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WRITTEN TESTIMONY OF DAVID EVANS, VICE CHAIR, ALLIANCE FOR FOOD AID
Before the COMMITTEE ON FOREIGN AFFAIRS
SUBCOMMITTEE ON AFRICA AND GLOBAL HEALTH
UNITED STATES HOUSE OF REPRESENTATIVES
May 24, 2007

Mr. Chairman, thank you for this opportunity to testify before the Subcommittee, today, on U.S. food aid programs. My name is David Evans and I am testifying today as the Vice Chair of the Alliance for Food Aid (AFA or "Alliance"). The Alliance is comprised of 15 private voluntary organizations and cooperatives (jointly called "PVOs") that operate humanitarian and development assistance programs in 130 countries, are partners in USDA and USAID food aid programs, and conduct both emergency and non-emergency food aid programs.

The members range from some of the largest charitable organizations in the United States that implement a wide variety of projects all over the world to smaller organizations that specialize in particular regions of the world or have expertise in particular types of programs. What they have in common is that they focus their efforts on communities that lack the wherewithal to meet their basic food needs on a regular and sustainable basis. They use participatory methods that emphasize local initiative, provide technical assistance and training, and focus on building local capacity, institutions and leaders. Most of our members also conduct emergency programs, as well, where food aid is needed to save lives and help people regain their health and strength.

Mr. Chairman, we thank the Congress for its unrelenting support of food aid over the years. Food aid is our nation's principal program supporting food security in the developing world. It contributes to meeting the Millennium Development Goal of cutting hunger in half by 2015 and is critical for saving lives in the face of disaster. Some improvements and upgrades are needed in administrative programmatic procedures and greater efficiencies can be built into procurement and transportation procedures. However, most important for the 2007 Farm Bill is assuring predictable levels for both chronic and emergency needs in order to support good program planning and implementation and to reverse the downward trend in multi-year developmental programs.

The Alliance has three core recommendations for the 2007 Farm Bill -

• Assure adequate amounts of food aid are available from the Bill Emerson Humanitarian Trust and it is available to respond quickly in the face of food shortages, civil unrest, and other crises.
• Increase resources for multi-year programs that improve the food security, health and welfare of populations that suffer from chronic hunger by (1) making available at least 1,200,000 MT of food aid each year for Title II non-emergency programs that promote food security and protect against the erosion of health and incomes, and (2) lifting the transportation cap on Food for Progress so 500,000 MT can be provided to developing countries that are implementing reforms in the agricultural economies.
• Improve administrative procedures through early program approvals, spreading out procurement throughout the year, improving product quality oversight, and requiring the submission of annual reports from administrative agencies that include information about program targeting and implementation, including monetization and distribution results.

Role of PVOs in Food Aid

Identifying populations in need is part of the initial program planning process for PVOs. Alliance members use data from nationwide and regional surveys provided by recipient countries, the United Nations, and other recognized sources. Such data may include mortality rate of children under the age of five, infant mortality rates, prevalence of malnutrition among children, percentage of people living under the poverty line, susceptibility to drought, and prevalence of disease, such as HIV/AIDS.

Once areas of greatest need are pinpointed, PVOs meet with local administrators and community groups to determine what types of services are already being provided, which services are lacking, and the types of interventions that would be most helpful. They use focus groups, rapid surveys, and other methods to narrow down the target population to those with greatest need. To avoid stigma programs often target the community and not just particular households and individuals. The next step is working with local partners to design and implement programs. For your reference, Attachment A summarizes the program planning and approval process for PL 480 Title II non-emergency programs for FY 2007.

PVOs are audited according to US Government requirements and have well-established mechanisms for monitoring and reporting on the use of commodities from the point of departure from the US to the ultimate recipient. In the case of monetization or if funds have been provided for program support, itemized records of the bidding process, funds generated and use of such funds are maintained and provided in regular reports to USAID and USDA. They also keep records to assess the ultimate impact of the program on the intended beneficiaries. Value is added to programs by strengthening the management capabilities of local institutions and building community capacity; providing a network of contacts and relationships linking people overseas with Americans; encouraging entrepreneurship and private sector development; and creating programs that have lasting benefits.

Why Change is Needed

Food security is negatively affected by a wide range of issues, including poor agricultural productivity; high unemployment; low and unpredictable incomes; remoteness of farm communities; susceptibility to natural disasters, civil unrest and instability; wide discrepancies between the well-off and the poor; chronic disease; and lack of basic health, education, water and sanitation services. Thus, rather than just distributing food to needy people, US food aid has evolved into a multi-faceted program that addresses the underlying causes of hunger and poverty. This mixture of food and support for local development is the program's strength and was reinforced in the 2002 Farm Bill. However, the Administration was given wide berth to set priorities and waive requirements, which has taken food aid down a different road than anticipated in 2002.

