International Food Assistance
Local and Regional Procurement Can Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain Its Implementation Gao ID: GAO-09-570 May 29, 2009While the U.S. approach of providing in-kind food aid has assisted millions of hungry people for more than 50 years, in 2007 GAO reported limitations to its efficiency and effectiveness. To improve U.S. food assistance, Congress has authorized some funding for local and regional procurement (LRP)--donors' purchase of food aid in countries affected by food crises or in a country within the same region. Through analysis of agency documents, interviews with agency officials, experts, and practitioners, and fieldwork in four African countries, this requested report examines (1) LRP's impact on the efficiency of food aid delivery; (2) its impact on economies where food is procured; and (3) U.S. legal requirements that could affect agencies' use of LRP.
LRP offers donors a tool to reduce food aid costs and delivery time, but multiple challenges to ensuring cost-savings and timely delivery exist. GAO found that local procurement in sub-Saharan Africa cost about 34 percent less than similar in-kind food aid purchased and shipped from the United States to the same countries between 2001 and 2008. However, LRP does not always offer cost-savings potential. GAO found that LRP in Latin America is comparable in cost to U.S. in-kind food aid. According to World Food Program (WFP) data, from 2004 to 2008, in-kind international food aid delivery to 10 sub-Saharan African countries took an average of 147 days, while local procurement only took about 35 days and regional about 41 days. Donors face challenges with LRP, including (1) insufficient logistics capacity that can contribute to delays in delivery, (2) donor funding restrictions, and (3) weak legal systems that can limit buyers' ability to enforce contracts. Although LRP may have the added benefit of providing food that may be more culturally appropriate to recipients, evidence has yet to be systematically collected on LRP's adherence to quality standards and product specifications, which ensure food safety and nutritional content. LRP has the potential to make food more costly to consumers in areas where food is procured by increasing demand and driving up prices, but steps can be taken to reduce these risks. As GAO's review of WFP market analyses and interviews with WFP procurement officers confirmed, a lack of accurate market intelligence, such as production levels, makes it difficult to determine the extent to which LRP can be scaled up without causing adverse market impacts. Although LRP does have the potential to support local economies, for example by raising farmers' incomes, data to demonstrate that these benefits are sustainable in the long term are lacking. U.S. legal requirements to procure U.S.-grown agricultural commodities for food aid and to transport up to 75 percent of those commodities on U.S.-flag vessels may constrain agencies' use of LRP. Although Congress has appropriated funding for some LRP, agencies disagree on the applicability of certain cargo preference provisions to LRP food aid that may require ocean shipping. The 1987 interagency MOU that governs the administration of cargo preference requirements and could clarify areas of disagreement among the agencies is outdated and does not address the issues arising from LRP.
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: Team: Phone:GAO-09-570, International Food Assistance: Local and Regional Procurement Can Enhance the Efficiency of U.S. Food Aid, but Challenges May Constrain Its Implementation
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Report to the Chairman, Subcommittee on Africa and Global Health,
Committee on Foreign Affairs, House of Representatives:
United States Government Accountability Office:
GAO:
May 2009:
International Food Assistance:
Local and Regional Procurement Can Enhance the Efficiency of U.S. Food
Aid, but Challenges May Constrain Its Implementation:
GAO-09-570:
GAO Highlights:
Highlights of GAO-09-570, a report to the Chairman, Subcommittee on
Africa and Global Health, Committee on Foreign Affairs, House of
Representatives.
Why GAO Did This Study:
While the U.S. approach of providing in-kind food aid has assisted
millions of hungry people for more than 50 years, in 2007 GAO reported
limitations to its efficiency and effectiveness. To improve U.S. food
assistance, Congress has authorized some funding for local and regional
procurement (LRP)”donors‘ purchase of food aid in countries affected by
food crises or in a country within the same region. Through analysis of
agency documents, interviews with agency officials, experts, and
practitioners, and fieldwork in four African countries, this requested
report examines (1) LRP‘s impact on the efficiency of food aid
delivery; (2) its impact on economies where food is procured; and (3)
U.S. legal requirements that could affect agencies‘ use of LRP.
What GAO Found:
LRP offers donors a tool to reduce food aid costs and delivery time
(see figure below), but multiple challenges to ensuring cost-savings
and timely delivery exist. GAO found that local procurement in sub-
Saharan Africa cost about 34 percent less than similar in-kind food aid
purchased and shipped from the United States to the same countries
between 2001 and 2008. However, LRP does not always offer cost-savings
potential. GAO found that LRP in Latin America is comparable in cost to
U.S. in-kind food aid. According to World Food Program (WFP) data, from
2004 to 2008, in-kind international food aid delivery to 10 sub-Saharan
African countries took an average of 147 days, while local procurement
only took about 35 days and regional about 41 days. Donors face
challenges with LRP, including (1) insufficient logistics capacity that
can contribute to delays in delivery, (2) donor funding restrictions,
and (3) weak legal systems that can limit buyers‘ ability to enforce
contracts. Although LRP may have the added benefit of providing food
that may be more culturally appropriate to recipients, evidence has yet
to be systematically collected on LRP‘s adherence to quality standards
and product specifications, which ensure food safety and nutritional
content.
Figure: Comparison of Cost and Time in Food Aid Delivery:
[Refer to PDF for image: horizontal bar graph]
Average Cost Differential (percentage by which the cost of U.S. in-kind
food aid differs from the cost of local procurement):
Worldwide: 25% more;
Sub-Saharan Africa: 34% more;
Asia: 29% more;
Latin America: 2% less.
Average Delivery Time[A] for 10 Countries in Sub-Saharan Africa:
In-kind donations (international):
Time (in-kind donations): 147 days.
Cash donations, International:
Time (cash donations): 91 days;
Time saved (cash donations): 56 days.
Cash donations, Regional:
Time (cash donations): 41 days;
Time saved (cash donations): 106 days;
Cash donations, Local:
Time (cash donations): 35 days;
Time saved (cash donations): 112 days.
Source: GAO analysis of USAID and WFP data.
[A] Time elapsed between the purchase order date and the date WFP takes
possession of the food in the recipient country. Additional time is
required for the food to reach intended beneficiaries.
[End of figure]
LRP has the potential to make food more costly to consumers in areas
where food is procured by increasing demand and driving up prices, but
steps can be taken to reduce these risks. As GAO‘s review of WFP market
analyses and interviews with WFP procurement officers confirmed, a lack
of accurate market intelligence, such as production levels, makes it
difficult to determine the extent to which LRP can be scaled up without
causing adverse market impacts. Although LRP does have the potential to
support local economies, for example by raising farmers‘ incomes, data
to demonstrate that these benefits are sustainable in the long term are
lacking.
U.S. legal requirements to procure U.S.-grown agricultural commodities
for food aid and to transport up to 75 percent of those commodities on
U.S.-flag vessels may constrain agencies‘ use of LRP. Although Congress
has appropriated funding for some LRP, agencies disagree on the
applicability of certain cargo preference provisions to LRP food aid
that may require ocean shipping. The 1987 interagency MOU that governs
the administration of cargo preference requirements and could clarify
areas of disagreement among the agencies is outdated and does not
address the issues arising from LRP.
What GAO Recommends:
GAO recommends that the Administrator of USAID and the Secretary of
Agriculture systematically collect evidence on LRP adherence to quality
standards; work to improve the reliability of market intelligence; and
work with the Secretary of Transportation to update the interagency
memorandum of understanding (MOU) that governs cargo preference
requirements. USAID concurred with GAO‘s recommendations. USDA and WFP
generally concurred but noted concerns about certain efficiency and
market intelligence issues. DOT suggested further analysis of costs and
delivery time, and noted that DOT implements its mandate through
regulation, not the MOU.
View [hyperlink, http://www.gao.gov/products/GAO-09-570] or key
components. For more information, contact Thomas Melito at (202) 512-
9601 or melitot@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Local and Regional Procurement of Food Can Reduce Costs and Improve
Timeliness of Food Aid Delivery, but Many Challenges Remain:
Local and Regional Procurement of Food Aid Has Potential for Adverse
Market Impacts That Can Be Mitigated by Better Market Intelligence:
Legal Requirements for U.S. Food Aid May Constrain U.S. Agencies' Use
of Local and Regional Procurement:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Key Donor Initiatives That Support LRP:
Appendix III: Delivery Time by Procurement Type in Ten Selected
Countries:
Appendix IV: Illustrative Example of U.S. In-kind Food Aid Compared
With LRP:
Appendix V: Results of Interviews with WFP Procurement Officers:
Appendix VI: GAO Literature Review of Selected Studies on the Use of
LRP:
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: Comments from the World Food Program:
Appendix XI: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Nine of the Top 10 Developing Countries for WFP Food
Procurement also Received Food Aid in 2007:
Table 2: Recipients of Food Aid Purchased from South Africa in 200818:
Table 3: U.S. Agencies' Interpretations of Cargo Preference
Requirements as They Pertain to Implementation of LRP:
Table 4: WFP Contract Terms and USAID Cost Components Included in Cost
Comparison:
Table 5: Number of Matches in Cost Comparison:
Table 6: Selected Studies on the Use of LRP:
Figures:
Figure 1: Food Aid as In-kind Commodities and through Cash Donations
for Food Purchases, 1988 through 2007:
Figure 2: WFP Local, Regional, and International Procurement of Food
Aid, 2001 to 2008:
Figure 3: WFP Procurement in Developed Countries Compared with
Developing Countries, 2001 to 200813:
Figure 4: Cost Comparison of WFP Local Procurement and U.S. In-kind
Food Aid, by Region:
Figure 5: WFP Procurement from South Africa, 2001-2008:
Figure 6: Average of Median Delivery Times for 10 Recipient Countries
in Sub-Saharan Africa, 2004 to 2008:
Figure 7: Agricultural Commodity Value Chain Supported by LRP:
Figure 8: Cost Difference between USAID and WFP Local Procurement in
Sub-Saharan Africa:
Figure 9: Selected Key Donor Initiatives That Support LRP, 2006 to
2009:
Figure 10: Median Delivery Times for Selected Recipient Countries in
Sub-Saharan Africa, 2004 and 2008:
Figure 11: An Illustrative Example of U.S. In-kind Food Aid Compared
with LRP to Tajikistan:
Figure 12: Factors Limiting LRP Efficiency and Actions That Improve and
Ensure LRP Efficiency:
Figure 13: Factors That Limit Positive Development Impacts of LRP and
Actions to Improve or Strengthen Such Impacts:
Abbreviations:
AGRA: Alliance for a Green Revolution in Africa:
CAADP: Comprehensive Africa Agriculture Development Program:
CARE: Cooperative for Assistance and Relief Everywhere, Inc.
CFB: Canadian Foodgrains Bank:
CRS: Catholic Relief Services:
CSB: corn soy blend:
DDU: delivery duty unpaid:
DFID: Department for International Development (United Kingdom):
DOT: Department of Transportation:
FAO: Food and Agriculture Organization:
FEWS NET: Famine Early Warning Systems Network:
FOB: free on board:
G8: Group of Eight:
GMO: genetically modified organisms:
HACCP: Hazard Analysis and Critical Control Point:
ICRC: International Committee of the Red Cross:
IDP: internally displaced person:
IEHA: Initiative to End Hunger in Africa:
IFAD: International Fund for Agricultural Development:
IFPRI: International Food Policy Research Institute:
INTERFAIS: International Food Aid Information System:
IPP: import parity price:
ITSH: inland transportation, storage, and handling:
KCCO: Kansas City Commodity Office (U.S. Department of Agriculture):
LRP: local and regional purchase:
MARAD: Maritime Administration (U.S. Department of Transportation):
MCC: Millennium Challenge Corporation:
MOU: memorandum of understanding:
NEPAD: New Partnership for Africa's Development:
NGO: nongovernmental organization:
OFDA: Office of Foreign Disaster Assistance (U.S. Agency for
International Development):
P4P: Purchase for Progress:
PEPFAR: President's Emergency Plan for AIDS Relief:
PRM: Bureau of Population, Refugees, and Migration (U.S. Department of
State):
SAFEX: South African Futures Exchange:
UN: United Nations:
UNHCR: United Nations High Commissioner for Refugees:
USAID: U.S. Agency for International Development:
USDA: U.S. Department of Agriculture:
WFP: World Food Program:
WHO: World Health Organization:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 29, 2009:
The Honorable Donald M. Payne:
Chairman:
Subcommittee on Africa and Global Health:
Committee on Foreign Affairs:
House of Representatives:
In an environment of increasing emergencies and growing global food
insecurity,[Footnote 1] the United States and other donors face intense
pressures to feed the world's expanding undernourished population. In
September 2008, the United Nations (UN) Food and Agriculture
Organization (FAO) reported that high food prices had resulted in the
number of undernourished people reaching a record 963 million--1 of
every 7 people in the world and 40 million more than the 923 million
reported undernourished in 2007.[Footnote 2] Recently, the
International Fund for Agricultural Development (IFAD) reported that
global food insecurity could worsen, with some nutrition studies
estimating that the number of food-insecure may rise by 16 million
people for every percentage increase in the prices of staple goods.
High food prices have sparked food protests, with riots reported in
more than 50 countries from January 2007 to June 2008, including 12
countries in sub-Saharan Africa.[Footnote 3] Moreover, piracy could
endanger aid organizations' food supply pipelines to some of these
countries.
Local and regional procurement (LRP)--the purchase of food aid by
donors in countries affected by disasters and food crises or in a
different country within the same region--has increasingly become a key
element in the multilateral food aid response over the past decade.
[Footnote 4] Most bilateral donors of food aid have switched from
commodity-based in-kind food aid to a cash-based food assistance
program in recent years. According to some experts, providing cash
rather than in-kind food commodities to implementing partners such as
the UN World Food Program (WFP)--the largest multilateral purchaser and
provider of food aid in the world[Footnote 5]--or to other aid
organizations and nongovernmental organizations (NGO)[Footnote 6] can
enable them to purchase food locally or regionally and deliver it to
beneficiaries quickly and cost-effectively, while also providing
development benefits to local communities where the food is purchased.
[Footnote 7] However, other experts say that large cash purchases in
some developing countries can have detrimental effects on local market
conditions, and in such cases in-kind donations of commodities may be
more beneficial.
As the largest international food aid donor, contributing over half of
all food aid supplies to alleviate hunger and support development, the
United States plays an important role in responding to emergency food
assistance needs and ensuring global food security. In 2008, the United
States provided more than $2.8 billion in annual and supplemental
funding for U.S. international food aid programs for more than 2.9
million metric tons of food aid. The large majority of U.S. food
assistance is for U.S.-grown commodities purchased competitively in the
United States and shipped to recipient countries on U.S.-flag carriers.
Although this approach has delivered vast amounts of food to hundreds
of millions of undernourished people over the past 50 years, we
previously reported significant limitations to its efficiency and
effectiveness and recommended various improvements in areas such as
transportation and monitoring.[Footnote 8]
Congress has recently authorized limited funding for LRP. Its 2008 Farm
Bill authorized the U.S. Department of Agriculture (USDA) to implement
a 5-year, $60 million pilot LRP program for food aid.[Footnote 9]
Subsequently in 2008, Congress appropriated $50 million in bridge fund
supplemental funding to the U.S. Agency for International Development
(USAID) for LRP in response to current emergencies, including the
global food crisis.[Footnote 10] In 2009, Congress appropriated another
$75 million for global food security, including LRP and distribution of
food.[Footnote 11]
In response to a request from the Chairman, House Subcommittee on
Africa and Global Health, Committee on Foreign Affairs, we examined (1)
the impact of LRP on the efficiency[Footnote 12] of food aid delivery,
(2) the impact of LRP on economies where food is procured, and (3) U.S.
legal requirements that could affect U.S. agencies' use of LRP.
To address these objectives, we compared the cost of food through LRP
with in-kind food aid from the United States by analyzing the per ton
cost of similar commodities for the same recipient countries in the
same quarter of a given year for WFP and USAID, respectively. We
examined WFP data that compared the delivery time[Footnote 13] of LRP
with in-kind food aid for 10 countries in sub-Saharan Africa for 2004
through 2008. In addition, we reviewed selected economic literature on
LRP and recent reports, studies, and papers issued by U.S. agencies,
multilateral organizations, and bilateral donors. In four African
countries that we selected for fieldwork--South Africa in southern
Africa, Kenya and Uganda in East Africa, and Burkina Faso in West
Africa[Footnote 14]--we met with WFP procurement officers and other WFP
officials, U.S. mission staff, and host government, donor, and NGO
representatives. We also visited various WFP and USAID project sites,
as well as transportation and logistics facilities. In Washington,
D.C., we interviewed officials from U.S. agencies, including USAID,
USDA, State, Department of Transportation (DOT), and the Treasury; and
the Millennium Challenge Corporation (MCC).[Footnote 15] In addition,
we met with the Rome-based UN food and agriculture agencies--namely,
FAO, WFP, and IFAD, as well as the U.S. Mission to the UN--and several
bilateral donors' permanent representatives.[Footnote 16] In addition,
we met with representatives of private foundations that actively fund
agriculture and food security projects in sub-Saharan Africa. We also
conducted semi-structured interviews with 11 WFP procurement officers
based in Africa and Asia.[Footnote 17] Finally, we convened a
roundtable of 10 experts and practitioners--including representatives
from academia, research organizations, multilateral organizations, and
NGOs--to further delineate, on the basis of our initial work, some key
issues and challenges to the implementation of LRP.
We conducted this performance audit from June 2008 to May 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. (Appendix I provides a
detailed discussion of our objectives, scope, and methodology.)
Results in Brief:
Donors can reduce food aid costs and delivery time through local and
regional procurement (LRP), but they face challenges to ensuring cost
savings and timely delivery. First, we found that WFP's local
procurement in sub-Saharan Africa cost about 34 percent less than the
cost of similar food aid that USAID purchased and shipped from the
United States to the same countries between 2001 and 2008. However, LRP
may not always offer cost-saving opportunities. For example, we found
that the cost of LRP in Latin America was comparable to the cost of
U.S. in-kind food aid. Second, WFP data show that between 2004 and
2008, international in-kind food aid donations to 10 countries in sub-
Saharan Africa took, on average, 147 days compared with about 35 and 41
days for locally and regionally procured food. Despite these benefits,
donors face challenges to ensuring cost-efficiency and timely delivery.
These challenges include (1) a limited number of reliable suppliers,
which could drive up procurement costs and time; (2) donor funding
restrictions that may limit the flexibility of where and when to
purchase; and (3) weak legal systems that could limit buyers' ability
to enforce contracts. For example, a World Vision local procurement in
Mozambique was delayed by more than 5 months because World Vision
lacked accurate information on the supplier's inventory and the
supplier was unable to procure enough food within the agreed-upon time
frame. Upon delivery, World Vision found that many bags contained less
food than the amount specified in the contract. Finally, LRP may have
the added benefit of providing food aid that is more acceptable to
recipients because it is more suited to local preferences. However,
concerns persist about the quality of food procured in developing
countries, and evidence on how LRP affects donors' ability to adhere to
quality standards and product specifications has yet to be
systematically collected.
LRP has the potential to make food more costly to consumers in areas
where food is procured by increasing demand and driving up prices, but
steps are being taken to reduce these risks. LRP's potential impact on
local economies is opposite to that of in-kind food aid, where local
prices can be depressed due to large increases in supply. LRP's impact
can depend on the scale of procurements, their implementation, and
market conditions such as whether the market is sufficiently integrated
with neighboring markets to absorb increased demand. Even though WFP is
the largest purchaser of food assistance, WFP's local procurements tend
to be smaller, on average, than its international procurements--298
metric tons as compared with 671 metric tons per purchase order. WFP
procurement officers stated that in most cases WFP's procurements have
not affected local market prices, though there have been exceptions. In
2006, for example, protracted food aid procurements after a good
harvest in Ethiopia contributed to a price hike. The most significant
challenge to avoiding potential adverse market impacts when conducting
LRP is unreliable market intelligence. For example, in 2007, inaccurate
information on production levels in Malawi led WFP to believe it was
purchasing maize in a surplus market. Malawi faced food shortages a few
months later. According to WFP officials, WFP has taken several actions
to improve market intelligence, including monitoring world prices to
determine when they fall below local prices, to decide when to switch
from local to regional or international procurement. Even when market
information is adequate, poorly functioning and unintegrated markets in
sub-Saharan Africa and other developing countries still present
challenges to expanding LRP while avoiding its potential adverse market
impacts. For example, there is only one well-functioning commodity
exchange in all of sub-Saharan Africa. Many of the factors that affect
persistent food insecurity in sub-Saharan Africa and other developing
countries are also detrimental to the implementation and potential
expansion of LRP. These include lack of access to agricultural inputs
and extension services, weak transportation infrastructures, and weak
or conflicting host government policies. LRP does have the potential to
support local economies by increasing demand for agricultural
commodities and raising farmers' incomes, but little data exist to
demonstrate that these benefits have occurred or are sustainable in the
long term. In several of the countries we visited, we observed WFP LRP
initiatives that might support local economies and connect LRP to other
food security initiatives, but many of them are new and limited in
scale.
Certain legal requirements to procure U.S.-grown agricultural
commodities for food aid and to transport those commodities on U.S.-
flag vessels may constrain agencies' use of LRP. First, the Food for
Peace Act, which authorizes Title II funding averaging $2 billion
annually, supports in-kind food aid by specifying that funding under
the Act can be used only to purchase U.S.-grown rather than foreign-
grown commodities and thus cannot be used by U. S. agencies to
implement an LRP program. However, since 2001, the U.S. government,
through programs operating under a different authority--the Foreign
Assistance Act--has provided a total of approximately $220 million to
WFP for 1,265 LRP transactions. Furthermore, since July 2008, Congress
has appropriated $50 million to USAID through the 2008 bridge
supplemental and $75 million through the 2009 Omnibus appropriations
that can be used for LRP, in addition to $75 million in International
Disaster Assistance funding that the Administration has made available
for LRP. Second, the Cargo Preference Act of 1954, as amended, requires
up to 75 percent of the gross tonnage of all U.S.-funded food aid to be
transported on U.S.-flag vessels. However, there is disagreement among
USAID, USDA, and DOT, the agency that implements cargo preference
requirements, on how to interpret and implement these requirements,
such as which agency is responsible for determining the availability of
U.S.-flag vessels. The memorandum of understanding (MOU) that sets
forth the manner in which U.S. agencies coordinate the administration
of cargo preference as applied to food aid was last updated in 1987 and
does not specifically address these areas of ambiguity. The resulting
lack of clarity could constrain agencies' ability to fully utilize the
authorities to conduct LRP when responding to food emergencies. For
example, USAID to date has used a legislative exemption from cargo
preference requirements on only four occasions, due in part to the
expectation of a regulatory response from DOT. Thus, the possibility
that USAID may have to increase the use of U.S.-flag shipping above
program thresholds, in order to remain within the tonnage requirements,
may constrain the agency in the future.
We are recommending that the Administrator of USAID and the Secretary
of Agriculture (1) systematically collect evidence on LRP's adherence
to quality standards and product specifications to ensure food safety
and nutritional content; (2) work with implementing partners to improve
the reliability and utility of market intelligence in areas where U.S.-
funded LRP occurs, thereby ensuring that U.S.-funded LRP practices
minimize potential adverse impacts and maximize potential benefits; and
(3) work with the Secretary of Transportation to expedite updating the
MOU between U.S. food assistance agencies and the Department of
Transportation, consistent with our 2007 recommendation, to minimize
the cost impact of cargo preference regulations on food aid
transportation expenditures and to resolve uncertainties associated
with the application of cargo preference to regional procurement.
USAID, USDA, DOT, and WFP provided written comments on a draft of this
report. We have reprinted these agencies' comments in appendixes VII,
VIII, IX, and X, respectively, along with our responses. Additionally,
USAID, DOT, State, and WFP provided technical comments on a draft of
this report, which we have addressed or incorporated as appropriate.
Treasury and MCC did not provide comments.
USAID generally concurred with our recommendations. With regard to the
first recommendation, however, USAID noted that it may be more
efficient to include LRP's adherence to quality as part of U.S.
agencies' ongoing efforts to collaborate to develop and implement
systems to monitor quality assurance and product specification issues
in all food purchases. The recommendation does not preclude such
coordination among the agencies.
USDA generally agreed with our report, noting that our comparisons of
costs and delivery times were insightful. However, USDA observed that
aggregating some of the products into commodity groups caused a loss of
precision in our methodology. In conducting our overall analysis, we
worked to ensure that we included the largest number of procurement
transactions over the longest possible time period for which we had
data, so some aggregation was required.
