and 2009 (92 percent).
[End of figure]
USDA's level of cost recovery is lower for government-to-government
monetization transactions, which accounted for about 18 percent of
USDA's monetization from fiscal years 2007 through 2009. While most
grants involving monetization are provided to NGOs and educational
institutions, USDA also allows monetization by sovereign governments,
known as government-to-government monetization.[Footnote 21] These
transactions are completed by host country governments, largely
through the same process that is used by other implementing partners.
Implementing partners of government-to-government monetization between
fiscal years 2007 and 2010 have included Afghanistan, the Dominican
Republic, El Salvador, Nicaragua, Niger, and Pakistan. Government-to-
government transactions achieved an average cost recovery level of 45
percent from fiscal year 2007 through 2009.[Footnote 22]
Our cost recovery calculations included costs for commodity
procurement and ocean shipping but did not include other costs that
are not solely associated with monetization. USAID and USDA incur
these additional costs when they provide funding for direct
distribution and monetization of food aid, as follows:
* USAID provides its implementing partners with cash from two sources
to cover administrative costs other than commodity procurement and
ocean shipping costs that are associated with monetization. The first
source is internal transportation, shipping, and handling (ITSH),
which is cash for shipping and handling the commodities, if necessary,
once they arrive at the destination port, to the final point of sale.
The second source is funding through Section 202(e) of the Food for
Peace Act, which is provided to implementing partners to assist in
meeting administrative, personnel, distribution, and other costs
associated with Food for Peace programs.[Footnote 23] Since most Food
for Peace grants include both monetized and direct distribution food
aid, USAID does not track ITSH and 202(e) specifically for
monetization purposes. However, in 2010, ITSH and 202(e) costs for all
of USAID nonemergency assistance, including both monetization and
direct distribution, were $123.3 million, or about 30 percent of
USAID's total nonemergency costs for the year.
* According to agency officials, USDA provides its implementing
partners with cash through Commodity Credit Corporation (CCC) funds,
to cover various administrative costs that are associated with food
aid. While this money primarily covers administrative costs associated
with the implementation of development projects, some of it pays for
costs associated with the monetization process. The CCC is an agency
within USDA that authorizes the sale of agricultural commodities to
other government agencies and foreign governments and authorizes the
donation of food to domestic, foreign, or international relief
agencies. The CCC also assists in the development of new domestic and
foreign markets and marketing facilities for agricultural commodities.
According to a USDA official, such costs could include hiring a
monetization agent to facilitate a monetization transaction, or the
salaries and benefits of the staff that carry out the monetization
transaction. USDA provided implementing partners $23 million in CCC
funding between fiscal years 2008 and 2010. USDA stated that it
provided $3.57 million in a combination of CCC funding and
monetization proceeds to cover the administrative costs associated
with monetization from fiscal years 2007 through 2009.
Agencies Do Not Have a Cost Recovery Benchmark and Are Only Required
to Achieve Reasonable Market Price, which Has Not Been Clearly Defined:
Neither USAID nor USDA currently has a required minimum cost recovery
benchmark for monetization transactions, and there is no specific
target that monetization transactions must reach or exceed. Instead,
the Food for Peace Act requires that monetization transactions through
both USAID and USDA achieve "reasonable market price" in the recipient
countries where U.S. commodities are monetized. The statute does not
define reasonable market price, and does not refer to a specific cost
recovery benchmark.
USAID recommends two sales methods in its 1998 Monetization Field
Manual--which has not been updated since its issuance--to achieve
reasonable market price, but neither of these methods provides a
specific metric.[Footnote 24] More than three-quarters of the
implementing partners we surveyed said they used the field manual as a
source of guidance on monetization. Both USAID and USDA have stated a
preference for the first method--conducting sales by public tender--to
determine a reasonable market price. According to the field manual,
public tender, generally an open auction where traders are allowed to
bid on the commodities, allows competitive price information to
determine the market price for monetized food aid. When public tender
sales are not feasible, the manual recommends direct negotiation
between buyers and sellers as a second, alternative method. Both
agencies recommend taking into account prices for the same or
comparable commodities from other suppliers in the marketplace in
order to achieve reasonable market price. Specifically, USAID states
that reasonable market price is one which "compares favorably with the
lowest landed price or parity price for the same or comparable
commodity from competing suppliers."
More than One-Third of the Monetization Transactions We Examined Fell
Short of Import Price Parity, a Quantifiable Measure of Reasonable
Market Price:
We found that more than one-third of the monetization transactions we
reviewed, carried out in various years and countries, were conducted
at prices below a quantitative and objective metric for reasonable
market price that could be used across time, markets, and individual
transactions. In the absence of a quantitative benchmark of reasonable
market price, we used the prices of comparable commercial imports for
a given country, commodity, and year--the IPP referred to in USAID's
guidance. Others in the economics field, including researchers of food
aid and monetization, use IPP as a measure of market price in a given
country and time frame.[Footnote 25] Additionally, the World Food
Program, the single largest multilateral provider of food aid in the
world, uses IPP to determine whether or not to procure its food in a
given market, in order to gain an accurate picture of the potential
impact the purchase may have.[Footnote 26] Comparing monetization
sales prices to the IPP tells us the extent to which the monetization
transaction occurred at a fair and competitive market price for
commercially imported commodities.[Footnote 27] We found that more
than one-third of the 42 transactions we examined, for which we had
IPP and sales price data, had prices lower than 90 percent of the
commercial import prices, an indication that they might have been able
to achieve higher prices.[Footnote 28] For example, in 2008, USAID
allowed an implementing partner in Burkina Faso to monetize rice at a
price that was 67 percent of the IPP, while at the same time in
Guatemala, USAID permitted monetization of vegetable oil at 70 percent
of the IPP.[Footnote 29]
Ocean Transportation Costs Can Reduce the Amount of Funding Generated
through Monetization:
Ocean freight cost is a significant component of the monetization
cost,[Footnote 30] and due in part to cargo preference requirements,
U.S.-flag carriers have higher shipping rates on average than foreign-
flag carriers, further lowering cost recovery. The cargo preference
mandate requires that 75 percent of U.S. food aid be shipped on U.S.-
flag vessels.[Footnote 31] Another mandate, known as the Great Lakes
Set-Aside, requires that up to 25 percent of Title II bagged food aid
tonnage be allocated to Great Lakes ports each month.[Footnote 32]
These legal requirements limit competition and potentially reduce food
aid shipping capacity, leading to higher freight rates. Figure 7 shows
the share of freight costs in food aid procurement and the costs
associated with cargo preference for monetized food aid. (For a
detailed discussion of our methodology in assessing the costs
associated with cargo preference, see appendix II.)
Figure 7: Share of Freight Costs and Costs of Cargo Preference for
Monetized Food Aid between Fiscal Years 2008 and 2010:
[Refer to PDF for image: 2 pie-charts]
Cost of Procurement and Shipping:
Commodity cost: $480 million; 68%;
Freight cost: $235 million; 32%.
Cost of Shipping and Cargo Preference:
Basic freight cost: $205 million; 85%;
Potential cost of cargo preference: $30 million; 15%.
Source: GAO analysis of KCCO data.
[End of figure]
Between fiscal years 2008 and 2010, ocean shipping accounted for about
one-third, or $235 million, of the cost to procure and ship monetized
food aid (see figure 7). For low-value commodities, such as bulk
wheat, ocean shipping costs take up a higher percentage of the total
cost. In 15 percent of the monetization transactions between fiscal
years 2008 and 2010, shipping costs accounted for more than 40 percent
of the total cost of procurement and shipping, amounting to more than
$91 million in ocean shipping. For several of these transactions,
shipping cost was higher than commodity procurement cost. For example,
while it cost $3.9 million to purchase the shipment of 10,000 metric
tons of wheat to be sent to Malawi in 2008 for monetization, it cost
$4.5 million in ocean shipping.
The freight rate for USAID and USDA food aid shipments on foreign-flag
carriers cost on average $25 per ton[Footnote 33] less than the
freight rate on U.S.-flag carriers, controlling for shipping routes,
the shipping time and term, and the type of commodities shipped. The
difference in freight rate between U.S.-and foreign-flag carriers also
depends on the type of commodities shipped. Figure 8 shows the
difference in the average freight rate per metric ton between U.S.-and
foreign-flag carriers. The freight rate for bulk commodities averaged
$8 per ton lower and the rate for non-bulk commodities averaged $30
per ton lower for foreign-flag carriers than U.S.-flag carriers for
shipments with the same shipping routes and the same shipping times
and terms. We estimate that between fiscal years 2008 and 2010, cargo
preference potentially cost the food aid programs approximately $30
million because of the higher rates U.S.-flag carriers charged. When
surveyed, 19 of the 29 implementing partners stated that allowing more
shipping on foreign-flag carriers would "greatly improve" or "very
greatly improve" cost recovery rates.[Footnote 34]
Figure 8: Freight Rate Differentials between U.S.-and Foreign-Flag
Carriers, Fiscal Years 2008 through 2010:
[Refer to PDF for image: horizontal bar graph]
Dollars per metric ton:
Fiscal year: 2008;
Bulk commodities shipped on foreign-flag carriers: $170.47;
Bulk commodities shipped on U.S.-flag carriers: $177.99;
Non-bulk commodities shipped on foreign-flag carriers: $214.05;
Non-bulk commodities shipped on U.S.-flag carriers: $264.19.
Fiscal year: 2009;
Bulk commodities shipped on foreign-flag carriers: $132.12;
Bulk commodities shipped on U.S.-flag carriers: $171.24;
Non-bulk commodities shipped on foreign-flag carriers: $200.13;
Non-bulk commodities shipped on U.S.-flag carriers: $219.63.
Fiscal year: 2010;
Bulk commodities shipped on foreign-flag carriers: $150.16;
Bulk commodities shipped on U.S.-flag carriers: $173.05;
Non-bulk commodities shipped on foreign-flag carriers: $177.7;
Non-bulk commodities shipped on U.S.-flag carriers: $235.03.
Source: GAO analysis of KCCO data.
[End of figure]
Food aid shipping competition may be further limited by the
requirement in the Cargo Preference Act that foreign-built vessels
that reflag into the U.S. registry wait 3 years before participating
in the transportation of food aid cargo. According to a DOT official,
the 3-year requirement was established in 1961 to provide employment
opportunities to U.S. shipyards by discouraging vessels from
reflagging into and out of the U.S. registry. The requirement, which
does not apply to the Maritime Security Fleet[Footnote 35] or to
vessels transporting cargos financed by the U.S. Export-Import Bank,
seeks to ensure that vessels transporting 75 percent of food aid are
not only U.S.-flagged, but also constructed in U.S. shipyards.
However, since 2005, U.S. shipyards have built only two new U.S-flag
vessels appropriate for transporting food aid and these vessels have
not been awarded a food aid contract. Further, DOT has no record of an
ocean transportation contract awarded to a U.S.-flag vessel that
reflagged into the U.S. registry and waited the 3 years prior to
applying for food aid contracts.
Limited competition contributes to fewer ships winning the majority of
the food aid shipping contracts. Based on KCCO data, from fiscal years
2002 to 2010, the number of U.S.-flag vessels awarded food aid
contracts declined by 50 percent, from 134 to 67 vessels.[Footnote 36]
In a 2009 report to Congress,[Footnote 37] USAID and USDA stated that,
due to the declining size of the U.S.-flag commercial fleet, USAID and
USDA are forced to compete with the Department of Defense and other
exporters for space aboard the few remaining U.S.-flag vessels,
thereby limiting competition in transportation contracting and leading
to higher freight rates. When surveyed about what could be done to
improve the monetization process, 13 implementing partners with USAID
and 16 with USDA stated that exploring options for lowering
transportation costs would lead to "great" or "very great"
improvement.[Footnote 38]
USAID's and USDA's Monitoring of the Sales Prices that Implementing
Partners Achieve through Monetization Is Limited:
USAID and USDA conduct only limited monitoring of the sales prices
that implementing partners achieve through monetization to ensure that
the transactions generate as much funding as possible for the
development projects funded by monetization proceeds. While
implementing partners report cost recovery data to USAID and USDA, the
agencies do not use the data to monitor sales prices over time. USAID
requires annual reports on multiyear assistance programs (MYAP),
referred to as pipeline and resource estimate proposals, to be
submitted for the coming fiscal year. Additionally, implementing
partners report their monetization proceeds in Annual Results Reports.
These reports include fiscal year levels of metric tonnage to be
called forward, anticipated monetization proceeds, and any 202(e) or
ITSH funds used for the program, which encompass both direct
distribution and monetization activities.[Footnote 39] In addition,
they record the results of any monetization transactions from the
previous year. USDA requires semiannual reports, known as Logistics
and Monetization Reports. These reports record the metric tonnage of
commodity monetized in that time period. In addition, they record the
date and price at which the commodity was sold, as well as the date
received and a breakdown of the specific use of the funds.
As part of the review and evaluation criteria of proposals, USAID's
1998 Monetization Field Manual requires verification that the amount
of money generated in the monetization transaction(s) meets or exceeds
the cost recovery benchmark. However, USAID officials said that they
no longer hold implementing partners accountable for meeting the cost
recovery benchmark of 80 percent referenced in the field manual,
because (1) the 2002 Farm Bill changed the requirement to achieving
"reasonable market price," and (2) USAID has not officially reissued
the field manual since 1998. Although the USAID mission in-country can
recommend against monetization transactions if it disagrees with the
sales price analysis conducted by the implementing partner in its
attempts to sell the commodity, USAID officials told us that the
missions have never made such recommendations. Furthermore, USAID
stated that the agency has not established criteria to monitor sale
prices. According to USAID officials, because food aid monetization
transactions are governed by grants, not contracts, the agency cannot
be overly directive towards its implementing partners. USAID works to
have ongoing conversations with the implementing partners in order to
identify potential problems, troubleshoot, and help with potential
alternatives.
USDA does not have a process to monitor sale prices either. USDA
officials in charge of the Food for Progress program told us that they
did not know what the level of cost recovery of monetization
transactions is and did not have enough information to develop an
estimate. USDA officials said that they rely on their agricultural
attachés to act as a "reality check" in determining reasonable market
price, and determine acceptable cost recovery on a case-by-case basis,
looking at the U.S. prices and the circumstances surrounding the sale.
The agencies' monitoring of monetization cost recovery is further
hindered by deficiencies in their reporting and information management
systems. USAID and USDA acknowledged that their current information
systems are not capable of systematically capturing cost recovery
information, which would help them monitor the sales prices
implementing partners achieve. Both agencies had to manually generate
the cost recovery information to fulfill our data request by going
through the individual reports submitted by implementing partners to
collect the information needed to calculate cost recovery for
monetization transactions, inputting them into a spreadsheet for us to
conduct our analysis. Furthermore, these spreadsheets contained
numerous errors and inconsistencies. Examples include transactions
that were recorded in the incorrect year, double-counted, or not
counted at all. In other instances, the calculation of cost recovery
was incorrect, due to incorrect values inputted into the cells. In
addition, multiple transactions were missing the actual sales prices.
In our 2007 report, we recommended that both USAID and USDA develop an
information collection system to track monetization transactions.
Despite this recommendation, both USAID and USDA acknowledged that
their current information systems are still not capable of
systematically capturing cost recovery information. Both USAID and
USDA are in the process of implementing information systems that aim
to better capture the information generated by the implementing
partners regarding monetization transactions. USAID plans to have its
new information system fully operational by summer 2012, including
monitoring and evaluation components. USDA's Food Aid Information
System will tie into its procurement, payment, and accounting system--
Web Based Supply Chain Management--tracking budgeting and planning,
solicitations, proposals and negotiations, payment and compliance for
the Foreign Agricultural Service. The final components of the system
are due to come online in fall 2011.
Long Lag Times Increase Market Risk for Implementing Partners and
Hinder Their Ability to Accurately Budget for Project Implementation:
Long lag times between a monetization proposal's approval by USAID or
USDA and the time of the commodities' final sale increases the
transaction's exposure to market volatility. This makes it difficult
to accurately project the funding level monetization can generate, and
to design and implement the development projects accordingly. Two-
thirds of the implementing partners we surveyed said that if they
received less funding than expected, they would curtail the scope of
their projects as well as the number of beneficiaries served. One
implementing partner commented that while monetization transactions
must do their best to achieve "reasonable market price," timing is a
constraint. The process of getting a proposal approved, finding a
foreign buyer, and conducting an actual sale can be time-consuming,
and market conditions can change significantly from when the
implementing partners first submitted the proposals. For example, when
an implementing partner monetized through USDA's Food for Progress
program in Bangladesh, it submitted its initial proposal in August
2008, including the volume and estimated sales prices for the proposed
commodity, but the sale of the commodities was not made until 17
months later, in December 2009. Market conditions changed
significantly during the process from the time of the initial proposal
to the final sale, and the commodity price fell by close to 40
percent, leading to a diminished return on the transaction. The
implementing partner's actual sales price of $800 per metric ton was
more than a third less than the estimated price in the original
proposal of $1,300 per metric ton. In another example, an implementing
partner stated that it wanted to monetize its commodities at a certain
point when prices were high, but missed the opportunity to do so due
to delays in the approval process. As a result, its cost recovery was
lower than estimated. This situation forced the implementing partner
to reduce its number of beneficiaries by roughly a third, and
eliminate one of its targeted geographical regions within the country.