Policy changes over the past five years have essentially reduced overall food aid levels (particularly by eliminating Section 416 surplus commodities and Title I appropriations), shrunk development-oriented programs to 42% their 2001 levels (according to an April 2007 GAO report) , and exposed the lack of contingency planning for food emergencies. While the 2002 Farm Bill called for increased levels of PL 480 Title II development programs to 1,875,000 metric tons, instead these programs were reduced and are now about 750,000 metric tons.

The 2002 Bill also called for upgrades and improvements in governmental management and information systems, but instead the level of programming has become less predictable; program priorities and proposal review processes have become more opaque; the "consultative" nature Food Aid Consultative Group process has deteriorated; Title II procedures are making it more difficult for PVOs to access funding; and commodity quality control systems have not been renovated to modern standards.

Meanwhile, the world's efforts to meet the Millennium Development Goal of cutting hunger in half by 2015 is far from reach - the number of people suffering from chronic hunger increased from 1996 to 2004 from under 800 million to 842 million -- and international appeals for emergency food aid are under-funded. While US food aid alone cannot resolve this sad and complex problem, it is a critical component of an international food security strategy and is particularly effective in countries with chronic food deficits and for vulnerable, low-income populations.

Several food aid statutes set tonnage minimums - to assure that food is provided in times of high prices. These requirements are important, but they need to be updated and supported by sufficient appropriations.

Finally, Doha Round international trade negotiators, the Food Aid Convention and the UN Food and Agriculture Organization all have particular roles in international food aid policies and procedures. They are examining the use of food aid by donors and are looking critically at certain modalities and methodologies, including in-kind food aid, monetization and non-emergency programs. While US programs are typically well-focused and food security oriented, this is often unclear or misrepresented to others. As the largest donor in the world, Americans should be proud of their food aid program. It is critical that government agencies collect and make available sufficient information to show how these programs work and their impact.

With these factors and trends in mind, we offer recommendations to improve the quality and predictability of food aid, and to assure the United States has a plan and effective methods to address both chronic and emergency needs.

PL 480 Title II - the Core US Food Aid Program

1. Administrative Upgrades: Adequate Funding at the Start of the Fiscal Year, Predictable Tonnage Levels, Early Program Approvals, and Sufficient Reporting:

Administered by the US Agency for International Development (USAID), Title II provides food aid donations for development programs and emergency needs through "eligible organizations," which are PVOs and the UN World Food Program. The law sets a minimum commodity level for the program of 2,500,000 MT, of which 1,875,000 MT is for non-emergency programs that address chronic hunger.

From FY 1999 through FY 2002, the Section 416 surplus commodity program provided significant amounts of food aid, and much of it was for emergencies. This was a source of supplemental funding for the Title II program. As the attached funding chart shows, availability of Section 416 surplus commodities was phased out starting in FY 2002. While Title II funding increased over the same period and enough is provided to meet the 2,500,000 MT minimum commodity level set by law, this increase has been insufficient to make up fully for the loss of Section 416 commodities. Current funding levels are not maintaining adequate levels for both emergency and non-emergency requirements. This has resulted in cutbacks in developmental food aid programs, uncertainty about the levels of food aid each year and increased reliance on supplemental appropriations to fill gaps in emergencies.

The Government Accountability Office (GAO) noted in a recent report that cost savings of 12-14% percent may be possible if commodity orders could be spread out more evenly throughout the program year, rather than "bunched" toward the end of the year. A variety of factors contribute to the "bunching" of commodity orders, including piecemeal appropriations, unreliable levels and late program approvals. From the perspective of implementing organizations, these practices have also created a series of other unfavorable consequences: commodity distribution and sales overseas cannot be well planned when dates of delivery are not reliable or when commodities are not made available throughout the year. This causes concern about the potential for disrupting commercial markets and having the food arrive at the wrong time in the program cycle.

While some emergencies, such as sudden natural disasters and outbreak of civil war, cannot be predicted in advance and can occur any time during a fiscal year, other emergency needs are ongoing and can be factored into the regular budget request and appropriations process. For example, areas such as the Horn of Africa that are prone to drought, flooding, locusts or other natural disasters are monitored through a variety of early warning systems. Other emergencies, such as the ongoing conflict in Sudan, are expected to continue until the source of the problem is resolved. Because the Administration does not ask for adequate funding to meet these anticipated emergency needs, funds have been withheld from the nonemergency programs for several months as USAID adjusts its budget and waits to see if there will be supplemental funding.