DOT stated that it implements the cargo preference statute through
regulation, not through an interagency MOU. Nevertheless, the
regulations contain ambiguities that have previously required
resolution through an MOU. This report describes new ambiguities that
could arise when applying cargo preference in the context of regional
procurement. We believe, as we recommend, that these ambiguities can be
resolved by updating the MOU.
WFP welcomed our timely examination of LRP as a tool to deliver
effective and efficient food assistance. However, WFP stated it was
perplexed that concerns persist about the quality of food procured in
developing countries, given the lack of evidence showing that LRP
introduces quality challenges that are not already challenges to
internationally procured and donor-provided food aid. We note that
quality is one issue that many WFP procurement officers and several
other officials we interviewed have identified as a challenge for LRP.
However, the lack of systematically collected data makes it difficult
to objectively analyze how LRPs adhere to quality standards and product
specifications.
Background:
Donors Provide Food Aid in Various Ways:
Donors provide food aid primarily through procurements, vouchers, and
contracts, most commonly working through international organizations,
such as WFP,[Footnote 18] and NGOs. Procurements of food aid can be
categorized geographically as:
* International: Donor-financed purchases of food aid in world markets,
which may include both developed and developing countries. For example,
food purchased in Canada that is delivered to Uganda.
* Regional: Donor-financed purchases of food aid in a different country
in the same region. For example, food purchased in South Africa that is
delivered to Uganda.
* Local: Donor-financed purchases of food aid in countries affected by
disasters and food crises. For example, food purchased in the southern
part of Uganda that is delivered to the northern part of Uganda.
Donors may also provide vouchers that allow recipients to purchase
their own food in the local market.[Footnote 19] This option is usually
used when food is available, but disaster-affected populations no
longer have the income or livelihoods that would enable them to
purchase food. WFP launched its first food voucher operation in Africa
in February 2009, targeting 120,000 people who were suffering from the
impact of high food prices in the urban areas of Ouagadougou in Burkina
Faso.
In addition, donors may contract with a commercial agent, such as a
local trader, to purchase and deliver food aid. For example, in April
2009, the Canadian Foodgrains Bank (CFB) contracted with Kenyan traders
to purchase food from sources outside the country and used several NGOs
to distribute the food.[Footnote 20]Donors Are Increasingly Providing
International Food Assistance in Cash:
As the volume of food aid in the form of in-kind commodities has
declined, the volume of food aid purchased through cash donations has
increased, as shown in figure 1.
Figure 1: Food Aid as In-Kind Commodities and through Cash Donations
for Food Purchases, 1988 through 2007 (in millions of tons):
[Refer to PDF for image: two multiple line graphs]
In-kind food aid:
Year: 1988;
All in-kind food aid commodities: 13.2;
U.S. in-kind food aid commodities: 8.4;
Food aid commodities purchased through cash donations: 1.3.
Year: 1989;
All in-kind food aid commodities: 10.6;
U.S. in-kind food aid commodities: 6.5;
Food aid commodities purchased through cash donations: 1.0.
Year: 1990;
All in-kind food aid commodities: 12.0;
U.S. in-kind food aid commodities: 7.8;
Food aid commodities purchased through cash donations: 1.2.
Year: 1991;
All in-kind food aid commodities: 11.3;
U.S. in-kind food aid commodities: 7.3;
Food aid commodities purchased through cash donations: 1.5.
Year: 1992;
All in-kind food aid commodities: 13.3;
U.S. in-kind food aid commodities: 7.5;
Food aid commodities purchased through cash donations: 2.0.
Year: 1993;
All in-kind food aid commodities: 15.3;
U.S. in-kind food aid commodities: 10.9;
Food aid commodities purchased through cash donations: 2.1.
Year: 1994;
All in-kind food aid commodities: 11.0;
U.S. in-kind food aid commodities: 7.1;
Food aid commodities purchased through cash donations: 1.9.
Year: 1995;
All in-kind food aid commodities: 8.0;
U.S. in-kind food aid commodities: 4.2;
Food aid commodities purchased through cash donations: 2.2.
Year: 1996;
All in-kind food aid commodities: 5.6;
U.S. in-kind food aid commodities: 3.2;
Food aid commodities purchased through cash donations: 1.6.
Year: 1997;
All in-kind food aid commodities: 5.5;
U.S. in-kind food aid commodities: 3.1;
Food aid commodities purchased through cash donations: 1.8.
Year: 1998;
All in-kind food aid commodities: 6.7;
U.S. in-kind food aid commodities: 4.0;
Food aid commodities purchased through cash donations: 1.7;
Year: 1999;
All in-kind food aid commodities: 13.4;
U.S. in-kind food aid commodities: 9.5;
Food aid commodities purchased through cash donations: 1.6.
Year: 2000;
All in-kind food aid commodities: 9.4;
U.S. in-kind food aid commodities: 6.9;
Food aid commodities purchased through cash donations: 2.0.
Year: 2001;
All in-kind food aid commodities: 9.1;
U.S. in-kind food aid commodities: 6.3;
Food aid commodities purchased through cash donations: 1.9.
Year: 2002;
All in-kind food aid commodities: 7.9;
U.S. in-kind food aid commodities: 5.9;
Food aid commodities purchased through cash donations: 1.5.
Year: 2003;
All in-kind food aid commodities: 7.4;
U.S. in-kind food aid commodities: 5.1;
Food aid commodities purchased through cash donations: 2.9.
Year: 2004;
All in-kind food aid commodities: 4.9;
U.S. in-kind food aid commodities: 3.9;
Food aid commodities purchased through cash donations: 2.4.
Year: 2005;
All in-kind food aid commodities: 5.6;
U.S. in-kind food aid commodities: 3.9;
Food aid commodities purchased through cash donations: 2.7.
Year: 2006;
All in-kind food aid commodities: 4.4;
U.S. in-kind food aid commodities: 3.5;
Food aid commodities purchased through cash donations: 2.6.
Year: 2007;
All in-kind food aid commodities: 3.5;
U.S. in-kind food aid commodities: 2.6;
Food aid commodities purchased through cash donations: 2.5.
Source: GAO analysis of International Food Aid Information System
(INTERFAIS) data.
[End of figure]
With the exception of the United States, most major donors--including
the European Union, the United Kingdom, and most recently Canada--now
provide all of their food aid as cash that may be used for local and
regional procurement (LRP) by WFP and NGOs. Previously, the European
Union's food aid policies called for procuring food in the donor's
domestic market. In 1996, however, the European Union essentially
eliminated restrictions that tied procurement of food aid to European
suppliers as it restructured its food aid and food security budgets to
focus on improving food security. In 2005, Canada took similar actions,
providing 50 percent of its food aid budget in cash available for LRP.
In 2008, Canada opted to provide 100 percent of its food aid budget in
cash.
Many donors place conditions on their cash contributions to WFP, such
as stating a preference for procurement of food in developing countries
or for LRP. However, according to WFP, the availability of more
flexible funding has significantly increased over the years, as donors
have gradually shifted to providing food assistance as cash without
tying such assistance to purchases from domestic food suppliers.
[Side bar: Canada Has Adopted a Cash LRP Food Aid Policy:
Like the United States, Canada has historically tied the procurement of
food aid to its domestic suppliers. However, over the past few decades,
Canada has shifted to providing food aid in cash, ranging from 15
percent in 1975 to 50 percent in 2005 and 100 percent as of April 2008.
Canada also announced in April 2008 that it would increase its annual
food aid contributions to an amount equivalent to almost $208 million
USD for fiscal year 2008.
Canada‘s stated rationale for switching to 100 percent cash funding for
food aid (which in some cases can still be used to purchase Canadian
agricultural commodities) was to provide more flexibility to its
overall food security strategy, improve the efficiency of its food
assistance, and contribute to the development of local and regional
markets from which it purchases food aid. As one of the world‘s largest
food aid donors, Canada has provided an average of about $161 million
(USD) to WFP, the Canadian Foodgrains Bank (CFB), and other NGOs
annually over the last 4 years, with the vast majority of its
contributions going to WFP.
Canadian food aid programming is administered by the Canadian
International Development Agency (CIDA). CIDA provides contributions to
WFP and also provides 4 to 1 matching funding to CFB, up to $22.6
million (USD) annually. CIDA‘s guidance to WFP and CFB is to place an
emphasis on purchasing from developing countries when it does not come
at the expense of a timely and appropriate food aid intervention.
Figure: Canadian Farmers Support Smallholder Farmers in Burkina Faso:
[Refer to PDF for image: photograph]
Canadian farmers provided smallholder farmers in Burkina Faso an
interest-free loan with which they constructed a grain storage
warehouse.
Source: GAO.
[End of figure]
[End of sidebar]
WFP's Use of LRP Has Increased, particularly in Developing Countries:
In its strategic plan for 2008 through 2011, WFP identified use of LRP
as one of its five main objectives. WFP's stated policy is to purchase
food aid at the most advantageous price available, taking into account
the cost of transportation and shipping, with a preference for using
LRP in developing countries wherever possible. WFP cited two primary
goals for funding LRP: (1) to increase the efficiency of food aid
delivery, expediting assistance to save lives during food emergencies
and humanitarian crises; and (2) to support development by stimulating
agricultural production and raising farm incomes, particularly by
targeting smallholder farm households.[Footnote 21]
As shown in figure 2, WFP LRP has consistently exceeded international
procurement of food aid, principally for emergencies, from 2001 to
2008.
Figure 2: WFP Local, Regional, and International Procurement of Food
Aid, 2001 to 2008:
[Refer to PDF for image: vertical bar graph]
Year: 2001;
Local: 404,451 metric tons;
Regional: 679,129 metric tons;
International: 395,554 metric tons.
Year: 2002;
Local: 379,188 metric tons;
Regional: 657,114 metric tons;
International: 477,398 metric tons.
Year: 2003;
Local: 493,954 metric tons;
Regional: 1,235,940 metric tons;
International: 937,570 metric tons.
Year: 2004;
Local: 808,587 metric tons;
Regional: 1,032,630 metric tons;
International: 1,716,420 metric tons.
Year: 2005;
Local: 950,218 metric tons;
Regional: 705,800 metric tons;
International: 870,634 metric tons.
Year: 2006;
Local: 964,788 metric tons;
Regional: 394,085 metric tons;
International: 656,515 metric tons.
Year: 2007;
Local: 867,259 metric tons;
Regional: 651,298 metric tons;
International: 561,294 metric tons.
Year: 2008;
Local: 856,128 metric tons;
Regional: 890,458 metric tons;
International: 1,078,080 metric tons.
Source: GAO based on WFP data.
[End of figure]
WFP procurement in developing countries has been increasing, from $171
million in 2001 to over $1 billion in 2008 (see figure 3). In 2008, WFP
procured 78 percent of its food aid from developing countries and 22
percent from developed countries.
Figure 3: WFP Procurement in Developed Countries Compared with
Developing Countries, 2001 to 2008:
[Refer to PDF for image: vertical bar graph]
Year: 2001;
Developing countries: $171 million;
Developed countries: $123.3 million;
Year: 2002;
Developing countries: $219.6 million;
Developed countries: $87.7 million.
Year: 2003;
Developing countries: $442.9 million;
Developed countries: $190.5 million.
Year: 2004;
Developing countries: $725.5 million;
Developed countries: $325.9 million.
Year: 2005;
Developing countries: $527.3 million;
Developed countries: $185.1 million.
Year: 2006;
Developing countries: $460.3 million;
Developed countries: $140.7 million.
Year: 2007;
Developing countries: $612.4 million;
Developed countries: $155.0 million.
Year: 2008;
Developing countries: $1092.9 million;
Developed countries: $314.9 million.
Source: GAO based on WFP data.
[End of figure]
Of the top 20 developing countries from which WFP procured food in
2008, 16 were in Africa and Asia. As shown in table 1, in 2007, 9 of
the top 10 developing countries (including 8 in Africa and Asia) from
which WFP procured food also received food aid the same year. Africa
received 54 percent of total international food aid provided, and Asia
received 29 percent of total international food aid provided in 2007.
Table 1: Nine of the Top 10 Developing Countries for WFP Food
Procurement also Received Food Aid in 2007:
Developing country: Uganda;
WFP procurement: In U.S. dollars: $54,769,771;
WFP procurement: In metric tons: 210,223;
Food aid received (In metric tons): 278,403.
Developing country: Ecuador;
WFP procurement: In U.S. dollars: $51,137,045;
WFP procurement: In metric tons: 42,255;
Food aid received (In metric tons): 759.
Developing country: Turkey;
WFP procurement: In U.S. dollars: $44,515,965;
WFP procurement: In metric tons: 99,719;
Food aid received (In metric tons): 0.
Developing country: Pakistan; WFP procurement: In U.S. dollars:
36,399,122;
WFP procurement: In metric tons: $131,485;
Food aid received (In metric tons): 21,639.
Developing country: Indonesia;
WFP procurement: In U.S. dollars: v29,452,050;
WFP procurement: In metric tons: 27,152;
Food aid received (In metric tons): 43,413.
Developing country: India;
WFP procurement: In U.S. dollars: $28,188,917;
WFP procurement: In metric tons: 111,613;
Food aid received (In metric tons): 118,586.
Developing country: Sudan;
WFP procurement: In U.S. dollars: $24,771,678;
WFP procurement: In metric tons: 93,935;
Food aid received (In metric tons): 497,520.
Developing country: Kenya;
WFP procurement: In U.S. dollars: $24,404,307;
WFP procurement: In metric tons: 82,013;
Food aid received (In metric tons): 296,726.
Developing country: Zambia;
WFP procurement: In U.S. dollars: $21,412,392;
WFP procurement: In metric tons: 95,282;
Food aid received (In metric tons): 40,769.
Developing country: Malawi;
WFP procurement: In U.S. dollars: $20,619,635;
WFP procurement: In metric tons: 90,549;
Food aid received (In metric tons): 94,530.
Source: GAO based on WFP and INTERFAIS data.
Note: INTERFAIS data includes food aid from all sources, including WFP,
multilateral organizations, and bilateral donors.
[End of table]
Donors Have Launched Various Initiatives That Support LRP:
In an effort to address the global food crisis, donors have recently
launched a number of initiatives, many of which specifically advance
LRP of food aid (see appendix II). These donors include multilateral
organizations such as the UN, WFP, and the World Bank, and bilateral
donors such as the United States. For example, in September 2008, WFP
formally launched the Purchase for Progress (P4P) program, a $76
million pilot that is to be implemented in 21 countries, 15 of them in
sub-Saharan Africa, in the next 5 years to improve the income of
smallholder farmers and thereby increase their incentives for
production. In July 2008, the Group of Eight (G8) [Footnote 22] issued
a statement on global food security that called on donors to
participate in making commitments to provide access to seed and
fertilizers and help build up local agriculture by promoting local
purchase of food aid. In April 2008, the World Bank's New Deal for
Global Food Policy called for changes including a shift from
traditional in-kind food assistance to cash, vouchers, development
assistance for local markets, and purchase of food from local farmers
to strengthen their communities.
Local and Regional Procurement of Food Can Reduce Costs and Improve
Timeliness of Food Aid Delivery, but Many Challenges Remain:
Local and regional procurement (LRP) can offer donors a tool for
reducing costs and shortening delivery time but faces multiple
challenges. LRP can offer cost-saving opportunities over in-kind food
aid from the United States if food is available in the recipient
country or neighboring countries, and the cost of procuring locally or
regionally is less than the cost of procuring and shipping from the
United States. Additionally, LRP can save delivery time in emergency
situations because it usually travels a shorter distance than in-kind
food aid. Local procurement can also avoid delays that often occur when
food crosses borders and has to go through permit and inspection
processes. Despite these benefits, donors face challenges in making
local and regional procurements, including insufficient logistics
capacity that can contribute to delays in delivery, and weak legal
systems that can limit buyers' ability to enforce. Besides the benefit
of reducing costs and delivery time, locally and regionally procured
food may have the added benefit of being more culturally acceptable to
recipients. However, evidence on how LRP affects donors' ability to
enforce food aid quality standards and product specifications has yet
to be systematically collected.
LRP Can Reduce Cost and Delivery Time:
LRP Is Generally More Cost-Effective than In-kind Food Aid from the
United States:
We found that locally and regionally procured food costs considerably
less than U.S. in-kind food aid for sub-Saharan Africa and Asia, though
the costs are comparable for Latin America. We compared the cost per
ton of eight similar commodities[Footnote 23] for the same recipient
countries in the same quarter of a given year and found that the
average cost of WFP's local procurements in sub-Saharan Africa and Asia
was 34 percent and 29 percent lower, respectively, than the cost of
food aid shipped from the United States (see figure 4).[Footnote 24]
For example, in the fourth quarter of 2002, the average cost of locally
purchased wheat in Ethiopia was approximately $194 per metric ton
[Footnote 25] while the cost of U.S. wheat shipped to Ethiopia[Footnote
26] in the same quarter was 38 percent higher, at approximately $312
per metric ton.[Footnote 27] Additionally, about 95 percent of WFP
local procurements in sub-Saharan Africa and 96 percent in Asia cost
less than corresponding U.S. in-kind food aid. However, the location of
procurements affects whether LRP offers any cost-saving potential and
if so, by how much. While local procurement in sub-Saharan Africa and
Asia cost much less than U.S. in-kind food aid, we found that in Latin
America, the cost of WFP LRP was comparable to the cost of food aid
shipped from the United States. The average cost of WFP local
procurements in Latin America was 2 percent higher than that of U.S.
food aid, and the number of WFP's transactions with a lower cost than
U.S. food aid was close to the number of transactions with a higher
cost. This difference is due in part to the fact that shipping from the
United States to Latin America is usually less costly than shipping to
Africa.[Footnote 28]
Figure 4: Cost Comparison of WFP Local Procurement and U.S. In-kind
Food Aid, by Region:
[Refer to PDF for image: four pie-charts]
Percentage of WFP transactions with costs less than USAID average
costs:
Overall: 86.1%;
Sub-Saharan Africa: 94.8%;
Asia: 95.5%;
Latin America: 41.9%.
Average cost differential (percentage by which the cost of U.S. in-kind
food aid differs from the cost of local procurement):
Overall: 25% more;
Sub-Saharan Africa: 34% more;
Asia: 29% more;
Latin America: 2% less.
Note: To ensure a fair cost comparison between WFP's local procurement
and U.S. in-kind food aid with the data available, for WFP's LRP
transactions, we included the transactions that have the contract term
DDU and compared the costs to USAID's commodity, ocean shipping, and
inland freight costs. For WFP's international transactions, we included
the transaction with the contract term "free on board" (FOB) and
compared the cost with USAID's commodity costs plus inland freight.
Source: GAO analysis of USAID and WFP data.
[End of figure]
Local and regional procurement can offer donors the flexibility to take
advantage of cost-saving opportunities, which exist when food is
available locally or regionally and the costs of purchasing and
transporting it are lower than the costs of purchasing and shipping it
from donor countries. Donors can purchase food aid from surplus-
producing areas within the affected country, or purchase at the
subregional and regional levels to meet localized needs. For example,
to meet the needs of Uganda's large internally displaced population in
the north, WFP has been purchasing maize and beans from the surplus-
producing areas that are in close proximity to the regions in need. In
2007, Uganda was the largest source for WFP procurements in terms of
tonnage. From 2001 to 2008, WFP purchased over 600,000 metric tons of
maize and beans locally to meet needs in Uganda. Similarly, to meet
needs in Zimbabwe in 2008, WFP purchased a large amount of food aid
that year from nearby countries including Malawi; Zambia; Mozambique;
and South Africa, a surplus-producing country. South Africa was the
largest source for WFP procurement in 2008, amounting to more than $163
million, and food from South Africa fed people in both nearby countries
and internationally (see table 2).
Table 2: Recipients of Food Aid Purchased from South Africa in 2008:
Recipient country: Zimbabwe;
Value (U.S. dollars): $38,645,093;
Quantity (metric tons): 130,297.
Recipient country: Somalia;
Value (U.S. dollars): $34,135,821;
Quantity (metric tons): 92,675.
Recipient country: Kenya;
Value (U.S. dollars): $17,155,164;
Quantity (metric tons): 48,105.
Recipient country: Democratic Republic of Congo;
Value (U.S. dollars): $17,074,651;
Quantity (metric tons): 47,221.
Recipient country: Ethiopia;
Value (U.S. dollars): $12,688,873;
Quantity (metric tons): 29,578.
Recipient country: Malawi;
Value (U.S. dollars): $7,452,397;
Quantity (metric tons): 26,304.
Recipient country: To be determined[A];
Value (U.S. dollars): $4,490,738;
Quantity (metric tons): 16,407.
Recipient country: Guinea;
Value (U.S. dollars): $3,060,040;
Quantity (metric tons): 9,326.
Recipient country: Central African Republic;
Value (U.S. dollars): $2,962,624;
Quantity (metric tons): 6,663.
Recipient country: Chad;
Value (U.S. dollars): $2,828,126;
Quantity (metric tons): 6,376.
Recipient country: Mozambique;
Value (U.S. dollars): $2,724,826;
Quantity (metric tons): 7,989.
Recipient country: Uganda;
Value (U.S. dollars): $2,367,539;
Quantity (metric tons): 6,903.
Recipient country: Burkina Faso;
Value (U.S. dollars): $2,122,344;
Quantity (metric tons): 4,378.
Recipient country: Sri Lanka;
Value (U.S. dollars): $1,699,854;
Quantity (metric tons): 3,132.
Recipient country: Côte d'Ivoire;
Value (U.S. dollars): $1,470,682;
Quantity (metric tons): 3,140.
Recipient country: Burundi;
Value (U.S. dollars): $1,279,835;
Quantity (metric tons): 4,540.
Recipient country: Niger;
Value (U.S. dollars): $1,242,823;
Quantity (metric tons): 3,044.
Recipient country: Mali;
Value (U.S. dollars): $1,227,125;
Quantity (metric tons): 2,594.
Recipient country: Cameroon;
Value (U.S. dollars): $1,109,896;
Quantity (metric tons): 2,315.
Recipient country: Timor Leste;
Value (U.S. dollars): $1,060,314;
Quantity (metric tons): 2,080.
Recipient country: Swaziland;
Value (U.S. dollars): $1,016,575;
Quantity (metric tons): 3,466.
Recipient country: Benin;
Value (U.S. dollars): $984,679;
Quantity (metric tons): 2,967.
Recipient country: Togo;
Value (U.S. dollars): $909,684;
Quantity (metric tons): 2,796.
Recipient country: Ghana;
Value (U.S. dollars): $774,417;
Quantity (metric tons): 2,301.
Recipient country: Senegal;
Value (U.S. dollars): $688,753;
Quantity (metric tons): 2,043.
Recipient country: Madagascar;
Value (U.S. dollars): $660,713;
Quantity (metric tons): 1,811.
Recipient country: Liberia;
Value (U.S. dollars): $389,583;
Quantity (metric tons): 854.
Recipient country: Honduras;
Value (U.S. dollars): $344,250;
Quantity (metric tons): 810.
Recipient country: Cambodia;
Value (U.S. dollars): $298,332;
Quantity (metric tons): 608.
Recipient country: Haiti;
Value (U.S. dollars): $205,282;
Quantity (metric tons): 434.
Recipient country: Djibouti;
Value (U.S. dollars): $163,813;
Quantity (metric tons): 326.
Recipient country: Sierra Leone;
Value (U.S. dollars): $105,028;
Quantity (metric tons): 217.
Recipient country: Namibia;
Value (U.S. dollars): $101,356;
Quantity (metric tons): 184.
Recipient country: Tanzania;
Value (U.S. dollars): $99,675;
Quantity (metric tons): 225.
Recipient country: São Tomé & Principe;
Value (U.S. dollars): $69,061;
Quantity (metric tons): 151.
Recipient country: Philippines;
Value (U.S. dollars): $52,538;
Quantity (metric tons): 113.
Recipient country: Angola;
Value (U.S. dollars): $21,595;
Quantity (metric tons): 65.
Recipient country: Mauritania;
Value (U.S. dollars): $20,340;
Quantity (metric tons): 45.
Recipient country: Lesotho;
Value (U.S. dollars): $8,640;
Quantity (metric tons): 16.
Recipient country: Total;
Value (U.S. dollars): $163,713,077;
Quantity (metric tons): 472,492.
Source: GAO analysis of WFP procurement data.
[A] At the time of purchase, the recipient had not been identified.