All but 2 of the 29 implementing partners we surveyed reported that
they experienced delays during monetization transactions at least
"sometimes." In addition, 19 of the 29 implementing partners we
surveyed reported that delivery delays were a factor that hindered
their ability to conduct monetization.[Footnote 40]
USAID and USDA Cannot Ensure that Monetization Does Not Cause Adverse
Market Impacts because They Program Monetization at High Volumes,
Conduct Weak Market Assessments, and Do Not Conduct Post-Monetization
Evaluations:
By law, USAID and USDA must ensure that monetization transactions do
not entail substantial disincentive to, or interference with, domestic
production or marketing of the same or similar commodities.[Footnote
41] In addition, the agencies are to ensure that the transactions do
not cause disruption in normal patterns of commercial trade. However,
we found that the volume programmed[Footnote 42] for monetization was
more than 25 percent of the commercial import volume, in more than a
quarter of the cases, increasing the risk of displacing commercial
trade.[Footnote 43] As part of an effort to meet its legal
requirements, in 2008, USAID hired a private contractor as an
independent third party to conduct market analyses and recommend
commodities and volumes to monetize without causing adverse market
impact. Separately, USDA conducts assessments called the Usual
Marketing Requirement (UMR) that determine the maximum volume of a
given commodity to be programmed for monetization without disrupting
commercial trade, and relies on its implementing partners to conduct
broader market analyses to address the Bellmon requirements. However,
we found that USAID's assessments were conducted for a limited number
of countries and have not yet been updated to reflect changing market
conditions. We also found that USDA's UMRs contained weaknesses, such
as a lack of methodology and errors in formulas. Further, we found
that USAID's and USDA's recommended limits for monetization differed
significantly from each other, and that the volume of commodity
programmed for monetization by the agencies has at times exceeded the
recommended limits. Finally, because both agencies do not conduct post-
monetization market impact evaluations, they cannot determine the
effectiveness of steps taken to ensure that monetization transactions
do not cause adverse market impacts and what, if any, adverse impacts
may have resulted. These adverse impacts may include discouraging food
production by local farmers, which in turn could undermine the food
security goals of the development projects funded by monetization.
USAID and USDA Are Required to Ensure that Monetization Does Not Cause
Adverse Market Impacts, but the Volume Programmed for Monetization in
More than a Quarter of Cases May Have Increased the Risk of Displacing
Commercial Trade:
USAID and USDA Are Required by Law to Ensure that Monetization Does
Not Cause Adverse Market Impacts that May Run Counter to Development
Goals:
By law, USAID and USDA are required to ensure that monetization
transactions do not lead to adverse market impacts, such as causing
disincentives to, or interference with, domestic production or
marketing of the same or similar commodities. Additionally, the
agencies are to ensure that the transactions avoid causing disruption
in normal patterns of commercial trade, which is also an adverse
market impact. Monetization has the potential to discourage food
production by local farmers, and as a result may undermine the broader
agricultural development and food security goals of the Food for Peace
and Food for Progress programs. For example, when large volumes of
food are monetized at once, the prices of the same or competitive
commodities in the recipient country may be depressed, creating
disincentives to local producers and possibly resulting in a decline
in local production. The risk of depressing prices increases when the
commodities arrive while supply is at a peak, such as during a harvest
period for the same or competitive commodities. Monetization also has
the potential to displace commercial trade, especially if the
monetized food is sold on more favorable terms than what is available
commercially. Buyers in the recipient country, such as domestic
importers and millers, would then have an incentive to purchase
monetized commodities over commercial ones. When sold in significant
volumes, monetized food has the potential to substantially reduce
demand for exports from the United States, other developed countries,
and regional partners, thus hurting competitive commercial trade.
Furthermore, if local production decreases or if commercial trade is
displaced, repeated monetization of food aid commodities over time can
increase the risk of market dependency on this source of food.
Food Aid Programmed for Monetization Constituted More than 25 Percent
of Commercial Import Volume in More than a Quarter of Cases,
Increasing the Risk of Displacing Commercial Trade:
Food aid programmed for monetization constituted more than 25 percent
of commercial import volume in more than a quarter of cases for
certain commodities between fiscal years 2008 and 2010. As mentioned
earlier, monetized food aid has the potential to displace commercial
trade from developed countries or regional partners, a cost that
impacts U.S. agribusiness and other exporters of the same commodity.
Monetizing large volumes of food aid relative to commercial import
volume increases the risk that commercial trade is displaced. Fintrac
recommends that the total volume monetized of a given commodity should
not exceed 10 percent of the commodity's commercial import volume in a
given country in a given year.[Footnote 44] We examined the total
volume programmed for monetization by both agencies for each commodity
in each country and each year between fiscal years 2008 and 2010, for
which we could obtain the commercial import volume--a total of 87
cases.[Footnote 45] For each country and year, we compared the total
volume programmed for monetization of a given commodity to the
commodity's reported commercial import volume. We found that the total
volume programmed for monetization as a percentage of the reported
commercial import volume ranged from less than 1 percent to 1,190
percent during this period. In about half of the 87 cases, the total
volume programmed for monetization exceeded 10 percent of the
commercial import volume. Further, in 24 of the 87 cases, the total
volume programmed for monetization exceeded 25 percent of the reported
commercial import volume for that commodity. Moreover, in 10 of the 87
cases, the total volume programmed for monetization was more than 100
percent of the reported commercial import volume. For example, about
30,000 metric tons of wheat were programmed for monetization in Uganda
in 2008, which was more than 1.5 times the reported commercial import
volume of wheat for that year. Figure 9 shows the distribution of the
total volume programmed for monetization by both agencies as a
percentage of the reported commercial imports.
Figure 9: Distribution of Total Volume Programmed for Monetization as
a Percentage of Reported Commercial Imports between Fiscal Years 2008
and 2010:
[Refer to PDF for image: vertical bar graph]
Total volume programmed for monetization as a percentage of reported
commercial imports:
Percentage: 0-10;
Number of cases: 42.
Percentage: 10.01-25;
Number of cases: 21.
Percentage: 25.01-50;
Number of cases: 12.
Percentage: 50.01-75;
Number of cases: 1.
Percentage: 75.01-100;
Number of cases: 1.
Percentage: 100.01 or more;
Number of cases: 10.
Sources: GAO analysis of USAID and USDA data.
[End of figure]
USAID and USDA Conduct Market Assessments to Meet Legal Requirements
but These Market Assessments Contain Weaknesses:
USAID Conducts Market Assessments to Determine Recommended
Monetization Levels but These Have Been Conducted For a Limited Number
of Countries and Do Not Include Projection Analyses:
USAID uses a private contractor to conduct market assessments to help
ensure that monetization transactions do not entail substantial
disincentive to domestic production, as required by the Bellmon
Amendment, for its 20 priority countries. In August 2008, USAID hired
Fintrac to improve the market analysis required before food aid
programs are approved in recipient countries, known as the Bellmon
Estimation for Title II (BEST).[Footnote 46] Prior to 2008, USAID made
determinations about market impact based solely on the Bellmon
analyses conducted by its implementing partners, who as the recipients
of monetization grants are not independent. As of May 2011, 13 of the
20 BEST analyses had been completed.[Footnote 47] According to USAID,
the BEST analysis is to complement and not substitute the implementing
partners' market analyses and surveillance. Therefore, in many cases
implementing partners continue to conduct their own market analysis,
which estimates the price they are likely to receive for the commodity
to be monetized. Overall, 17 of the 29 implementing partners we
surveyed stated that the BEST analysis was sufficient for determining
which commodities to monetize and 13 of the 29 implementing partners
stated that it was sufficient for determining how much to monetize.
The methodology for the BEST analysis includes identifying potential
commodities to be monetized, ensuring that recipient country policies
and regulations are favorable (i.e., there are no barriers or
restrictions on the commodity to be monetized), reviewing local market
structure as well as previous and planned food aid initiatives, and
examining the likelihood of achieving fair and competitive market
price. In conducting its analysis, Fintrac also considers the latest 5-
year trends in import volumes and domestic production data to ensure
that the commodity to be monetized has been imported in significant
volumes and that local production is insufficient to meet demand. As
noted above, another important step in the analysis is to assess the
likelihood that the monetized commodity will achieve fair and
competitive market price. Fintrac uses the IPP as the most precise
estimate of fair and competitive price for commercially-imported
commodities. As discussed earlier, the IPP is the price a commercial
importer in the recipient country pays to import the same or similar
commodities from the most common exporting country.[Footnote 48] Based
on all of these components, Fintrac makes a recommendation on
monetization. When Fintrac recommends monetization, it does so in
volumes that generally do not exceed 10 percent of the commodity's
commercial import volume in order to avoid substantial displacement of
trade. Fintrac's analysis also relies on field visits to obtain
additional data, and interviews with stakeholders in the recipient
country such as implementing partners; commercial importers; and
potential buyers, including millers and processors. According to
Fintrac, its methodology allows it to replicate these market
assessments from country to country and ensures that all implementing
partners are provided with the same information for their monetization
applications.
USAID's ability to ensure that monetization does not cause adverse
market impact is limited, because the BEST analyses have only been
conducted for a limited number of countries and have not yet been
updated to reflect changes in market conditions. While Fintrac has
conducted 13 BEST analyses, these analyses were available for only 11
of 63 cases in which USAID monetized since 2008.[Footnote 49] For the
remaining cases, USAID relied on Bellmon analyses conducted by their
implementing partners, which are not independent. In addition, while
the BEST offers an independent and consistent methodology and
considers the latest 5 year trends in import volumes and domestic
production data, it is not updated to capture changes in market
conditions that may occur by the time sales transactions take place.
We found that in certain cases, in the interval between the completion
of the BEST and the sale of the monetized commodity, there was a
relatively long lag, during which market conditions may have changed.
Further, MYAPs generally last for 3 to 5 years, and monetization sales
can take place in each of those years. The BEST would likely not be
useful for monetization transactions that take place beyond the
initial MYAP approval. According to USAID, while there is market
information that changes rapidly and requires continued assessments,
the BEST includes historical and cyclical information that can be used
for many years. However, we found that the BEST does not include
projection analysis that could take into account potential price
spikes and the volatile nature of the market. As a result, the
findings in the BEST have the potential to be irrelevant by the time
the commodities reach the recipient country and implementing partners
may not have adequately considered the impact of monetization on local
markets and trade when applying for grants.
USDA Conducts Market Assessments to Determine Recommended Monetization
Levels but These Assessments Contain Weaknesses:
USDA relies on its implementing partners to conduct market analyses
that are used to address the Bellmon requirements. As the recipients
of both the monetized commodities and the proceeds of their sales,
implementing partners lack independence in conducting market analyses.
Further, USDA does not provide guidance to the implementing partners
on what methodology should be used for the market assessments that are
intended to address Bellmon requirements. USDA does not conduct its
own Bellmon requirement assessments to verify whether or not the
conclusions reached by the implementing partners are reliable or
reasonable. Without doing so, USDA cannot accurately determine whether
monetization will result in substantial disincentive to, or
interference with, domestic production or marketing of the same or
similar commodities. USDA officials explained that they are currently
unable to conduct independent analyses, such as those conducted by
Fintrac, due to lack of resources. However, these officials also
stated that they encouraged implementing partners to use the BEST
analysis when available.
USDA conducts its own market assessment--the UMR--to meet its
requirement to determine that monetization does not cause disruption
in normal patterns of commercial trade. The UMR for a given commodity
is an Excel spreadsheet that contains data on the recipient country's
consumption needs or apparent consumption, imports, and production.
USDA determines the maximum allowable volume for U.S. programming,
including monetization, for a given commodity in a specific country
and year by subtracting the volume of imports and production from that
of the consumption needs or apparent consumption,[Footnote 50] as
follows:
Maximum Allowable Volume for U.S. Programming = Consumption + Exports
+ Stocks - (Domestic Production + Imports):
USDA officials told us that the UMRs are conducted after they receive
monetization grant applications and that they issue about 30 to 40
UMRs per year. According to USDA officials, UMRs are not shared with
the public because the information is intended solely for the use of
U.S. government agencies, and the UMRs are considered market-sensitive
because they include forecasts about consumption needs. Further, USDA
officials told us that the UMRs are not held to the same rigorous
review and verification processes that official USDA documents
intended for external distribution must undergo.
We found weaknesses in the UMRs, such as no explanation or source for
values used to calculate the consumption needs or apparent consumption
in each UMR. In addition, some of the UMRs we reviewed included errors
in formulas and mistakes in calculations. The standard methodology for
estimating consumption would show it as the sum of production and
imports minus exports adjusted for the changes in stock. However, the
consumption needs and apparent consumption figures in the spreadsheets
are not based on any formula and appear as a data entry. For example,
the consumption need noted in one UMR was more than double the
consumption need that was calculated for that commodity using the
standard methodology mentioned above. In another UMR, the consumption
need was 80 percent greater than the calculated amount using the
standard methodology. Further, our review of the UMRs showed that
while data sources are listed at the bottom of these spreadsheets, it
is impossible to identify which information came from which of the
listed sources. In addition, we found errors in formulas and mistakes
in calculations in 8 of the 12 UMRs that we reviewed.[Footnote 51] For
example, columns in the Excel spreadsheets were not added correctly
and resulted in totals that were smaller than the components summed to
create them. We also found inconsistencies in how numbers and formulas
were created. In addition, averages that were supposed to be based on
5 years' worth of data were based on only 3 years' worth of data and
treated as averages of 5 years' worth of data. In other cases,
calculations included figures that should have been excluded, such as
concessionary sales. Further, we found that some formulas included
circular references, meaning that the total of the summation was also
included as part of the summation itself. When we shared these
findings with USDA, the agency corrected the eight UMRs. Such
weaknesses impact the calculation for the maximum volume of
recommended food aid programming and ultimately the decisions on how
much food aid can be monetized. USDA officials told us that they
conduct ad-hoc spot checks of the UMRs but do not have a formal
quality control process in place.
USAID and USDA Recommend Differing Limits for Monetization and In Some
Cases Have Exceeded the Recommended Limits:
USAID's and USDA's Recommended Limits for Monetization Differ
Significantly from Each Other:
The assessments that USAID and USDA use to help set recommended limits
for monetization volumes vary widely in their conclusions. In all of
the 12 cases in which we could compare USAID's and USDA's limits,
these limits were significantly different from each another. In some
cases, the UMR analyses recommended monetization of a commodity, while
the BEST did not. For example, the 2010 UMR for wheat in Burundi
concluded that up to 6,000 metric tons of wheat could be monetized,
but the 2010 BEST analysis for Burundi concluded that the market was
not suitable for monetization of any commodity, including wheat, and
recommended that regional monetization be considered. Further, in all
12 cases, the maximum allowable volume for U.S. programming found in
the UMR was higher than the recommended maximum volume found in the
BEST (see table 2). According to Fintrac, these volumes vary greatly
because USAID conducts its assessments based on multiple factors,
including the purchasing power of the buyers, which impacts the
ability of the market to absorb additional commodities.
Table 2: Monetization Limits Set by USAID and USDA for the Same
Commodity in the Same Country and Same Year, between Fiscal Years 2008
and 2010:
Country: Bangladesh;
Commodity: Vegetable oil;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 56,000;
USDA's maximum allowable for programming found in UMR (metric tons):
85,000.
Country: Bangladesh;
Commodity: Wheat;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 169,000;
USDA's maximum allowable for programming found in UMR (metric tons):
268,100.
Country: Burkina Faso;
Commodity: Rice;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 22,094;
USDA's maximum allowable for programming found in UMR (metric tons):
90,600.
Country: Burundi;
Commodity: Wheat;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 0;
USDA's maximum allowable for programming found in UMR (metric tons):
6,000.
Country: Liberia;
Commodity: Rice;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 3,427;
USDA's maximum allowable for programming found in UMR (metric tons):
34,500.
Country: Liberia;
Commodity: Vegetable oil;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 0;
USDA's maximum allowable for programming found in UMR (metric tons):
45,700.
Country: Liberia;
Commodity: Wheat;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 1,994;
USDA's maximum allowable for programming found in UMR (metric tons):
8,300.
Country: Malawi;
Commodity: Vegetable oil;
Year: 2009;
USAID's recommended maximum found in BEST (metric tons): 3,800;
USDA's maximum allowable for programming found in UMR (metric tons):
8,000.
Country: Malawi;
Commodity: Wheat;
Year: 2009;
USAID's recommended maximum found in BEST (metric tons): 8,000;
USDA's maximum allowable for programming found in UMR (metric tons):
29,200.
Country: Sierra Leone;
Commodity: Wheat;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 0;
USDA's maximum allowable for programming found in UMR (metric tons):
15,900.
Country: Uganda;
Commodity: Wheat;
Year: 2009;
USAID's recommended maximum found in BEST (metric tons): 31,000[A];
USDA's maximum allowable for programming found in UMR (metric tons):
53,000.
Country: Uganda;
Commodity: Wheat;
Year: 2010;
USAID's recommended maximum found in BEST (metric tons): 31,000[A];
USDA's maximum allowable for programming found in UMR (metric tons):
109,300.
Sources: GAO analysis of USAID and USDA data.
[A] This BEST analysis included limits for both USAID and USDA. The
total of those limits equaled 31,000 metric tons, of which a 23,500
metric ton limit was set for USAID programming and a 7,500 metric ton
limit for USDA programming.
[End of table]
The Volume of Commodity Programmed for Monetization by the Agencies
Has at Times Exceeded Recommended Monetization Limits:
The volume of commodity programmed for monetization has at times
exceeded the recommended limits set by the agencies. The purpose of
setting these limits is to help ensure that these transactions do not
cause adverse market impacts. However, the limits have been exceeded
by the very agencies that set them. We examined the total volume
programmed for monetization by each agency and the aggregate of both
agencies for each commodity in each country and each year between
fiscal years 2008 and 2010 (for a complete list, see table 5 in
appendix IV). We then compared these totals to the recommended limits
found in the BEST and UMRs.[Footnote 52] We found that USAID exceeded
the limits recommended by the BEST analyses in 6 of 11 possible cases.
For example, the 2010 BEST analysis for Liberia recommended that a
maximum of 3,427 metric tons of rice could be monetized; however,
USAID programmed 10,100 metric tons of rice to be monetized in Liberia
in 2010. In addition, USDA exceeded the recommended limit found in the
BEST in 2 of 3 possible cases. For example, in 2009 USDA programmed
15,000 metric tons of wheat in Uganda to be monetized, despite a
recommendation in the BEST analysis that USDA should not monetize more
than 7,500 metric tons of wheat. We also found that USDA exceeded the
limit set by its UMR in 5 of 34 possible cases. For example, in 2008
USDA programmed 6,000 metric tons of soybean meal to be monetized in
Armenia when the maximum allowable volume was set at 200 metric tons
in the corresponding UMR. USAID exceeded the UMR's limit for U.S.
programming in 10 of 59 possible cases. For example, in 2009, USAID
monetized 2,390 metric tons of rice in Senegal even though the
corresponding UMR did not recommend programming any rice for
monetization. See table 3 for all the cases in which USAID and/or USDA
exceeded the limit recommended by the BEST analysis and/or set by the
UMR between fiscal years 2008 and 2010.