As a result, there are gaps in food aid deliveries for both emergency and nonemergency programs, PVOs must cover local costs while programs are on hold and some programs are, de facto, cut back. Later in the year, the Administration often receives supplemental appropriations for the extra emergency needs or uses commodities from the Bill Emerson Humanitarian Trust. Because the actual amounts needed are not requested upfront as part of the regular budget cycle and the Administration only uses the Trust as a "last resort," commodity orders are concentrated in the last months of the fiscal year.

The Alliance has several recommendations for improving the reliability and timeliness of food aid programs.

• Assure that minimum tonnages are taken seriously and incorporated into USAID's planning and budgeting. Our recommendation for a 1,200,000 MT "safebox" for non-emergency programs, described under point 2, would help to achieve this goal.

• Require USAID to approve non-emergency programs and commodity levels two months in advance of the beginning of the fiscal year. This would allow the first commodity orders to be placed in time for delivery during the first few months of the fiscal year. Since all agreements are subject to appropriations, early approval would not override the budget process. In addition, the Title II account holds extra funds at the end of each fiscal year that are typically carried over and these funds can be used to secure the early orders.

• While we recognize that the Committee on Agriculture may not be in the position to effect this change, on-time appropriations and sufficient appropriations at the beginning of the fiscal year would allow orderly program planning and more timely and efficient delivery of commodities throughout the year, without program disruptions. When adequate sums are available, more commodities can be pre-positioned off-shore for more timely deliveries if an emergency arises. The procurement can be spread out throughout the year, which will allow USDA to plan its procurement to get the best prices possible for commodity and inland transport.

• As described later in our testimony, clarify that the Trust should be used rather than curtailing developmental food aid programs to shift the funds to emergencies.

With these procedures, commodity ordering and delivery would be more reliable, which agricultural processors are seeking so they can plan their inventories, which PVOs are seeking so the commodity arrives when needed, and which saves money because commodity purchases and shipping can be spread out throughout the year rather than spiking during the last three months of the year.

2. A Safebox for Developmental Food Aid Programs:

Establish a safebox for Title II non-emergency programs that assures 1,200,000 metric tons will be made available each for non-emergency Title II programs each fiscal year. This amount would not be subject to waiver.

Section 204(a)(2) of PL 480 directs USAID to make available 1,875,000 metric tons of commodities for Title II non-emergency programs each fiscal year. The law permits USAID to waive this minimum after the beginning of the fiscal year if there are insufficient requests for programs or the commodities are needed for emergencies. This implies that USAID should seek proposals for the full non-emergency minimum tonnage and only waive the minimum under extraordinary circumstances. Instead, months in advance of each fiscal year USAID acknowledges that non-emergency programs will be limited to about 750,000 MT and does not make the minimum tonnage available.

We therefore recommend only allowing USAID to waive up to 675,000 MT of the non-emergency minimum tonnage level, which would assure that USAID makes available at least 1,200,000 MT each year for multi-year food for development programs - reestablishing America's commitment to help those suffering from chronic malnutrition and hunger. This is less than the minimum tonnage required under law for these programs (1,875,000 MT), but more than the amount USAID is actually providing (750,000 MT).

Programs that address the underlying causes of chronic hunger include mother-child health care, agricultural and rural development, food as payment for work on community infrastructure projects, meals in schools and take-home rations to encourage school attendance, and programs targeting HIV/AIDS-affected communities. Chronic hunger leads to high infant and child mortality and morbidity, poor physical and cognitive development, low productivity, high susceptibility to disease, and premature death.

Reducing these programs has been counterproductive, as developmental food aid helps improve people's resilience to droughts and economic downturns. Giving people the means to improve their lives also provides hope for a better future and helps stabilize vulnerable areas. Valuable expertise of PVOs to help these communities and to respond to food crises is being lost as they must stop their food aid activities, leave their local partners and lose their strategic networks in these vulnerable areas. Giving people the means to improve their lives also provides hope for a better future and helps stabilize vulnerable areas.

We also note with alarm that due to budget constraints, in 2006 USAID established a policy to limit non-emergency food aid to fewer countries in order to "focus" the remaining resources. Under this policy, non-emergency programs are being phased out in 17 countries and cutback in others and programs will be allowed in only 15-18 selected countries. Concentrating food aid resources in areas where there is high prevalence of food insecurity and vulnerability is appropriate and was anticipated in the USAID Food for Peace Strategic Plan, 2006-2010. However, the current policy eliminates too many areas where chronic hunger is prevalent and was driven by the decision to reduce the budget for non-emergency programs. Many poor, vulnerable populations will be excluded from receiving food aid, even though their needs are as compelling as those populations that will be served. The capacity of PVOs to serve populations in non-eligible countries will be lost, making it more difficult to respond effectively at the early signs of an emerging food crisis, which runs counter to the intent of the Strategic Plan.