[End of table]
To ensure cost-effectiveness, donors can use the import parity price
[Footnote 29] to guide purchase decisions. For example, WFP compares
the lowest price potential sellers submit through its tender process
[Footnote 30] with the import parity price, which includes the costs of
commodity plus shipping and handling, from various potential
procurement sites. WFP procures locally or regionally if the costs of
doing so are below the import parity price. Recently, for a LRP funded
by USAID, Save the Children compared the cost of locally or regionally
procured wheat flour, vegetable oil, and lentils to the cost of in-kind
food aid from the United States. It found that although locally
procured wheat flour in Tajikistan had a higher price than U.S. wheat,
the cost of commodity plus shipping was lower. According to WFP, LRP's
cost-effectiveness depends on many factors, such as the commodity,
season, and exchange rates. For example, WFP often procures peas from
Canada because of the availability and competitive pricing of these
commodities in this market. In addition, a strong currency can hurt a
country's competitiveness. According to WFP officials, increases in the
value of the South African currency partly contributed to WFP's
decision to decrease its purchases from South Africa in 2007 and then
increase them in 2008 when the currency devalued. (figure 5 shows WFP
procurement from South Africa from 2001 to 2008.)
Figure 5: WFP Procurement from South Africa, 2001-2008:
[Refer to PDF for image: multiple line graph]
Source: GAO analysis of WFP data.
[End of figure]
LRP Can Significantly Shorten Delivery Times:
According to WFP data, LRPs in sub-Saharan Africa generally have a
shorter delivery time than food aid procured internationally. We
compared the median delivery time for LRP to the median delivery time
for food aid either procured or donated internationally for 10 sub-
Saharan countries. We selected these countries because they had
received both LRP and international food aid. We found that
international in-kind donation took the longest, averaging 147 days
(see figure 6). Local and regional procurements took on average 35 and
41 days, shortening the delivery time from international donations by
112 days and 106 days, respectively. For example, in Malawi, in-kind
international donations took 4 months (167 days) while locally procured
food aid took about 1 month (32 days). Similarly, the median delivery
time for regionally procured food going to Zimbabwe was 48 days versus
114 days for internationally procured food aid. (For the delivery times
of the 10 selected sub-Saharan African countries, see appendix III.)
Figure 6: Average of Median Delivery Times for 10 Recipient Countries
in Sub-Saharan Africa, 2004 to 2008:
[Refer to PDF for image: horizontal line graph]
Worldwide: 25% more;
Sub-Saharan Africa: 34% more;
Asia: 29% more;
Latin America: 2% less.
Average Delivery Time[A] for 10 Countries in Sub-Saharan Africa:
In-kind donations (international):
Time (in-kind donations): 147 days.
Cash donations, International:
Time (cash donations): 91 days;
Time saved (cash donations): 56 days.
Cash donations, Regional:
Time (cash donations): 41 days;
Time saved (cash donations): 106 days;
Cash donations, Local:
Time (cash donations): 35 days;
Time saved (cash donations): 112 days.
Source: GAO analysis of USAID and WFP data.
Notes:
"Delivery time" refers to the number of days that elapsed from the
purchase order date to the date WFP took possession of the food in the
recipient country. Additional time is required for food to reach
intended beneficiaries.
Numbers reported in this figure are based on the median delivery time
for food aid through various purchase modes: international in-kind
donations and international, regional, and local purchases made from
cash donations.
[End of figure]
Similarly, in a USAID-funded grant completed in April 2009, Save the
Children was able to obtain wheat flour from Russia and Kazakhstan and
transport it to Tajikistan within 2 months, while wheat flour from the
United States took over 5 months to arrive in Tajikistan (see
illustrative example in appendix IV, which also compares the cost of
U.S. in-kind food aid with the cost of LRP). USAID sent the other two
commodities--yellow peas and fortified soybean oil--from its
prepositioning site in Jacintoport (Texas) and was able to shorten the
delivery time.[Footnote 31] It took around the same number of days for
the yellow peas from the U.S. prepositioning site as the lentils
procured within the region to arrive. According to DOT, prepositioning
offers significant time savings. DOT's analysis shows that sending U.S.
prepositioned food could have reduced transit time in comparison to a
regional purchase from South Africa that was delivered to Somalia.
[Footnote 32]
Locally and regionally procured food can take less time for delivery
because it travels a shorter distance than internationally procured
food and does not risk delays when crossing borders. Local procurement
has the benefit of avoiding import processes, such as meeting recipient
countries' sanitary and phytosanitary requirements,[Footnote 33] which
can delay delivery. For example, if imported maize does not meet a
country's moisture content requirement, delivery can be delayed. Some
governments require imported food aid to go through additional testing
and certification for genetically modified organisms (GMO). According
to WFP officials in South Africa, these requirements can take an
additional 2 to 3 weeks.
Lack of Reliable Suppliers, Donor Funding Restrictions, and Other
Factors Have Limited the Efficiency of LRP:
Despite potential benefits, factors such as a lack of reliable
suppliers, limited logistical capacity, weak legal systems, and donor
funding restrictions have limited the efficiency of LRP, as explained
below:
* Lack of reliable suppliers. Of the 11 WFP procurement officers we
interviewed, 9 identified finding reliable suppliers and preventing
supplier default as a challenge to implementing LRP. A World Vision
representative in South Africa stated that the organization was
involved in a local procurement in Mozambique that took 5 months
because the supplier did not have food in stock and had to find
alternative sources to purchase enough to fulfill his contract. When
food was finally delivered, World Vision found that many bags were
short of the quantity specified in the contract.
* Poor infrastructure and logistical capacity. Limited infrastructure
and logistical capacity could delay delivery. For example, according to
some WFP officials and private traders we met with, South Africa's rail
system and ports are underinvested and have limited capacity to handle
food aid during peak seasons. Food aid could wait up to 2 months for a
warehouse at the port of Durban. According to DOT, increasing regional
procurements from South Africa could lead to more congestion at the
port of Durban. DOT believes that in-kind food aid from the United
States or prepositioning sites could avoid the port congestion in South
Africa by going directly to the port of entry nearest the destination.
In addition, trade barriers in developing countries could also delay
delivery of food procured regionally.
* Weak legal systems. A weak legal system could limit buyers' ability
to enforce contracts. WFP generally requires suppliers to purchase
bonds, which they will lose if they do not fulfill their obligations
under the contracts. However, this requirement is not always feasible
to implement, especially when procuring from small suppliers. For
example, WFP usually eliminates its bond requirements for its purchases
from smallholder farmers. Experts pointed out that it is critical to
build in the time and cost of adequate quality testing and control,
particularly in an environment where there are weak legal requirements
for the producers or the exporting countries. For example, WFP's
procurement officer in Uganda told us that many of the smallholder
farmers WFP purchases from had never seen a contract before, and WFP
had to take actions to ensure that these purchases were delivered on
time and met the quality specified in the applicable contracts.
* Timing and restrictions on donor funding. Timing and other
restrictions on donor funding limit the flexibility of implementing
partners to decide when, where, and how to purchase food, according to
WFP procurement officers. If donor funding is not available when there
is surplus in the market and prices are low, WFP cannot take advantage
of market opportunities. A procurement officer in Sudan, for example,
stated that, in January 2009, he was expecting 100,000 to 200,000
metric tons of high-quality commodities to be available on the market,
but that he would only be able to purchase 20,000 metric tons due to
the timing of donor funding. A WFP procurement officer in South Africa
stated that, although he may be able to convince headquarters staff to
let him use WFP's advanced financing facility to make a purchase, he
may encounter problems if the anticipated donor funding does not come
through with its commitment. With donor support, WFP has begun to test
flexible financing mechanisms that are expected to facilitate LRP.
These include the advance financing facility, a mechanism with which
WFP finances a specific project to mobilize food based on specific
forecasts of donor contributions to the project, and a forward purchase
facility, a mechanism that allows WFP to take a market position at an
optimal time without specific knowledge of where the purchased food
will go or which donor's funding will underwrite the specific
procurement action. Some officers also noted that some donors'
preference for LRP may result in procuring locally or regionally when
importing might be less expensive.
LRP Can Provide More Culturally Appropriate Food, but Views on Quality
Are Mixed:
LRP Can Provide More Culturally Acceptable Food:
Local and regional procurement can provide food that is more acceptable
to the dietary needs and preferences of beneficiaries in recipient
countries. People tend to be more familiar with food grown in
neighboring regions than food from different continents. For example,
people in many African countries prefer white maize, and Ethiopians who
receive yellow maize as food aid from the United States might sell it
in the cattle market as feed, according to a WFP procurement officer in
Ethiopia.
Views on Meeting Product Specifications and Quality Standards Are
Mixed:
[Side bar: Ensuring quality standards:
Keeping food commodities free from mold and insect infestation can be
challenging during the transit and in storage. Pictured below is a bag
of food aid infested with insects.
Figure: Photograph; refer to PDF for image]
Source: GAO.
[End of side bar]
Experts and practitioners have mixed views on how LRP affects donors'
ability to adhere to product specifications and quality standards--such
as moisture content and the level of broken and foreign matter--which
ensure food safety and nutritional content.[Footnote 34] However,
donors have yet to systematically collect evidence that demonstrates
whether food procured in different locations varies significantly in
meeting product specifications and quality. Some experts contend that
because locally and regionally procured food travels shorter distances
and takes on average less time to arrive at its destination than
internationally procured food aid, certain quality standards, such as
moisture content, may be less critical.[Footnote 35] The longer grain
has to travel, the more critical it is to control moisture content so
that it does not become moldy and infested with insects. We have
previously reported quality problems with U.S. food aid during long
transit times.[Footnote 36] Regarding LRP food aid, 9 out of the 11 WFP
procurement officers we interviewed for this review confirmed that
quality was a challenge. They also noted, however, that some quality
standards, which may often be difficult for suppliers in developing
countries to meet, may not be very crucial to individual recipients.
For example, due to the lack of modern processing facilities, rice from
some developing countries may have a higher level of broken kernels,
but some recipients may actually prefer such rice because it is better
suited to cooking porridge, a common method of consumption.[Footnote
37] However, concerns persist about the quality of food procured in
developing countries. The U.S. Wheat Associates noted that the ability
to ensure food quality and safety could be jeopardized when purchases
occur where standards are less rigorous than those of U.S. suppliers to
food aid programs. We learned of a few examples of locally or
regionally procured food not meeting quality standards. For example,
representatives from WFP and NGOs told us that they had received food
that turned out to be of lower quality or quantity than what was
specified in the contract. A WFP procurement officer in South Africa
reported that WFP requires the plants that manufacture maize meal or
corn soy blend (CSB) to meet internationally accepted production
standards, such as Hazard Analysis and Critical Control Point (HACCP),
and hires surveyors to take samples for testing and assess whether the
facility meets those standards. However, these surveyors recently found
that 13 out of 15 maize meal plants were not in compliance with the
standards and provided a list of activities the plants should undertake
in order to improve. In addition, some factors that affect the
efficiency of LRP also affect the ability to meet quality standards and
product specifications. For example, a weak legal system limits buyers'
ability to enforce contracts, including imposing penalties when
commodities delivered do not meet the specifications outlined in the
contract. However, no evidence has been systematically collected on how
LRP affects donors' ability to adhere to quality standards and product
specifications. A WFP official told us he does not believe there is any
significant difference among different procurement types in the level
of post-delivery loss, which is one measure of quality issues. However,
WFP has not analyzed whether the quality issues are more severe for
food procured locally or regionally versus food procured
internationally.
Local and Regional Procurement of Food Aid Has Potential for Adverse
Market Impacts That Can Be Mitigated by Better Market Intelligence:
Local and regional procurement (LRP) has the potential to make food
more costly to consumers in areas from which food is procured by
increasing demand and driving up prices. While WFP has taken actions to
help mitigate these impacts, such as coordinating with other
implementing partners to gather market information, in some cases local
purchases have adversely affected markets where the purchases were
made. In particular, lack of reliable market intelligence--such as
market prices, production levels, and trade patterns--makes it
difficult to determine the extent to which LRP can be increased without
causing adverse market impacts. Poorly functioning and unintegrated
markets pose an additional challenge to avoiding adverse market impacts
and expanding the use of LRP. Other challenges include lack of access
to inputs and extension services, weak transportation infrastructure,
and host government policies that inhibit food production.
Local Purchases of Food Aid Have Adversely Affected Some Markets:
LRP can make food more costly to consumers by increasing demand and
driving up prices.[Footnote 38] Although most of the WFP procurement
officers we interviewed stated that local procurements of food aid
generally do not affect market prices, our review of the literature and
interviews during fieldwork show that there have been instances where
LRP contributed to price hikes and price volatility in markets from
which food is procured. However, the size of each of WFP's local
procurements tends to be small--on average about 298 metric tons, as
compared with 671 metric tons for its international procurements.
Additionally, WFP's local procurements do not make up a large portion
of the market for a food commodity in many developing countries, which
reduces the risk of disrupting local markets. WFP's local procurements
of about 20,000 metric tons of maize in Burkina Faso in 2008, for
example, amounted to less than 1 percent of a total market capacity of
700,000 metric tons. However, local procurements have also contributed
to price hikes. In 2003, for example, when food aid donors tried to
take advantage of low prices following 2 years of good harvests in
Ethiopia, their purchases contributed to a rise in prices.
Additionally, in 2003, WFP's Uganda country office procured a large
amount of locally grown maize from large traders based in Kampala in
support of its operations in northern Uganda and in the Great Lakes
region, particularly in Burundi. Due in part to this activity, maize
prices in Kampala during this period were double those in Iganga (119
kilometers away). However, because maize is not a staple food in
Uganda, consumers' access to food may not have been adversely affected.
[Footnote 39] WFP's large local procurements in Uganda from a small
number of large traders may also have contributed to an increase in the
market power of those large traders.
While local procurements of food aid have adversely affected markets in
several developing countries, particularly in sub-Saharan Africa,
almost all of the WFP procurement officers we interviewed stated that
they supported the idea of the United States increasing its funding for
LRP. However, WFP procurement officers we spoke to, NGO officials in
countries we visited, and other experts we met with agreed that
increased use of LRP should be done incrementally and that significant
challenges remain to expanding market capacity in many countries,
particularly in sub-Saharan Africa.
Unreliable Market Intelligence, Poorly Functioning and Unintegrated
Markets, and Other Factors Pose Challenges to Increasing LRP without
Causing Adverse Market Impacts:
Unreliable Market Intelligence:
The most significant challenge to avoiding potential adverse market
impacts when conducting LRP is unreliable market intelligence. While
WFP and other food aid providers rely on market intelligence[Footnote
40] to understand market conditions, a number of WFP studies, NGO
evaluations, and donor assessments show that some pre-purchase market
analyses have been incomplete and inaccurate--contributing to
unintended consequences such as price hikes and reduced access to food.
A recent USDA study on LRP noted that the most cost-effective safeguard
against causing harm to markets and consumers in areas where food is
locally procured is through regular ongoing analysis using the
information available in host government information systems. However,
lack of reliable information on local markets has the potential to
result in inaccurate assessments and inappropriate responses to
situations requiring food aid.[Footnote 41] For example, in 2007, the
government of Malawi decided to export 400,000 metric tons of maize to
Zimbabwe.[Footnote 42] In the same year, WFP also procured 48,445
metric tons of food aid from Malawi to support its operations in other
countries. USAID Food for Peace, Famine Early Warning Systems Network
(FEWS NET), and other private sector officials working in southern
Africa told us that Malawi's decision to export to Zimbabwe and sell to
WFP was based on inaccurate production estimates. A few months later,
Malawi experienced higher food prices and food shortages. WFP has
significantly increased its mandate and ability to collect and analyze
local and regional market information in the last decade, but WFP
analyses and procurement officers confirmed that WFP's market
intelligence, while improved, is often inaccurate or incomplete. In
many low-income countries, national market intelligence systems are
weak and unreliable, and timely data are not always available, which
may limit the effectiveness of WFP's market intelligence efforts,
according to a WFP report.[Footnote 43] Other studies on LRP have also
noted that market information for many countries is very difficult for
WFP or NGOs to collect and rely on when making purchasing decisions.
For example, a 2005 study commissioned by the United Kingdom's
Department for International Development (DFID) of local procurement in
Ethiopia noted that market information at the smallholder farmer level
was non-existent and that there was no formal system for determining
the domestic price of grain.[Footnote 44]
In efforts to significantly reduce the risk of contributing to price
hikes and long-term food price inflation WFP uses import parity
pricing, solicits tenders for small amounts of food early in the
harvest season, and works with other parties involved in international
food assistance to plan food aid interventions. In addition to serving
as a measure for cost-efficiency, comparing local prices with import
parity prices helps those involved in local procurement to determine
whether a local procurement will "do no harm" to local markets and
consumers by not making local procurements when local prices are higher
than international prices. However, as a USDA study on LRP has noted,
this standard may be constrained in cases where local prices for
commodities are so much lower than import parity prices that it would
require substantial price increases to reach the import parity
threshold. WFP also tries to mitigate potential adverse market impacts
by issuing tenders for small amounts of food early in the harvest
season. Then, combined with available market intelligence, WFP
determines whether its purchases have contributed to price hikes before
putting out larger tenders. In addition to these tactics, WFP country
offices work with other parties involved in food aid, such as donors,
host government agencies, and NGOs, to coordinate efforts and share
market information. For example, several WFP country offices in eastern
and southern Africa created a country-by-country spreadsheet in the
summer of 2008 to stay current on developments related to rapidly
escalating food prices, such as government-imposed export bans.
Poorly Functioning and Unintegrated Markets:
Even when market information is adequate, poorly functioning and
unintegrated markets in sub-Saharan Africa and other developing
countries still present challenges to expanding LRP while avoiding its
potential adverse market impacts, according to food aid evaluations,
experts convened for our roundtable, and fieldwork. Unintegrated
markets are characterized by a lack of price transmission among
markets. Additionally, there is difficulty in tracking informal cross-
border trade and a lack of functioning commodity exchanges. When
markets are not well-integrated, either within countries or regionally,
large purchases of food by WFP, other food aid organizations, or donors
can cause localized price hikes. For example, WFP officials in Burkina
Faso noted that the government's purchases for its strategic food
reserve have correlated with price spikes. Because the markets for
agricultural commodities in sub-Saharan Africa, in particular, are not
always clearly defined and do not always account for natural geographic
and ethnic boundaries, significant informal cross-border trading that
does not heed international and regional trade agreements can occur.
For example, approximately 30 to 50 percent of Uganda's marketable
surplus for maize is traded informally, often on bicycles across the
borders to Kenya or Rwanda, according to WFP, USAID, and foreign
government officials, and others we interviewed during fieldwork in
Uganda. Additionally, WFP's Uganda country office staff stated that it
is difficult to effectively plan food aid interventions involving LRP
in the neighboring Democratic Republic of the Congo due to lack of
information about informal cross-border trading and volatile market
conditions. The market effects of such trading can be difficult to
track and create additional constraints to understanding and avoiding
adverse price impacts when conducting LRP. Finally, in all of sub-
Saharan Africa there is only one well-functioning agricultural
commodity exchange, the South African Futures Exchange (SAFEX). Several
countries are developing warehouse receipt systems that would allow
farmers access to credit, but the countries face challenges such as
farmers' lack of awareness about marketing structures and banks'
reluctance to provide credit to farmers.
[Side bar: Commodity Exchange and Warehouse Receipt Systems:
[Figure: Two photographs; refer to PDF for image]
This commodity exchange and warehouse receipt system opened its doors
in Uganda in 2008. Farmers use it to dry, store, and market their grain
and get access to credit.
[End of figure]
Source: GAO.
[End of side bar]
Factors That Contribute to Persistent Food Insecurity:
Many of the factors that affect persistent food insecurity in sub-
Saharan Africa and other developing countries are also challenges to
the implementation and potential expansion of LRP. These factors
include lack of access to inputs and extension services by farmers,
weak transportation infrastructures, and weak or conflicting host
government policies.
* As we reported in 2008, smallholder farmers in developing countries,
particularly in sub-Saharan Africa, have limited access to modern
inputs and agricultural extension services such as enhanced seeds,
fertilizer, and tractors. During our fieldwork, representatives from
several farmer groups and associations told us they had experienced
similar problems. In Burkina Faso, one farmer group in a food-deficit
area had stopped growing maize for lack of fertilizer and seed and had
started planting more cotton because it could receive government
subsidies for that crop.
* Weak transportation infrastructure in many developing countries makes
it difficult for smallholder farmers to move their crops to market and
for local markets to integrate regionally and nationally. The World
Bank has reported that less than half of the rural population in sub-
Saharan Africa lives near an all-season road.
* Policies of host governments are not always favorable to supporting
agricultural development, although the Comprehensive Africa Agriculture
Development Program (CAADP) aims to address the lack of agriculture
development in sub-Saharan Africa by focusing on budget prioritization
and policy restructuring.[Footnote 45] USAID's Initiative to End Hunger
in Africa (IEHA)[Footnote 46] supports CAADP's efforts by coordinating
with other donors to provide technical and policy support for
agricultural and market development.
These factors, combined with unreliable market intelligence and poorly
functioning and unintegrated markets, continue to represent significant
challenges to increasing LRP in many developing countries, particularly
in sub-Saharan Africa.
[Side bar: Farmer Groups in Burkina Faso:
[Figure: refer to PDF for image; two photographs]
Government seed and fertilizer subsidies provided an incentive for
these farmers to grow cotton instead of food.
Source GAO.
[End of figure]
[End of side bar]
LRP Has the Potential to Indirectly Support the Development of Local
Economies by Increasing Demand for Agricultural Commodities and Raising
Farmers' Incomes:
While the primary purpose of LRP is to provide food assistance in
humanitarian emergencies in a timely and efficient manner, a potential
secondary benefit is contributing to the development of the local
economies from which food is purchased. This can be accomplished by
increasing the demand for agricultural commodities, thereby increasing
support for all levels of the commodity value chain, which includes
individuals, businesses, and organizations involved in their respective
agriculture production and marketing industries such as large traders,
intermediate traders or middlemen, smallholder farmers, input
suppliers, and processors. Figure 7 illustrates the agricultural
commodity value chain supported by LRP.
Figure 7: Agricultural Commodity Value Chain Supported by LRP:
[Refer to PDF for image: illustration]
Aid organizations:
* Food commodities and services provided by value chain parties:
- to beneficiaries;
- from Large traders;
- from Quality superintendents and laboratories;
* Value created by WFP P4P to smallholder farms;
* Value created by LRP: development, money, job creation, and demand
to:
- Large traders;
- Quality superintendents and laboratories;
* Food commodities purchased through WFP P4P from smallholder farms.
Large traders:
* Food commodities and services provided by value chain parties:
- to Aid organizations;
- from Processors and dryers;
- from Intermediate traders;
* Value created by LRP: development, money, job creation, and demand:
- to Intermediate traders;
- to Processors and dryers;
- from Aid organizations.
Intermediate traders:
* Food commodities and services provided by value chain parties:
- to Large traders;
- from Smallholder farms;
* Value created by LRP: development, money, job creation, and demand:
- to smallholder farms;
- from Large traders.
Smallholder farms:
* Value created by WFP P4P from Aid organizations;
* Food commodities purchased through WFP P4P by Aid Organizations;
* Food commodities and services provided by value chain parties:
- to Intermediate traders;
- from Input suppliers (fertilizer, seeds, tools);
* Value created by LRP: development, money, job creation, and demand:
- to Input suppliers (fertilizer, seeds, tools).
Source: GAO analysis and photos.
[End of figure]
The development benefits to local economies are secondary because in
almost all cases WFP and NGO purchases are not large enough or reliable
enough to sustain increased demand over time. Only recently has WFP
acknowledged that LRP can contribute to local development. In several
of the countries we visited, we observed WFP LRP initiatives under way
that might support local economies in the long term and connect LRP to
other food security initiatives. However, many of them are new and
limited in scale. For example, in February 2009, WFP began a cash
voucher program in Burkina Faso that will target beneficiaries in two
major cities, Ouagadougou and Bobo Dioulasso, by providing them with
vouchers that are redeemable for food commodities. In September 2008,
WFP launched its P4P program, which had the goal of benefiting
smallholder farmers directly by purchasing food from them. However, WFP
officials recognize that these procurements will only amount to a small
percentage of its total local procurements. With initial funding to
manage and administer P4P from the Bill & Melinda Gates and Howard G.
Buffett Foundations, pilot programs have been approved in 21 countries.
[Footnote 47]
[Side bar: Cash Vouchers:
[Figures: refer to PDF for image: photograph and illustration]
A store owner in Ouagadougou, Burkina Faso, stands in front of the shop
she operates. It accepts vouchers from community members participating
in a cash for food voucher program supported by Catholic Relief
Services. Below, a sample voucher slip recipients use to purchase food.
