CGD: New GAO Report on U.S. Food Aid and Monetization: Reforms Needed

Connie Veillette, MFAN principal and Director of CGD’s Rethinking U.S. Foreign Assistance initiative, reviewed the GAO’s report on international food assistance in a recent blog post. She finds, as MFAN did, significant opportunities for improvement and cost savings in food aid monetization reform. Read the full post and others on CGD’s blog.

The Government Accountability Office (GAO) just issued a new report critical of how the United States manages some aspects of its international food assistance.  That U.S. food aid is not managed as efficiently as it could be will come as no surprise to anyone who has braved the world of U.S. agriculture and Farm Bill politics.  But the GAO has produced a well-researched and convincing report that should help to clarify the tradeoffs involved when policy makers subjugate an international humanitarian program to serve domestic politics purposes.

The GAO report highlights the inefficiencies of monetization in which some Food for Peace commodities are allowed to be sold on local markets by private aid organizations to support their development work.  The process (converting cash to commodities and then back again to cash) results in transaction costs that removed $219 million over a three year period from funds that could have been used for development purposes.

Some aid organizations, such as CARE, have turned away from monetization.  The problem is that for many aid groups, monetization is a critical source of funding for their important activities.  Unless the system is reformed, giving groups access to other development funding, most will be unable to walk away from this less-than-cost-effective practice.

The GAO is modest in its recommendations – to reform the Cargo Preference Act of 1954 to eliminate a waiting period before foreign vessels could acquire U.S.-flag registry, and do more rigorous market analysis where commodities are sold, for example.  (Regarding the effects of selling food aid on local markets, see an earlier CGD analysis.)

Other critics have called for the repeal of food aid cargo preference, the phasing out of monetization, and the relaxing of rules that require all U.S. food aid to be in the form of commodities purchased in the United States.  John Norris at the Center for American Progress and I recently urged budget cutters to seriously review these programs for significant cost savings.

What will be interesting is whether Congress will avail itself of the opportunity to make U.S. programs more effective and efficient when it considers reauthorizing the Farm Bill in 2012. Stay tuned.

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