Table 3: Cases in which USAID and/or USDA Exceeded the Limit
Recommended by the BEST and/or the UMR between Fiscal Years 2008 and
2010:
Cases in which the volume USAID programmed for monetization exceeded
the limit recommended by the BEST:
Country: Burundi;
Commodity: Wheat;
Year: 2010;
Volume programmed by USAID (metric tons): 8,000 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 8,000;
USAID's recommended maximum found in BEST (metric tons): 0 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
6,000.
Country: Liberia;
Commodity: Rice;
Year: 2010;
Volume programmed by USAID (metric tons): 10,100 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 10,100;
USAID's recommended maximum found in BEST (metric tons): 3,427 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
34,500.
Country: Liberia;
Commodity: Vegetable oil;
Year: 2010;
Volume programmed by USAID (metric tons): 500 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 500
USAID's recommended maximum found in BEST (metric tons): 0 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
45,700.
Country: Liberia;
Commodity: Wheat;
Year: 2010;
Volume programmed by USAID (metric tons): 3,080 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 3,080;
USAID's recommended maximum found in BEST (metric tons): 1,994 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
8,300.
Country: Malawi;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 21,140 [gray highlight];
Volume programmed by USDA (metric tons): 30,000;
Total volume programmed by both agencies (metric tons): 51,140;
USAID's recommended maximum found in BEST (metric tons): 8,000 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
29,200.
Country: Sierra Leone;
Commodity: Wheat;
Year: 2010;
Volume programmed by USAID (metric tons): 1,900 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 1,900;
USAID's recommended maximum found in BEST (metric tons): 0 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
15,090.
Cases in which the volume USDA programmed for monetization exceeded
the limit recommended by the BEST:
Country: Malawi;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 21,140;
Volume programmed by USDA (metric tons): 30,000 [gray highlight];
Total volume programmed by both agencies (metric tons): 51,140;
USAID's recommended maximum found in BEST (metric tons): 8,000 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
29,200.
Country: Uganda;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 21,550;
Volume programmed by USDA (metric tons): 15,000 [gray highlight];
Total volume programmed by both agencies (metric tons): 36,550;
USAID's recommended maximum found in BEST (metric tons): 31,000[A]
[gray highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
53,000.
Cases in which the volume USDA programmed for monetization exceeded
the maximum allowable for programming found in the UMR:
Country: Armenia;
Commodity: Soybean meal;
Year: 2008;
Volume programmed by USAID (metric tons): 0;
Volume programmed by USDA (metric tons): 6,000 [gray highlight];
Total volume programmed by both agencies (metric tons): 6,000;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
200 [gray highlight].
Country: Gambia;
Commodity: Vegetable oil;
Year: 2008;
Volume programmed by USAID (metric tons): 0;
Volume programmed by USDA (metric tons): 4,500 [gray highlight];
Total volume programmed by both agencies (metric tons): 4,500;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-37,000[B] [gray highlight].
Country: Malawi;
Commodity: Wheat;
Year: 2008;
Volume programmed by USAID (metric tons): 9,140;
Volume programmed by USDA (metric tons): 10,000 [gray highlight];
Total volume programmed by both agencies (metric tons): 19,140;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-18,100[C] [gray highlight].
Country: Malawi;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 21,140;
Volume programmed by USDA (metric tons): 30,000 [gray highlight];
Total volume programmed by both agencies (metric tons): 51,140;
USAID's recommended maximum found in BEST (metric tons): 8,000;
USDA's maximum allowable for programming found in UMR (metric tons):
29,200 [gray highlight].
Country: Senegal;
Commodity: Vegetable oil;
Year: 2008;
Volume programmed by USAID (metric tons): 0;
Volume programmed by USDA (metric tons): 2,840 [gray highlight];
Total volume programmed by both agencies (metric tons): 2,840;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-1,000 [gray highlight].
Cases in which the volume USAID programmed for monetization exceeded
the maximum allowable for programming found in the UMR:
Country: Burkina Faso;
Commodity: Rice;
Year: 2008;
Volume programmed by USAID (metric tons): 4,780 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 4,780;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-64,900 [gray highlight].
Country: Burundi;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 13,090 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 13,090;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
6,700 [gray highlight].
Country: Burundi;
Commodity: Wheat;
Year: 2010;
Volume programmed by USAID (metric tons): 8,000 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 8,000;
USAID's recommended maximum found in BEST (metric tons): 0;
USDA's maximum allowable for programming found in UMR (metric tons):
6,000 [gray highlight].
Country: Haiti;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 45,710 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 45,710;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
35,800 [gray highlight].
Country: Malawi;
Commodity: Wheat;
Year: 2008;
Volume programmed by USAID (metric tons): 9,140 [gray highlight];
Volume programmed by USDA (metric tons): 10,000;
Total volume programmed by both agencies (metric tons): 19,140;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-18,100[C] [gray highlight].
Country: Malawi;
Commodity: Wheat;
Year: 2010;
Volume programmed by USAID (metric tons): 11,500 [gray highlight];
Volume programmed by USDA (metric tons): 0;
Total volume programmed by both agencies (metric tons): 11,500;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
8,600 [gray highlight].
Country: Niger;
Commodity: Rice;
Year: 2009;
Volume programmed by USAID (metric tons): 11,360 [gray highlight];
Volume programmed by USDA (metric tons): 0.00;
Total volume programmed by both agencies (metric tons): 11,360;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
800 [gray highlight].
Country: Rwanda;
Commodity: Vegetable oil;
Year: 2009;
Volume programmed by USAID (metric tons): 760 [gray highlight];
Volume programmed by USDA (metric tons): 0.00;
Total volume programmed by both agencies (metric tons): 760;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
500 [gray highlight].
Country: Senegal;
Commodity: Rice;
Year: 2008;
Volume programmed by USAID (metric tons): 2,900 [gray highlight];
Volume programmed by USDA (metric tons): 0.00;
Total volume programmed by both agencies (metric tons): 2,900;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
2,500 [gray highlight].
Country: Senegal;
Commodity: Rice;
Year: 2009;
Volume programmed by USAID (metric tons): 2,390 [gray highlight];
Volume programmed by USDA (metric tons): 0.00;
Total volume programmed by both agencies (metric tons): 2,390;
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-97,700 [gray highlight].
Cases in which the total volume programmed for monetization by both
USAID and USDA exceeded the limit recommended by the BEST and/or the
UMR:
Country: Malawi;
Commodity: Wheat;
Year: 2008;
Volume programmed by USAID (metric tons): 9,140;
Volume programmed by USDA (metric tons): 10,000;
Total volume programmed by both agencies (metric tons): 19,140 [gray
highlight];
USAID's recommended maximum found in BEST (metric tons): n/a;
USDA's maximum allowable for programming found in UMR (metric tons):
-18,100[C] [gray highlight].
Country: Malawi;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 21,140;
Volume programmed by USDA (metric tons): 30,000;
Total volume programmed by both agencies (metric tons): 51,140 [gray
highlight];
USAID's recommended maximum found in BEST (metric tons): 8,000 [gray
highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
29,200 [gray highlight].
Country: Uganda;
Commodity: Wheat;
Year: 2009;
Volume programmed by USAID (metric tons): 21,550;
Volume programmed by USDA (metric tons): 15,000;
Total volume programmed by both agencies (metric tons): 36,550 [gray
highlight];
USAID's recommended maximum found in BEST (metric tons): 31,000[A]
[gray highlight];
USDA's maximum allowable for programming found in UMR (metric tons):
53,000 [gray highlight].
Sources: GAO analysis of USAID and USDA data.
Notes:
1. Areas shaded in gray highlight the volume programmed for
monetization and the limit that was exceeded.
2. "0" denotes that the BEST analysis did not recommend monetization
of the commodity in that country and year and "n/a" indicates that a
BEST analysis was not available for this country and year.
3. According to USDA, when the UMR's maximum allowable for U.S.
programming is a negative number, programming for monetization is not
recommended for the commodity in that country and year.
[A] This BEST analysis included limits for both USAID and USDA. The
total of those limits equaled 31,000 metric tons, of which a 23,500
metric ton limit was set for USAID programming and a 7,500 metric ton
limit for USDA programming.
[B] Upon reviewing a draft of this report that we provided the
agencies for comment, USDA provided us with a version of the 2008 UMR
for Gambia vegetable oil that was dated a month after the UMR that was
originally provided. We did not include this UMR in our analysis
because agency officials previously stated that UMRs are not updated
monthly.
[C] In the comments USDA provided to us on the draft of this report,
USDA stated that the 2008 UMR for Malawi wheat contained information
in a footnote that it recognized as relevant to programming decisions.
However, we found that USDA did not adjust the maximum allowable for
U.S. programming in that specific UMR to account for the information
included in the footnote.
[End of table]
Further, for 3 of 6 possible cases in which both agencies programmed
the same commodity for monetization in the same country and the same
year, the combined volume programmed for monetization by both agencies
exceeded the recommendation in the BEST and/or the UMR. For example,
for wheat in Malawi in 2009, the BEST recommended 8,000 metric tons
and the UMR set the limit at 29,200 metric tons; however, both
agencies programmed wheat for monetization and their combined total of
51,140 metric tons was more than six times the BEST's recommendation
and 75 percent above the UMR's limit.
According to USAID officials, the recommended limits are at times
exceeded because these market assessments are part of a larger
decision-making process, which includes informal discussions between
headquarters, the field-mission, and the implementing partners.
Officials stated that through these discussions a decision on the
commodity choice and volume to be monetized is made. However, USAID
acknowledged that these discussions and the rationale for the
decisions are not systematically documented. According to USDA
officials, the agency considers other market information after
agreements are signed and the UMRs are not the only information used
to make programming decisions. Further, USDA officials stated that in
some cases, they have documented the justification to exceed the
programming limits set by the UMR. However, USDA did not provide this
documentation for the cases that are discussed in this report.
USAID and USDA Do Not Conduct Impact Evaluations after Monetization
Transactions Have Taken Place to Determine Actual Market Impact:
The actual impacts of programming monetization and monetizing above
the limits recommended by the BEST and UMR have not been determined,
since neither USAID nor USDA conduct evaluations after monetization
transactions have taken place. Both agencies require implementing
partners to report the sales price achieved for their monetization
transactions, and USAID's Monetization Field Manual recommends that
implementing partners establish a process for regularly monitoring
local market prices. However, USAID and USDA have neither used the
data on sale prices reported by the implementing partners to assess
the impact monetization had on local production and trade nor
established ways to systematically monitor the local markets in
countries where they monetize. USAID and USDA have depended on the
BEST, UMR, and market assessments conducted by their implementing
partners to help meet their requirement to ensure that monetization
does not result in adverse market impacts in the recipient countries.
However, without conducting evaluations after monetization has
occurred, they cannot determine the impact the sale of donated food
had on local production and trade. Furthermore, they cannot assess the
effectiveness of the BEST and UMR in preventing adverse market impact.
According to a 2009 study by the Partnership to Cut Hunger and Poverty
in Africa,[Footnote 53] for the United States to demonstrate
commitment to minimizing market risks in recipient countries, more
systematic evaluation of the monetization process is needed.
Conclusions:
Providing developing countries with assistance to improve food
security is a vital humanitarian and foreign policy objective.
However, monetization of U.S. food aid--the U.S. government's primary
approach to meeting this objective--is an inherently inefficient way
to fund development projects and can cause adverse market impacts in
recipient countries. The monetization process results in the
expenditure of a significant amount of appropriated funds in unrelated
areas such as transportation and logistics, rather than development
projects. Moreover, the potential for adverse market impacts, such as
artificially suppressing the price of a commodity due to excessive
monetization, could work against the agricultural development goals
for which the funding was originally provided. The inefficiencies of
monetization stem directly from the multiple transactions required by
the process and, except in rare cases, prevent full cost recovery on
monetization transactions. Therefore, as a source of funding for
development assistance, monetization cannot be as efficient as a
standard development program which provides cash grants directly to
implementing partners.
While monetization continues, however, it is important that the
agencies strive to maximize the resources available for implementing
development projects funded through monetization. The absence of a
clearly defined benchmark or indicator for reasonable market price
hinders their efforts to forestall transactions that provide a very
low rate of return. In addition, since the agencies conduct only
limited monitoring of the sales prices that implementing partners
achieve through monetization, they cannot ensure that the transactions
obtain the highest price and thereby generate as much funding as
possible for development projects. The agencies are required by law to
ensure that monetization does not cause adverse market impacts, but
their market assessments contain weaknesses that diminish their
usefulness for informing decisions on what, where, whether, and how
much to monetize. Moreover, whatever limits these assessments attempt
to establish are often exceeded and could contribute to disincentives
to local food production and displacement of commercial trade.
Furthermore, without conducting post-monetization transaction impact
evaluations, the agencies cannot determine the actual impacts of
monetization, even when the volume of the commodity monetized is more
than 25 percent of the commodity's commercial import volume. Finally,
transportation costs constitute about a third of the overall costs of
monetization over the 3-year period we examined, and the 3-year
reflagging rule--which only applies to food aid and not to the defense
agencies and the U.S. Export-Import Bank--can limit competition among
ships eligible to transport U.S. food aid, further increasing cost.
Matter for Congressional Consideration:
Consistent with rules that apply to the Maritime Security Fleet and
vessels transporting other U.S. government cargo, Congress should
consider amending the Cargo Preference Act of 1954 to eliminate the 3-
year waiting period imposed on foreign vessels that acquire U.S.-flag
registry before they are eligible for carriage of preference food aid
cargos. This could potentially increase the number of U.S.-flag
vessels eligible for carriage of preference food aid cargo, thereby
increasing competition and possibly reducing costs.
Recommendations for Executive Action:
To improve the extent to which monetization proceeds cover commodity
and other associated costs and the agencies' ability to meet
requirements to ensure that monetization does not cause adverse market
impacts, we recommend that the Administrator of USAID and the
Secretary of Agriculture take the following four actions:
1. jointly develop an agreed-upon benchmark or indicator to determine
"reasonable market price" for sales of U.S. food aid for monetization;
2. monitor food aid sales transactions to ensure that the benchmark
set to achieve "reasonable market price" in the country where the
commodities are being sold is achieved, as required by law;
3. improve market assessments and coordinate to develop them in
countries where both USAID and USDA may monetize; and:
4. conduct market impact evaluations after monetization transactions
have taken place to determine whether they caused adverse market
impacts.
Agency Comments and Our Evaluation:
USAID and USDA, the two principal agencies that manage U.S. food aid
monetization programs, and DOT, the principal agency responsible for
the implementation of cargo preference rules, provided written
comments on a draft of this report. We have reprinted their comments
in appendixes VII, VIII, and IX, respectively. These agencies also
provided technical comments and updated information, which we have
incorporated throughout this report, as appropriate. The Department of
State and the Office of Management and Budget did not provide written
comments.
DOT disagreed with our Matter for Congressional Consideration on the
basis of its concern regarding the potentially detrimental impact the
statutory change may have on the U.S. maritime industry. However, we
maintain that Congress should consider amending the Cargo Preference
Act of 1954 to eliminate the 3-year waiting period imposed on foreign
vessels that acquire U.S.-flag registry before they are eligible for
carriage of preference food aid cargos. We are suggesting this
proposed amendment on the basis of the following four factors: First,
the number of vessels participating in U.S. food aid programs has
declined. In a 2009 report to Congress, USAID and USDA jointly stated
that, due to the declining size of the U.S.-flag commercial fleet,
USAID and USDA are forced to compete with the Department of Defense
and other exporters for space aboard the few remaining U.S.-flag
vessels, thereby limiting competition in transportation contracting
and leading to higher freight rates. Second, our analysis of ocean
transportation costs showed that food aid shipments on foreign-flag
carriers cost the U.S. government, on average, $25 per ton less than
U.S.-flag carriers. Third, although the 3-year requirement was
established to provide employment opportunities to U.S. shipyards,
since 2005, U.S. shipyards have built only two new U.S.-flag vessels
appropriate for transporting food and the vessels have not been
awarded a food aid contract. Fourth, the 3-year rule applies only to
food aid and not to defense agencies and the U.S. Export-Import Bank.
The elimination of the 3-year waiting period can ease entry of new
vessels into the U.S. food aid program, with the potential to increase
competition among eligible U.S.-flag ships and reduce the cost of
transportation. DOT also said that we overstated the overall cost of
transportation. Our calculation of transportation cost was based on an
analysis of all actual monetization transactions over a 3-year period
and is thus a precise calculation of the actual cost to the U.S.
government. In addition, DOT said that the number of vessels
participating in the program has declined by less than what we found.
However, our analysis was based on the number of actual vessels booked
for all food aid contracts awarded from fiscal years 2002 to 2010.
USAID generally concurred with our recommendations, noting ongoing and
planned actions to address them. Specifically, USAID stated that it
will work with USDA to explore options of setting a benchmark or
indicator for the sale of U.S. food aid through monetization. USAID
noted that it has regional and country-based food aid monitoring and
evaluation specialists who review U.S. food aid programs, including
monetization sales, and that the agency's BEST project is well-
accepted by its implementing partners. Additionally, USAID is updating
its Monetization Field Manual, which includes market assessment
guidance. Finally, USAID stated that it will explore possible cost-
effective ways to conduct post-sale market impact evaluations with its
partners.
USDA also generally concurred with our recommendations, stating that
they will be useful in ongoing efforts to generate cash development
resources and improve overall program management. USDA noted that an
advantage of monetization is that it can encourage commercial markets
for agricultural products and contribute to other market-building
activities. However, we found that the agencies cannot ensure that
monetization does not cause adverse market impacts, including
discouraging food production by local farmers. USDA also noted actions
it is exploring to reduce the cost of food aid shipments, such as the
recipient host government paying for the cost of ocean transportation
and combining shipments to obtain volume discounts. Further, USDA
stated that it will work with USAID to develop improved benchmarks for
reasonable local market prices. Finally, USDA stated that it will
coordinate with USAID to improve market assessments and it will
consider revising its regulations to require market impact evaluations.