Source: GAO.
[End of figure]
[End of side bar]
Legal Requirements for U.S. Food Aid May Constrain U.S. Agencies' Use
of Local and Regional Procurement:
Certain legal requirements to procure U.S.-grown agricultural
commodities for food aid and to transport up to 75 percent of them on
U.S.-flag vessels may constrain agencies' use of local and regional
procurement (LRP). First, the Food for Peace Act supports in-kind food
aid by specifying that funding under the Act can be used only to
purchase U.S.-grown rather than foreign-grown agricultural commodities
[Footnote 48] and thus cannot be used for LRP. Since 2002,
appropriations for Title II of the Food for Peace Act have averaged $2
billion annually, none of which can be used to purchase foreign-grown
food. However, from 2001 to 2008, through programs funded under a
different authority, the Foreign Assistance Act, the U.S. government
has provided approximately $220 million in total cash contributions to
WFP that were used to purchase foreign-grown commodities. In addition,
since July 2008, Congress has appropriated $50 million to USAID that
can be used for LRP in addition to $75 million that the Administration
allocated for LRP in International Disaster Assistance funding; and the
2009 Omnibus Appropriations Act provided another $75 million in
development assistance funding to USAID for global food security,
including LRP and distribution of food. Second, the Cargo Preference
Act of 1954, as amended, which is enforced by the DOT, requires up to
75 percent of the gross tonnage of all U.S.-funded food aid to be
transported on U.S.-flag vessels. There is disagreement among USAID,
USDA, and DOT on how to interpret and implement certain requirements of
cargo preference, such as the agency responsible for determining
availability of U.S.-flag vessels.[Footnote 49] If these requirements
remain ambiguous, U.S. agencies' use of LRP could be constrained.
Legal Requirement to Purchase U.S.-Grown Food Limits Funding for
Foreign-Grown Food:
While most funding for U.S. food aid cannot be used to purchase foreign-
grown food, a limited amount of funding has been used to support LRP.
Programs under the Food for Peace Act,[Footnote 50] have been the main
vehicles of U.S. international food aid. However, funding under the Act
is restricted to the purchase of U.S.-grown agricultural commodities.
Title II of the Food for Peace Act, administered by USAID, is the
largest U.S. international food aid program providing humanitarian
donations to respond to emergency food needs or to be used in
development projects. Since 2002, appropriations for Title II have
averaged $2 billion annually, none of which can be used to purchase
foreign-grown food, as envisioned by LRP. However, a limited amount of
U.S. funding has been authorized through the 2008 Farm Bill, the
Foreign Assistance Act, 2008/2009 bridge supplemental, and the 2009
Omnibus Appropriations.
First, the 2008 Farm Bill established a 5-year, $60 million LRP pilot
program, administered by USDA, to respond to emergencies and chronic
food aid needs around the world. The pilot requires a study of LRP
experiences,[Footnote 51] field-based projects, evaluations of field-
based projects by independent parties, and a USDA report submitted to
Congress by 2012. USDA is currently establishing guidelines for
proposals to conduct field-based LRP projects and estimates completion
of the guidelines by the end of summer 2009.
Second, the Foreign Assistance Act authorizes USAID and State to
provide cash contributions to WFP and implementing partners to purchase
foreign-grown commodities for specific program goals. From 2001 to
2008, the U.S. government, through programs operating under the Foreign
Assistance Act, has provided approximately $220 million in total cash
contributions to WFP for 1,265 LRP transactions. WFP received
contributions from State's Bureau of Population, Refugees, and
Migration (PRM); USAID Office of Foreign Disaster Assistance (OFDA);
and USAID country missions; among other programs. State officials
stated that LRP can be used to fill gaps in refugee and internally
displaced persons (IDP) feeding operations caused by lack of donor
support; inflows of new refugees and IDPs; inability of donors to
deliver food to an area quickly, or more recently, rising costs of
commodities and transportation. Similarly, officials from USAID agreed
that LRP offers an opportunity to respond to food security crises and
increase the total amount of food aid the United States can provide by
filling gaps in country before food shipped from the United States
arrives.
Third, since July 2008, Congress has appropriated $125 million to USAID
that can be used for LRP. USAID received $50 million in fiscal year
2008 supplemental appropriations[Footnote 52] to respond to the global
food price crises with LRP, among other activities. Another $75 million
in development assistance funding was made available to USAID through
the 2009 Omnibus Appropriations Act for global food security, including
LRP and distribution of food.[Footnote 53] For fiscal year 2009, the
Administration made available for LRP $75 million in International
Disaster Assistance funding. To implement LRP programs with increased
authority, USAID/OFDA issued guidelines for LRP proposals in October
2008 specifying that organizations applying for funding must (1)
demonstrate an urgent need for food aid; (2) relate to the factors
associated with the emergency to the global food price crisis or to a
declared disaster; or (3) provide compelling evidence that the use of
local procurement will save lives, reduce suffering, and/or serve more
people than by using international procurement of Title II food aid.
[Footnote 54] By April 2009, USAID/OFDA had programmed $63 million in
direct cash contributions to WFP and implementing partners to purchase
foreign-grown commodities for vulnerable populations in Ethiopia,
Kenya, Kyrgyzstan, Nepal, Pakistan, Somalia, Tajikistan, and Zimbabwe.
Monitoring and evaluation plans for tracking program implementation,
results, and outcomes are required with all awards.
Uncertainty Regarding Cargo Preference Could Constrain Agencies'
Implementation of LRP:
Because the leading U.S. food assistance agencies and DOT disagree on
how to implement the Cargo Preference Act, their use of LRP could be
constrained. The Cargo Preference Act, as amended, requires that up to
75 percent of the gross tonnage of agricultural foreign assistance
cargo be transported on U.S.-flag vessels.[Footnote 55] DOT issues and
administers regulations necessary to enforce cargo preference. Among
other things, the department has the authority to require the
transportation on U.S.-flag vessels of cargo shipments not otherwise
subject to cargo preference (hereafter referred to as "make-up
requirements") when it determines that an agency has failed to
sufficiently utilize U.S.-flag vessels. In some cases, however, USAID
and USDA officials disagree with DOT on interpretations of cargo
preference requirements including (1) the agency responsible for
determining availability of U.S.-flag vessels; (2) make-up requirements
when U.S.-flag vessels are unavailable or when an agency waives cargo
preference requirements during emergencies, also referred to as
"notwithstanding authority;"[Footnote 56] (3) applicability of cargo
preference requirements to public international organizations; and (4)
methodology used for cost reimbursements.
Agency Officials Have Different Interpretations of Cargo Preference
Requirements:
Table 3 summarizes differences in agency officials' interpretations of
cargo preference requirements.
Table 3: U.S. Agencies' Interpretations of Cargo Preference
Requirements as They Pertain to Implementation of LRP:
Requirements: 1. Agency responsible for determining availability of
U.S.-flag vessels;
Agency interpretations: DOT: DOT is the sole determining agency for
U.S.-flag vessel availability;
Agency interpretations: USAID: USAID is the determining agency for U.S.-
flag vessel availability based on USAID program needs. However, USAID
seeks DOT concurrence;
Agency interpretations: USDA: USDA is the determining agency for U.S.-
flag vessel availability based on USDA program needs. DOT is not
permitted to provide input into a determination of programmatic need.
Requirements: 2. Make-up requirements when U.S.-flag vessels are
unavailable or an agency uses notwithstanding authority;
Agency interpretations: DOT: Tonnage shipped on foreign-flag vessels
when U.S.-flag vessels are unavailable or under USAID's notwithstanding
authority is counted toward the maximum tonnage allowed on foreign-flag
vessels. Any foreign-flag tonnage exceeding the 25 percent maximum
must be made up;
Agency interpretations: USAID: When U.S.-flag vessels are unavailable
or when USAID uses notwithstanding authority, tonnage shipped on
foreign-flag vessels should not be counted toward the 50 percent
maximum tonnage allowed;
Agency interpretations: USDA: Tonnage shipped on foreign-flag vessels
is counted toward the maximum tonnage allowed on foreign-flag vessels.
USDA does not have notwithstanding authority since it does not implement
emergency programs.
Requirements: 3. Applicability of cargo preference requirements to
public international organizations;
Agency interpretations: DOT: The grants to international organizations
are governed by regulations and guidance issued by DOT;
Agency interpretations: USAID: Cargo preference regulations apply when
the authority for LRP is Food for Peace. However, the regulations do
not apply when LRP is carried out under authority of the Foreign
Assistance Act;
Agency interpretations: USDA: Cargo preference applies to international
organizations.
Requirements: 4. Reimbursement methodology;
Agency interpretations: DOT: DOT reimburses food aid agencies for a
portion of the ocean freight and transportation costs that exceed 20
percent of total program costs;
Agency interpretations: USAID: DOT reimbursement methodology is not
specified for all possible scenarios;
Agency interpretations: USDA: DOT reimbursement methodology is not
specified for all possible scenarios.
Source: DOT, USAID, and USDA.
[End of table]
The differences in agency interpretations of cargo preference are
discussed below.
1. Agency responsible for determining availability of U.S.-flag
vessels: Officials from USAID, USDA, and DOT stated that their
respective agencies have independent authority to determine U.S.-flag
vessels are not available. According to USAID officials, the agency
determines U.S.-flag nonavailability based on its USAID program needs
but seeks prior concurrence from DOT's Maritime Administration
(MARAD).[Footnote 57] According to USDA officials, USDA determines the
availability of U.S.-flag vessels based on programmatic needs, and DOT
determines what constitutes a fair and reasonable shipping rate. Agency
officials and industry experts noted that the availability of U.S.-flag
vessels in areas such as Africa's eastern coast is limited. DOT noted
that a U.S.-flag vessel could ship food from one African port to
another if the ship happened to be in the region conducting military
operations or other business. However, most carriers do not currently
provide regular regional service. U.S. officials in Kenya and South
Africa confirmed this lack of regular service along Africa's eastern
coast. A shipping agent in South Africa stated that she was aware of
two U.S.-flag vessels that frequent the port of Durban. Representatives
of a coalition of U.S.-flag carriers indicated that U.S.-flag vessels
could provide additional service in the region in the future but their
decision to relocate vessels depends on the regularity of regional
shipments. According to a 2008 report regarding efforts to improve
procurement planning,[Footnote 58] USAID and USDA compete with DOD and
other exporters for space aboard the relatively few U.S.-flag vessels,
some of which are ill-suited for the carriage of food-grade
commodities. Moreover, of the three participating liner service
container carriers utilizing U.S.-flag vessels, only one services
Africa, where 54 percent of international food aid was delivered in
2007, according to INTERFAIS data.
2. Make up requirements when U.S.-flag vessels are unavailable or an
agency uses "notwithstanding" authority: Agencies disagree as to
whether shipments made on foreign vessels, because U.S.-flag vessels
were not available or because an agency waives cargo preference
requirements utilizing authority to conduct a program notwithstanding
any other provision of law,[Footnote 59] should count toward the
maximum tonnage allowed on foreign-flag vessels. DOT has stated that it
should,[Footnote 60] and any tonnage shipped on foreign-flag vessels
that exceeds the 25 percent maximum tonnage should be made up the
following year. However, USAID has the authority to implement emergency
programs, including international disaster assistance, notwithstanding
any other provision of law. With this authority, USAID has waived cargo
preference requirements to ensure food aid delivery during emergencies.
In those cases, it believes the tonnage shipped on foreign-flag vessels
should not be counted toward the maximum foreign-flag tonnage allowed
under cargo preference. DOT officials believe otherwise. Since 2005,
USAID has used notwithstanding authority to override cargo preference
four times, two of which were in 2005 when there were extreme price
disparities between U.S.-flag and foreign-flag offers to transport
emergency food aid to Kenya and Somalia.[Footnote 61]
3. Applicability of cargo preference requirements to public
international organizations: Agencies also disagree on whether grants
made to international organizations, such as WFP, must incorporate
cargo preference requirements. According to DOT officials, if public
international organizations use U.S. funding to purchase food and that
food requires ocean shipping, U.S.-flag vessels should be given cargo
preference. For example, in 2006, DOT notified the USAID West-Bank/Gaza
mission that it had not conformed to the legal mandate in a U.S.-funded
grant with WFP to purchase 16,000 metric tons of wheat flour for
shipment to Tel Aviv. However, according to the USAID policy manual,
[Footnote 62] public international organizations are allowed to abide
by their own procurement rules.[Footnote 63] Therefore, international
organizations that receive cash contributions for regional procurement
of food are not required to ship on U.S.-flag vessels.
4. Reimbursement methodology: DOT is required to reimburse food aid
agencies for a portion of the ocean freight and transportation costs
that exceed 20 percent of their total program costs. However, agencies
disagree on whether reimbursement levels are sufficient to cover the
additional costs incurred by transporting the food on U.S.-flag
vessels. According to USDA officials, DOT has been reluctant to
reimburse USDA for any excess costs beyond 20 percent freight costs and
has not gone on the record about reimbursement for USDA's LRP pilot
field-based projects. According to USAID, areas of ambiguity regarding
reimbursements include:
* costs of ocean freight and transportation on U.S.-flag vessels that
exceed 20 percent of program costs,
* transportation from overseas food warehouses to final destinations,
* foreign inland transport costs, and:
* costs of ocean freight and transportation on U.S.-flag vessels when
there is no foreign-flag vessel available for cost comparison.[Footnote
64]
Lack of Clarity on Cargo Preference Requirements Could Constrain LRP:
With a lack of clarity on how to interpret cargo preference
regulations, agencies' ability to utilize LRP to respond to emergencies
may be constrained. For example, as of October 2008, DOT has the
authority to require the transportation on U.S.-flag vessels of cargo
shipments not otherwise subject to cargo preference when it determines
that an agency has failed to sufficiently utilize U.S.-flag vessels.
[Footnote 65] DOT has not yet issued regulations governing how it will
implement this new authority and USAID faces uncertainty regarding
whether increased use of LRP will trigger imposition of make-up
requirements.
Cargo preference could also constrain USAID's and USDA's LRP pilot
programs if U.S.-flag vessels are unavailable. USAID officials
indicated that given the limited volume of regional shipments relative
to regular Title II shipments, the agency would probably not be able to
meet the U.S.-flag compliance threshold if even one shipment could not
be transported on a U.S.-flag vessel. According to a USDA official,
countries chosen for its LRP pilot field-based projects will likely
receive food shipments only once in a fiscal year. If U.S.-flag vessels
are unavailable for service at that time, it is unclear how USDA will
make up tonnage by country and program the following year since,
according to officials, the pilot is of limited duration. In addition,
USDA will not cut other country program budgets in order to make up
tonnage by country for its LRP program.
Finally, the lack of clarity when USAID waives cargo preference through
notwithstanding authority could constrain its ability to fully utilize
the authority when responding to emergencies that require regional
shipment of food in anticipation of potential sanctions by DOT. To
date, USAID has used notwithstanding authority to waive cargo
preference requirements on only four occasions, in part due to the
uncertainty of a regulatory response from DOT. The $200 million that
USAID has for LRP is available to be expended notwithstanding any other
provision of law. According to USAID officials, the agency has not used
its authority to waive cargo preference requirements for any of the LRP
transactions funded through May 2009.
The MOU that outlines the manner in which USAID, USDA, and DOT
coordinate the administration of cargo preference requirements was last
updated in 1987 and does not reflect modern transportation practices or
the areas of ambiguity related to LRP. In our 2007 review of U.S. food
aid,[Footnote 66] we found that cargo preference can increase delivery
costs and time frames, with program impacts dependent on the
sufficiency of DOT reimbursements. Therefore, we recommended that
USAID, USDA, and DOT seek to minimize the cost impact of cargo
preference regulations by updating implementation and reimbursement
methodologies of cargo preference as it applies to U.S. food aid. Since
2007, USAID and USDA have proposed a working group with DOT to
renegotiate the MOU. To date, however, there have been few meetings and
no agreement has been reached between the agencies.
Conclusions:
The timely provision of food aid is of critical importance in
responding to humanitarian emergencies and food crises. In 2007 and
2008, the number of chronically hungry people in the world grew by 115
million, despite an international commitment to halve the number of
hungry people by 2015. While the United States has primarily provided
in-kind food aid for over 50 years, it has been exploring expanded use
of LRP. This tool has the potential to better meet the needs of hungry
people by providing food aid in both a more timely and less costly
manner. To fully realize this potential, however, challenges to its
effective implementation must be addressed.
Concerns about the quality of LRP food aid persist, but aid
organizations still do not systematically collect evidence on LRP's
adherence to quality standards and product specifications that would
ensure food safety and nutritional content. Furthermore, experts and
practitioners caution that scaling up LRP in recipient countries should
be done gradually to ensure that the potential benefits of LRP are
maximized while any potential adverse impacts are minimized or avoided.
While accurate and reliable market data would help ensure that U.S.
agencies and implementing partners make optimal decisions with regard
to when, where, and how to procure food locally or regionally, such
data are not yet available. Finally, the implementation of LRP may be
constrained by U.S. agencies' disagreement on a number of requirements
associated with cargo preference, thus elevating the importance of an
updated interagency MOU that resolves existing ambiguities.
Recommendations for Executive Action:
To enhance the impact that LRP can have on the efficiency of food aid
delivery and the economies of countries where food is purchased, we
recommend that the Administrator of the U.S. Agency for International
Development and the Secretary of Agriculture take the following three
actions:
* systematically collect evidence on LRP's adherence to quality
standards and product specifications to ensure food safety and
nutritional content;
* work with implementing partners to improve the reliability and
utility of market intelligence in areas where the U.S.-funded LRP
occurs, thereby ensuring that U.S.-funded LRP practices minimize
adverse impacts and maximize potential benefits; and:
* work with the Secretary of Transportation and relevant parties to
expedite updating the MOU between U.S. food assistance agencies and the
Department of Transportation, consistent with our 2007 recommendation,
to minimize the cost impact of cargo preference regulations on food aid
transportation expenditures and to resolve uncertainties associated
with the application of cargo preference to regional procurement.
Agency Comments and Our Evaluation:
DOT, USAID, USDA, and WFP provided written comments on a draft of this
report. We have reprinted these agencies' comments in appendixes VII,
VIII, IX, and X, respectively, along with our responses. Additionally,
USAID, DOT, State, and WFP provided technical comments on a draft of
our report, which we have addressed or incorporated as appropriate.
Treasury and MCC did not provide comments.
USAID generally concurred with our recommendations. With regard to the
first recommendation, however, USAID noted that it may be more
efficient for us to recommend that all food aid organizations
collaborate in the development and implementation of systems to monitor
quality assurance and product specification issues in all food
purchases, including LRP. The recommendation does not preclude such
coordination among the agencies. We recognize USAID's and USDA's
efforts to date to implement our 2007 recommendation to develop a
coordinated interagency mechanism to update food aid specifications and
products to improve food quality and nutritional standards. Including
actions to systematically collect evidence on LRP's adherence to
quality will make these efforts more efficient. With regard to the
third recommendation, USAID commented that MARAD's position on the
applicability of the 75 percent threshold to USAID-funded LRP, rather
than the 50 percent threshold, is devoid of legal merit. In providing
information on agencies' interpretations of cargo preference
requirements as they pertain to LRP, we sought to identify areas where
agencies disagree on the applicability and interpretation of these
requirements. We did not attempt to adjudicate the differences in
interpretation among the agencies involved. However, in technical
comments to a draft of this report, DOT changed its position regarding
thresholds and now concurs with USAID'S interpretation, thus
eliminating this issue as an area of ambiguity.
USDA generally agreed with our report, noting that our comparisons of
costs and delivery times were insightful. However, USDA observed that
aggregating some of the commodities such as vegetable oil and beans
could cause a loss of precision in our methodology. To obtain an
overall picture of costs, we worked to ensure that we had the largest
number of observations, over the longest possible time period, so some
aggregation was required. USDA also stated that our report does not
specify how differences in quality or specifications were handled. We
recognize that the price of different commodities in the same category
may vary depending on quality or specifications. However, we noted
WFP's assertion that its commodities meet both the importing and
exporting countries' standards, and there is no systematic evidence
that U.S. commodities differ in quality compared to LRP commodities.
Nonetheless, we recognize that there may be differences in the quality
of certain commodities, and we note such differences in our
illustrative example of LRP for Tajikistan. In addition, both USDA and
DOT noted that we did not compare delivery times for LRP and in-kind
food aid from prepositioning sites. Although we did not differentiate
prepositioned commodities in our cost comparison, we included them in
our data analysis and note that prepositioned commodities were a very
small part of U.S. food aid during the time period we examined.
DOT stated that additional analysis may be warranted before concluding
that LRP offers a tool to reduce costs and shorten delivery time.
Although further analysis of LRP practices would be useful, our
analysis demonstrated consistent results across 8 years of data. For
example, local procurement in sub-Saharan Africa cost about 34 percent
less than USAID commodities procured at around the same time and
delivered to the same country. DOT also stated that it implements the
cargo preference statute through regulation, not through an interagency
MOU. While this is true, the regulations contain ambiguities that have
previously required resolution through an MOU. Our report describes new
ambiguities that could arise in applying cargo preference in the
context of regional procurement. We believe that these ambiguities can
be resolved by updating the MOU. Further, there is no requirement that
establishing regulation precede a MOU nor does a MOU preclude the
issuance of new regulation. The updated MOU, establishing consensus
among the relevant agencies, could be reflected in any future
regulation that DOT may draft and get finalized through the rule-making
process.
WFP welcomed our timely examination of LRP as one of numerous tools to
deliver effective and efficient food assistance to those in greatest
need. However, WFP stated it was perplexed that concerns persist about
the quality of food procured in developing countries, given the lack of
evidence showing that LRP introduces quality challenges that are not
already challenges to internationally procured and donor-provided food
aid. We note that quality is one issue that many WFP procurement
officers and several other officials we interviewed identified as a
challenge for LRP. However, the lack of systematically collected data
makes it difficult to objectively analyze how LRPs adhere to quality
standards and product specifications. Our first recommendation
addresses this issue. In addition, WFP offered some qualifications to
our discussion of the impact of LRP on economies where food is
procured, noting the lack of systematic evidence to suggest that
current LRP practices adversely impact host markets. In this report, we
explain several efforts that WFP and others have taken to significantly
improve the availability and reliability of market intelligence in
developing countries. Nonetheless, WFP, NGOs, U.S. agencies, host
governments, and experts convened for our roundtable stated that the
most significant challenge to avoiding potential adverse markets
impacts when conducting LRP is unreliable market intelligence.
Therefore, we are recommending improving the reliability and utility of
market intelligence.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. We are sending copies of this report to
interested Members of Congress, the Administrator of USAID, and the
Secretaries of Agriculture, State, Transportation, and the Treasury. In
addition, this report will be 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
Offices 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 XI.
Sincerely yours,
Signed by:
Thomas Melito Director, International Affairs and Trade:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
Our objectives were to determine (1) the impact of local and regional
procurement (LRP) on the efficiency of food aid delivery, (2) the
impact of LRP on economies where food is procured, and (3) U.S. legal
requirements that could affect U.S. agencies' use of LRP.
We selected four countries for fieldwork based on geographic region,
WFP procurement data, and the presence of WFP procurement officers in-
country. We selected countries in sub-Saharan Africa, excluding
countries with current conflict, because these regions within Africa
have high prevalence rates of undernourishment. While this selection is
not representative in any statistical sense, it ensured that we had
variation in the key factors we considered. We do not generalize the
results of our fieldwork beyond that selection, using fieldwork
primarily to provide illustrative examples.
To understand the experiences of other donors with local and regional
food procurement and corroborate information gathered in our literature
review, we conducted semi-structured interviews with 11 principal WFP
procurement officers in Africa and Asia. We focused on Africa and Asia
because that is where the majority of food procurement abroad takes
place. The 11 we interviewed represented all the principal WFP
procurement officers that were in place in Asia and Africa at the time
we conducted our fieldwork. We asked each procurement officer a series
of open-ended questions on the factors impacting and actions that could
be taken to improve: cost, delivery time, quality, market impact, and
development. To ensure that the questions were clear and unambiguous,
did not place an undue burden on respondents, and that respondents had
the necessary information and time to answer the questions, we
conducted pre-tests with WFP procurement officers in Sudan and
Thailand. To determine which factors and actions were mentioned most
frequently, we coded the officer's responses to the questions. One
analyst developed and applied the codes to the interviews and another
analyst reviewed both the codes and their application. Based on that
coding, we report data on the number of officers that mentioned each
factor and action. The views we report are limited to WFP procurement
officers in Africa and Asia and may not represent WFP procurement
officers in other regions.
In addition, we reviewed economic literature on LRP practices and
recent reports, studies, and papers issued by U.S. agencies,
multilateral organizations, and bilateral donors. These sources were
chosen because they represent a wide cross section of the discussion on
LRP and are written by the leading authorities and institutions working
in the field.
In the four African countries that we selected for fieldwork--Kenya and
Uganda in East Africa, South Africa in southern Africa, and Burkina
Faso in West Africa--we met with U.S. Agency for International
Development (USAID) and other U.S. officials; World Food Program (WFP)
country office staff; and representatives of nongovernmental
organizations (NGO), smallholder farmer groups, and commodity
exchanges. We also visited several sites where food aid may be locally
purchased and where food aid is delivered.
In Washington, D.C., we interviewed officials from U.S. agencies,
including USAID; USDA; the Departments of State, Transportation (DOT),
and the Treasury; and the Millennium Challenge Corporation (MCC). We
also met with the International Food Policy Research Institute (IFPRI)
and the World Bank. In New York, we met with the Rockefeller
Foundation, the Alliance for a Green Revolution in Africa (AGRA), and
Columbia University. In Rome, we met with FAO, WFP, and the
International Fund for Agricultural Development (IFAD). We also met
with the U.S. Mission to the UN (USUN) in Rome and several bilateral
donors' permanent representatives to the Rome-based UN food and
agriculture agencies. In addition, in Washington, D.C., we convened a
roundtable of 10 experts and practitioners--including representatives
from academia, research organizations, multilateral organizations,
NGOs, and others--to further delineate, based on our initial work, some
of key issues and challenges to the implementation of LRP.
To examine the impact of LRP on the efficiency of food aid delivery, we
focused on the cost, delivery time, and quality. To evaluate LRP cost
efficiency, we compared WFP LRP costs and with USAID's. WFP's costs are
based on WFP's procurement data from 2001 to 2008 and USAID's costs are
based on USAID's Line 17 reports from fiscal year 2001 to 2008.
[Footnote 67] We did not evaluate the impact of prepositioning on U.S.
food aid costs, although we did not exclude the commodities shipped
from prepositioning sites, albeit small in value relative to overall
U.S. food aid for the time period we examined. WFP's procurement data
include information on the commodities purchased, the date of the
purchase, the origin of the commodities, the recipient of the food aid,
the contract terms, and the purchase prices. To assess the reliability
of the data, we (1) reviewed existing documentation related to the data
sources and (2) interviewed WFP and USAID officials familiar with the
data sources. Accordingly, we determined that the data were
sufficiently reliable for the purposes of this report. Since WFP's
procurements are under different contract terms, the purchase prices
include different costs. For example, most of WFP's international
procurements are under the term free on board (FOB), which normally
does not include ocean shipping and handling. USAID's data include the
costs for commodities and ocean shipping and inland transportation,
storage, and handling (ITSH). To make the costs comparable, we included
different USAID cost components depending on the contract terms of the
corresponding WFP purchase. See table 4 for details of the
corresponding WFP contract terms and USAID cost components.
Table 4: WFP Contract Terms and USAID Cost Components Included in Cost
Comparison:
Local:
WFP terms included in GAO analysis: Delivery duty unpaid (DDU);
Corresponding cost components in USAID data: Commodity cost, ocean
freight, inland freight;
Corresponding cost components in USAID data with ocean freight
reimbursement: Commodity cost, 65-75% of ocean freight and inland
freight.
Regional:
WFP terms included in GAO analysis: DDU;
Corresponding cost components in USAID data: Commodity cost, ocean
freight, inland freight;
Corresponding cost components in USAID data with ocean freight
reimbursement: Commodity cost, 65-75% of ocean freight and inland
freight.
International:
WFP terms included in GAO analysis: FOB;
Corresponding cost components in USAID data: Commodity cost, inland
freight;
Corresponding cost components in USAID data with ocean freight
reimbursement: Commodity cost, 65-75% of inland freight.
Source: GAO.
[End of table]
For each WFP purchase, we searched for a "match" in USAID's data. A
match is defined as a purchase transaction of a similar commodity, in
the same quarter of the same year, for the same recipient country. The
commodity groups we selected are beans, corn soy blend (CSB), maize,
maize meal, rice, sorghum/millet, vegetable oil, and wheat, which
represent the majority of food aid for both WFP and USAID. We
aggregated the more detailed commodities in USAID's data. For example,
we aggregated many types of beans (red beans, kidney beans, black
beans, pinto beans, and other beans) into the bean commodity group. We
compared the WFP's per metric ton cost with its match of USAID's cost.
See table 5 for the number of matches in our analysis, which occurred
for 8 commodities out of approximately 37,000 transactions from 2001 to
2008.
Table 5: Number of Matches in Cost Comparison:
Local:
Worldwide: 1,197;
Sub-Saharan Africa: 843;
Latin America: 198;
Asia: 156.
Regional:
Worldwide: 672;
Sub-Saharan Africa: 389;
Latin America: 40;
Asia: 243.
International:
Worldwide: 1,580;
Sub-Saharan Africa: 1,319;
Latin America: 178; Asia: 83.
Source: GAO based on WFP and USAID data.
[End of table]
We compared the costs by region (sub-Saharan Africa, Asia, and Latin
America) and by procurement type (local, regional, and international).
To account for DOT cargo preference reimbursements, we reduced USAID
ocean freight costs from 25 to 35 percent and found that it did not
change our results significantly. Based on previous GAO work, we
consider 25 percent to be a reasonable value to account for cargo
reimbursements over the 8-year period. We analyzed the percentage of
WFP transactions that had lower costs than USAID's and the cost
differential. See figure 8 below for a histogram of cost differential
comparison.
Figure 8: Cost Difference between USAID and WFP Local Procurement in
Sub-Saharan Africa:
[Refer to PDF for image: vertical bar graph]
WFP is more expensive:
Percentage price differentiation between WFP and USAID: -70;
Frequency (number of transactions): 1.
Percentage price differentiation between WFP and USAID: -65;
Frequency (number of transactions): 0.
Percentage price differentiation between WFP and USAID: -60;
Frequency (number of transactions): 0.
Percentage price differentiation between WFP and USAID: -55;
Frequency (number of transactions): 0.
Percentage price differentiation between WFP and USAID: -50;
Frequency (number of transactions): 1.
Percentage price differentiation between WFP and USAID: -45;
Frequency (number of transactions): 1.
Percentage price differentiation between WFP and USAID: -40;
Frequency (number of transactions): 0.
Percentage price differentiation between WFP and USAID: -35;
Frequency (number of transactions): 7.
Percentage price differentiation between WFP and USAID: -30;
Frequency (number of transactions): 0.
Percentage price differentiation between WFP and USAID: -25;
Frequency (number of transactions): 9.
Percentage price differentiation between WFP and USAID: -20;
Frequency (number of transactions): 2.
Percentage price differentiation between WFP and USAID: -15;
Frequency (number of transactions): 4.
Percentage price differentiation between WFP and USAID: -10;
Frequency (number of transactions): 2.
Percentage price differentiation between WFP and USAID: -5;
Frequency (number of transactions): 6.
Percentage price differentiation between WFP and USAID: 0;
Frequency (number of transactions): 12.
USAUD is more expensive:
Percentage price differentiation between WFP and USAID: 5;
Frequency (number of transactions): 17.
Percentage price differentiation between WFP and USAID: 10;
Frequency (number of transactions): 10.
Percentage price differentiation between WFP and USAID: 15;
Frequency (number of transactions): 36.
Percentage price differentiation between WFP and USAID: 20;
Frequency (number of transactions): 20.
Percentage price differentiation between WFP and USAID: 25;
Frequency (number of transactions): 35.
Percentage price differentiation between WFP and USAID: 30;
Frequency (number of transactions): 81.
Percentage price differentiation between WFP and USAID: 35;
Frequency (number of transactions): 114.
Percentage price differentiation between WFP and USAID: 40;
Frequency (number of transactions): 88.
Percentage price differentiation between WFP and USAID: 45;
Frequency (number of transactions): 101.
Percentage price differentiation between WFP and USAID: 50;
Frequency (number of transactions): 78.
Percentage price differentiation between WFP and USAID: 55;
Frequency (number of transactions): 39.
Percentage price differentiation between WFP and USAID: 60;
Frequency (number of transactions): 54.
Percentage price differentiation between WFP and USAID: 65;
Frequency (number of transactions): 37.
Percentage price differentiation between WFP and USAID: 70;
Frequency (number of transactions): 42.
Percentage price differentiation between WFP and USAID: 75;
Frequency (number of transactions): 26.
Percentage price differentiation between WFP and USAID: 80;
Frequency (number of transactions): 20.
Note: The difference ranges between -71% (USAID was 71 percent lower in
per ton cost than WFP) and 78 percent (USAID was 78 percent higher in
per ton cost than WFP). The chart shows that most of WFP transactions
have a lower cost (to the right of zero) than USAID.
[End of figure]
The cost differences between U.S. food aid and LRP of similar food
products, around the same time frame, and for the same countries we
identified represent potential cost-saving opportunities. However, many
factors can reduce or even eliminate the amount of savings, including
whether food is available in the local and regional markets, and how
much additional purchases in these markets will drive up prices. We
discussed this methodology at the expert roundtable we conducted, and
the experts indicated that our methodology was sufficient in
controlling for various factors that may influence costs to make the
costs comparable.
To evaluate the impact of LRP on delivery time, we relied on interviews
with WFP officials and representatives from various organizations we
met with during fieldwork in the four countries we visited. In
addition, WFP generated delivery time for 10 countries in sub-Saharan
Africa that we selected by procurement type. The countries that we
selected had received food aid purchased or donated internationally, as
well as through LRP. Our analysis of the aggregate delivery time
consisted of the average of the median delivery times for each of the
10 countries across the four procurement types. To evaluate the impact
of LRP on the quality, we interviewed U.S. agency officials, WFP
officials, and NGO representatives. We reviewed assessments of WFP
local and regional procurement. We discussed with WFP the methodology
it used in order to generate the delivery time and the limitations of
the methodology. We determined the data are sufficiently reliable for
our purposes. We chose to use WFP data because they included a
substantial amount of both international and local and regional
procurements. We did not compare WFP's delivery time to U.S. in-kind
delivery time. We also did not evaluate the impact of prepositioning on
U.S. food aid delivery time.
To examine the impact of LRP on the economies of countries where food
is procured, we relied on the responses of WFP procurement officers to
our semi-structured interview questions; our economic literature review
of LRP practices, reports, studies, and papers' and our interviews with
WFP, U.S. government, NGO, World Bank, and private-sector officials in
Washington, D.C.; Rome; and the countries we visited for fieldwork in
sub-Saharan Africa. We also discussed our preliminary findings on the
potential market risks, market intelligence, and development benefits
associated with LRP at our expert roundtable and received validation
and further input.
To examine U.S. legal restrictions that could affect U.S. agencies' use
of LRP, we reviewed U.S. programs authorized in the 2008 Farm Bill, the
Food for Peace Act of 1961, the Foreign Assistance Act, and the 1954
Cargo Preference Act, as amended, and appropriations for fiscal years
2002 to 2008. To better understand agency interpretations of
applicability of cargo preference, we collected information from USAID,
USDA, and DOT officials with regard to U.S.-flag vessel availability,
compliance thresholds, notwithstanding authority, and application to
international organizations.
The information on foreign law in this report does not reflect our
independent legal analysis but is based on interviews and secondary
sources.
We conducted this performance audit from June 2008 to May 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Key Donor Initiatives That Support LRP:
The following is a summary of some of the key donor food security
initiatives in recent years, many of which support LRP. (See figure 9.)
Figure 9: Selected Key Donor Initiatives That Support LRP, 2006 to
2009:
[Refer to PDF for image: four photographs and a table]
March 2009:
* As part of the Omnibus Appropriations Act, Congress appropriated $75
million to enhance global food security, including local or regional
purchase and distribution of food.
January 2009:
* At the Summit on the Global Agenda held in Davos, Switzerland, the
World Economic Forum Council on Food Security called for integrating
local communities and smallholder farmers into larger food production
and distribution.
* High-Level Meeting on Food Security for All held in Madrid, Spain.
December 2008:
* Millennium Challenge Corporation (MCC) and the World Food Program
sign a Memorandum of Understanding establishing MCC-funded agricultural
supply-chain investments and WFP-funded Purchase for Progress (P4P)
initiative as possible areas of collaboration.
* World Bank set up a $2 billion Crisis Response Fast Track Facility,
building on the Global Food Crisis Response Program, to provide rapid
financing for social safety nets, in the world‘s poorest countries.
September 2008:
* UN High-level Event on the Millennium Development Goals estimated
generating $1.6 billion to bolster food security.
* WFP formally launched its P4P program, a $76 million pilot that in up
to 21 countries over the next 5 years to enhance smallholder and low-
income farmers‘ access to markets
July 2008:
* The G8 Statement on Global Food Security called on donors to
participate in making commitments to meet remaining immediate
humanitarian needs, provide access to seeds and fertilizers, and look
for opportunities to build up local agriculture by promoting local
purchase of food aid.
* UN High-Level Task Force on the Global Food Security Crisis issued
its Comprehensive Framework for Action highlighting the need for and
the benefits of local and regional purchases in farming communities.
June 2008:
* Congress appropriated $150 million in supplemented funding for local
procurement in response to emergencies, including the global food price
crisis.
* In the 2008 Rome Declaration, 181 heads of state committed to use all
means to alleviate the suffering caused by the food crisis, stimulate
food production and to increase investment in agriculture, and address
obstacles to food access.
May 2008:
* Congress passed the Farm Bill, authorizing USDA to develop and
implement a 5-year, $60 million local and regional procurement pilot
program.
* World Bank Global Food Crisis Response Program, a $1.2 billion rapid
financing facility to address immediate needs, is established in
addition to taking measures to boost its support for agriculture and
food to $6 billion in 2009, up from $4 billion; launched risk
management tools; and provided crop insurance to protect poor countries
and smallholder farmers.
April 2008:
* UN Task Force on the Global Food Security Crisis is established under
the chairmanship of the Secretary-General.
* World Bank announced plans to boost overall support for agriculture
and food from $4 billion to $6 billion in 2009 as well as the as
creation of a new $1.2 billion Global Food Crisis Response Program to
address immediate needs in countries most affected by the food crises,
including support for food rations purchased locally.
December 2007:
* FAO Initiative on Soaring Food Prices is launched to respond to the
urgent needs of the most vulnerable people confronted with high food
prices.
2006:
* U.S. Administration requested the authority to allow up to 25 percent
of P.L. 480 Title II funds to be used for local and regional purchase
in order to improve the timeliness, flexibility, and effective use of
food aid for those threatened by food security crises.
Source: GAO.
[End of figure]
[End of section]
Appendix III: Delivery Time by Procurement Type in Ten Selected
Countries:
To evaluate the impact of local and regional procurement on delivery
time, we relied on lead time data provided by WFP for 10 countries in
sub-Saharan Africa that we selected, all of which had received locally
and regionally procured food aid and food aid donated internationally.
The delivery time (also referred to as "lead time") reflects the number
of days elapsed between the date of the purchase order and the date WFP
took possession of the food in the recipient country. The data cover
the period from 2004 to 2008.
As shown in figure 10, international in-kind donations took the longest
time, averaging 147 days. Local and regional purchases took on average
35 and 41 days, shortening the lead time from international donations
by 112 days and 106 days, respectively.
Figure 10: Median Delivery Times for Selected Recipient Countries in
Sub-Saharan Africa, 2004 to 2008:
[Refer to PDF for image: ten horizontal bar graphs]
Burkina Faso:
International in-kind donations[A]: 151 days;
International cash donations, time: 85 days;
International cash donations, time saved: 66 days;
Regional cash donations[A], time: 61 days;
Regional cash donations[A], time saved: 90 days;
Local cash donations, time: 25 days;
Local cash donations, time saved: 126 days.
Democratic Republic of Congo:
International in-kind donations[A]: 168 days;
International cash donations, time: 97 days;
International cash donations, time saved: 71 days;
Regional cash donations[A], time: 43 days;
Regional cash donations[A], time saved: 125 days;
Local cash donations, time: 50 days;
Local cash donations, time saved: 118 days.
Kenya:
International in-kind donations[A]: 158 days;
International cash donations, time: 85 days;
International cash donations, time saved: 73 days;
Regional cash donations[A], time: 1 day;
Regional cash donations[A], time saved: 157 days;
Local cash donations, time: 16 days;
Local cash donations, time saved: 142 days.
Malawi:
International in-kind donations[A]: 167 days;
International cash donations, time: 97 days;
International cash donations, time saved: 70 days;
Regional cash donations[A], time: 26 days;
Regional cash donations[A], time saved: 141 days;
Local cash donations, time: 32 days;
Local cash donations, time saved: 135 days.
Mali:
International in-kind donations[A]: 132 days;
International cash donations, time: 89 days;
International cash donations, time saved: 43 days;
Regional cash donations[A], time: 52 days;
Regional cash donations[A], time saved: 78 days;
Local cash donations, time: 33 days;
Local cash donations, time saved: 99 days.
Sudan:
International in-kind donations[A]: 101 days;
International cash donations, time: 81 days;
International cash donations, time saved: 20 days;
Regional cash donations[A], time: 19 days;
Regional cash donations[A], time saved: 82 days;
Local cash donations, time: 35 days;
Local cash donations, time saved: 66 days.
Tanzania:
International in-kind donations[A]: 152 days;
International cash donations, time: 84 days;
International cash donations, time saved: 68 days;
Regional cash donations[A], time: 64 days;
Regional cash donations[A], time saved: 88 days;
Local cash donations, time: 55 days;
Local cash donations, time saved: 97 days.
Uganda:
International in-kind donations[A]: 159 days;
International cash donations, time: 87 days;
International cash donations, time saved: 72 days;
Regional cash donations[A], time: 49 days;
Regional cash donations[A], time saved: 110 days;
Local cash donations, time: 27 days;
Local cash donations, time saved: 132 days.
Zambia:
International in-kind donations[A]: 137 days;
International cash donations, time: 86 days;
International cash donations, time saved: 51 days;
Regional cash donations[A], time: 44 days;
Regional cash donations[A], time saved: 93 days;
Local cash donations, time: 35 days;
Local cash donations, time saved: 102 days.
Zimbabwe:
International in-kind donations[A]: 143 days;
International cash donations, time: 114 days;
International cash donations, time saved: 29 days;
Regional cash donations[A], time: 48 days;
Regional cash donations[A], time saved: 95 days;
Local cash donations, time: 40 days;
Local cash donations, time saved: 103 days.
Source: GAO analysis of WFP data.
Note: Data reported in this figure are based on the median lead times
for food aid through various procurement modes: international in-kind
donations and international, regional, and local procurement made from
cash donations.
[A] All categories represent at least 20 purchases, except for these
numbers.
[End of figure]
[End of section]
Appendix IV: Illustrative Example of U.S. In-kind Food Aid Compared
with LRP:
Figure 11: An Illustrative Example of U.S. In-kind Food Aid Compared
with LRP to Tajikistan:
[Refer to PDF for image: four photographs, one map, additional data]
The photographs depict transport, unloading and distribution of in-kind
food aid.
The map depicts the following:
Departure, transfer, or destination locations:
Kansas and Oklahoma, USA (transfer);
Jacintoport, Texas, USA, (departure);
Russia (departure, regional);
Kazakhstan (departure, local);
Bremerhaven, Germany (transfer, from USA);
Qurghonteppa (Kurgan Tube), Tajikistan (destination).
U.S. in-kind food aid sea transport takes place from Jacintoport to
Bremerhaven.
U.S. in-kind food aid rail transport takes place from Bremerhaven to
Qurghonteppa.
Commodity[A] (cost per metric ton): U.S. In-kind[B};
Wheat flour: $877;
Vegetable oil (fortified): $2,220;
Yellow peas: $1,043.
Commodity[A] (cost per metric ton): LRP;
Wheat flour: $528;
Vegetable oil (unfortified): $1,916;
Lentils: $980.
Key dates[C]:
Issue call forward or announce tender[D]: U.S. In-kind[B};
Wheat flour: October-November 2008;
Vegetable oil (fortified): October-November 2008;
Yellow peas: October-November 2008.
Issue call forward or announce tender[D]: LRP;
Wheat flour: late October 2008;
Vegetable oil (unfortified): late October 2008;
Lentils: late October 2008.
Transport commodities: U.S. In-kind[B};
Wheat flour: late February 2009;
Vegetable oil (fortified): late December 2008;
Yellow peas: January 2009.
Transport commodities: LRP;
Wheat flour: early December 2008;
Vegetable oil (unfortified): late December 2008;
Lentils: mid-December 2008.
Arrive in Tajikistan: In-kind[B};
Wheat flour: late April 2009;
Vegetable oil (fortified): late February 2009;
Yellow peas: early February 2009.
Arrive in Tajikistan: LRP;
Wheat flour: late December 2008;
Vegetable oil (unfortified): early February 2009;
Lentils: early February 2009.
Sources: Save the Children (data and photos); Map Resource (map).
[A] Commodities may not be identical. For example, the protein level
for U.S. wheat flour may be different from the wheat flour from
Kazakhstan. Soybean vegetable oil from the United States is fortified,
while cotton seed oil from Russia is not fortified. Yellow peas were
provided from the United States, and lentils were provided from Russia.
[B] Yellow peas and fortified vegetable oil were from the U.S.
prepositioning site in Jacintoport, Texas, which allowed the
commodities to be shipped more quickly.
[C] U.S. in-kind food aid was a USAID Single-Year Assistance Program
funded through Title II of the Food for Peace Act. LRP was funded
through USAID's 2008 supplemental appropriations.
[D] For U.S. in-kind food aid, we used the date the call forward was
issued. For LRP, we used the date a tender was announced, which was
then followed by the issuance of a purchase contract.
Note: USAID intends to issue updated guidance stipulating that LRP
funding be used to purchase commodities whose source and origin are
from developing countries.
[End of figure]
[End of section]
Appendix V: Results of Interviews with WFP Procurement Officers:
To identify factors that could limit the efficiency of LRP, steps WFP
has taken to improve the efficiency of LRP, and factors that limit or
strengthen the positive development impacts of LRP, we conducted semi-
structured interviews with 11 WFP procurement officers in Africa and
Asia.
Figure 12 lists the factors that WFP procurement officers reported
limit the efficiency of LRP and steps they identified could improve and
ensure the efficiency of LRP.
Figure 12: Factors Limiting LRP Efficiency and Actions That Improve and
Ensure LRP Efficiency:
[Refer to PDF for image: two horizontal bar graphs]
Factors That Limit LRP Efficiency:
Food quality problems or variations:
Number of WFP procurement officers reporting: 9.
Supplier problems:
Number of WFP procurement officers reporting: 9.
Infrastructure limitations:
Number of WFP procurement officers reporting: 8.
Timing and restrictions on donor funding:
Number of WFP procurement officers reporting: 7.
Constraints in WFP purchase process and other restrictions:
Number of WFP procurement officers reporting: 5.
Lack of security and conflict:
Number of WFP procurement officers reporting: 5.
Underdeveloped agricultural markets:
Number of WFP procurement officers reporting: 5.
Government trade restrictions and lack of capacity:
Number of WFP procurement officers reporting: 3.
High or volatile world food prices:
Number of WFP procurement officers reporting: 3.
Insufficient market information:
Number of WFP procurement officers reporting: 3.
Limited WFP resources for quality assurance:
Number of WFP procurement officers reporting: 3.
Costs and availability of land transport:
Number of WFP procurement officers reporting: 2.
Actions That Improve and Ensure LRP Efficiency:
Advanced financing and new contract methods:
Number of WFP procurement officers reporting: 8.
Quality assurance processes:
Number of WFP procurement officers reporting: 8.
Supplier outreach and capacity building:
Number of WFP procurement officers reporting: 8.
Improved market intelligence and technology:
Number of WFP procurement officers reporting: 7.
Use of penalties for supplier default:
Number of WFP procurement officers reporting: 6.
Consider local food preferences:
Number of WFP procurement officers reporting: 5.
Coordination with government and donors:
Number of WFP procurement officers reporting: 5.
Strengthen agricultural infrastructure:
Number of WFP procurement officers reporting: 4.
Improve price information for suppliers:
Number of WFP procurement officers reporting: 3.
Prescreen suppliers and monitor delivery:
Number of WFP procurement officers reporting: 3.