We are sending copies of this report to interested members of
Congress, the Administrator of USAID, the Secretary of Agriculture,
and relevant agency heads. The report is also available at no charge
on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-9601 or melitot@gao.gov. Contact points for
our Office of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix X.
Signed by:
Thomas Melito:
Director, International Affairs and Trade:
List of Requesters:
The Honorable Debbie Stabenow:
Chairwoman:
The Honorable Pat Roberts:
Ranking Member:
Committee on Agriculture, Nutrition, and Forestry:
United States Senate:
The Honorable Richard G. Lugar:
Ranking Member:
Committee on Foreign Relations:
United States Senate:
The Honorable Frank D. Lucas:
Chairman:
The Honorable Collin C. Peterson:
Ranking Member:
Committee on Agriculture:
House of Representatives:
The Honorable Ileana Ros-Lehtinen:
Chairman:
The Honorable Howard L. Berman:
Ranking Member:
Committee on Foreign Affairs:
House of Representatives:
The Honorable Donald M. Payne:
Ranking Member:
Subcommittee on Africa, Global Health, and Human Rights:
Committee on Foreign Affairs:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to (1) assess the extent to which monetization
proceeds cover commodity and other associated costs and (2) examine
the extent to which U.S. agencies meet requirements to ensure that
monetization does not cause adverse market impacts.
To address these objectives, we analyzed emergency and nonemergency
food aid program data provided by the U.S. Agency for International
Development (USAID), the U.S. Department of Agriculture (USDA), and
USDA's Kansas City Commodity Office (KCCO). Our analysis focused on
nonemergency food aid that was monetized. The agencies relied on
various reports their implementing partners submitted to manually
generate the cost recovery data for fiscal years 2008 through 2010 for
our review. We worked with the agencies to correct errors in the data
and determined that the data used in our analysis were sufficiently
reliable for our purposes.
We surveyed all the nongovernmental organizations (NGO) that served as
implementing partners under USAID and USDA and conducted monetization
between fiscal years 2008 through 2010. To determine the universe of
NGOs that served as implementing partners during this time period, we
obtained a list of all implementing partners with call forwards for
monetized food aid from KCCO between fiscal years 2008 and 2010, which
consisted of a total of 33 implementing partners. Three of these
implementing partners were foreign governments and we excluded these
from our sample. A fourth implementing partner was excluded because it
had not conducted monetization before the end of fiscal year 2010. As
a result, we determined that the universe of implementing partners
that had monetized between fiscal years 2008 and 2010 was 29. We
developed a structured instrument for our survey in October of 2010,
and pre-tested it on two implementing partners. The instrument
contained both closed and open ended questions in four general areas:
(1) the monetization process, (2) the U.S. government role, (3) market
analysis, and (4) cost recovery. We sent the instrument to all 29
implementing partners via e-mail in November 2010 and received
completed instruments from all 29 of them. As part of our process for
this survey, we conducted phone interviews with each implementing
partner after we received its completed instrument to ensure the
accuracy of their responses.
In Washington, D.C., we interviewed officials from USAID, USDA, the
Departments of State and Transportation, and the Office of Management
and Budget. We also met with a number of subject matter experts, as
well as officials representing NGOs that serve as implementing
partners to USAID and USDA in carrying out U.S. food aid monetization
programs overseas. In addition, we conducted field work in three of
the four countries that programmed some of the highest volumes of
nonemergency monetized U.S. food aid between fiscal years 2008 and
2010--Bangladesh, Mozambique, and Uganda--and met with officials from
U.S. missions, representatives from NGOs and other implementing
partners that directly handle sales and implement development
activities, and in Uganda and Mozambique, officials from relevant host
government agencies.
To determine the level of cost recovery, we obtained data from USAID
and USDA on commodity costs, which include the procurement and ocean
freight cost, and sales price for each monetization transaction. For
the purposes of this report, we defined cost recovery as the ratio
between sales proceeds from monetization and the cost to the U.S.
government to procure and ship the commodities. We did not include
transactions for which the agencies did not have actual sales prices.
We analyzed cost recovery by agency, year, commodity, and recipient
country to study the variations in the level of cost recovery. In
order to analyze cost recovery, we took the following steps:
* Cleaned the data. We found many errors and discrepancies in the data
we obtained from USAID and USDA, and sent questions asking them to
explain the discrepancies we found and make corrections.
* Calculated cost recovery. Using the cleaned data, we calculated the
cost recovery for each transaction and for the USAID and USDA programs
in total. The program average we reported is a weighted average, the
ratio between the sum of sales proceeds and the sum of commodity and
freight costs.
* Estimated the difference between the proceeds generated through
monetization and the cost the U.S. government incurred to procure and
ship the commodities. To do so, subtracted the total cost the U.S.
government incurred on procurement and shipping monetized food aid
commodities from the total proceeds generated.
We also estimated the extent to which freight costs account for the
cost to the U.S. government for U.S. food aid procurement and
shipping. In addition, we looked at how cargo preference affects cost
recovery by examining the freight rate differentials between U.S.-and
foreign-flag carriers, in shipping U.S. food aid. (For a detailed
description of our methodology for this analysis, see appendix II.)
To examine the extent to which USAID and USDA meet requirements to
ensure that monetization does not cause adverse market impacts, we
conducted a literature search to identify relevant studies and papers
on the effect of monetization on recipient countries and trade. In
addition, we conducted interviews with officials from USAID and USDA;
representatives from NGOs engaged in monetization; and experts from
academia with extensive research, published work, and experience in
the field. We reviewed the federal requirements and agency documents
such as policies and guidelines, the Bellmon Estimate for Title II
(BEST) analyses, and the Usual Marketing Requirement (UMR). We also
analyzed data from KCCO, USAID, and USDA on commodities that were
programmed for monetization between fiscal years 2008 and 2010,
including volumes programmed for monetization, import data, and
consumption data in recipient countries. Specifically, we:
* Examined the total volume programmed for monetization by both
agencies for each commodity in each country and each year between
fiscal years 2008 and 2010, for which we could obtain the commercial
import volume using the UMR. We compared the total volume monetized of
a given commodity to the commodity's commercial import volume. To
assess the data, we interviewed cognizant agency officials at USDA and
reviewed documentation; however, we did not independently verify the
underlying source data. We determined that the data we used were
sufficiently reliable for our purposes.
* Reviewed the 7 BESTs and 87 UMRs that were available for all of the
monetization cases that occurred between fiscal years 2008 and 2010.
For the purposes of this report, we define the term "case" as the
total volume of a given commodity programmed for monetization by
either USAID and/or USDA in a given country in a given year.
* Examined the limits set by the BEST and the UMR and compared them to
each other.
* Examined the monetization cases that occurred between fiscal years
2008 and 2010 and compared them to limits set by the BEST and/or the
UMR. As we created a data set from the agencies' documents and
calculations to assess the extent to which USDA and USAID had exceeded
the limits they set for monetization, we determined that it was beyond
the scope of this engagement to assess the agencies' underlying data.
We did, however, check the internal logic of the agencies' documents
and their calculations. We consulted with the agencies if we found
discrepancies and either had the agencies make the necessary
corrections or did not use the data in our analysis.
We also assessed both agencies' efforts to monitor and evaluate the
impact of monetization transactions.
We conducted this performance audit from July 2010 to June 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Technical Notes on Analysis of Differences in Ocean
Freight Rates between U.S.-and Foreign-Flag Carriers:
To determine whether, and the extent to which, ocean freight rates
differ between U.S.-and foreign-flag carriers in shipping U.S. food
aid, we obtained data from the Kansas City Commodity Office (KCCO) and
developed two regression models to estimate the differences in freight
rates between U.S.-and foreign-flag carriers while controlling for
various factors that affect the freight rate.
Data:
We obtained data from KCCO, a division of the Department of
Agriculture (USDA) responsible for procuring U.S. food aid
commodities. The data contain more than 5,000 food aid purchase
transactions between 2007 and 2010. For each transaction, we had the
following information:
1. Name of program: Food for Peace, Food for Progress, or McGovern-
Dole International Food for Education and Child Nutrition Program:
2. Request number:
3. Name of the recipient country:
4. Name of the implementing partner:
5. Name of the commodity:
6. Type of food aid: monetization or direct delivery:
7. Fiscal year the program is approved:
8. Name of the port where commodity is loaded in the U.S:
9. Date when commodity arrives at load port:
10. Name of the port where commodity is discharged:
11. Metric tons of commodity:
12. Total commodity cost:
13. Total freight cost:
14. Shipping term:
Table 4 presents the summary statistics of the data.
Table 4: Summary Statistics of KCCO's Data on Food Aid Purchase
Transactions between Fiscal Years 2007 and 2010:
Variable: Metric tons;
Mean: 1,469;
Standard deviation: 4,291;
Maximum: 54,000;
Minimum: 0.64.
Variable: Commodity costs;
Mean: $570,917;
Standard deviation: $1,064,689;
Maximum: $14,400,000;
Minimum: $0.
Variable: Freight costs;
Mean: $258,061;
Standard deviation: $598,893;
Maximum: $8,347,336;
Minimum: $0.
Source: GAO analysis of KCCO data.
Note: This table presents the average, standard deviation, and maximum
and minimum of the numeric variables in the 5,440 food aid procurement
and shipping transactions between fiscal years 2007 and 2010.
[End of table]
We generated a new variable called pertonfreight, measured in dollars
per metric ton, by dividing total freight cost by metric tons. Table 5
compares the difference in freight rate between foreign and U.S.-flag
carriers by commodity type (bulk vs. non-bulk) and by year without
controlling for shipping routes or shipping terms. The results show
that in general U.S. flag carriers charge higher freight rates than
foreign flag carriers. However, part of the difference could be
explained by shipping routes or shipping terms, which we incorporated
in the regression analysis.
Table 5: Freight Rate by Year, Commodity Type, and Carrier Type:
Year: 2008;
Non-bulk (dollars per ton): U.S.-flag carrier: $264;
Non-bulk (dollars per ton): Foreign-flag carrier: $214;
Bulk (dollars per ton): U.S.-flag carrier: $178;
Bulk (dollars per ton): Foreign-flag carrier: $170.
Year: 2009;
Non-bulk (dollars per ton): U.S.-flag carrier: $220;
Non-bulk (dollars per ton): Foreign-flag carrier: $200;
Bulk (dollars per ton): U.S.-flag carrier: $171;
Bulk (dollars per ton): Foreign-flag carrier: $132.
Year: 2010;
Non-bulk (dollars per ton): U.S.-flag carrier: $235;
Non-bulk (dollars per ton): Foreign-flag carrier: $178;
Bulk (dollars per ton): U.S.-flag carrier: $173;
Bulk (dollars per ton): Foreign-flag carrier: $150.
Source: GAO analysis of KCCO data.
Note: Since the 2007 data are incomplete, we did not include them in
this table.
[End of table]
Regression Model Specification and Results:
Regression Model 1 and Results:
In order to analyze the difference in ocean freight rate between U.S.-
and foreign-flag carriers while controlling for various factors which
affect freight rates, we performed a multivariate regression analysis.
We attempted to explain the differences in freight rates using the
shipping routes, shipping time, shipping terms, commodities shipped,
and the ownership of the carriers.[Footnote 54]
Equation 1:
Freight rate = a0 + (a1 * load port dummy) + (a2 * discharge port
dummy) + (a3 * year dummy) + (a4 * bulk dummy) + (a5 * shipping term
dummy) + (a6 *flag dummy):
Where:
* load port dummy is a set of variables indicating where commodities
were loaded.
* discharge port dummy is a set of variables indicating where
commodities were unloaded.
* year dummy is a set of variables indicating the year the commodities
were shipped.
* bulk dummy is a variable indicating if the commodities shipped were
bulk (bulk dummy=1) or non-bulk (bulk dummy=0);
* term dummy is a set of variables indicating which of the four
different shipping terms we used.
* flag dummy is a variable indicating if the ocean carriers were
foreign-flag carriers (flag dummy=1) or U.S.-flag carriers (flag
dummy=0).
A negative and significant coefficient a6 would indicate that foreign-
flag carriers charge a lower freight rate than U.S.-flag carriers
after controlling for shipping routes, shipping time, commodity type,
and shipping terms. Table 6 presents the main regression results for
model 1.
Table 6: Main Regression Results for Regression Model 1:
Observations: 5416;
R-square: 70%.
Constant (a0):
Observations: Constant;
Coefficient: -74.5;
Standard error: 49.8;
T-value: -1.5;
P-value: 0.1.
Year dummy (a3):
Observations: Year 2 (2008);
Coefficient: 17.03;
Standard error: 3.9;
T-value: 4.5;
P-value: 0.
Observations: Year 3 (2009);
Coefficient: -22.1;
Standard error: 3.9;
T-value: 4.5;
P-value: 0.
Observations: Year 4 (2010);
Coefficient: 21.4;
Standard error: 4;
T-value: -5.3;
P-value: 0.
Bulk dummy (a4):
Observations: Bulk;
Coefficient: -89.3;
Standard error: 4;
T-value: -22.6;
P-value: 0.
Flag dummy (a6):
Observations: Flag;
Coefficient: -25.2;
Standard error: 2.7;
T-value: -9.2;
P-value: 0.
Source: GAO analysis of KCCO data.
Note: In addition to the variables listed above, our regression also
included dummy variables for 34 load ports, 116 discharge ports, and 3
different shipping terms.
[End of table]
Regression Model 2 and Results:
In order to capture the difference in freight rate between U.S.-and
foreign-flag carriers on bulk and non-bulk commodities, we ran a
regression with an interactive term flag * bulk.
Equation 2:
Freight rate = a0 + (a1 * load port dummy) + (a2 * discharge port
dummy) + (a3 * year dummy) + (a4 * bulk dummy) + (a5 * shipping term
dummy) + (a6 *flag dummy) + (a7 * (flag * bulk):
For bulk commodities (bulk=1), and foreign-flag carriers (flag=1),
Equation 2 becomes:
Equation 3:
Freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port
dummy) + (a3 * year dummy) + (a4 * 1) + (a5 * shipping term dummy) +
(a6 *1)+[a7*(1*1)]
For bulk commodities (bulk=1) and U.S.-flag carriers (flag=0),
Equation 2 becomes:
Equation 4:
freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port
dummy) + (a3 * year dummy) + (a4 * 1) + (a5 * shipping term dummy) +
(a6
*0)+[a7*(0*1)]
The difference between Equation 3 and Equation 4 yields a6+a7, which
is the difference in freight rate between U.S.-and foreign-flag
carriers for bulk commodities.
Similarly, for non-bulk commodities (bulk=0), and foreign-flag
carriers (flag=1), Equation 2 becomes:
Equation 5:
freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port
dummy) + (a3 * year dummy) + (a4 * 0) + (a5 * shipping term dummy) +
(a6 *1)+[a7*(0*1)]
For bulk commodities (bulk=0) and U.S.-flag carriers (flag=0),
Equation 2 becomes:
Equation 6:
freight rate = a0+ (a1 * load port dummy) + (a2 * discharge port
dummy) + (a3 * year dummy) + (a4 * 0) + (a5 * shipping term dummy) +
(a6 *0)+[a7*(0*0)]
The difference between Equation 5 and Equation 6 yields a6, which is
the difference in freight rate between U.S.-and foreign-flag carriers
for non-bulk commodities.
Table 7 presents the main regression results for model 2.
Table 7: Main Regression Results for Regression Model 2:
Observations: 5416;
R-Square: 70%.
Constant (a0):
Observations: Constant;
Coefficient: -75.6;
Standard error: 49.8;
T-value: -1.5;
P-value: 0.1.
Year dummy (a3):
Observations: Year 2 (2008);
Coefficient: 18.1;
Standard error: 3.9;
T-value: 4.7;
P-value: 0.
Observations: Year 3 (2009);
Coefficient: -21.1;
Standard error: 3.9;
T-value: -5.4;
P-value: 0.
Observations: Year 4 (2010);
Coefficient: -20.8;
Standard error: 4.0;
T-value: -5.2;
P-value: 0.
Bulk dummy (a4):
Observations: Bulk;
Coefficient: -92.0;
Standard error: 4.0;
T-value: -22.8;
P-value: 0.
Flag dummy (a6):
Observations: Flag;
Coefficient: -30.1;
Standard error: 3.1;
T-value: -9.7;
P-value: 0.
Flag*bulk (a7):
Observations: Flag*bulk;
Coefficient: 22.4;
Standard error: 6.6;
T-value: 3.4;
P-value: 0.
Source: GAO analysis of KCCO data.
Note: In addition to the variables listed above, our regression also
included dummy variables for 34 load ports, 116 discharge ports, and 3
different shipping terms.
[End of table]
[End of section]
Appendix III: Program Authorities:
The United States has principally employed six programs to deliver
food aid: Public Law 480 Titles I, II, and III; Food for Progress; the
McGovern-Dole International Food for Education and Child Nutrition;
and the Local and Regional Procurement Project. Three of these
programs allow for monetization: Title II (renamed Food for Peace),
Food for Progress, and McGovern-Dole International Food for Education
and Child Nutrition. Table 8 provides a summary of these food aid
programs by program authority.
Table 8: U.S. Food Aid by Program Authority:
Program: Total cost in fiscal year 2010 (thousands of dollars);
Food for Peace: Title I: $19,698.9;
Food for Peace: Title II [Shaded gray]: $1,932,471.6;
Food for Peace: Title III: $0;
Food for Progress [Shaded gray]: $146,423.1;
McGovern-Dole International Food for Education and Child Nutrition
[Shaded gray]: $174,489.7;
Local and Regional Procurement Project: $23,811.