Streamlined processes during emergencies:
Number of WFP procurement officers reporting: 3.
Source: GAO.
Note: The category of underdeveloped agricultural markets includes
factors such as farmers' lack of access to inputs and storage.
[End of figure]
Strengthening agricultural infrastructure includes actions such as
provision of raw materials or establishing bagging and processing
facilities.
Figure 13 lists factors that limit the positive development impacts LRP
could have and actions to improve or strengthen such impacts. The WFP
procurement officers discussed topics, some of which we had identified
as factors affecting food security in a previous report,[Footnote 68]
namely, agricultural productivity, rural development, and governance,
as shown below. Officers also discussed specific characteristics of WFP
business practices.
* Agricultural productivity. Several officers reported that small
farmers' lack of access to inputs and markets or the underdeveloped
nature of agricultural markets more generally limits their ability to
create positive development impacts with LRP. Up to seven officers
suggested actions to improve agricultural productivity. For example,
the Thailand officer suggested actions to support small farmers in Laos
by providing training on the corn soy production process. The Pakistan
officer suggested strengthening agricultural markets by establishing
seed nurseries.
* Rural development. Two officers indicated that poor rural
development, such as inadequate land holdings or inadequate access to
information in remote areas, limits their ability to create positive
development impacts with LRP. However, eight officers suggested actions
to strengthen rural development through, for example, providing
equipment to dry grain or educating communities on food fortification.
* Governance. Several officers noted that due to the relatively small
size of LRPs, particularly those conducted through WFP's P4P program,
their ability to result in positive development impacts are limited and
ultimately depends on whether local governments also have sound
agricultural policies in place that support LRP.
* WFP business practices. Four officers mentioned that imperfect market
impact information is a challenge to creating positive development
impacts with LRP. Four officers discussed the importance of market
impact monitoring. Two officers also suggested changes to WFP business
practices, such as merging LRP with the P4P program.
Figure 13: Factors That Limit Positive Development Impacts of LRP and
Actions to Improve or Strengthen Such Impacts:
[Refer to PDF for image: horizontal bar graph]
Agricultural productivity:
Underdeveloped agricultural markets (limiting factor):
Number of procurement officers reporting: 2.
Farmers lack access to inputs and markets (limiting factor):
Number of procurement officers reporting: 4.
Develop and improve agricultural markets (action):
Number of procurement officers reporting: 7.
Support small-holder farmers (action):
Number of procurement officers reporting: 6.
Rural development:
Inadequate rural development (limiting factor):
Number of procurement officers reporting: 2.
Strengthen rural communities and economies (action):
Number of procurement officers reporting: 8.
Governance:
Supportive agricultural policies required (limiting factor):
Number of procurement officers reporting: 4.
Improve coordination and governance (action):
Number of procurement officers reporting: 6.
WFP business process:
Market impact information is imperfect (limiting factor):
Number of procurement officers reporting: 4.
Change WFP program restrictions (action):
Number of procurement officers reporting: 2.
WFP market impact monitoring (action):
Number of procurement officers reporting: 2.
[End of figure]
[End of section]
Appendix VI: GAO Literature Review of Selected Studies on the Use of
LRP:
This appendix summarizes selected studies on LRP, including several
analytical studies conducted by WFP to assess its use of LRP in sub-
Saharan Africa (see table 6). The studies describe the types of markets
and the trading environment in which LRP is conducted, as well as the
impact of LRP on local markets and the extent to which those markets
are integrated; the studies also provide an estimate of savings
achieved through LRP. The first study in the table presents the types
of questions that should be addressed when undertaking LRP. The
remaining studies can be reviewed with these questions in mind.
Table 6: Selected Studies on the Use of LRP:
Study: A Market Analysis and Decision Tree Tool for Response Analysis:
Cash, Local Purchase and/or Imported Food Aid? Daniel G. Maxwell, Erin
C. Lentz, and Christopher B. Barrett, Cooperative for Assistance and
Relief Everywhere (CARE), May 2007;
Findings:
* The report proposes a number of questions that should be asked when
making decisions about LRP;
Limitations:
* What kind of supply response will the LRP market have?
* Can traders supply the demand without price increases on the local
market?
* Is the market integrated with other supply markets so traders have
incentive to import additional food into the market?
* What is the local price relative to the import parity price (IPP)?
Should both of these prices include all costs?; Do local traders behave
competitively? Can traders exercise market power by raising prices so
as to extract most of the gains from transfers?
* What is the likelihood of supply disruptions or delays due to breach
of contract, insufficient storage capacity, supplier inability to
deliver on contract terms, government interference (such as export bans
and currency controls), and logistical bottleneck?
Study: Food Procurement in Developing Countries, World Food Program,
Executive Board, First Regular Session, Feb. 2006, Rome;
Findings:
* Report summarizes other WFP studies on LRP in Bolivia, Burkina Faso,
Ethiopia, Nepal, South Africa, Uganda, and Congo;
* Limitations:
* The vast majority of WFP operations is in response to emergencies and
has wide fluctuations in needs;
* WFP's food purchasing tends to be irregular and unpredictable, which
seriously limits its ability to contribute to market development;
* WFP has not had success in procuring directly from farmers and farmer
groups. The case studies indicate that supporting farmers and farmer
groups has mixed results and may lead to higher prices paid, higher
administrative costs, more contracts, and greater risk of default;
* In many low-income countries, national market intelligence systems
are weak, and reliable and timely data are not available;
* Often, it is not the cost of the food, but the management costs
associated with local procurement in surplus-producing regions where
there is little or no market infrastructure that is prohibitive;
* These management costs include monitoring and supporting the
completion of contracts, the costs and risks of contract default, and
risk of inadequate food quality.
Study: World Food Program Local and Regional Food Procurement-An
Analytical Review (Ethiopian Case Study), Final Report. Addis Ababa:
June 2005;
Year: 2001-2004;
Country: Ethiopia;
Commodity: Corn and wheat;
Findings:
* In 2003 there would have been a cost savings of $78 per ton on
locally purchased wheat and corn;
* Based on analysis in 1996-2004, 60-70 percent of the markets are
integrated;
* Producers receive 75 percent of retail price in Addis Ababa, leaving
a 25 percent retail margin;
Limitations:
* Ethiopia's grain marketing system is constrained by lack of access to
financial resources, inadequate infrastructures, poor roads, inadequate
access to market information, storage facilities, lack of standards and
grades, high transfer costs, and nonfulfillment of delivery options;
* Traders deal with small annual volume and do not hold grain in
storage for seasonal arbitrage;
* Delivery of the product is a real challenge, particularly ensuring
the quality of the product delivered. Rejection of delivery for failure
to fulfill quality standards is frequent;
* Since traders do not keep stocks on hand, contract default is a
problem when traders are unable to procure the proper amount or quality
at the expected price;
* Default occurs if traders get a better offer; there are problems with
traders not honoring their commitments;
* Transport shortages and tariff increases hinder timely delivery.
Study: Local and Regional Food Procurement in Uganda an Analytical
Review, A study report prepared for the Economic Analysis and
Development Policy Unit in the Strategy, Policy and Program Support
Division of the World Food Program, Serunkuuma and Associates Consult,
June 2005;
Year: 2001-2004;
Country: Uganda;
Commodity: Corn and beans;
Findings:
* In 2003, WFP spent $12 million less on corn and beans purchased from
Uganda than if it had imported these commodities;
* While imports from the United States and South Africa may cost less
at port, added inland transportation costs made them more expensive
than LRP. LRP delivered food to beneficiaries in 3 months while
international procurement delivery took an average of 6 months;
* Locally, in 2003, 7 of 8 markets in Uganda appeared integrated.
Regionally, Uganda markets were integrated with Tanzania markets but
not with Kenya markets;
Limitations:
* WFP contracts require higher quality than locally traded corn--high
moisture content and is subject to rot;
* Poor post-harvest practices, storage facilities, and equipment such
as dryers and shellers affect quality of final product leading to high
post-harvest losses and increased costs to clean the grain;
* Intensification of local purchase contributed to reduction in corn
exports.; Supplies still come from a small number of companies or
farmer groups, suggesting high concentration and potential for
monopolistic behavior;
* Lack of sufficient storage capacity and access to bank loans without
WFP contracts are constraints to smaller traders. High cost of
borrowing and unavailability of long-term finance are additional
constraints;
* Many traders enter into contracts with WFP before they have stock,
putting them at a higher risk for contract default. This also adds
pressure on markets because large quantities are purchased in a short
period of time, which may lead to drastic price changes.
Study: Food Aid Procurement in South Africa: an Analytical Review of
WFP Activities; Nick Vink, Thulasizwe Mkhabela, Ferdie Meyer, and
Johann Kirsten; April 2005;
Year: 2001-2004;
Country: South Africa;
Commodity: Corn;
Findings:
* In June 2003, farmers received 53 percent of the retail value of corn
meal;
* During the period of analysis, WFP's unit price for maize was above
South Africa's average prices;
* This difference in price may be due to the transportation
differential, contract delivery terms, and the exchange rate;
* Traders charge a $5-$10 risk premium to account for the time that
elapses from submitting a tender to receiving an award;
Limitations:
* While WFP has been active in buying corn in the South African market,
WFP purchases represent a very small portion of the market--1/5 to 3/4
of a percentage point of the gross value of South African agricultural
production;
* South Africa has a functioning futures commodity market called the
South African Futures exchange (SAFEX), which was established after
deregulation when the corn board was abolished;
* Purchase prices are determined by comparing SAFEX prices to the IPP,
which is the representative price for purchases on the world market.
Study: Democratic Republic of Congo Food Procurement Assessment Mission
Euateur, Katanga, Orientale, North Kivu and South Kivu Provinces; World
Food Program; May 2007;
Years: 2001-2006;
Country: Democratic Republic of Congo;
Commodity: Corn and pulses;
Findings:
* There is no continuity in WFP purchases; quantities vary
significantly from year to year;
Limitations:
* There are zones of food insecurity alongside zones considered food-
secure;
* Factors hampering production and purchases include the following:
- Lack of permanent market buyers;
- Lack of storage, drying, cleaning, milling, and bagging facilities;
- Poor road and rail infrastructure;
- Lack of access to seeds and fertilizers;
- Excessive official and unofficial (illegal) duties and taxes;
- Lack of substantial storage or stocks available;
- Limited facilities for cleaning, drying, and milling;
- Disruptions to the trading system, which are often/mainly political,
such as war; and;
- Quality problems, including moisture content, infestation, and losses
due to poor storage.
Study: Impact of WFP's Local and Regional Food Purchases (A Study Case
on Burkina Faso) Final Report Submitted by Institut de Sahel Comite'
Permanent Inter-Etats de Lutte Contre La Secheresse dans le Sahel,
Mali;
Year: 2002-2005;
Country: Burkina Faso;
Commodity: Corn, corn meal, sorghum, and cowpea;
Findings:
* In 2004, prices paid for corn by WFP were lower than the IPP in 6 of
7 LRP operations;
* The price differential ranged from 43 to 72 percent of prices paid by
WFP;
* During the period it took an average of 34 days between the
invitation for tender and the signing and implementation of the
contract;
* Suppliers stated that there were delays in WFP payments;
* WFP purchases did not change the level of integration between
markets;
* Market participants indicated that WFP purchases resulted in price
increases of between 5 to 10 percent;
* Many organizations intervene in local markets unexpectedly and
without prior consultation, simultaneously purchasing large quantities.
Such activity contributes to price increases and should be harmonized;
Limitations:
* WFP contracts were concentrated to a limited number of suppliers.
There were 15 suppliers, and 3 of them received more than half the
payments made;
* Other organizations enter the market with food aid purchases,
contributing to price increases. Donors should coordinate.
Study: Local and Regional Food Aid Procurement: An Assessment of
Experience in Africa and Elements of Good Donor Practice, David
Tschirley, and Anne Marie Del Castillo, Michigan State University
International Development Working Paper No. 91, 2007;
Year: 2001-2005;
Country: Kenya, Uganda, Zambia and Mozambique;
Commodity: Corn and corn/soy blend;
Findings:
* The report cites an analysis by Clay, Riley, and Urey to compare
estimated costs of food aid from the United States with LRP in three
countries;
* LRP was 66 percent less expensive than in-kind donations for all
commodities. LRP cost 61 percent less for corn and 52 percent less for
corn soy blend;
* Local purchase saved the United States nearly $68 million;
* These savings would allow 75 percent more food aid to be provided;
* Compared local prices to import parity prices, 2001-2005;
* The results were mixed. WFP paid a 10 percent premium in Kenya from
2001 to 2005, an 18 percent premium in Uganda from 2001 to 2004, and
the local market price from 2000 to 2005. In Zambia, WFP paid the local
price over the period. Some evidence shows that LRP contributed to
price surges in Uganda in 2003 and Niger and Ethiopia in 2005 to 2006;
Limitations:
* Contract default is a major risk of LRP;
* Limited pool of qualified traders with certified financial capacity,
access to physical infrastructure, and trading experience;
* Most sales remain concentrated in a very small number of trading
companies and larger farmers;
* WFP instituted a program of direct procurement from small farmers.
Assessments suggest that this approach is expensive, time-consuming,
and unreliable, and has little developmental impact;
* Food quality is a risk of LRP. In Kenya, at least two documented
cases of aflatoxin poisoning from infected corn resulted in dozens of
deaths.
Study: The United States' International Food Assistance Programs:
Issues and Options for the 2007 Farm Bill, Christopher B. Barrett,
February 2007;
Year: 2007;
Country: United States;
Commodity: Not applicable; general discussion of U.S. food aid;
Findings:
* On average, LRP is 66 percent cheaper across all commodities than
direct purchase;
* 36 percent of U.S. food aid shipments to Ethiopia, Kenya, and
Tanzania from 1998 to 2002 cost less than comparable local market
purchases;
* The study mentions timeliness of LRP versus direct shipment;
Limitations:
* Local and regional purchases are not always simple, available, or
effective everywhere;
* Some markets are too thin to absorb a significant increase in
commercial food demand without driving up prices;
* Quality control, transport capacity, and trader market power limit
donors' procurement options;
* Even taking freight and administrative costs into account, it is
sometimes cheaper to import food aid from the United States;
* Legislative restrictions on food aid program result in added costs,
delayed deliveries, and reduced cultural appropriateness of
commodities;
* These costs are attributable to restrictions placed on food aid with
respect to shipping, bagging, and processing;
* These restrictions include the tying of food aid to domestic
procurement of commodities, minimum volumes, minimum nonemergency
volumes, value-added minimum, bagging minimum, cargo preference,
restrictions on use of ports, monetization requirements, and overhead
reimbursement for operational agencies.
Study: The Development Effectiveness of Food Aid: Does Tying Matter?
Organization for Economic Cooperation and Development, 2006;
Year: 2002-2003;
Country: Various donating and recipient countries;
Commodity: Wheat, corn, cornsoy blend, vegetable oil, and rice;
Findings:
* Analysis of food aid transactions by a representative group of 16
donors and 15 selected recipient countries;
* The study looked at resource transfer efficiency (RTE) by comparing
the cost of direct aid transfers with the hypothetical cost of an
alternative commercial transaction (ACT);
* The actual cost of direct transfers was on average 50 percent more
than local food purchases and 33 percent more than food procured in
third countries. The range of difference in costs varies widely among
donors, commodities, mode of transport and destinations-- from 10
percent below to 55 percent higher than the cost of alternative
commercial imports;
* While LRP generally cost the least, its cost-effectiveness varied
widely. LRP in Africa--Ethiopia, Malawi, Zambia, and Kenya--appeared to
cost the least. LRP in India, Jordan and Mauritania cost more than LRP
in Africa. The highest costs for LPR were in Haiti;
Limitations:
* The ACT equates to the import parity price (IPP); therefore, local
purchase would not be efficient if the overall cost exceeded the IPP;
* Therefore it would be expected that LRP costs would be less than IPP
or most cost-efficient;
* LRP is the least-cost alternative;
For purpose of study treated all direct transfers of food aid as de
facto "tied";
* Comparison includes international transport costs to the same
destination, overland transport cost to the point of border entry for
land locked countries;
* Comparison does not include internal transport from port or borders
to point of distribution, handling, and/or internal storage;
* Calculations do not account for transaction costs of organizing and
importing food products.
Source: GAO based on literature review.
[End of table]
[End of section]
Appendix VII: Comments from the U.S. Agency for International
Development:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
USAID: From The American People:
U.S. Agency for International Development:
1300 Pennsylvania Avenue, NW:
Washington, DC 20523:
[hyperlink, http://www.usaid.gov]
May 15, 2009:
Mr. Thomas Melito:
Director:
International Affairs and Trade:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Melito:
I am pleased to provide the formal response of the U.S. Agency for
International Development (USAID) to the GAO draft report
"International Food Assistance: Local and Regional Procurement Can
Enhance the Efficiency of U.S. Food Aid but Challenges May Constrain
Its Implementation" (GAO-09-570) (May 2009).
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 final report and
for the courtesies extended by your staff in the conduct of this audit
review.
Sincerely,
Signed by:
Drew W. Luten
Acting Assistant Administrator Bureau for Management
Enclosure: a/s:
[End of letter]
USAID Comments On GAO Draft Report 09-570:
USAID international food assistance programs have proven increasingly
responsive to global efforts at reducing food insecurity and targeting
those most in need. By responding to assessment and situational
information, focusing on reducing risk and vulnerability, targeting the
poorest of the poor and better integrating individual programs into
larger-often international-efforts, USAID aims to improve the
effectiveness of food aid to help reach global targets for reducing
hunger, malnutrition and poverty.
As noted by the GAO, in FY 2008, prices of major food commodities
increased significantly worldwide, pushing an estimated 40 million more
people into hunger, according to the United Nations Food and
Agriculture Organization. Each day, over 963 million people do not have
enough to eat-more than the populations of the United States, Canada
and the European Union combined.
Vulnerable populations will continue to be affected by natural
disasters, adverse climate changes and civil strife. The global
economic downturn imposes additional constraints that could exacerbate
the severity of emergencies and further strain the capacity to respond
to them.
In this regard, the GAO report on local and regional procurement (LRP)
is very valuable as USAID continues to seek ways to enhance the tools
at its disposal to ensure greater effectiveness and efficiency to
deliver appropriate and timely food assistance to vulnerable
populations in need around the world.
Especially over the past 12 months, the ability to procure food aid
commodities locally and regionally has offered USAID an exceptional
opportunity to meet humanitarian needs in an efficient and timely
fashion; fill pipeline gaps prior to the arrival of food shipped from
the United States; and increase the total amount of life-saving food
aid U.S. assistance resources can provide in response to the current
food security crisis.
For example, when an emergency suddenly occurs with little notice (such
as a natural disaster or outbreak of fighting), when food deliveries
are unexpectedly interrupted, or when a cease-fire allows rapid access
to populations in need, LRP can provide the speed and flexibility
needed to deliver food aid as quickly as possible, without the months
needed to ship in-kind food aid from the United States.
As noted by the GAO, LRP has stretched the food aid dollar because food
purchased locally and regionally is often less expensive than
commodities procured and shipped from the United States. In addition to
its value as a tool for rapid humanitarian response, LRP also has the
potential to strengthen and expand commercial markets, stimulate local
and regional food production, and ultimately reduce emergency food aid
requirements.
It is important to recognize, however, that LRP, despite its advantages
in some situations, is not a viable choice in every food aid situation.
Procurement of sufficient amounts of food is not always possible in the
country or region where aid is needed without negatively affecting
local markets. Export bans and non-trade barriers-including internal
transport control posts, customs clearance procedures and import and
technical regulations-continue to impede trade in some regions.
Another important consideration is that the bulk of USAID's food aid
resources today are directed to ongoing emergencies, such as Darfur and
Somalia, rather than sudden and unexpected crises such as earthquakes
and tsunamis. For USAID, the optimal humanitarian pipeline is one that
delivers a seamless flow of aid and is well-calibrated to match
beneficiaries' needs. This is achieved through meticulous planning and
a sound understanding of the nature of the needs on the ground. Yet LRP
can serve as an important bridge, quickly providing sufficient food
supplies to address emergency food aid needs until U.S. in-kind food
aid arrives.
In-kind food aid and other tools at our disposal-including pre-
positioning commodities near the countries where they are most likely
to be needed, and early warning systems-continue to be important
elements in USAID's emergency response capabilities.
Pre-positioning:
USAID is expanding its pre-positioning capabilities as part of its
efforts to be as flexible as possible in emergency food aid responses.
Pre-positioning has enabled USAID to reduce food aid delivery time by
several months, reducing human suffering and ultimately saving lives.
This has proven essential in USAID's reliable delivery of lifesaving
assistance to millions in Sudan, Ethiopia and Somalia, for example.
USAID is building on its successful practice of pre-positioning
commodities by instituting a new management approach that allows it to
use a variety of locations as circumstances warrant, without committing
long-term to specific locations to store commodities.
For pre-positioning to work, however, a robust budget for in-kind food
aid is required. Unless sufficient funds are regularly available to
respond to emergencies and restock pre-positioned supplies, all
commodities that are pre-positioned are quickly used, leaving strategic
warehouses empty.
Food Aid Quality:
USAID concurs that efforts need to increase to jointly develop and
implement a system for monitoring and reporting commodity adherence to
quality standards and production specifications in all commodity
purchases, including recommended approaches to quality assurance in the
context of LRP and potential in-country fortification activities.
In order to be able to collect evidence on LRP adherence to quality
standards and product specifications, there should be a defined, funded
process for this type of monitoring. WFP is working on the framework
for such a system. USAID and USDA are also working on a framework for
such a system focused on domestic food aid manufacturing and
processing.
As part of this process, USAID recently awarded a contract to Tufts
University's School of Nutrition to examine the nutritional needs of
food aid beneficiary populations and the commodities currently
available to meet those needs in the context of total available food
resources, including LRP. The study will include a scientific review of
current enrichment and fortification technologies, a review of methods
for delivery of micronutrients and an active consultative process that
involves industry, academic and operational experts and ultimately
produces recommendations as to how to most cost-effectively meet the
nutritional needs of beneficiary populations with food aid commodities,
including through LRP.
This study may lead to revisions in commodity specifications and
recommendations for approaches to product monitoring and quality
assurance throughout the supply chain, from procurement through
programming. Both USDA and WFP are participating in that review, along
with representatives of the Food Aid Consultative Group (FACG), and
experts in nutrition, quality assurance, food technology and policy.
USAID and USDA have begun a process of tracking quality issues through
a quality feedback loop developed by the FACG Commodity Working Group.
This will need to be incorporated into a database that will be able to
provide information on food aid processors' and manufacturers'
adherence to product specifications and quality standards.
Considering that all of these processes are currently ongoing, it may
be more efficient for GAO to recommend that all food aid organizations
collaborate as much as possible in the development and implementation
of systems to monitor and follow up on quality assurance and product
specification/reformulation issues in all food aid purchases, including
local and regional purchase. [See comment 1]
Market Impacts and Intelligence:
USAID concurs that current and reliable market intelligence, along with
coordination among donors, WFP and other LRP stakeholders, is
critically important to ensure that increased LRP strengthens local and
regional markets and does not distort or cause price increases for low-
income consumers.
USAID is working closely with LRP implementing partners to monitor
local and regional food prices for any indication of destabilization
linked to local purchases. Other factors that are or will be tracked
are volumes of food procured, costs and time invested, beneficiaries
reached and impact on specific markets. The specific indicators that
partners are responsible to monitor and report on are included in USAID
grants or cooperative agreements under which LRP resources are
provided, and are subject to continuous review and updating.
Moreover, WFP, a major recipient of USAID LRP funds in FY 2008-2009,
has an effective system to ensure that LRP is not only a cost-effective
alternative, but also does not disrupt local and regional markets. This
system includes structural analyses of many key market impact elements,
including main crops; agro-ecological zones; levels of production;
agricultural seasons; latest food balance sheets; size, location and
importance of food markets; principal exports and imports; major
barriers to the free flow of food; and inter-regional trading and
transport patterns. Market intelligence is also gathered on the
expected harvest; the quality of food likely to be available;
significant food purchases, including those made by local institutions;
commercial exports; estimates of stocks held by traders; potential
disruptions to transport networks; and expected flows of food within a
region. USAID plans to build upon this system.
USAID is exploring the use of futures markets to hedge against price
risks and increase the cost-efficiency of LRP in developing countries.