Program: Managing agency;
Food for Peace: Title I: USDA;
Food for Peace: Title II [Shaded gray]: USAID;
Food for Peace: Title III: USAID;
Food for Progress [Shaded gray]: USDA;
McGovern-Dole International Food for Education and Child Nutrition
[Shaded gray]: USDA;
Local and Regional Procurement Project: USDA.
Program: Year established;
Food for Peace: Title I: 1954;
Food for Peace: Title II [Shaded gray]: 1954;
Food for Peace: Title III: 1954;
Food for Progress [Shaded gray]: 1985;
McGovern-Dole International Food for Education and Child Nutrition
[Shaded gray]: 2003;
Local and Regional Procurement Project: 2008.
Program: Description of assistance;
Food for Peace: Title I: Concessional sales of agricultural
commodities;
Food for Peace: Title II [Shaded gray]: Donation of commodities to
meet emergency and nonemergency needs;
commodities may be monetized;
Food for Peace: Title III: Donation of commodities to governments of
least developed countries;
Food for Progress [Shaded gray]: Donation of commodities to developing
countries and emerging democracies;
commodities may be monetized;
McGovern-Dole International Food for Education and Child Nutrition
[Shaded gray]: Donation of commodities and provision of financial and
technical assistance in foreign countries;
commodities may be monetized;
Local and Regional Procurement Project: 4-year pilot program to
examine the timeliness and efficiency of local and regional
procurement as a tool to enhance U.S. government food assistance
programs.
Program: Type of assistance;
Food for Peace: Title I: Nonemergency;
Food for Peace: Title II [Shaded gray]: Emergency and nonemergency;
Food for Peace: Title III: Nonemergency;
Food for Progress [Shaded gray]: Emergency and nonemergency;
McGovern-Dole International Food for Education and Child Nutrition
[Shaded gray]: Nonemergency;
Local and Regional Procurement Project: Emergency.
Program: Implementing partners;
Food for Peace: Title I: Governments and private entities;
Food for Peace: Title II [Shaded gray]: World Food Program and NGOs;
Food for Peace: Title III: Governments;
Food for Progress [Shaded gray]: Governments, agricultural trade
organizations, inter-governmental organizations, NGOs, and
cooperatives;
McGovern-Dole International Food for Education and Child Nutrition
[Shaded gray]: Governments, private entities, inter-governmental
organizations;
Local and Regional Procurement Project: See implementing partners for
Title II, Title III, and Food for Progress programs.
Sources: GAO analysis of USAID and USDA data.
Note: Programs that allow for monetization are shaded in gray.
[End of table]
[End of section]
Appendix IV: Total Volume and Commodities Programmed for Monetization
by Country from Fiscal Years 2008 through 2010:
As previously mentioned, between fiscal years 2008 and 2010, more than
1.3 million metric tons of food aid were programmed for monetization
in 34 countries. Figure 10 shows the total volume of commodities
programmed for monetization in each country by the U.S. Agency for
International Development (USAID) and U.S. Department of Agriculture
(USDA) between fiscal years 2008 and 2010. Table 9 shows the volume of
each commodity programmed for monetization by country, program, and
year. Figure 11 provides a percentage breakdown of the commodities
programmed for monetization by USAID and USDA between fiscal years
2008 and 2010.
Figure 10: Total Volume Programmed for Monetization by USDA and USAID
by Country and Year between Fiscal Years 2008 and 2010:
[Refer to PDF for image: stacked vertical bar graph]
Metric tons (in thousands):
Country: Bangladesh;
2008: 64.24;
2009: 63.97;
2010: 92.38.
Country: Mozambique;
2008: 87.6;
2009: 65.56;
2010: 49.04.
Country: Haiti;
2008: 34.69;
2009: 45.71;
2010: 19.6
Country: Uganda;
2008: 30.14;
2009: 36.55;
2010: 21.71
Country: Malawi;
2008: 22.19;
2009: 52.691;
2010: 13.
Country: Guatemala;
2008: 30.56;
2009: 12.72;
2010: 13.17.
Country: Democratic Republic of Congo;
2008: 9.71;
2009: 13.6;
2010: 32.07.
Country: Pakistan;
2009: 50.
Country: Ethiopia;
2008: 24.49;
2009: 23.
Country: Afghanistan;
2008: 22.15;
2009: 20.6;
2010: 4.5.
Country: Nicaragua;
2008: 35.05.
Country: Philippines;
2009: 31.93.
Country: Liberia;
2008: 11.66;
2009: 4.86;
2010: 13.69.
Country: Niger;
2008: 4.91;
2009: 11.36;
2010: 13.38.
Country: Dominican Republic;
2009: 26.25.
Country: Burundi;
2008: 4.31;
2009: 13.09;
2010: 8.
Country: Mongolia;
2008: 25.
Country: Senegal;
2008: 5.74;
2009: 17.59.
Country: Madagascar;
2008: 12.45;
2010: 7.3.
Country: Mauritania;
2008: 7.11;
2009: 5.65;
2010: 6.81.
Country: Mali;
2009: 4.46;
2010: 13.98.
Country: Tanzania;
2008: 15.75.
Country: Bolivia;
2008: 15.37.
Country: Sierra Leone;
2009: 7.5;
2010: 7.5.
Country: Honduras;
2008: 14.56.
Country: Burkina Faso;
2008: 4.78;
2009: 2.91;
2010: 2.5.
Country: Kenya;
2008: 9.5.
Country: Chad;
2008: 2.18;
2009: 3.6;
2010: 2.76.
Country: Ghana;
2008: 2.54;
2009: 3.68;
Country: Armenia;
2008: 6.
Country: Gambia;
2008: 4.5.
Country: Zambia;
2008: 3.76.
Country: Rwanda;
2008: 2.54;
2009: 0.76.
Country: Guinea;
2008: 1;
2009: 0.65.
Source: GAO analysis of Kansas City Commodity Office (KCCO) data.
[End of figure]
Table 9: Volumes of Commodity Programmed for Monetization by Country,
Program, and Fiscal Year between Fiscal Years 2008 and 2010:
Country: Afghanistan;
Commodity: Bread flour;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 10,940;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 10,940.
Country: Afghanistan;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 10,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 10,000.
Country: Afghanistan;
Commodity: Vegetable oil;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 11,210;
Fiscal year 2009 (metric tons): 10,600;
Fiscal year 2010 (metric tons): 4,500;
Grand total (metric tons): 26,310.
Country: Armenia;
Commodity: Soybean meal (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 6,000;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 6,000.
Country: Bangladesh;
Commodity: Crude, degummed soybean oil (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 4,850;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 4,850.
Country: Bangladesh;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 39,380;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 39,380.
Country: Bangladesh;
Commodity: Soft white wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 24,860;
Fiscal year 2009 (metric tons): 59,120;
Fiscal year 2010 (metric tons): 92,380;
Grand total (metric tons): 176,360.
Country: Bolivia;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 15,370;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 15,370.
Country: Burkina Faso;
Commodity: Milled rice;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 4,780;
Fiscal year 2009 (metric tons): 2,910;
Fiscal year 2010 (metric tons): 2,500;
Grand total (metric tons): 10,190.
Country: Burundi;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 4,310;
Fiscal year 2009 (metric tons): 13,090;
Fiscal year 2010 (metric tons): 8,000;
Grand total (metric tons): 25,400.
Country: Chad;
Commodity: Bread flour;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 2,180;
Fiscal year 2009 (metric tons): 3,600;
Fiscal year 2010 (metric tons): 2,760;
Grand total (metric tons): 8,540.
Country: Democratic Republic of Congo;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 9,710;
Fiscal year 2009 (metric tons): 13,600;
Fiscal year 2010 (metric tons): 32,070;
Grand total (metric tons): 55,380.
Country: Dominican Republic;
Commodity: Crude, degummed soybean oil (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 1,250;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 1,250.
Country: Dominican Republic;
Commodity: Northern spring wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 25,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 25,000.
Country: Ethiopia;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 20,000;
Fiscal year 2009 (metric tons): 23,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 43,000.
Country: Ethiopia;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 4,490;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 4,490.
Country: Gambia;
Commodity: Vegetable oil;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 4,500;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 4,500.
Country: Ghana;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 2,540;
Fiscal year 2009 (metric tons): 3,680;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 6,220.
Country: Guatemala;
Commodity: Crude, degummed soybean oil (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 5,420;
Fiscal year 2009 (metric tons): 6,730;
Fiscal year 2010 (metric tons): 13,170;
Grand total (metric tons): 25,320.
Country: Guatemala;
Commodity: Soybean meal (bulk);
Program: Food for Education;
Fiscal year 2008 (metric tons): 10,140;
Fiscal year 2009 (metric tons): 5,990;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 16,130.
Country: Guatemala;
Commodity: Soybean meal (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 15,000;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 15,000.
Country: Guinea;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 1,000;
Fiscal year 2009 (metric tons): 650;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 1,650.
Country: Haiti;
Commodity: Bread flour;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 19,000;
Grand total (metric tons): 19,000.
Country: Haiti;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons):34,690;
Fiscal year 2009 (metric tons):45,710;
Fiscal year 2010 (metric tons):0;
Grand total (metric tons): 80,400.
Country: Haiti;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 600;
Grand total (metric tons): 600.
Country: Honduras;
Commodity: Northern spring wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 5,760;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 5,760.
Country: Honduras;
Commodity: Soybean meal (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 8,800;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 8,800.
Country: Kenya;
Commodity: Northern spring wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 9,500;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 9,500.
Country: Liberia;
Commodity: All purpose flour;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 1,900;
Grand total (metric tons): 1,900.
Country: Liberia;
Commodity: Bread flour;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 1,000;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 1,000.
Country: Liberia;
Commodity: Hard red winter wheat;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 1,180;
Grand total (metric tons): 1,180.
Country: Liberia;
Commodity: Milled rice;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 8,300;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 8,300.
Country: Liberia;
Commodity: Milled rice;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 4,860;
Fiscal year 2010 (metric tons): 10,110;
Grand total (metric tons): 14,970.
Country: Liberia;
Commodity: Vegetable oil;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 2,360;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 2,360.
Country: Liberia;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 500;
Grand total (metric tons): 500.
Country: Madagascar;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 12,450;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 12,450.
Country: Madagascar;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 7,300;
Grand total (metric tons): 7,300.
Country: Malawi;
Commodity: Crude, degummed soybean oil (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 3,050;
Fiscal year 2009 (metric tons): 1,550;
Fiscal year 2010 (metric tons): 1,500;
Grand total (metric tons): 6,100.
Country: Malawi;
Commodity: Hard red spring wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 10,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 10,000.
Country: Malawi;
Commodity: Hard red winter wheat;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 10,000;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 10,000.
Country: Malawi;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 9,140;
Fiscal year 2009 (metric tons): 21,140;
Fiscal year 2010 (metric tons): 11,500;
Grand total (metric tons): 41,780.
Country: Malawi;
Commodity: Northern spring wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 20,001;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 20,001.
Country: Mali;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 10,000;
Grand total (metric tons): 10,000.
Country: Mali;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 4,460;
Fiscal year 2010 (metric tons): 3,980;
Grand total (metric tons): 8,440.
Country: Mauritania;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 7,110;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 6,810;
Grand total (metric tons): 13,920.
Country: Mauritania;
Commodity: Soft red winter;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 5,650;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 5,650.
Country: Mongolia;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 25,000;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 25,000.
Country: Mozambique;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 56,660;
Fiscal year 2009 (metric tons): 20,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 76,660.
Country: Mozambique;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 30,940;
Fiscal year 2009 (metric tons): 45,560;
Fiscal year 2010 (metric tons): 49,040;
Grand total (metric tons): 125,540.
Country: Nicaragua;
Commodity: Crude, degummed soybean oil (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 1,000;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 1,000.
Country: Nicaragua;
Commodity: Northern spring wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 27,340;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 27,340.
Country: Nicaragua;
Commodity: Northern spring wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 6,710;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 6,710.
Country: Niger;
Commodity: Milled rice;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 11,360;
Fiscal year 2010 (metric tons): 13,380;
Grand total (metric tons): 24,740.
Country: Niger;
Commodity: Vegetable oil;
Program: Food for Progress;
Fiscal year 2008 (metric tons): 4,910;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 4,910.
Country: Pakistan;
Commodity: Soft white wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 50,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 50,000.
Country: Philippines;
Commodity: Soybean meal (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 31,930;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 31,930.
Country: Rwanda;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 2,540;
Fiscal year 2009 (metric tons): 760;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 3,300.
Country: Senegal;
Commodity: Crude, degummed soybean oil (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 2,840;
Fiscal year 2009 (metric tons): 4,200;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 7,040.
Country: Senegal;
Commodity: Milled rice;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 2,900;
Fiscal year 2009 (metric tons): 2,390;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 5,290.
Country: Senegal;
Commodity: Soybean meal (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 11,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 11,000.
Country: Sierra Leone;
Commodity: Bread flour;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 1,900;
Grand total (metric tons): 1,900.
Country: Sierra Leone;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 7,500;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 7,500.
Country: Sierra Leone;
Commodity: Milled rice;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 5,550;
Grand total (metric tons): 5,550.
Country: Sierra Leone;
Commodity: Vegetable oil;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 50;
Grand total (metric tons): 50.
Country: Tanzania;
Commodity: Northern spring wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 15,750;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 15,750.
Country: Uganda;
Commodity: Hard red winter wheat (bulk);
Program: Food for Progress;
Fiscal year 2008 (metric tons): 0;
Fiscal year 2009 (metric tons): 15,000;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 15,000.
Country: Uganda;
Program: Food for Peace;
Fiscal year 2008 (metric tons): 30,140;
Fiscal year 2009 (metric tons): 21,550;
Fiscal year 2010 (metric tons): 21,710;
Grand total (metric tons): 73,400.
Country: Zambia;
Commodity: Hard red winter wheat (bulk);
Program: Food for Peace;
Fiscal year 2008 (metric tons): 3,760;
Fiscal year 2009 (metric tons): 0;
Fiscal year 2010 (metric tons): 0;
Grand total (metric tons): 3,760.
Country: Grand total;
Fiscal year 2008 (metric tons): 514,480;
Fiscal year 2009 (metric tons): 518,691;
Fiscal year 2010 (metric tons): 321,390;
Grand total (metric tons): 1,354,561.
Source: GAO analysis of KCCO data.
[End of table]
Figure 11: Commodities Programmed for Monetization by USDA and USAID
between Fiscal Years 2008 and 2010:
[Refer to PDF for image: pie-chart]
Wheat: 77%;
Soybean meal (bulk): 7%;
Milled rice: 5%;
Vegetable oil: 5%;
Crude, degummed soybean oil (bulk): 3%;
Flour: 3%.
Source: GAO analysis of KCCO data.
[End of figure]
[End of section]
Appendix V: Steps in the Monetization Process from Grant Proposal to
Development Project Completion:
The following table further outlines the steps in the monetization
process from grant application through development project completion
depicted in figure 3.
Table 10: Steps in the Monetization Process from Grant Proposal to
Development Project Completion:
Step 1: Grant proposal:
* The U.S. Agency for International Development (USAID) and the U.S.
Department of Agriculture (USDA) independently issue calls for
proposals and approve proposals at different times, based on each
agency's individual guidelines and priorities;
* Market assessments are considered in the application process to
address Bellmon requirements;
* Grant proposals for both agencies must include, among other things,
information on the commodity to be monetized, commodity volumes
requested, estimated sales price, estimated cost recovery, and
projects that will be implemented based on the estimates.
Step 2: Grant award:
* USAID evaluates the proposals and makes award decisions. USAID
provides multi-year grants that can last for 3 to 5 years. USAID
grants generally include a combination of food aid for direct
distribution and monetization. Grants specify the amount of
commodities granted to an implementing partner for monetization;
* USDA evaluates the proposals and makes award decisions. USDA
provides multi-year grants that can last 1 to 3 years. USDA authorizes
100 percent monetization grants, but some can include food for direct
distribution. The grant agreements specify the volume of commodities
granted to an implementing partner for monetization.
Step 3: Call forward:
* As a general practice USAID and USDA require implementing partners
to obtain sale contacts before submitting a call forward (request
order) for food shipments;
* Implementing partners seek potential buyers in-country through open
tender/bidding (the preferred method of sale by USAID and USDA) or
direct negotiation;
* Implementing partners enter into sales contracts with buyers; these
contracts specify the terms of delivery and sales prices.
Step 4: Procurement:
* The implementing partner submits a commodity request to USAID's
Office of Food for Peace (FFP) or USDA's Foreign Agriculture Service
(FAS);
* USAID-FFP or USDA-FAS reviews and approves the commodity request or
call forward and sends it to USDA's Farm Service Agency's Kansas City
Commodity Office (KCCO) through the Web-Based Supply Chain Management
System;
* KCCO issues invitation for bids to commodity vendors and ocean
freight bids to ocean carriers to offer their products to USDA, makes
recommendations to USAID-FFP or USDA-FAS as to the reasonableness of
the commodity prices, and procures commodities as instructed;
* Commodity vendor delivers commodities to the ocean vessel either at
the vendor's facility (plant), a bridge location, or a domestic port,
based on the terms of the contract.
Step 5: Shipping and delivery:
Ocean transport:
* The implementing partners select a licensed freight forwarder to
arrange for shipment to the recipient country;
* The freight forwarder receives offers from steamship companies
interested in transporting commodities. These offers are combined with
commodity offers and evaluated to determine the lowest landed cost to
purchase and ship the commodities;
* Implementing partners obtain information from USAID or USDA on the
lowest landed cost and award ocean transportation contracts based on
this information, provided the vessels can meet their programmatic
needs;
* USAID's Transportation Division and USDA-FAS, with input from the
Department of Transportation's Maritime Administration, confirm that
the rates received from the ocean carrier are fair and reasonable in
those cases where a fair and reasonable rate guideline is required;
* Ocean vessel departs from the domestic port;
* Ocean vessel arrives at the foreign port;
Discharge and delivery to purchaser:
* The commodities are delivered to the implementing partner in the
beneficiary country; the implementing partner executes the sales
contract and collects payment from the buyer;
* The implementing partner can take possession of the commodities
either at the ocean vessel or at its final destination, or possession
can be transferred to the buyer at the port, depending on sales
contract;
* Some host government officials conduct quality inspections by
sampling and testing the commodities.
Step 6: Development project implementation:
* Development projects funded through monetization are expected to
address food insecurity in priority countries;
* Development projects funded by USAID through monetization include
programs to improve and promote sustainable agricultural production
and marketing, natural resource management, nonagricultural income
generation, health, nutrition, water and sanitation, education,
emergency preparedness and mitigation, vulnerable group feeding, and
social safety nets;
* According to USDA, development projects funded by USDA through
monetization should focus on private sector development of
agricultural sectors such as improved agricultural techniques,
marketing systems, and farmer education. Figure 4 provides examples of
USAID and USDA projects funded through monetization in countries that
we visited.
Step 7: Development project completion:
* Implementing partners provide status reports to USAID or USDA;
* Implementing partners complete the projects and fulfill their close-
out requirements.
Sources: GAO based on information provided by USAID and USDA.
Note: This is a general description of the monetization process, not
every step may be included, and steps may vary from transaction to
transaction.
[End of table]
[End of section]
Appendix VI: Results from Survey of Implementing Partners:
We conducted a survey of 29 implementing partners that monetized
either through U.S. Agency for International Development (USAID) or
and U.S. Department of Agriculture (USDA) between fiscal years 2008
and 2010, and we received a 100 percent response rate. Of the 29
implementing partners, 6 monetized through USAID only, 13 monetized
through USDA only, and 10 monetized through both agencies. The tables
that follow summarize selected results of the implementing partners'
responses to our survey.
Table 11: Distribution of Implementing Partners Who Monetized in
Consortiums versus Monetizing Only Their Own Food Aid:
In general, do you only monetize your organization's own food aid?
Yes: 10;
Do you coordinate with other implementing partners in a monetization
consortium?
No: 3;
Yes: 1;
Total: 14.
In general, do you only monetize your organization's own food aid?
No: 0;
Do you coordinate with other implementing partners in a monetization
consortium?
No: 1;
Yes: 14;
Total: 15.
In general, do you only monetize your organization's own food aid?
Total: 10;
Do you coordinate with other implementing partners in a monetization
consortium?
No: 4;
Yes: 15;
Total: 29.
Source: GAO analysis.
[End of table]
Figure 12: Number of Implementing Partners Indicating that the
Following Factors Hindered Them to At Least Some Degree When
Conducting Monetization:
[Refer to PDF for image: horizontal bar graph]
Total number of respondents: 29.
Factor: Market uncertainty;
Number of respondents: 19.
Factor: Delivery delays;
Number of respondents: 19.
Factor: Shortage of buyers;
Number of respondents: 17.
Factor: Lack of reliable market information;
Number of respondents: 17.
Factor: Shortage of staff with market expertise;
Number of respondents: 14.
Factor: Host country government opposition;
Number of respondents: 11.
Factor: Lack of commercial credit at reasonable rates for buyers;
Number of respondents: 10.
Factor: Inability of market to absorb the quantity of commodity
intended for monetization;
Number of respondents: 9.
Factor: Lack of funding to cover the gaps in the process;
Number of respondents: 9.
Factor: Lack of information on planned USDA sales (when PVO is
operating under a USAID program);
Number of respondents: 9.
Factor: Host government's quality, sanitary, and phyto-sanitary import
policies;
Number of respondents: 8.
Factor: Lack of information on planned USAID sales (when PVO is
operating under a USDA program);
Number of respondents: 8.
Factor: Lack of reliable transportation in country;
Number of respondents: 6.
Factor: Commodities allowed for monetization are inappropriate for
country;
Number of respondents: 6.
Factor: Lack of ocean transportation information from|MARAD;
Number of respondents: 5.
Factor: Other host country group opposition (e.g. farmer unions);
Number of respondents: 5.
Factor: Lack of technical support from U.S. government;
Number of respondents: 4.
Factor: Other;
Number of respondents: 4.
Factor: Inability to ensure food aid reaches vulnerable populations;
Number of respondents: 2.
Source: GAO analysis.
[End of figure]
Table 12: Ways in Which USAID and USDA Provided Support to
Implementing Partners During Monetization:
Technical assistance (beyond the BEST) with market analysis:
USAID implementing partners (n=16):
Yes: 4;
No: 12;
USDA implementing partners (n=23):
Yes: 10;
No: 12.
Facilitating contacts within host government:
USAID implementing partners (n=16):
Yes: 8;
No: 8;
USDA implementing partners (n=23):
Yes: 10;
No: 12.
Facilitating business contacts in country:
USAID implementing partners (n=16):
Yes: 2;
No: 14;
USDA implementing partners (n=23):
Yes: 7;
No: 15.
Workshops for conducting monitoring and evaluation of the monetization
process:
USAID implementing partners (n=16):
Yes: 2;
No: 14;
USDA implementing partners (n=23):
Yes: 5;
No: 17.
Telling implementing partners when to monetize:
USAID implementing partners (n=16):
Yes: 2;
No: 14;
USDA implementing partners (n=23):
Yes: 5;
No: 17.
Telling implementing partners when not to monetize:
USAID implementing partners (n=16):
Yes: 6;
No: 10;
USDA implementing partners (n=23):
Yes: 4;
No: 18.
Other:
USAID implementing partners (n=16):
Yes: 2;
No: 4;
USDA implementing partners (n=23):
Yes: 3;
No: 5.
Source: GAO analysis.
[End of table]
Table 13: Formats in Which Implementing Partners Collected and
Reported Monetization Information to USAID and USDA:
Quarterly reports:
USAID implementing partners (n=16):
Yes: 6;
No: 9;
USDA implementing partners (n=23):
Yes: 14;
No: 7.
Annual results reports:
USAID implementing partners (n=16):
Yes: 15;
No: 0;
USDA implementing partners (n=23):
Yes: 11;
No: 9.
Pipeline and resource estimate proposal reports:
USAID implementing partners (n=16):
Yes: 15;
No: 0;
USDA implementing partners (n=23):
Yes: 1;
No: 18.
End of project report:
USAID implementing partners (n=16):
Yes: 14;
No: 1;
USDA implementing partners (n=23):
Yes: 17;
No: 4.
Cost recovery reports:
USAID implementing partners (n=16):
Yes: 13;
No: 2;
USDA implementing partners (n=23):
Yes: 7;
No: 13.
Assessment of post-monetization market impact:
USAID implementing partners (n=16):
Yes: 5;
No: 10;
USDA implementing partners (n=23):
Yes: 2;
No: 17.
Logistics and monetization reports:
USAID implementing partners (n=16):
Yes: 5;
No: 10;
USDA implementing partners (n=23):
Yes: 0;
No: 22.
Other:
USAID implementing partners (n=16):
Yes: 3;
No: 5;
USDA implementing partners (n=23):
Yes: 6;
No: 4.
Source: GAO analysis.
[End of table]
Table 14: Implementing Partners' Assessment of the Quality of
Coordination between USAID and USDA on Monetization in Country:
Very poor:
All implementing partners (n=29): 3.
Poor:
All implementing partners (n=29): 8.
Fair:
All implementing partners (n=29): 8.
Good:
All implementing partners (n=29): 5.
Very good:
All implementing partners (n=29): 0.
Source: GAO analysis.
[End of table]
Figure 13: Number of Implementing Partners Indicating that the
Following Steps, if Taken by USAID, Could Greatly or Very Greatly
Improve the Monetization Process:
[Refer to PDF for image: horizontal bar graph]
Total number of respondents: 16.
Steps USAID could take: Explore options for lowering transportation
costs;
Number of respondents: 13.
Steps USAID could take: Provide support for PVOs when complications in
the monetization process arise;
Number of respondents: 12.
Steps USAID could take: Assist in negotiating with host country
governments to provide tax and duty-free exemptions;
Number of respondents: 12.
Steps USAID could take: Streamline the proposal process;
Number of respondents: 10.
Steps USAID could take: Coordinate market analysis efforts with USDA;
Number of respondents: 10.
Steps USAID could take: Coordinate with USDA on agreements signed with
host country government relating to monetization;
Number of respondents: 9.
Steps USAID could take: Harmonize planning time frames with USDA
monetization programs;
Number of respondents: 9.
Steps USAID could take: Coordinate better with USDA on its food aid
monetization projects;
Number of respondents: 8.
Steps USAID could take: Support the updating of written guidance;
Number of respondents: 8.
Steps USAID could take: Provide training;
Number of respondents: 8.
Steps USAID could take: Be more supportive of third country
monetization;
Number of respondents: 8.
Steps USAID could take: Allow regional monetization;
Number of respondents: 8.
Steps USAID could take: Allow for monetization of everything up front,
rather than in stages;
Number of respondents: 7.
Steps USAID could take: Complete development of electronic
database|for collecting monetization data;
Number of respondents: 6.
Steps USAID could take: Conduct more monitoring and oversight;
Number of respondents: 5.
Steps USAID could take: Use commercial industry standards;
Number of respondents: 4.
Steps USAID could take: Other;
Number of respondents: 2.
Source: GAO analysis.
[End of figure]
Figure 14: Number of Implementing Partners Indicating that the
Following Steps, if Taken by USDA, Could Greatly or Very Greatly
Improve the Monetization Process:
[Refer to PDF for image: horizontal bar graph]
Number of respondents: 23.
Steps USDA could take: Explore options for lowering transportation
costs;
Number of respondents: 16.
Steps USDA could take: Provide support for PVOs when complications in
the monetization process arise;
Number of respondents: 14.
Steps USDA could take: Coordinate with USAID on agreements signed with
host country government relating to monetization;
Number of respondents: 14.
Steps USDA could take: Assist in negotiating with host country
governments to provide tax and duty-free exemptions;
Number of respondents: 14.
Steps USDA could take: Be more supportive of third country
monetization;
Number of respondents: 14.
Steps USDA could take: Allow regional monetization;
Number of respondents: 14.
Steps USDA could take: Coordinate market analysis efforts with USAID;
Number of respondents: 11.
Steps USDA could take: Harmonize planning time frames with USAID
monetization programs;
Number of respondents: 10.
Steps USDA could take: Streamline the proposal process;
Number of respondents: 10.
Steps USDA could take: Coordinate better with USAID on its food aid
monetization projects;
Number of respondents: 10.
Steps USDA could take: Support the updating of written guidance;
Number of respondents: 9.
Steps USDA could take: Provide training;
Number of respondents: 9.
Steps USDA could take: Complete development of electronic database for
collecting monetization data;
Number of respondents: 6.
Steps USDA could take: Conduct more monitoring and oversight;
Number of respondents: 6.
Steps USDA could take: Other;
Number of respondents: 2.
Source: GAO analysis.
[End of figure]
Table 15: Types of Market Analysis Examined by Implementing Partners
Prior to Monetization:
Their organization's market analysis:
USAID-only implementing partners (n=6): 5;
USDA-only implementing partners (n=13): 11;
USAID and USDA implementing partners (n=10): 10;
All implementing partners (n=29): 26.
Third party contractor's assessment:
USAID-only implementing partners (n=6): 4;
USDA-only implementing partners (n=13): 11;
USAID and USDA implementing partners (n=10): 6;
All implementing partners (n=29): 21.
Agricultural attaché reports:
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 10;
USAID and USDA implementing partners (n=10): 7;
All implementing partners (n=29): 20.
Usual marketing requirement (UMR):
USAID-only implementing partners (n=6): 4;
USDA-only implementing partners (n=13): 7;
USAID and USDA implementing partners (n=10): 8;
All implementing partners (n=29): 19.
BEST market analysis done by Fintrac:
USAID-only implementing partners (n=6): 5;
USDA-only implementing partners (n=13): 4;
USAID and USDA implementing partners (n=10): 9;
All implementing partners (n=29): 18.
FEWSNET reports:
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 8;
USAID and USDA implementing partners (n=10): 6;
All implementing partners (n=29): 17.
USDA's Production, Supply, and Distribution (PSD) online database:
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 5;
USAID and USDA implementing partners (n=10): 6;
All implementing partners (n=29): 14.
Other:
USAID-only implementing partners (n=6): 0;
USDA-only implementing partners (n=13): 3;
USAID and USDA implementing partners (n=10): 2;
All implementing partners (n=29): 5.
Source: GAO analysis.
[End of table]
Table 16: The Number of Implementing Partners Reporting that the
Market Analysis on Which Commodities to Monetize was Sufficient:
Type of analysis: BEST;
USAID-only implementing partners (n=6): 5;
USDA-only implementing partners (n=13): 4;
USAID and USDA implementing partners (n=10): 8;
All implementing partners (n=29): 17.
Type of analysis: UMR;
USAID-only implementing partners (n=6): 4;
USDA-only implementing partners (n=13): 7;
USAID and USDA implementing partners (n=10): 4;
All implementing partners (n=29): 15.
Source: GAO analysis.
[End of table]
Table 17: The Number of Implementing Partners Reporting that the
Market Analysis on How Much to Monetize was Sufficient:
Type of analysis: BEST;
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 2;
USAID and USDA implementing partners (n=10): 8;
All implementing partners (n=29): 13.
Type of analysis: UMR;
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 7;
USAID and USDA implementing partners (n=10): 4;
All implementing partners (n=29): 14.
Source: GAO analysis.
[End of table]
Table 18: The Number of Implementing Partners Reporting that the
Market Analysis on When to Monetize was Sufficient:
Type of analysis: BEST;
USAID-only implementing partners (n=6): 2;
USDA-only implementing partners (n=13): 3;
USAID and USDA implementing partners (n=10): 5;
All implementing partners (n=29): 10.
Type of analysis: UMR;
USAID-only implementing partners (n=6): 0;
USDA-only implementing partners (n=13): 5;
USAID and USDA implementing partners (n=10): 0;
All implementing partners (n=29): 5.
Source: GAO analysis.
[End of table]
Table 19: Methods Used by Implementing Partners to Calculate Cost
Recovery:
Follow guidance provided by USAID;
USAID-only implementing partners( n=6): 6;
USDA-only implementing partners (n=13): 1;
USAID and USDA implementing partners (n=10): 9;
All implementing partners (n=29): 16.
Follow guidance provided by USDA;
USAID-only implementing partners( n=6): 0;
USDA-only implementing partners (n=13): 5;
USAID and USDA implementing partners (n=10): 3;
All implementing partners (n=29): 8.
Follow their own calculation;
USAID-only implementing partners( n=6): 2;
USDA-only implementing partners (n=13): 8;
USAID and USDA implementing partners (n=10): 2;
All implementing partners (n=29): 12.
Other;
USAID-only implementing partners( n=6): 0;
USDA-only implementing partners (n=13): 3;
USAID and USDA implementing partners (n=10): 0;
All implementing partners (n=29): 3.
Source: GAO analysis.
[End of table]
Table 20: Methods Used by Implementing Partners to Calculate Fair
Market Price:
Follow guidance provided by USAID;
USAID-only implementing partners (n=6): 4;
USDA-only implementing partners (n=13): 1;
USAID and USDA implementing partners (n=10): 6;
All implementing partners (n=29): 11.
Follow guidance provided by USDA;
USAID-only implementing partners (n=6): 0;
USDA-only implementing partners (n=13): 5;
USAID and USDA implementing partners (n=10): 3;
All implementing partners (n=29): 8.
Follow their own calculation;
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 9;
USAID and USDA implementing partners (n=10): 8;
All implementing partners (n=29): 20.
Use Import parity price as an estimation;
USAID-only implementing partners (n=6): 3;
USDA-only implementing partners (n=13): 3;
USAID and USDA implementing partners (n=10): 5;
All implementing partners (n=29): 11.
Other;
USAID-only implementing partners (n=6): 1;
USDA-only implementing partners (n=13): 1;
USAID and USDA implementing partners (n=10): 1;
All implementing partners (n=29): 3.
Source: GAO analysis.
[End of table]
Table 21: Number of Implementing Partners Who Included Other Costs
When Calculating their Organization's Cost Recovery:
Import fees or duties on monetized commodities;
All implementing partners (n=29): 13.
Transaction fees paid to the host country government;
All implementing partners (n=29): 9.
Hiring local host country staff specifically to conduct monetization;
All implementing partners (n=29): 8.
Additional U.S. staff;
All implementing partners (n=29): 6.
Outside contractors to do market assessments;
All implementing partners (n=29): 5.
Other;
All implementing partners (n=29): 4.
Source: GAO analysis.
[End of table]
Table 22: Implementing Sponsors' Views of How Often Monetization
Transactions Experience Delays:
Very Often;
All implementing partners (n=29): 1.
Often;
All implementing partners (n=29): 11.
Sometimes;
All implementing partners (n=29): 15.
Rarely;
All implementing partners (n=29): 2.
Never;
All implementing partners (n=29): 0.
Source: GAO analysis.
[End of table]
Figure 15: Number of Implementing Partners Indicating that the
Following Actions Would Greatly Improve or Very Greatly Improve Cost
Recovery Rates:
[Refer to PDF for image: horizontal bar graph]
Number of respondents: 29.
Action: Allow more shipping on non-U.S.-flag carriers;
Number of respondents: 19.
Action: Reduce approval process time;
Number of respondents: 14.
Action: Increase third country monetization;
Number of respondents: 14.
Action: Allow for regional monetization;
Number of respondents: 13.
Action: Improve market intelligence;
Number of respondents: 12.
Action: Reduce proposal process time;
Number of respondents: 11.
Action: Increase number of countries in which|monetization can take
place;
Number of respondents: 10.
Action: Provide more commodity trading training;
Number of respondents: 8.
Action: Harmonize project to be monetized with the|fiscal year;
Number of respondents: 8.
Action: Increase commodity choices;
Number of respondents: 6.
Action: Other;
Number of respondents: 2.
Source: GAO analysis.
[End of figure]
[End of section]
Appendix VII: Comments from the U.S. Agency for International
Development:
Note: GAO received USAID's letter on June 14, 2011.