In South Africa, for example, maize prices for future contracts and
options are generated on the futures exchange, SAFEX. This exchange
allows buyers to bargain with sellers for cheaper prices on contracts
to be fulfilled at a future date. Many African countries have nascent
commodity markets, including Ethiopia, Zambia, Malawi and Uganda, and
channeling LRP transactions through these emerging markets could be
instrumental in ensuring transparency in the LRP activity as well as
increasing the visibility and credibility of the commodity market.
USAID plans to conduct an evaluation to review the delivery of FY 2008-
2009 local and regional procurement of food aid. This evaluation will
review constraints, timeliness, quality, market impact and cost
effectiveness regarding LRP activities undertaken in FY 2008-2009.
USAID recognizes the potential for LRP to improve markets for
smallholder farmers, especially in Africa, and in FY 2008 allocated $30
million in development assistance funds to facilitate access to markets
and enhance smallholder farmers' capacity to benefit from LRP. USAID is
providing funding to build the capacity required to alleviate the
policy and infrastructure constraints preventing small farmers from
accessing markets; promote a transition from subsistence to market-
oriented agricultural production; and broaden the geographic and
demographic coverage of LRP actions in key countries, including Africa.
Improved local and regional trade, increased income and investment in
rural areas, and strengthened linkages among producers, traders,
processors and consumers of food staples will reduce vulnerability and
encourage markets to respond to shocks in lieu of food aid, including
LRP. These advances will encourage local and regional stakeholders to
reinforce the need and accountability for pro-trade policies and
regulation-a critical element in reducing vulnerability and making
increasing global demand work for farmers, especially those in Africa.
In FY 2009, USAID is also supporting with $20 million the WFP "Purchase
for Progress" program. The key objectives of the "Purchase for
Progress" program are to increase the income of smallholder farmers by
sustainably increasing their access to and participation in commercial
markets; and to transform WFP food purchase programs so that they
better support sustainable production and address the root causes of
hunger.
MARAD and Cargo Preference:
Although USAID appreciates the report's recognition of the difference
of opinion about the applicability of the 75 percent threshold to USAID-
funded LRP rather than the 50 percent threshold, USAID does not believe
that the report goes far enough. It is USAID's view that MARAD's
position is devoid of legal merit. As such, we believe that the report
should unambiguously indicate this rather than taking the neutral
stance that it does. [See comment 2]
The Cargo Preference Act of 1954 (Section 901(b)(1)) requires that at
least 50 percent of the gross tonnage of certain equipment, materials
and commodities be transported on privately owned U.S.-flag commercial
vessels. Nevertheless, Section 901 b, "Shipment Requirements for
Certain Exports Sponsored by Department of Agriculture," emphasis
added, requires an additional 25 percent of the gross tonnage of
certain agricultural commodities or products thereof be transported on
U.S.-flag commercial vessels. This is the basis for the 75 percent
threshold applicable to the shipment of commodities under the Food for
Peace Act. However, Section 901b(b) provides that "[t]his section shall
apply to any export activity of the Commodity Credit Corporation or the
Secretary of Agriculture...." Emphasis added. Because LRP will be
carried out by USAID with Foreign Operations Appropriations Act
funding, and has no connection to CCC or the Secretary of Agriculture
activities, the plain language of the statute makes clear that the
additional 25 percent found in section 901b does not apply to USAID-
funded LRP. Furthermore, even if the program in question were carried
out by or for CCC or the Secretary of Agriculture, USAID is of the view
that the statutory language would preclude its applicability to LRP
because 901b applies only to "any export activity." LRP, by definition,
does not constitute an export activity. Commodities are purchased
locally or regionally, they are not exported from the United States.
In light of the forgoing, although USAID supports updating the MOU,
there is no need to address ocean freight differential and 20 percent
excess freight for purposes of LRP in the MOU. Specifically, at the 50
percent threshold, there would be no reimbursement of excess freight
costs under USAID's LRP programs. [See comment 3]
The report also states that MARAD has authority to require the
transportation of U.S.-flag vessels of cargo shipments not otherwise
subject to cargo preference when it determines that an agency has
failed to sufficiently utilize U.S.-flag vessels. As MARAD has not yet
issued regulations to implement this new authority, USAID cannot
comment until proper vetting takes place on the new regulations.
Finally, regarding vessel type, USAID does not believe there is
disagreement between USAID and MARAD regarding vessel type. The
November 8, 2002, MARAD policy document defines a "dry cargo liner."
[See comment 4]
[Text box: A service will be designated as liner service if the service
is advertised to the public as ocean freight service of packaged goods
by regularly scheduled common carriers, or vessels that follow specific
routes to a range of ports on a trade route in U.S. foreign trade.
Specific port call may be added or dropped according to cargo
availability or other competitive factors. It is not necessary to the
designation of liner service for the carrier to have called any
particular port on the trade route with any particular vessel. Nor does
it matter to the designation of liner service whether the
transportation contract is in the form of bookings notes or by voyage
or time charter. End text box]
This loose definition of vessel type allows for flexibility and healthy
competition among U.S.-flag carriers who can, if need be, trade in both
parcel and bulk grain shipments. This definition is good for the
program.
Summary:
Last year's high food price crisis demonstrated the need to have the
flexibility to respond to food aid needs with the right tools to suit
each situation. Especially over the past 12 months, LRP has
demonstrated that commodities can, in some cases, be delivered faster
and at a lower cost. This ultimately means that vulnerable people in
emergency situations may be helped more rapidly and more people may
receive help. LRP and other innovative and flexible tools, such as pre-
positioning, strategic and early warning planning, as well as in-kind
food aid, should be included in a full range of response options and
used when conditions deem that it would contribute to the most
efficient and effective response.
The following are GAO's comments on the U.S. Agency for International
Development letter dated May 15, 2009.
GAO comments:
1. Our recommendation to systematically collect evidence on LRP's
adherence to quality standards and product specifications does not
preclude such collaboration as part of efforts, consistent with our
2007 recommendation, to develop a coordinated interagency mechanism to
update food aid specifications and products to improve food quality and
nutritional standards. We agree with USAID that including actions to
collect evidence on LRP's adherence to quality will make ongoing
efforts to improve food quality more efficient.
2. In providing information on agencies' interpretations of cargo
preference requirements as they pertain to LRP, we sought to identify
areas of ambiguity where agencies disagree on the applicability of
these requirements. We did not attempt to adjudicate the differences in
interpretation among the agencies involved. However, in technical
comments to a draft of this report, DOT changed its position regarding
thresholds and now concurs with USAID's interpretation, thus
eliminating this issue as an area of ambiguity. This is reflected in
the final report.
3. See comment 2.
4. We modified text to reflect USAID'S agreement with DOT's definition
of vessel type.
[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.
United States Department of Agriculture:
Farm and Foreign Agricultural Services:
Foreign Agricultural Service:
1400 Independence Ave, SW:
Stop 1060:
Washington, DC 20250-60:
May 15, 2009:
Mr. Thomas Melito:
Director, International Affairs and Trade:
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 the opportunity
to provide a substantive response to the Government Accountability
Office (GAO) draft report on international food assistance titled
"Local and Regional Procurement Can Enhance the Efficiency of U.S. Food
Aid but Challenges May Constrain Its Implementation" (GAO-09-570). The
following comments are based on a draft that was provided to USDA by
GAO on Friday, May 1, 2009.
USDA agrees that local and regional procurement is an important tool
that, when used appropriately, at the right time and under the right
conditions, can reduce commodity and transportation costs, and shorten
delivery times. The timing of food aid deliveries is especially
critical to the success of life-saving emergency food aid programs.
Moreover, the potential cost-savings afforded by local and regional
procurement can enable food aid donors to purchase larger volumes of
commodities where available and assist greater numbers of people with
the same level of resources. In addition to meeting immediate food aid
needs, a well-targeted local and regional procurement program with a
reliable source of funding can have a developmental impact in the
countries in which the commodities are sourced.
Local and regional procurement, in-kind food aid, and prepositioning
facilities provide the U.S. Government with a valuable array of tools
to fight global food insecurity. Each of these tools has its strengths
and weaknesses, but the U.S. Government needs access to all of them in
order to respond to a variety of food security threats.
USDA notes the results of the analysis in the report that show
insightful comparisons of costs and delivery times, as well as the
challenges of matching like transactions. The results may provide an
estimate of cost differences, but USDA believes that precision is lost
by aggregating some of the commodity groups, including vegetable oil
and beans. The report does not specify how differences in quality or
specifications were handled, and comparing the costs of different
qualities of the food products would affect the calculated cost
differences. USDA also notes that GAO did not report on any comparison
between delivery times for locally and regionally procured aid and
prepositioned, in-kind food aid. [See comment 1]
Commodity Quality Standards:
USDA recognizes the importance of having enforceable commodity quality
standards and product specifications in local and regional procurement.
The authorizing law requires that USDA and grant recipients ensure that
locally and regionally procured bulk and processed commodities are fit
for human consumption and meet the specifications, as well as the
nutritional, quality, and labeling standards of the importing country
(i.e., the recipient country). USDA plans to require grant recipients
to enter into written contracts with commodity suppliers. These
contracts will state the minimally acceptable commodity quality
standards and specifications that must be met. USDA plans to require
the grant recipients to report on the quality, specifications, and
purchase process of all local and regional procurements. The nature of
each response will determine where and from whom commodities are
sourced.
During an emergency operation, implementing partners are likely to
procure commodities in the regional market from mid to large-scale
commercial wholesalers. Such entities can easily supply a large volume
of high-quality commodities in a timely manner, enabling implementing
partners to get food to beneficiaries as fast as possible. By contrast,
when carrying out an agricultural development program, implementing
partners may target local purchases to small-holder farmers, farmer
cooperatives, or other small-scale suppliers. Commodities that are
purchased locally from a variety of small suppliers will not
necessarily be of identical quality or have the same specifications as
those that are purchased regionally from mid to large-scale commercial
wholesalers. However, this does not automatically mean that they are
not fit for human consumption or that they are of lesser nutritional
value. For example, the moisture content of whole grain such as wheat
that has been purchased from small-holder farmers or farmer
cooperatives in most instances will be higher than the moisture content
of wheat that has been purchased on the commercial market. This is
because small-holder farmers lack proper drying and warehousing
facilities. In such cases, implementing partners will have to take care
to ensure that the moisture content still meets the specifications of
the recipient country, and that the grain has been adequately tested
for infestation, excess foreign matter, and the presence of molds and
fungi.
Food aid agencies make purchases from small-holder farmers and farmer
cooperatives in order to address developmental concerns such as endemic
poverty and chronic food insecurity. The primary goal of purchasing
from such producers is to boost their income in the short-term and
reduce food insecurity while improving their ability to meet commercial
quality standards and product specifications in the long-term.
To date, there is no evidence that any food aid program beneficiaries
have ever received locally and/or regionally purchased commodities that
were unsafe or unfit for human consumption. [See comment 2]
Cargo Preference:
USDA agrees that greater clarity on how to interpret cargo preference
regulations would be helpful. USDA recognizes the importance of the
cargo preference Memorandum of Understanding (MOU) and is eager to work
with United States Agency for International Development (USAID) and the
U.S. Maritime Administration (MARAD) to update this agreement. USDA is
in frequent communication with USAID and MARAD on a variety of policy
and operational issues, and hopes that similar discussions can take
place soon with respect to the MOU.
USDA also agrees that 75 percent of all CCC-funded commodities for USDA
food aid programs must be shipped on U.S.-flag vessels, and that a
portion of the transportation costs that are in excess of 20 percent of
the total program costs are subject to reimbursement by MARAD. However,
it needs to be clarified whether or not USDA will receive reimbursement
for excess freight costs for regionally procured commodities that are
shipped on U.S.-flag vessels under the local and regional food aid
procurement pilot program. USDA believes that such costs are subject to
reimbursement by MARAD.
USDA believes that for programs administered under USDA, USDA is the
determining agency for U.S.-flag vessel availability. USDA will confer
with MARAD prior to making such a determination. This determination is
made on the basis of USDA programmatic needs. Contrary to the GAO's
interpretation, USDA would like to clarify that MARAD is the
determining agency of what constitutes a fair and reasonable rate. [See
comment 3]
USDA recognizes that it will face challenges when booking ocean freight
under this program due to the likelihood that U.S.-flag carriers will
not always be available. However, USDA will work with MARAD to ensure
that grant recipients comply with cargo preference requirements to the
greatest extent possible. It should be noted that USDA food aid
programs have been fully compliant with cargo preference requirements
for a number of years, and USDA will endeavor to the best of its
ability to continue to meet cargo preference requirements.
Reliability of Market Intelligence:
Local and regional procurement is an important tool that has the
potential to improve the timeliness and effectiveness of USDA food
security programs, but it also is a tool that must be used in the
appropriate place and at the appropriate time. USDA shares GAO's
concern that poorly targeted local and regional purchases have the
potential to lead to price spikes and shortages of staple foods in
source countries, just as poorly targeted distributions of in-kind food
aid have the potential to depress prices and negatively impact domestic
production in recipient countries. USDA agrees that the best way to
mitigate these potential adverse effects is through improved market
intelligence.
In a recent USDA study titled "The Use of Local and Regional
Procurement in Meeting the Food Needs of Those Affected by Disasters
and Food Crises", USDA recommended several timely and reliable sources
that food aid donors and implementing agencies could reference when
gathering information about commodity prices, average estimates of
production, and local and regional trading patterns. Among those are
reports from the USAID Famine Early Warning System Network, World Food
Program (WFP) Vulnerability Assessment Mission (VAM) reports, joint
WFP/Food and Agriculture Organization of the United Nations Crop and
Food Supply Assessment Mission reports, and WFP and Private Voluntary
Organization (PVO) emergency needs assessment reports.
As noted by GAO, the USDA study also recommended that food aid donors
and implementing partners closely coordinate with host-country
governments and utilize data from host-country government information
systems wherever possible. Local and regional procurement presents an
opportunity for donors and implementing partners to collaborate more
closely with one another and with host-country governments to build
their capacity to effectively monitor the food security situation in
recipient countries.
Improving host-country government capacity to gather market
intelligence and to undertake ongoing analyses of the food security
situation is a cost-effective way to improve existing early warning
systems and avoid causing harm to markets and low-income consumers in
areas where food is locally procured. As greater numbers of host-
country governments begin to implement or expand their own social
welfare programs, this strategy also will ensure that WFP and PVOs do
not find themselves in competition with host-country governments for
the same limited supply of surplus commodities. In fact, USDA strongly
believes that coordination among all stakeholders is critical to
avoiding harm to low-income consumers and fragile market systems.
USDA recognizes the challenges and risks of working in areas without
solid market intelligence, but the USDA study found no widespread
evidence of adverse impacts from local and regional procurement. On the
contrary, it appeared that the majority of food aid agencies have begun
to put additional safeguards in place to avoid causing harm. WFP has
been working to build a more robust monitoring and information system
with funding from other donors, and it is also increasing its number of
staff in the field. PVOs, which traditionally have received less
funding for local and regional procurement, are developing procurement
plans and increasing the number of staff with the experience to engage
in local and regional procurement. [See comment 4]
For its part, USDA will take appropriate steps to ensure that grant
recipients under the local and regional procurement pilot program
adhere to the "Do No Harm" principles outlined in the Farm Bill
legislation, including ensuring that USDA-funded local and regional
procurements:
* Do not increase the price of food for low-income consumers,
* Do not disrupt global agricultural commodity markets,
* Do not disrupt normal patterns of commercial trade, and
* Do not harm farmers in the recipient country or in a neighboring
country in the region.
USDA also will require that grant recipients demonstrate their capacity
to conduct local and regional procurements, as well as their capacity
to engage in ongoing monitoring and reporting of standard indicators,
including pre-purchase and post-purchase prices, prior to receiving
funding.
At this time there are few publications available on the lessons
learned from local and regional procurement, and even fewer
quantitative analyses of its impact. During the final year of the local
and regional procurement pilot program, USDA will hire an experienced
contractor to conduct an independent evaluation of the program in order
to gain a clearer picture of how local and regional procurement can be
used in combination with other interventions to more effectively
address global food insecurity.
Sincerely,
Signed by:
Michael V. Michener:
Administrator:
Foreign Agricultural Service:
The following are GAO's comments on the U.S. Department of
Agriculture's letter dated May 15, 2009.
GAO comments:
1. To obtain an overall picture of costs, we worked to ensure that we
had the largest number of procurement transactions, over the longest
possible time period for which we had data so some aggregation was
required. We acknowledge the variations in the cost differentials in
figure 4 that provides the range of differences between USAID and WFP
local procurement in sub-Saharan Africa. Our analysis demonstrated
consistent results across 8 years of data. For example, 95 percent of
local purchases in sub-Saharan Africa cost less than USAID commodities
to the same country procured at around the same time. We did not
differentiate the prepositioned commodities in the cost comparison, but
they were included in our data. However, they represented a small part
of U.S. food aid during the period of time that we examined.
2. The issue of quality is one that many WFP procurement officers and
others we interviewed identified as a challenge for LRP. However, the
lack of systematically collected data makes it difficult to objectively
analyze how LRPs adhere to quality standards and product specifications
and whether LRP differs in quality from U.S. commodities. Our first
recommendation addresses the issue of quality, which would also include
improving nutritional standards.
3. We added information to clarify MARAD's role as the determining
agency of "fair and reasonable rates" but note that DOT interprets its
role as the sole agency responsible for determining U.S.-flag
availability.
4. While we recognize that there is no widespread evidence of LRP
causing adverse impacts in markets, we believe that there is a
preponderance of information to show that in many developing countries
there is a lack of reliable market information. Widespread evidence of
any impacts, adverse or otherwise, will not become available in many
countries until market intelligence systems are made more reliable and
widely used. Therefore, it is important to focus on the potential risk
for adverse impacts on markets in areas where LRP is practiced.
[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:
Assistant Secretary For Administration:
1200 New Jersey Avenue, SE:
Washington, DC 20590:
Mr. Thomas Melito:
Director, International Affairs and Trade:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20458:
Dear Mr. Melito:
The Government Accountability Office (GAO) draft report provides useful
information on the concept, now being pilot tested, of Local and
Regional Purchases (LRP) for food aid programs. Based on its analysis,
the GAO draft report concludes that LRP offers a tool to reduce costs
and shorten delivery time. In light of factors described below, there
is reason to believe that additional analysis may be warranted before
reaching that conclusion. [See comment 1]
The food aid and cargo preference statutes of 1954 were envisioned by
the Congress to offer a win-win-win approach to addressing hunger in
the world. First, the laws were intended to provide food to hungry
people throughout the world in need of assistance, and to help develop
their economies. Second, the laws were structured to support U.S.
farmers, millers and associated American workers. Finally, the laws
provided a means to sustain the American shipping industry, which is
vital to the nation's defense, by requiring the use of U.S.-flag
carriers for the preponderance of food aid shipments. Support of the
U.S. fleet was structured in a way that reimbursed the food programs to
ensure that efforts in support of the American shipping industry do not
come at the cost of feeding the hungry.
While there are certainly opportunities to improve the functioning of
this carefully balanced approach to feeding the world's hungry, LRP's
potential to serve this function warrants careful scrutiny based on a
full analysis of all variables.
Evaluation of LRP Should Consider Additional Factors:
The GAO draft report's evaluation of LRP's merits offers little source
of comparison to alternatives such as prepositioning of goods, and
dismisses other potential constraints citing lack of data. The previous
GAO report on food aid,[Footnote 69] explicitly recommended improving
efficiency in terms of its amount, timeliness, and quality by cost-
benefit analysis of overseas pre-position warehouses and we fully
supported the recommendation. However, the current GAO draft report
does not consider the cost and time benefits from the previously
recommended expansion of pre-position warehouses in comparison to LRP.
While the GAO draft report compares the benefits of LRP against in-kind
food aid with transportation from the U.S., there is no analysis or
comparison to the pre-positioning of food aid overseas. [See comment 1]
Other important variables are also not fully considered. The GAO draft
report's analysis externalizes or otherwise does not quantitatively
consider key factors citing lack of data. This includes factors such as
availability of adequate production, transportation, food quality,
sales and legal infrastructure in potential LRP source nations. While
these factors are identified in the GAO draft report, they are not
factored into the GAO draft report's overall conclusion that LRP offers
cost and time savings compared to alternatives. For example, with
regard to adequate production, the GAO draft report cites Ethiopia as a
cost advantageous provider of food aid during the fourth quarter of
2002. During the same time period Ethiopia was also suffering a massive
humanitarian crisis due to drought and crop failure, and was appealing
for additional food aid. It is unclear how Ethiopia could have been
both a cost advantageous source of LRP food aid and simultaneously, a
major recipient of food aid, particularly during this period.
Transit Time Comparison Should Offer Additional Details:
A key element of the GAO draft report's analysis regarding transit time
could be improved by providing additional detail. The GAO draft report
found that on average World Food Program (WFP) data show that between
2004 and 2008, international in-kind food aid donations to the 10
countries in sub-Saharan Africa, required 147 days of lead time
compared to about 35 days and 41 days for locally and regionally
procured food. DOT analyzed specific data for ocean borne transit times
for the 10 Sub-Saharan countries identified in the GAO draft report.
Based on analysis of transit times from the U.S. gulf port of Houston,
where the domestic pre-position food aid warehouse is located to each
foreign port of entry, we found average ocean transit was just 24.5
days or a little over 3 weeks. The longest transit was 31.6 days and
the shortest transit was 9.42 days. These transit times do not include
loading time which would add an average of 3 days. Based on the
information provided in the draft report, we are unable to determine
the source of the significant additional lead time required in the
draft report's estimate of 147 days compared to the transit times shown
above. It would be useful for the draft report to clearly identify the
breakdown of elements included in its estimate and the proportion of
time required for each. [See comment 2]
The Maritime Administration performed a time and cost benefit analysis
for pre-positioning food aid as compared to an actual regional purchase
that took place in the third quarter of 2008. This analysis
demonstrates that pre-positioning U.S. sourced food aid yielded shorter
transit times and lower cost when compared to regional or hemispheric
procured agricultural commodities. Specifically the analysis indicated
that utilizing preposition food aid could have resulted in a 52 percent
decrease in ocean transit time and a 42 percent cost savings compared
to the actual LRP results. The details of our analysis are included
with the specific and technical comments that accompany this letter.
Improving Interagency Coordination:
DOT is concerned by the divergence of statutory interpretation of the
Cargo Preference requirements conveyed in Table 3 of the GAO draft
report. While it is clear that each agency views these requirements
through the lens of its own statutory mandate, be that feeding the
world's hungry, securing markets for America's farmers, or perpetuating
the existence of a U.S. merchant marine, it is necessary for each to
work together effectively in recognition of these complementary
mandates. By statutory direction, DOT implemented its mandate through
regulation, not through an interagency memorandum of understanding
(MOU), as described in the GAO draft report. The MOU discussed in the
draft report merely describes the process for reimbursement of any
ocean freight differential. We have long recommended that the
regulations would benefit from updating and revision and we stand ready
to work with all shippers and carriers of government-impelled cargoes
to accomplish that objective. [See comment 3]
We appreciate the opportunity to offer comments on the draft report.
Please contact Martin Gertel, Director of Audit Relations, on 202-366-
5145 with any questions.
Sincerely,
Signed by:
Linda J. Washington:
The following are GAO's comments on the U.S. Department of
Transportation's letter received May 22, 2009.
GAO comments:
1. Although further analysis of LRP practices would be useful, we
believe that the results of our analysis demonstrate consistent results
over 8 years of data, with 95 percent of local purchases in sub-Saharan
Africa costing less than USAID commodities to the same country around
the same time. Although we did not differentiate prepositioned
commodities in our cost comparison, they were included in our data
analysis. However, it is important to note that prepositioned
commodities were a very small part of U.S. food aid during this time
period. Nonetheless, we recognize that prepositioning can affect
delivery time, which was the case in the Tajikistan example where
prepositioned food from Jacintoport shortened delivery time.
Additionally, DOT questioned an illustrative example we used in this
report on potential cost savings in purchasing wheat in Ethiopia
because it believed the country had severe shortage in 2002. Although
there may be limited capacity for local procurement, disasters are
often localized, and there may be surplus regions within the country or
in nearby countries. This is precisely a rationale for LRP. In fact,
WFP purchased 74,000 metric tons of wheat in Ethiopia locally in the
last quarter of 2002, and the average price was lower than wheat
procured from the United States.