USAID:
From the American People:
Thomas Melito:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Melito:
I am pleased to provide the U.S. Agency for International
Development's formal response to the GAO draft report entitled
"International Food Assistance: Funding Development through the
Purchase, Shipment and Sale of U.S. Commodities is Inefficient and Can
Cause Adverse Market Impacts " (GAO-11-636).
The enclosed USAID comments are provided for incorporation with this
letter as an appendix to the final report.
Thank you for the opportunity to respond to the GAO draft report and
for the courtesies extended by your staff in the conduct of this audit
review.
Sincerely,
Signed by:
Sean C. Carroll:
Chief Operating Officer:
U.S. Agency for International Development:
Enclosure: a/s.
[End of letter]
USAID Comments on GAO Draft Report No. GA0-11-636:
To improve the extent to which monetization proceeds cover commodity
and other associated costs and the agencies' ability to meet
requirements to ensure that monetization does not cause adverse market
and trade impacts:
Recommendation 1: We recommend that the Administrator of USAID and the
Secretary of Agriculture jointly develop an agreed-upon benchmark or
indicator to determine "reasonable market price" for sales of US food
aid for monetization.
Management Comments: Section 403 of the Food for Peace states that the
"Sales of agricultural commodities...shall be made at a reasonable
market price in the economy where the agricultural commodity is to be
sold...." To date, USAID has not utilized a specific cost recovery
barometer. USAID will work with USDA to explore options of setting a
benchmark or indicator for the sales of U.S. food aid monetization.
Recommendation 2: We recommend that the Administrator of USAID and the
Secretary of Agriculture monitor food aid sales transactions to ensure
that the benchmark set to achieve "reasonable market price" in the
country where they are being sold is achieved as required by law.
Management Comments: USAID has regional and country-based food aid
monitoring & evaluation specialists who review all aspects of USAID
food aid programs including monetizations sales.
Recommendation 3: We recommend that the Administrator of USAID and the
Secretary of Agriculture improve market assessments and coordinate to
develop them in countries where both USAID and USDA may monetize.
Management Comments: To improve market assessments and conduct
independent market analyses, USAID established the Bellmon Estimation
for Title II (BEST) Project. Standard methodological approaches have
been designed and applied for assessing the potential impacts of
monetized food aid. This project is well accepted by USAID food aid
implementing partners. The information collected by the BEST Project
is posted on the USAID public website and is accessible to all
interested parties. Additionally, USAID is also in the process of
updating our Field Monetization Manual which includes market
assessment guidance.
Recommendation 4: We recommend that the Administrator of USAID and the
Secretary of Agriculture conduct market impact evaluations after
monetization transactions have taken place to determine whether they
caused adverse market impacts.
Management Comments: USAID food aid implementing partners are
requested to stay abreast of the conditions of the markets in which
they monetize food aid. Implementing partners are required to provide
considerable information in their proposals related to the local,
national and regional markets, especially for those markets that could
be affected by the proposed monetization programs. USAID will explore
possible cost-effective ways to conduct post-sale market impact
evaluations with our partners.
[End of section]
Appendix VIII: Comments from the U.S. Department of Agriculture:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
USDA:
United States Department of Agriculture:
Farm and Foreign Agricultural Services:
1400 Independence Ave, SW:
Stop 1034:
Washington, DC 20250-1034:
June 10, 2011:
Mr. Thomas Melito:
Director, International Affairs and Trade Team:
United States Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Melito:
The U.S. Department of Agriculture (USDA) appreciates this opportunity
to respond to the Government Accountability Office (GAO) draft report
"Funding Development through the Purchase, Shipment, and Sale of
Commodities is Inefficient and Can Cause Adverse Market Impacts" (GAO-
11-636). The report provides valuable insights regarding the
monetization of U.S. commodities for development projects in the Food
for Progress and Food for Peace programs. Many of the recommendations
are consistent with our understanding of monetization and will be
useful in ongoing efforts to generate cash development resources and
improve program management.
General Comments:
This GAO report and recommendations will help USDA improve overall
program management. The Department will be able to manage, monitor,
and evaluate the monetization process better, particularly by focusing
resources on achieving higher prices for the monetized commodities,
and by better coordinating our resources with those of the U.S. Agency
for International Development (USAID).
In the report, GAO uses the spread between the final monetization
sales price and USDA's total costs as a means to measure efficiency.
This definition of efficiency is clearly intuitive and easily
calculated to provide useful information for program administrators.
However, there are additional benefits not captured by this definition
of efficiency. In addition to the economic benefits of development
projects funded by monetization, these sales can encourage commercial
markets for agricultural products and enhance the sophistication of
participants in the market. This is an especially important outcome in
countries that receive funding from the Food for Progress program. In
fact, many countries in the Former Soviet Union and Africa received
this market-building benefit as they were taking steps toward private
enterprise. [See comment]
Participants in USDA monetizations also often benefit from the sales
process itself Unlike cash grants and food aid distributions,
monetizations are market-mediated, encourage the development of
private sector institutions, and can stimulate the emergence of a
competitive domestic food distribution channel. USDA is aware of many
instances where the monetization of a U.S. product helped developing
country traders enter into new markets and use more sophisticated
trading instruments such as letters of credit, credit insurance, and
other risk management tools.
Two examples provide insight into the benefits of monetization. In
Kenya, a U.S.-based private voluntary organization monetized wheat in
2005 that provided funds for an agricultural development project.
Follow-on commercial sales of wheat were recorded in both 2010 and
2011. Millers in Kenya reported that they became familiar with the
quality of imported wheat through food aid monetizations and grew to
understand its superior milling characteristics. A second example is
from Afghanistan, where soybean oil was provided through a 2006
government-to-government agreement. Afghan buyers of U.S. soybean oil
participated in an open auction managed by a professional monetization
agency. These auctions exposed Afghan traders to a competitive bidding
process, in which that they had no previous experience. This ancillary
benefit, while certainly difficult to calculate, was not captured in
the GAO report.
Costs of Monetization:
The Department has been actively exploring ways to reduce the cost of
food aid shipments, including those designated for monetization. One
example is a food aid agreement with the Government of the Philippines
(GOP) that required the GOP to pay for the cost of ocean
transportation. Through this, the Food for Progress program realized
approximately $1.3 million in freight savings. USDA also reviews
commodity selections and specifications to make sure that commodities
fit the market and mesh with the traditional standards in the market.
During the procurement process, USDA looks for shipments that can he
combined so that volume discounts can be obtained. USDA's implementing
organizations regularly re-tender for ocean freight when the offers
are considered to be high or when ship availability is an issue.
Joint Development of an Agreed upon Benchmark to Determine a Reasonable
Market Price:
As recommended in the report, USDA will work with USAID to develop
improved benchmarks for reasonable local market prices. Setting ranges
for reasonable local market prices is challenging given the lack of
market information in many recipient countries. Under current
practices, implementing organizations regularly survey the local
market and establish price ranges. The use of public tenders and
establishment of floor prices provide safeguards which limit
disruptions to local production and markets.
In this report, GAO uses the Import Parity Price (IPP) to identify the
extent to which a monetization transaction is a normal commercial
transaction in a market setting. The use of IPP is relevant when
comparing like products to each other; for example, comparing locally
produced rice in Nigeria to rice imported from Liberia, on similar
terms of delivery, quantity, and quality.
However, this methodology has limitations when comparing a product
shipped from the United States to one locally produced or imported
from a nearby market. The quality of the product from the United
States will usually be higher and would command a premium price in a
developed market. Obtaining that price premium in less developed
markets is difficult.
In its grant agreements, USDA requires sales contracts and financing
arrangements to be in place before a commodity can be purchased in the
United States. These requirements reduce credit and contractual risks.
While this benefits implementing organizations, it is accomplished by
having the buyer absorb additional price risk during the time between
the execution of the sales contract and financing, and the actual
delivery of the commodity. Buyers often offer reduced prices to
compensate for this greater price risk.
Monitor Food Aid Sales Transactions to Ensure that the Reasonable
Market Price is Achieved:
Regarding the monitoring of food aid sales transactions, USDA will
work with its network of attaches and enhance its reporting system to
improve the monitoring of market prices. Since January 2010, USDA has
hired four new staff members in order to devote more resources to
reviewing project reports and conducting site visits. USDA has also
tripled the number of site visits to monetization projects since 2009,
and has established a target of assessing each project in the field at
least once every two years.
USDA also has developed a field monitoring guide for staff in order to
standardize the results of monitoring trips. USDA will work to
establish a systematic process for choosing which projects to visit,
and will finalize its monitoring guidance.
As noted by GAO, USDA will complete its Food Aid Information System
(FAIS) by the end of this fiscal year. This system will enable USDA to
manage its food assistance programs and coordinate interactions with
food assistance program participants. Future program participants will
he required to submit all required reports through FAIS. FAIS will
allow USDA track reported results against the requirements in the
grant agreements. With FAIS and additional staff, USDA will be able to
monitor program implementation and engage more quickly with
implementing organizations.
Improve Market Assessments and Coordinate to Develop Them in Countries
Where Both USDA and USAID May Monetize:
USDA will work with USAID to ensure that coordinated monetization
objectives are achieved. USDA is impressed by the quality and overall
depth of analysis provided by the Bellmon Estimation for Title II
(BEST) project, funded by USAID. We will continue to encourage USDA
program participants to review the BEST studies where applicable.
Further, USDA will conduct an ad-hoc analysis of its own to identify
opportunities to improve cost recovery. We will focus additional
resources for monitoring and evaluation on coordination with USAID on
monetization.
Conduct Market Impact Evaluations after Monetization Transactions Have
Taken Place:
USDA and USAID will explore options for market impact evaluations.
Currently, USDA requires all participants to describe in detail the
outcomes of their monetization transactions in twice-a-year mandatory
reporting. Further, USDA revised its regulations in 2008 to require
mid-term and final evaluations of its programs. USDA will consider
adding market impact requirements to its policy guidance for these
evaluations. Currently USDA is administering a pilot project on Local
and Regional Procurement, which requires extensive tracking of market
impacts. Lessons learned from that pilot and the upcoming third-party
evaluation will be incorporated into the Food for Progress program
where appropriate.
USDA again thanks GAO for its review of monetization and appreciates
many of its finding and recommendations. All GAO comments and
recommendations will be taken into account as USDA works to finalize
all needed policies and procedures.
Sincerely,
Signed by:
Michael T. Scuse:
Acting Under Secretary:
Farm and Foreign Agricultural Services:
The following are GAO's comments on the U.S. Department of Agriculture
letter dated June 10, 2011.
GAO Comment:
The U.S. Department of Agriculture noted some advantages in addition
to the economic benefits of development projects funded by
monetization, such as encouraging commercial markets for agricultural
products and other market-building benefits. However, the potential
for adverse market impacts, such as artificially suppressing the price
of a commodity due to excessive monetization, could work against the
agricultural development goals for which the funding was originally
provided.
[End of section]
Appendix IX: Comments from the U.S. Department of Transportation:
Note: GAO comments supplementing those in the report text appear at
the end of this appendix.
U.S. Department of Transportation:
Office of the Secretary of Transportation:
1200 New Jersey Avenue, SE:
Washington, DC 20590:
June 14, 2011:
Mr. Thomas Melito:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548:
Dear Mr. Melito,
While the Department of Transportation and its Maritime Administration
(MARAD) appreciates GAO's efforts over the years to bring a more
business-like approach to ocean shipping for the Nation's food aid
programs, we have significant concerns regarding the nature and basis
of findings pertaining to ocean shipping in the current draft report.
The GAO report offers a Matter for Congressional Consideration that is
potentially detrimental to the U.S. maritime industry,[Footnote 1]
without offering a complete analytical perspective on the impact of
the recommended action. Before offering such a far-reaching
recommendation to the Congress, one would expect to see an analysis of
the potential outcomes of the action on U.S.-flag carriers and the
sustainability of the U.S. fleet, along with an overall quantitative
analytical assessment of the potential costs and benefits of the
action. Such analysis is not apparent in the draft report. [See
comment 1]
The GAO draft report does not adequately recognize that food aid
shipping agencies are reimbursed the cost differential between U.S.-
and foreign-flag carriers. [See comment 2] MARAD reimburses the
additional cost of using U.S.-flag vessels to USAID and USDA through
Ocean Freight Differential and excess freight payments, so these
agencies are not financially affected by cargo preference
requirements. Based on MARAD's analysis of the transportation costs
for the P.L. 480 Title II food aid program, which includes an
adjustment for the amount reimbursed by MARAD, we believe the costs
identified in the GAO draft report are significantly overstated. [See
comment 3] Between fiscal year (FY) 2005 and 2009, transportation
costs ranged from a low of 8.0 percent in FY 2008 to a high of 10.8
percent during FY 2005. These values are considerably less than the 33
percent asserted in the report.
The draft report's analysis is also unduly focused on the number of
ships rather than their carrying capacity. MARAD records show that
food aid cargo tonnage was 46 percent higher in FY 2010 than in FY
2002 despite using fewer ships. [See comment 4] As a result, reaching
a conclusion based on an analysis of the number of ships alone could
yield misleading results.[Footnote 2] [See comment 5] Further, the GAO
draft report's argument that competition has declined is not supported
by any specific analysis of cargo freight bids. Finally, any decline
in the number of US flag vessels should not adversely affect shipping
costs as these vessels are subject to a cost-based rate limit imposed by
MARAD.
The Congress created the Cargo Preference Program and applied it to
food aid shipments in a way that provides vital support to the U.S.-
flag fleet and the U.S. Merchant Marine to help maintain key defense
capabilities while protecting the generosity of the American people in
conveying food supplies to nations in need around the world. The
Department continues to believe that more complete implementation of
modern transportation contracting practices, including commercial
principles of shared risks, supply chain partnerships, streamlined
administration methods, and expedited payment methods offers potential
savings to the American taxpayer while maintaining the generous level
of support this nation now offers those in need.
We appreciate the opportunity to comment on this draft report. The
attachment contains additional specific and technical comments on the
draft report. Please contact Christopher J. McMahon, Acting Associate
Administrator for Business and Finance Development on 202-366-7018 if
there are any questions.
Sincerely,
Signed by:
Brodi L. Fontenot:
Deputy Assistant Secretary for Administration:
Footnotes:
[1] The GAO draft report suggests eliminating the 3-year waiting
period imposed on foreign vessels that acquire US-flag registry before
they are eligible to transport U.S. food aid cargos.
[2] MARAD is unable to replicate GAO's analysis of the decline in the
number of food aid ships. MARAD data show that there were 84 ships in
2002, and 67 in 2010, a decrease of 20 percent, not the 50 percent
drop portrayed in the report. [See comment 6]
The following are GAO's comments on the U.S. Department of
Transportation letter dated June 14, 2011.
GAO Comments:
1. We are making this proposed amendment on the basis of the following
four factors: First, the number of vessels participating in the food
aid program has declined. In a 2009 report to Congress, U.S. Agency
for International Development (USAID) and U.S. Department of
Agriculture (USDA) jointly stated that, due to the declining size of
the U.S.-flag commercial fleet, USAID and USDA are forced to compete
with the Department of Defense and other exporters for space aboard
the few remaining U.S.-flag vessels, thereby limiting competition in
transportation contracting and leading to higher freight rates.
Second, our analysis of ocean transportation costs showed that food
aid shipments on foreign-flag carriers cost the U.S. government, on
average, $25 per ton less than U.S.-flag carriers. Third, although the
3-year requirement was established to provide employment opportunities
to U.S. shipyards, since 2005, U.S. shipyards have built only two new
U.S.-flag vessels appropriate for transporting food and the vessels
have not been awarded a food aid contract. Fourth, the 3-year
requirement applies only to food aid and not to defense agencies and
the U.S. Export-Import Bank. The elimination of the 3-year waiting
period can ease entry of new vessels into U.S. food aid programs, with
the potential to increase competition among eligible U.S.-flag ships
and reduce the cost of transportation.
2. We added clarifying language to describe the U.S. Department of
Transportation's reimbursement to USAID and USDA for the ocean freight
differential (OFD). However, the OFD represents a cost to the U.S.
government. In addition, according to USAID and USDA, the OFD
reimbursements for monetization are transferred to the general food
aid accounts of both agencies, can be used to fund either emergency or
nonemergency programs, and are likely not fully available to fund
development assistance.
3. Our analysis of transportation cost was based on Kansas City
Commodity Office (KCCO) data covering all monetization transactions
for both agencies for fiscal years 2008 through 2010 and is thus a
precise calculation of the actual cost to the U.S. government.
4. In a 2009 report to Congress, USAID and USDA jointly stated that,
due to the declining size of the U.S.-flag commercial fleet, USAID and
USDA are forced to compete with the Department of Defense and other
exporters for space aboard the few remaining U.S.-flag vessels,
thereby limiting competition in transportation contracting and leading
to higher freight rates.
5. While we did not analyze cargo freight bids, our analysis of KCCO
data included more than 5,000 food aid purchase transactions for
fiscal years 2007 to 2010. We included in this data the number of
vessels awarded all food aid contracts, not just Title II, by fiscal
year and determined that both the number of vessels and the tonnage
shipped per year had declined. We also determined the actual
difference in cost to the U.S. government between U.S.-and foreign-
flag vessels.
6. According to KCCO data, the number of U.S.-flag vessels awarded
food aid contracts in fiscal year 2002 was 134.
[End of section]
Appendix X: GAO Contact and Staff Acknowledgments:
GAO Contact:
Thomas Melito, (202) 512-9601 or melitot@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Joy Labez (Assistant
Director), Carol Bray, Ming Chen, Debbie Chung, Kathryn Crosby, Martin
De Alteriis, Mark Dowling, Francisco Enriquez, Etana Finkler, Sarah M.
McGrath, Julia Ann Roberts, Jerry Sandau, Jena Sinkfield, Sushmita
Srikanth, Phillip J. Thomas, Seyda Wentworth, and Judith Williams made
key contributions to this report.
[End of section]
Related GAO Products:
International School Feeding: USDA's Oversight of the McGovern-Dole
Food for Education Program Needs Improvement. [hyperlink,
http://www.gao.gov/products/GAO-11-544]. Washington, D.C.: May 19,
2011.
International Food Assistance: Better Nutrition and Quality Control
Can Further Improve U.S. Food Aid. [hyperlink,
http://www.gao.gov/products/GAO-11-491]. Washington, D.C.: May 12,
2011.
Global Food Security: U.S. Agencies Progressing on Governmentwide
Strategy, but Approach Faces Several Vulnerabilities. [hyperlink,
http://www.gao.gov/products/GAO-10-352]. Washington, D.C.: March 11,
2010.
International Food Assistance: A U.S. Governmentwide Strategy Could
Accelerate Progress toward Global Food Security. [hyperlink,
http://www.gao.gov/products/GAO-10-212T]. Washington, D.C.: October
29, 2009.
International Food Assistance: Key Issues for Congressional Oversight.
[hyperlink, http://www.gao.gov/products/GAO-09-977SP]. Washington,
D.C.: September 30, 2009.
International Food Assistance: USAID Is Taking Actions to Improve
Monitoring and Evaluation of Nonemergency Food Aid, but Weaknesses in
Planning Could Impede Efforts. [hyperlink,
http://www.gao.gov/products/GAO-09-980]. Washington, D.C.: September
28, 2009.
International Food Assistance: Local and Regional Procurement Provides
Opportunities to Enhance U.S. Food Aid, but Challenges May Constrain
Its Implementation. [hyperlink,
http://www.gao.gov/products/GAO-09-757T]. Washington, D.C.: June 4,
2009.
International Food Assistance: Local and Regional Procurement Can
Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain
Its Implementation. [hyperlink,
http://www.gao.gov/products/GAO-09-570]. Washington, D.C.: May 29,
2009.
Foreign Aid Reform: Comprehensive Strategy, Interagency Coordination,
and Operational Improvements Would Bolster Current Efforts.
[hyperlink, http://www.gao.gov/products/GAO-09-192]. Washington, D.C.:
April 17, 2009.
Foreign Assistance: State Department Foreign Aid Information Systems
Have Improved Change Management Practices but Do Not Follow Risk
Management Best Practices. [hyperlink,
http://www.gao.gov/products/GAO-09-52R]. Washington, D.C.: November
21, 2008.
International Food Security: Insufficient Efforts by Host Governments
and Donors Threaten Progress to Halve Hunger in Sub-Saharan Africa by
2015. [hyperlink, http://www.gao.gov/products/GAO-08-680]. Washington,
D.C.: May 29, 2008.
Foreign Assistance: Various Challenges Limit the Efficiency and
Effectiveness of U.S. Food Aid. [hyperlink,
http://www.gao.gov/products/GAO-07-905T]. Washington, D.C.: May 24,
2007.
Foreign Assistance: Various Challenges Impede the Efficiency and
Effectiveness of U.S. Food Aid. [hyperlink,
http://www.gao.gov/products/GAO-07-560]. Washington, D.C.: April 13,
2007.
Foreign Assistance: U.S. Agencies Face Challenges to Improving the
Efficiency and Effectiveness of Food Aid. [hyperlink,
http://www.gao.gov/products/GAO-07-616T]. Washington, D.C.: March 21,
2007.
Maritime Security Fleet: Many Factors Determine Impact of Potential
Limits on Food Aid Shipments. [hyperlink,
http://www.gao.gov/products/GAO-04-1065]. Washington, D.C.: September
13, 2004.
[End of section]
Footnotes:
[1] The majority of U.S. food assistance--about two-thirds--represents
emergency food aid to respond to immediate food needs created by man-
made or natural disasters, with nonemergency food aid representing the
remainder.
[2] Pub. L. No. 99-198, Sec. 1111.
[3] In 1985, the Merchant Marine Act of 1936 (Pub. L. No. 83-664) was
amended to require that 75 percent of certain foreign food aid be
shipped on privately owned U.S.-flag vessels. See 46 U.S.C. 55314.
[4] Nonemergency food aid programs, also known as multi-year
development programs, are approved to operate for 3 to 5 years and
target chronically food-insecure populations. These nonemergency
programs include monetization and/or direct distribution of food aid.
[5] In 1977, Congress passed the Bellmon Amendment to the Food for
Peace Act. The amendment requires that before agencies supply food
aid, they must determine (1) that adequate storage facilities are
available in the recipient country at the time of exportation of the
commodity to prevent spoilage and waste of the commodity and (2) that
the distribution of the commodities in the recipient country will not
result in a substantial disincentive to, or interference with,
domestic production or marketing.
[6] USAID administers Title II programs of the Food for Peace Act,
formerly titled The Trade Development and Assistance Act of 1954 and
commonly referred to as Pub. L. No. 480. For the purposes of this
report, we use the term "Food for Peace" to refer to USAID's food aid
activities under Title II. Food for Peace activities include the
direct donation of U.S.-grown agricultural commodities for emergency
relief and development.
[7] GAO, Foreign Assistance: Various Challenges Impede the Efficiency
and Effectiveness of U.S. Food Aid, [hyperlink,
http://www.gao.gov/products/GAO-07-560] (Washington, D.C.: Apr. 13,
2007).
[8] In 2002, the Office of Management and Budget (OMB) recommended
decreasing monetization, indicating that the practice can impede U.S.
commercial exports, lower market prices, induce black market activity,
and thwart market development for U.S. farm products. OMB also raised
questions about the economic efficiency of the practice. That same
year, the President's Management Agenda suggested that directly
feeding the hungry, rather than providing food for development, should
be the primary goal of U.S. food aid programs. See [hyperlink,
http://www.gao.gov/products/GAO-07-560].
[9] GAO, International Food Assistance: Better Nutrition and Quality
Control Can Further Improve U.S. Food Aid, GAO-11-491 (Washington,
D.C.: May 12, 2011); and GAO, International School Feeding: USDA's
Oversight of the McGovern-Dole Food for Education Program Needs
Improvement, [hyperlink, http://www.gao.gov/products/GAO-11-544]
(Washington, D.C.: May 19, 2011).
[10] Since some of the records we received from the agencies contained
incomplete information, we reported only on those transactions that
had sufficient information to calculate cost recovery. For USAID, we
were able to use 189 of the 194 monetization transactions the agency
reported between fiscal years 2008 and 2010 (99 percent). For USDA, we
were able to use 61 of the 66 monetization transactions the agency
reported between fiscal years 2007 and 2009 (92 percent). We did not
include USDA monetization transactions for fiscal year 2010 because
the sales proceeds data provided by the agency for that year were
recorded as estimates, not as actual sales data like the other
transactions we used in our calculation. In its technical comments,
USDA stated that it provided estimated data in situations where
implementing partners had not yet called forward for 2010 agreements,
or had not yet reached the semiannual reporting deadline, and
therefore actual data were unavailable.
[11] According to DOT, free alongside ship is a term of sale for which
the seller is responsible for delivering the goods to be placed
alongside the vessel, and the buyer has to bear all costs and risks of
loss of or damage to the goods from that point on.
[12] H. Rept. 107-424.
[13] All costs represent commodities, freight, and distribution.
[14] The 2008 Farm Bill, Pub. L. No. 110-246, required a minimum level
of nonemergency food assistance under Title II--known as the "safe
box"--of no less than $375 million in fiscal year 2009. This minimum
level goes up to $450 million in fiscal year 2012 and up to $450
million in fiscal year 2012.
[15] We define the term "programmed" as the total volume for a given
commodity that was approved in a given fiscal year to be monetized,
even though the actual shipments of the commodity may occur in
subsequent years.
[16] Monetization occurs in agreements structured as grants, rather
than contracts. A federal grant is defined as "an award of financial
assistance from a federal agency to a recipient to carry out a public
purpose of support or stimulation authorized by a law of the United
States." See [hyperlink, http://www.grants.gov/aboutgrants/grants.jsp]
(last accessed June 21, 2011).
[17] Qualified entities for USAID's Food for Peace programs include
NGOs and intergovernmental organizations (such as the World Food
Program). Qualified entities for USDA's Food for Progress program may
be foreign governments or private entities including non-profit
organizations based in the United States but operating programs
overseas.
[18] USAID has traditionally called these Multi-Year Assistance
Programs (MYAP). However, USAID now refers to them officially as
development programs. USDA also typically refers to these grants as
Food for Progress agreements.
[19] For a description of the food aid supply chain, including an
interactive graphic and videos of the transportation and logistics
process, see [hyperlink, http://www.gao.gov/products/GAO-11-491].
[20] We calculated cost recovery over a 3-year period for each agency.
USAID's data cover fiscal years 2008 through 2010 and USDA's data
cover fiscal years 2007 through 2009. USDA provided us with estimated
sales prices for all but one fiscal year 2010 monetization
transaction. We did not include USDA monetization transactions for
fiscal year 2010 because the sales proceeds data provided by the
agency for that year were recorded as estimates, not as actual sales
data like the other transactions we used in our calculation. In its
technical comments, USDA stated that it provided estimated data in
situations where implementing partners had not yet called forward for
fiscal year 2010 agreements, or had not yet reached the semiannual
reporting deadline, and therefore actual data were unavailable.
[21] USAID did not provide any monetization grants to sovereign
governments through Food for Peace in the time period we examined,
fiscal years 2008 through 2010.
[22] In the time period we examined, fiscal years 2007 through 2009,
we found eight government-to-government transactions for which we were
able to obtain sufficient information. When government-to-government
monetization transactions are excluded from the calculation of an
overall USDA cost recovery average, the average increases from 58 to
61 percent.
[23] Section 202(e) of the Food for Peace Act (7 U.S.C. 1722(e))
authorizes USAID to make cash available to implementing partners to
support Food for Peace programs in (1) establishing new programs; (2)
meeting specific administrative, management, personnel, and internal
transportation and distribution costs for carrying out Food for Peace
programs; and (3) improving methodologies for food aid programs.
[24] According to USAID, as of June 2011 the manual was being revised,
but had not yet been officially reissued.
[25] For example, see David Tschirley, Cynthia Donovan, and Michael T.
Weber, "Food Aid and Food Markets: Lessons from Mozambique," Food
Policy, vol. 21, no. 2 (1996): 189-209.
[26] See GAO, International Food Assistance: Local and Regional
Procurement Can Enhance the Efficiency of U.S. Food Aid, but
Challenges May Constrain Its Implementation, [hyperlink,
http://www.gao.gov/products/GAO-09-570] (Washington, D.C.: May 29,
2009).
[27] Specifically, we used IPPs that were calculated by Fintrac, the
independent contractor hired by USAID to conduct market assessments
for countries where Food for Peace nonemergency food aid is monetized.
Fintrac's detailed methodology for calculating IPP is included in its
market analyses of each country, provided to USAID and available
publicly. See [hyperlink,
http://www.usaid.gov/our_work/humanitarian_assistance/ffp/bellmonana.htm
l] (last accessed June 21, 2011).
[28] When calculating the IPPs, Fintrac uses a margin of error of plus
or minus 10 percent around the IPP to account for imperfect market
information. Similarly, we allowed for a margin of error of plus or
minus 10 percent around the IPP when we compared the IPPs to
implementing partners' sales prices. We did not independently assess
the underlying data of Fintrac's IPP, but reviewed their methods and
data sources, which we found reasonable for the purpose of
establishing that a number of transactions have prices lower than 90
percent of commercial import prices.
[29] In another example, in 2000 the USDA Inspector General reported
that 95 percent of the commodities monetized in the transactions it
investigated in one country, amounting to more than 307,000 metric
tons, were sold for less than the competitive price in 1994.
[30] In the context of monetization cost recovery, commodity cost
includes commodity procurement cost and ocean freight cost.
[31] The difference between the costs of shipping U.S. food aid on
U.S.-flag rather than foreign-flag vessels as a result of cargo
preference requirements is known as the ocean freight differential
(OFD). The Food Security Act of 1985 requires DOT to reimburse food
aid agencies for a portion of the OFD cost and for ocean
transportation costs that exceed 20 percent of total program costs.
This report analyzes the freight rate differences between U.S.-and
foreign-flag carriers, using the ocean freight rates that U.S.
agencies paid prior to cargo freight differential reimbursement.
According to DOT, the total amount of OFD for fiscal years 2008
through 2010 was $342 million. We estimated the OFD for monetization
transactions from this time period is approximately $64 million. USAID
and USDA stated that the OFD reimbursements for monetization are
transferred to general food aid accounts for the agencies, and can be
used to fund either emergency or nonemergency programs.
[32] For further discussion of cargo preference, see GAO, Maritime
Security Fleet: Many Factors Determine Impact of Potential Limits on
Food Aid Shipments, [hyperlink,
http://www.gao.gov/products/GAO-04-1065] (Washington, D.C.: Sept. 13,
2004).
[33] The 95 percent confidence interval is between $20 per ton and $31
per ton. (For a detailed discussion of the regression analysis, see
appendix II).
[34] Numerous other factors were cited by the implementing partners we
surveyed as factors that would greatly or very greatly improve cost
recovery, including increasing third-country monetization, allowing
for regional monetization, and reducing proposal process time. (For a
full list of these factors, see figure 15 in appendix VI).
[35] The Maritime Security Fleet comprises vessels that participate in
the Maritime Security Program, a program established by the Maritime
Security Act of 1996 that provides funding to U.S. vessels
participating in international trade, to support the Department of
Defense. See [hyperlink, http://www.gao.gov/products/GAO-04-1065].
[36] The decline in the number of U.S.-flag vessels could be due to a
variety of reasons besides capacity, including a reduction in tonnage
of food aid shipped over this period, and increased demand by the
Department of Defense. Studying the cause of this decline was outside
the scope of our review.
[37] USAID and USDA, Report Regarding Efforts to Improve Procurement
Planning (Washington, D.C.: Jan. 21, 2009).
[38] The implementing partners we surveyed cited other steps that the
agencies could take to greatly or very greatly improve the
monetization process, including providing support for implementing
partners when complications arise, streamlining the proposal process,
and harmonizing planning time frames between USAID and USDA. (For a
full list of these steps, see figure 13 and figure 14 in appendix VI).
[39] Beginning in its fiscal year 2010 guidance, USAID has stated that
it will no longer approve proposals for 100 percent monetization.
Instead, it states that Title II nonemergency MYAPs must be some mix
of direct distribution and monetization. As such, 202(e) and ITSH
funds are provided to the entire program, and not segmented out
between monetization and direct distribution, making it extremely
difficult to quantify the amount used solely for monetization
activities.
[40] Numerous other factors were cited by the implementing partners we
surveyed as hindering monetization, including shortage of buyers, host
country government opposition, and shortage of staff with market
expertise. (For a full list of these factors, see figure 12 in
appendix VI.)
[41] In 1977, Congress passed the Bellmon Amendment to the Food for
Peace Act. The amendment requires that before agencies supply food
aid, they must determine (1) that adequate storage facilities are
available in the recipient country at the time of exportation of the
commodity to prevent spoilage and waste of the commodity and (2) that
the distribution of the commodities in the recipient country will not
result in a substantial disincentive to, or interference with,
domestic production or marketing.
[42] We define the term "programmed" as the total volume for a given
commodity that was approved in a given fiscal year to be monetized,
even though the actual shipments of the commodity may occur in
subsequent years.
[43] For the purposes of this report, we define the term "case" as the
total volume of a given commodity programmed for monetization by USAID
and/or USDA in a given country in a given year.
[44] In August 2008, USAID hired a private contractor--Fintrac--under
a 3-year pilot program to carry out an independent market analysis,
known as the Bellmon Estimation for Title II, for 20 priority
countries identified by the agency. According to Fintrac, the "10-
percent rule" is only a general guideline and is not always followed
by USAID. However, we were told by Fintrac that monetizing amounts
that are below the 10 percent limit would not cause substantial trade
disruption.
[45] We used the reported commercial import volumes found in USDA's
UMR assessments. We were able to examine 87 cases, for which a UMR was
available, of a total of 93 cases between fiscal years 2008 and 2010.
[46] USAID was authorized $22 million in the 2008 Farm Bill to improve
monitoring of nonemergency food aid, part of which was used to fund
BEST.
[47] USAID's contract with Fintrac is slated to end in 2011, and USAID
has not determined whether the program will be extended or if this
approach will become permanent. However, according to a USAID
official, the agency is committed to continue conducting independent
market analysis after the initial program comes to an end, and will
seek resources to do so.
[48] To calculate the IPP, Fintrac adds such costs as ocean freight to
point of import; duties, taxes and other charges; and inland
transportation to final destination. Because these components are
estimates that are imprecise, the analysis allow for a margin of error
of plus or minus 10 percent, (i.e., the sale price of a commodity to
be monetized is likely to be within 10 percent of the IPP).
[49] As mentioned earlier, for the purposes of this report, we define
the term "case" as the total volume of a given commodity programmed
for monetization by either USAID and/or USDA in a given country in a
given year. We examined 63 cases between fiscal years 2008 and 2010 in
which a commodity was programmed for monetization by USAID.
[50] Two other factors--stocks and export--also enter the computation,
but these tend to be relatively small.
[51] We requested UMRs for every monetization transaction conducted
between 2008 and 2010 and received a total of 87 UMRs in multiple
deliveries. We reviewed all 87 UMRs. However, our comments concerning
errors are limited to the initial delivery of 12 UMRs.
[52] Our analysis is based on the cases in which USAID and/or USDA
programmed monetization for a commodity and a recommended limit was
set by the BEST analysis and/or the UMR. Specifically, for USAID we
examined the 11 cases in which USAID programmed monetization for a
commodity and a BEST was available and the 59 cases in which USAID
programmed monetization for a commodity and a UMR was available. For
USDA, we examined the 3 cases in which USDA programmed monetization
for a commodity and a BEST was available and the 34 cases in which
USDA programmed monetization for a commodity and a UMR was available.
Further, there were 6 cases in which both USAID and USDA programmed
monetization for the same commodity in the same country and same year.
For all 6 of those cases a BEST and/or a UMR was available.
[53] Emmy Simmons, "Monetization of Food Aid: Reconsidering U.S.
Policy and Practice," Partnership to Cut Hunger and Poverty in Africa
(June 2009).
[54] We assume these variables are independent of each other and are
not correlated.
[End of section]
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