2. Ocean shipping is one of the many stages in food aid procurement and
delivery. While DOT found that the ocean transit time from a
prepositioning site averaged only 24.5 days, trans-Atlantic shipping,
which account for majority of U.S. food aid to sub-Saharan Africa takes
longer. Therefore, the ocean transit time DOT provided in its letter
does not represent the typical U.S. food aid delivery time. In
addition, other stages of food procurement and delivery add time to the
entire process. In order to do a fair comparison of delivery time among
various procurement types and to ensure comparability in the
procurement and delivery stages, we identified countries that had
received significant amount of LRP and international food aid from the
WFP. Although the breakdown of the different elements in the delivery
time might be useful (which we could not do from the data provided to
us by WFP), it does not change our finding that LRP to these countries
took less time than international food aid.
3. Although DOT does implement cargo preference statutes through
regulation, the regulations often contain ambiguities that have
required resolution through a MOU. Our report describes new ambiguities
that could arise in applying cargo preference in the context of
regional procurement. We believe that these ambiguities need to be
resolved--and can be resolved--by updating the MOU. Further, there is
no requirement that establishing regulation precede an MOU nor does a
MOU preclude the issuance of new regulation. The updated MOU,
establishing consensus among the relevant agencies, could be reflected
in any future regulation that DOT may draft and get finalized through
the rule-making process.
[End of section]
Appendix X: Comments from the World Food Program:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
World Food Programme:
Deputy Executive Director & Chief Operating Officer:
Via Cesare Giulio Viola, 68170:
00148 Rome:
Italy:
Phone: +39-06 6513.2401:
Fax: +39-08 6513.3062:
Internet: [hyperlink, http://www.wfp.org]
15 May 2009:
Mr. Thomas Melito:
Director, International Affairs and Trade:
United States Government Accountability Office:
441 G Street NW:
Washington D.C. 20548:
Dear Mr Melito,
The flexibility to undertake local or regional food procurement (LRP)
is a potent tool that, when used appropriately, can maximize the impact
of effective, efficient food assistance. WFP welcomes the GAO's timely
and thoughtful exploration of this key issue in international food aid.
It is perplexing though to read that "concerns persist about the
quality of food procured in developing countries." There is no body of
evidence showing that LRP introduces quality challenges that are not
already challenges to internationally procured and donor provided food
aid (such as those associated with US food aid cited in the report GAO-
07-560). Moreover, WFP quality control measures are designed to ensure
appropriate quality standards irrespective of the procurement modality.
[See comment 1] For all our food purchases (local, regional, or
international), WFP specifications meet and usually exceed both the
country of origin specifications and Codex Alimentarius
recommendations. All food purchased by WFP is inspected by globally
respected inspection companies prior to shipment and distribution. In
the case of more sensitive processed foods, samples are taken for lab
testing as well. Food is also examined upon arrival at destination and
at various points along the supply chain. If at any point food is found
not to conform to standard, WFP initiates additional rigorous sampling
exercises following the Codex CAC/GL 50-2004 guidelines with an
Acceptable Quality Limit at a medium to higher inspection level. The
product is analyzed in pre-identified reference labs and subsequent
actions taken are then based on scientific evidence.
WFP also regularly inspects food processors to ensure that they comply
with Good Manufacturing Practices and Hazard Analysis Critical Control
Points. As the report notes, our surveyors have found plants that did
not comply with the standards. We have suspended engagements with
plants that failed to comply with major requirements and restored
activity only after all issues were resolved. Rather than raising
concerns about LRP, these considerations strengthen confidence that WFP
control measures already in operation do detect and respond
appropriately to quality lapses regardless of where food is procured.
There is a similar tension between hypothetical lapses and operational
realities in the market impact sections in the report. Despite presumed
"potential" for LRP, if practiced carelessly, to adversely affect host
markets, there is no systematic evidence to suggest that current LRP
practices actually are careless or actually do adversely impact host
markets let alone generate difficulties for consumers in host markets.
[See comment 2]
One tool used by WFP to help decide whether any given local purchase
transaction will have adverse market impact is import parity price
comparisons. The cost of import parity can help indicate in many local
markets whether commercial stocks are reducing in country and demand is
pushing over supply, due to, for instance, an impending drought. Noting
WFP's practice of import parity pricing, the report argues that WFP's
use of import parity "is based on the assumption that markets are well
integrated and that the country imports food". This is not in fact the
case. WFP does not use an import price in country as the basis for
calculating import parity. Instead, WFP compares costs of local
procurement against FOB prices drawn from multiple tenders and
integrates these prices with transport costs to the destination. Thus
our use of import parity pricing as a tool to help guide LRP decisions
is not premised on an assumption of integrated markets and national
imports but instead reflects real costs to deliver food to specific
locations in country even when markets are not integrated. [See comment
3]
More generally, although WFP is a large buyer of humanitarian food aid,
WFP tends to buy small proportions of total production in the markets
where we procure food - often less than one percent. Regardless of
whether it is a government, a commercial trader, or a humanitarian
organization that is procuring food, "potential" no doubt exists for
transactions to exert price pressures. However, on the modest scale at
which WFP operates compared to total market activity in the markets
where we operate, it is hard to substantiate arguments that it is a
humanitarian food purchase that is responsible for any given price
increase. And it is difficult indeed to link any short term localized
price effect of a small scale commodity purchase to any general
negative impact on consumers in that market. [See comment 4]
The above qualifications notwithstanding, WFP would again like to thank
the GAO for broaching this important topic. We are facing a world where
thousands of people die of hunger related causes each and every day.
For nearly a billion hungry people around the world, there is no single
solution. We must deploy all the resources and techniques we can
muster. Local and regional procurement of food aid is not a panacea. It
is one of numerous tools that we need in the toolkit to deliver
effective efficient food assistance to those in greatest need.
Thank you for taking on this important report.
Yours sincerely,
Signed by:
Amir Mahmoud Abdulla:
The following are GAO's comments on the World Food Program's letter
dated May 15, 2009.
GAO comments:
1. The issue of quality is one area that many WFP procurement officers
we spoke with mentioned as a challenge in local and regional
procurement. In addition, quality is an area of concern expressed by
organizations such as the U.S. Wheat Associates. However, the lack of
systematically collected data makes it difficult to objectively analyze
how LRPs adhere to quality standards and product specifications. Our
first recommendation addresses this issue.
2. In our report, we explain several of the efforts that WFP and others
have taken to significantly improve the availability and reliability of
market intelligence in developing countries. Yet, as WFP's own
documents state, in many low-income countries national market
intelligence systems are weak and unreliable, and timely data are not
always available, which may limit the effectiveness of WFP's market
intelligence efforts.
3. We modified text, adding language in the report to explain that the
use of import parity prices to determine when to switch from local
procurement to regional or international procurement may be
constrained. Specifically, in some countries, commodity prices may be
so much lower than import parity prices that it would take substantial
price increases to reach the import parity price threshold.
4. We recognize that WFP's market position in many countries is very
small (less than 1 percent in Burkina Faso, for example) and we state
that in the report, noting that this limits the effects that LRP can
have on prices. Also, recognizing that it is difficult to demonstrate
an absolutely causal relationship between a discrete WFP local purchase
and a discrete price increase, we note that LRP, when combined with
other market interventions, unreliable market intelligence, poorly
functioning and unintegrated markets, and other factors, has the
potential to cause price hikes and reduce consumers' access to food.
Therefore, we recommend improving the reliability and utility of market
intelligence in order to guard against the risks associated with a lack
of reliable market information.
[End of section]
Appendix XI: GAO Contact and Staff Acknowledgments:
GAO Contact:
Thomas Melito (202) 512-9601 or melitot@gao.gov:
Staff Acknowledgments:
In addition to the person named above, Phillip Thomas (Assistant
Director), Sada Aksartova, Kathryn Bernet, Carol Bray, Ming Chen,
Debbie Chung, Lynn Cothern, Martin De Alteriis, Mark Dowling, Etana
Finkler, Katrina Greaves, Kendall Helm, Joy Labez, Andrea Miller, Julia
A. Roberts, Jerry Sandau, and David Schneider made key contributions to
this report.
[End of section]
Related GAO Products:
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.: Apr. 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.: Mar. 21,
2007.
Darfur Crisis: Progress in Aid and Peace Monitoring Threatened by
Ongoing Violence and Operational Challenges. [hyperlink,
http://www.gao.gov/products/GAO-07-9]. Washington, D.C.: Nov. 9, 2006.
Foreign Assistance: Lack of Strategic Focus and Obstacles to
Agricultural Recovery Threaten Afghanistan's Stability. [hyperlink,
http://www.gao.gov/products/GAO-03-607]. Washington, D.C.: June 30,
2003.
Foreign Assistance: Sustained Efforts Needed to Help Southern Africa
Recover from Food Crisis. [hyperlink,
http://www.gao.gov/products/GAO-03-644]. Washington, D.C.: June 25,
2003.
Food Aid: Experience of U.S. Programs Suggest Opportunities for
Improvement. [hyperlink, http://www.gao.gov/products/GAO-02-801T].
Washington, D.C.: June 4, 2002.
Foreign Assistance: Global Food for Education Initiative Faces
Challenges for Successful Implementation. [hyperlink,
http://www.gao.gov/products/GAO-02-328]. Washington, D.C.: Feb. 28,
2002.
Foreign Assistance: U.S. Food Aid Program to Russia Had Weak Internal
Controls. [hyperlink,
http://www.gao.gov/products/GAO/NSIAD/AIMD-00-329]. Washington, D.C.:
Sept. 29, 2000.
Foreign Assistance: U.S. Bilateral Food Assistance to North Korea Had
Mixed Results. [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-00-175]. Washington, D.C.: June
15, 2000.
Foreign Assistance: Donation of U.S. Planting Seed to Russia in 1999
Had Weaknesses. [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-00-91]. Washington, D.C.: Mar. 9,
2000.
Foreign Assistance: North Korea Restricts Food Aid Monitoring.
[hyperlink, http://www.gao.gov/products/GAO/NSIAD-00-35]. Washington,
D.C.: Oct. 8, 1999.
Food Security: Factors That Could Affect Progress toward Meeting World
Food Summit Goals. [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-99-15]. Washington, D.C.: Mar.
22, 1999.
Food Security: Preparations for the 1996 World Food Summit. [hyperlink,
http://www.gao.gov/products/GAO/NSIAD-97-44]. Washington, D.C.: Nov. 7,
1996.
[End of section]
Footnotes:
[1] Food insecurity is the lack of access of all people at all times to
sufficient, nutritionally adequate, and safe food, without undue risk
of losing such access. The Food and Agriculture Organization (FAO) of
the United Nations defines the elements of food security to include (1)
food availability, (2) access, and (3) utilization.
[2] GAO, 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). In this report, we cited FAO
estimates that indicate that sub-Saharan Africa is the region with the
highest prevalence of food insecurity; one out of every three people
there are considered undernourished.
[3] The 12 countries reported by the International Food Policy Research
Institute (IFPRI) are Burkina Faso, Cameroon, Côte d'Ivoire, Guinea,
Ethiopia, Kenya, Mauritania, Mozambique, Madagascar, Niger, Senegal,
and South Africa.
[4] For the purposes of this report, we use the terms "procurement" and
"purchase" interchangeably.
[5] WFP is the food aid arm of UN. It accepts donations generally from
developed countries and distributes them to developing countries that
are in need of food assistance. In 2007, from its headquarters in Rome,
WFP operated about 200 active projects in 80 countries and managed
about $2.7 billion in voluntary donor contributions.
[6] These include humanitarian organizations such as Catholic Relief
Services (CRS); Cooperative for Assistance and Relief Everywhere, Inc.
(CARE); Mercy Corps; and Save the Children.
[7] See also Organization for Economic Cooperation and Development
(OECD), The Development Effectiveness of Food Aid: Does Tying Matter?
(Paris, France: 2006). In this report, OECD estimated that the cost of
in-kind food aid was on average approximately 50 percent more than
local food purchases and 33 percent more costly than procurement of
food locally or from third countries.
[8] 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). Since this report was issued, the three agencies to which our
recommendations were addressed--the U.S. Agency for International
Development (USAID), U.S. Department of Agriculture (USDA), and
Department of Transportation (DOT)--have taken actions to begin
implementing some of our recommendations to enhance the efficiency and
effectiveness of U.S. food aid by improving logistical planning,
transportation contracting, and monitoring, among other actions.
However, the cost impact of these actions has yet to be systematically
assessed and would not be maximized until all of our recommendations
are fully implemented.
[9] Pub. L. 110-246, Food, Conservation, and Energy Act of 2008, sec.
3206.
[10] Pub. L. 110-252, Supplemental Appropriations Act, 2008.
Additionally, for fiscal year 2009, the Administration allocated up to
$75 million in International Disaster Account funding for USAID LRP
activities.
[11] Pub. L. 111-8, Omnibus Appropriations Act, 2009, Div. H.
[12] We define "efficiency" as the extent to which a program is
acquiring, protecting, and using its resources in the most productive
manner in terms of cost, delivery time, and appropriateness of food
aid.
[13] In this report, we use the term "delivery time" to refer to the
number of days that elapses from the purchase order date to the date
WFP takes possession of the food in the recipient country (also
referred to as "lead time"). Additional time is required for the food
to reach intended beneficiaries.
[14] The selection of these countries was based on representation of
three regions in Africa having differing experiences with LRP, the
presence of a WFP procurement officer in-country, and other factors.
[15] MCC is a government corporation that Congress established in
January 2004 to administer the Millennium Challenge Account (MCA).
MCC's mission is to provide development assistance that reduces extreme
poverty through economic growth and strengthens good governance,
economic freedom, and investments in people. Some of this assistance
helps support food security and LRP activities in developing countries.
[16] These included representatives from the missions of Australia,
Belgium, Canada, Italy, and the United Kingdom.
[17] The WFP procurement officers we interviewed were based in Burkina
Faso, Ethiopia, Kenya, South Africa, Sudan, Tanzania, and Uganda in
Africa and Bangladesh, India, Pakistan, and Thailand in Asia.
[18] Additional organizations include the United Nations Office of the
High Commissioner for Refugees (UNHCR) and the International Committee
of the Red Cross (ICRC).
[19] According to State officials, international organizations have
provided various alternative forms of food aid, including cash
vouchers, for many years. While UNHCR utilizes NGOs as implementing
partners, ICRC either distributes food assistance itself or through
local national Red Cross/Red Crescent societies.
[20] In this situation, the Canadian Foodgrains Bank (CFB) was
concerned about putting additional price pressure on Kenyan-produced
maize and the quality of local maize available on the market.
[21] According to the World Bank's 2008 World Development Report, the
vast majority of farmers in developing countries are smallholders, with
an estimated 85 percent of them farming less than 2 hectares.
[22] Members of the G8 are Canada, the European Commission, France,
Germany, Italy, Japan, Russia, the United Kingdom, and the United
States.
[23] The eight commodities were beans, corn soy blend (CSB), maize,
maize meal, rice, sorghum/millet, vegetable oil, and wheat, which
represent the majority of food aid that WFP and USAID provided.
[24] The cost comparison demonstrates the difference in cost of
delivering similar food products in a similar time frame to the same
countries. It does not suggest that if the United States had purchased
the same amount of food through LRP, it would have cost the same
because additional demand in the market could have driven up the prices
and there might not have been enough food available for purchase.
However, LRP could have offered the United States the flexibility to
explore other potential cost-saving opportunities in the region.
[25] The cost reflects the "delivery duty unpaid" (DDU) price, a term
of sale that refers to the sellers fulfilling their obligation to
deliver when they deliver the goods to the designated place in the
country of importation. The seller has to bear the costs and risks
involved in delivering the goods (excluding duties, taxes, and other
import charges). The buyer assumes the costs and risks of carrying out
customs formalities and pays any additional costs to bear any risks
caused by failure to clear the goods in time.
[26] To make the costs comparable to WFP's DDU price, we included
USAID's commodity, ocean shipping, and inland freight costs.
[27] One of USAID's shipments to Ethiopia in the fourth quarter of 2002
cost $1.035 million for purchasing and transporting 2,200 metric tons
of wheat. If it were able to pay the same price as local procurement,
USAID could have purchased 3,139 more tons of wheat, enough to feed
about 63,000 people for 4 months. We assume a ratio of 12.51 kilograms
per person per month. Although this is a static analysis, it is useful
for illustrative purposes. We recognize that the amount of supply may
not be available in the market, or such scale purchase could drive up
prices, which could reduce the cost savings. Additionally, the price of
wheat in Ethiopia fluctuated during the time period we considered,
which would have affected cost-savings.
[28] To identify the commodities and locations for which LRPs are more
cost-effective than in-kind food aid, further analysis would be
required.
[29] For any locally available commodity, the import parity price is
the cost of purchasing the same commodity from a regional or
international market.
[30] A tender process is a method WFP uses in procurement. In issuing a
tender, WFP invites pre-qualified suppliers to provide the price they
can offer WFP for a particular purchase through a competitive bidding
process. The tender invitation calls for specific quality standards,
delivery terms, packaging, and markings. WFP then compares the bids and
awards the contract to the suppliers selected.
[31] In addition to the U.S. prepositioning site in Jacintoport
(Texas), USAID operates an overseas prepositioning site in the Port of
Djibouti (Djibouti). The 2008 Farm Bill authorized USAID to expand its
use of prepositioning, increasing funding for it from $2 million to $10
million. Pub. L. 110-246, sec. 3017.
[32] The $20.1 million regional purchase was funded by a USAID grant to
WFP in August 2008.
[33] Sanitary and phytosanitary requirements refer to measures taken to
protect against risks linked to food safety, animal health and plant
protection, establishment and spread of pests, or to prevent or limit
damage.
[34] According to WFP, commodities distributed to WFP's recipients are
of good quality, are safe for human consumption, and meet required
specifications. WFP uses international or national specifications of
producing countries and in some cases importing countries. A product
specification is a written description of a commodity, and it includes
the specific requirements that a vendor must follow to meet WFP's
contract for delivering commodities. For a list of quality standards
and product specifications, see [hyperlink,
http://foodquality.wfp.org/FoodSpecifications/tabid/56/Default.aspx].
FAO and the World Health Organization (WHO) also administer the Codex
Alimentarius, a set of internationally accepted food standards,
guidelines, and codes of practice established to protect the health of
consumers.
[35] Moisture content is a critical factor in grain quality. Moisture
in grain interacts with the temperature and relative humidity in grain
storage centers and during shipping. Too much moisture can spur mold
growth, increase insect activity, and cause other quality losses.
Requiring that moisture content remain below a certain level is one way
to ensure that food does not spoil during transit and in storage. Host
governments may have established standards for moisture content.
[36] [hyperlink, http://www.gao.gov/products/GAO-07-560].
[37] The breakage level may be an issue for the host government of the
recipient country. For example, the Department of State noted that a
procurement of 6,025 metric tons of rice funded by PRM was rejected by
the host government due to the high level of breakage.
[38] Transoceanic shipments of in-kind food aid, if not carefully
targeted, can have the opposite but also detrimental market impact of
depressing market prices by rapidly increasing the supply of food in
markets.
[39] It is also important to consider cross price elasticity of demand
and supply on consumers. For example, if the price of maize increased
and people switched to cassava (a root plant that provide an essential
part of the diet of more than half a billion people), the prices of
cassava may increase in response to the additional demand. In addition,
if farmer profits from maize increased because of LRP, producers could
respond by switching land from the production of cassava to maize. This
would result in a reduction in the supply of cassava, further
increasing its price.
[40] Other food aid programs such as the targeted distribution of
transoceanic shipments of in-kind food aid and monetization of food aid
in local markets to generate cash for development programs also rely on
market intelligence. For example, programs that use transoceanic
shipments of in-kind food aid are required under law to perform Bellmon
analyses that are required to determine the adequacy of storage
facilities in recipient countries and whether the importation and
monetization of food aid will negatively affect domestic production.
[41] USAID has efforts under way to improve its system for producing
Bellmon analyses, and efforts by FEWS NET, private companies, and host
government agencies to gather market information and provide analysis
are also important to improving the quality of market intelligence.
[42] Not all of it was ultimately delivered.
[43] Food Procurement in Developing Countries, World Food Program,
Executive Board First Regular Session (Rome: February 2006).
[44] Walker, David J. and Tiago Wandschneider, Local Food Aid
Procurement in Ethiopia, Natural Resources Institute for the UK
Department for International Development (Kent: September 2005).
[45] CAADP is an initiative to improve agricultural and rural
development and food security in Africa and has been endorsed by all
African heads of state. Member states committed to spending 10 percent
of each country's national budget on agricultural development. The
program is comprised of four pillars, namely, land and water use,
market access, food supply and hunger, and agricultural research and
technical assistance.
[46] IEHA was launched in 2002 as a multi-year effort designed to help
increase agricultural income and fulfill the UN's Millennium
Development Goal of cutting the number of hungry people in Africa in
half by 2015.
[47] WFP's P4P pilot countries include 15 in sub-Saharan Africa--
Burkina Faso, Democratic Republic of Congo, Ethiopia, Ghana, Kenya,
Liberia, Malawi, Mali, Mozambique, Rwanda, Sierra Leone, Sudan,
Tanzania, Uganda, and Zambia. USAID recently approved WFP's $20 million
proposal for P4P.
[48] See 7 U.S.C. 1732(2) for a definition of "agricultural commodity."
[49] The MOU that outlines the manner in which USAID, USDA, and DOT
cooperate in certain areas of the administration of cargo preference
requirements was last updated in 1987.
[50] The 2008 Farm Bill changed the title of the underlying legislation
from the Agricultural Trade Development and Assistance Act of 1954,
also known as P.L. 480, to the Food for Peace Act.
[51] Pub. L. 110-234, sec. 3206, called upon the Secretary of
Agriculture to initiate a study of prior LRP for food aid programs
conducted by other donor countries, NGOs, and the WFP. On January 15,
2009, USDA's Foreign Agriculture Service, Office of Capacity Building
and Development published The Use of Local and Regional Procurement in
Meeting the Food Needs of Those Affected by Disasters and Food Crises.
[52] Pub. L. 110-252. The $125 million in supplemental funding included
up to $95 million for emergency needs and up to $30 million to make LRP
work for farmers.
[53] Pub. L. 111-8, Div. H.
[54] According to USAID officials, the agency intends to issue updated
guidance stipulating that LRP funding be used to purchase commodities
whose source and origin are from developing countries.
[55] The Food Security Act of 1985 increased the percent tonnage of all
U.S.-funded cargo that requires transport on U.S.-flag vessels from 50
percent, as designated in the Cargo Preference Act of 1954, to 75
percent for shipments of certain agricultural foreign assistance cargo,
including commodities purchased under the authority of the Food For
Peace Act (but not, generally, for commodities purchased under
authority of the Foreign Assistance Act), and mandated that DOT
reimburse the shipper agencies for the cost associated with the
increased use of U.S.-flag vessels.
[56] Section 491 of the Foreign Assistance Act authorizes international
disaster assistance to be carried out notwithstanding any other
provision of law.
[57] As required by 46 CFR 381.5 "Fix American-Flag First."
[58] USAID and USDA, Report Regarding Efforts to Improve Procurement
Planning, submitted to Congress on January 21, 2009.
[59] This authority can be derived from a program's authorizing statute
(e.g., sec. 491 of the Foreign Assistance Act authorizing international
disaster assistance programs) or can be tied to a specific
appropriation (e.g., Pub. L. 110-252 provides notwithstanding authority
for supplemental development assistance funds).
[60] Because the agencies have not systematically tracked LRP
transactions, DOT has not, thus far, sought to impose this requirement.
[61] According to DOT officials, invoking this authority caused transit
time to increase.
[62] ADS 315.3.2.b. See also ADS 308.
[63] DOT officials stated that cargo preference statutes are clear that
government-impelled cargoes shall be transported on U.S.-flag vessels,
noting that policy manuals and regulations are subservient to statutes.
[64] DOT calculates the U.S. cost differential based on the actual
foreign-flag vessel bids that were received. If a foreign-flag vessel
does not provide a bid, DOT provides no reimbursement. Since no
reimbursement is made, DOT does not estimate costs for foreign-flag
shipments.
[65] Pub. L. 110-417, section 3511.
[66] [hyperlink, http://www.gao.gov/products/GAO-07-560].
[67] Line 17 reports are USAID's mechanism for commodity reporting at
the individual country level. The USAID Office of Food for Peace uses
these reports to account for commodities in metric tonnage and dollars.
[68] GAO, International Food Assistance: Insufficient Efforts by Host
Governments and Donors Threaten Progress to Halve Hunger in Sub-Saharan
Africa by 2015 (Washington, D.C.: May 29, 2008).
[69] "Foreign Assistance: Various Challenges Impede the Efficiency and
Effectiveness of U.S. Food Aid" report, [hyperlink,
http://www.gao.gov/products/GAO-07-560], April 2007.
[End of section]
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