The two examples below are in phase out countries, Bolivia and Kenya. They show how food aid programs are often conducted in areas where poverty, unpredictable or unfavorable climate, and remoteness have made it very difficult for people to improve their lives without help from the outside. These programs leverage resources and create benefits beyond the targeted recipients, increasing the impact per dollar spent.

Bolivia: Adventist Development and Relief Agency International (ADRA), Food for the Hungry (FH) and several other PVOs are conducting multi-faceted, 6-year programs in Bolivia using food distribution (corn-soy blend, lentils, green peas, soy-fortified bulgur, wheat-soy blend and flour) and proceeds generated from the monetization of flour to support individual, community and municipal efforts to overcome development constraints and to enhance household food security.

In the targeted rural areas over 70% of the population live in poverty and infant mortality rates are 116 per 1000 births. These communities must rely on their own agricultural production as they are remotely located, have poor roads and lack transportation.

The current PVO programs focus on addressing their lack of access to markets, health care, schools and social services by increasing production and incomes and improving nutrition among vulnerable groups. Food aid is distributed (1) for Maternal and Child Health and Nutrition (pregnant and lactating mothers, infants and children under five, the most critical stages for cognitive and physical growth) and (2) in conjunction with training and technical assistance for improved agricultural production, diversified crops to improve the diet, and marketing of agricultural products. Concurrent activities included increasing access to clean water, improving health and sanitation practices, natural resource management, building greenhouses, and improving marketing roads and irrigation systems.

In FH's midterm evaluation (2006, three years after the program began, compared to 2002 baseline data), they found a 35% decrease in chronic malnutrition in children (height/weight or "stunting") and household incomes had increased by 270% or more. The direct beneficiaries of the FH program, alone, were 212,292 people and indirectly, 410,000 people benefited. Because of program efficiencies and FH's ability to raise more matching funds after the program began, the number of beneficiaries was 283% greater than originally planned.

Kenya. A World Vision Title II program in Kenya targeted 1528 pastoralist families in the Turkana region, an arid environment that is plagued by recurring droughts. Before the program, these families were dependent on emergency food aid nearly every year.

Some of the commodities provided were distributed as payment for participation in training and for working on projects that improved irrigation infrastructure, cultivation techniques and land management. Other commodities were sold through open tenders and the funds generated supported the food for work projects. Within 6 years, even though there had been droughts in between, income increased from a baseline of $235 per year to $800 per year, families could afford to send their children to school, and the communities no longer depended on relief. In fact, the program was turned over to the participants and they have spread their knowledge to 475 other farmer families.

PVOs were hoping to replicate this successful model in other areas of Kenya where pastoralists are still dependent on emergency rations nearly every year. However, USAID is phasing out non-emergency projects in Kenya as part of a larger effort to limit the scope of developmental food aid programs. Meanwhile, Kenya remains a recipient of emergency food aid and pastoralists are particularly at risk.

Reports accompanying appropriations bills for the past 5 years admonish the Administration to meet the Title II non-emergency minimum tonnage and to rely on the Bill Emerson Humanitarian Trust for urgent needs. However, this language has had no perceivable effect. This follows the general trend indicated in a recent GAO's report - from 2001 to 2006 developmental food aid fell by 42%.

3. Maximize use of the Section 202(e) Support Funds:

Make 10% of the Title II program level available for Section 202(e) support funds and allow these funds to be used to support complementary activities associated with food aid programs.

Section 202(e) funds are provided by USAID to Title II eligible organizations to support (A) the establishment of new programs and (B) specific administrative, management, personnel and internal transportation and distribution costs associated with carrying out programs in foreign countries. The law provides no less than 5 and no more than 10% of "funds made available in each fiscal year" under Title II for these purposes. The Alliance proposes the following changes:

• Allow Section 202(e) funds to be used to cover costs for development-related activities conducted under a Title II program by an eligible organization. Monetization is often used for these purposes and Section 202(e) is not sufficient or intended to replace monetization. However, monetization is not appropriate in all target countries and in some countries the ability to monetize varies year-to-year based on the market situation. Thus, flexibility is needed so Section 202(e) funds may be used for activities that monetization funding often supports, such as materials, technical assistance and training for agricultural, materials for mother-child health care, and food-for-work infrastructure programs.

• Allow USAID to provide funds to eligible organizations to improve methodologies, such as needs assessments for identifying target populations and monitoring and reporting on the impact of monetization and other aspects of their programs. These are activities that will benefit program implementation overall and are not associated with one particular program.

• Provide not less than 10% of total Title II funding for Section 202(e) purposes. Currently, the law allows between 5 and 10% of Title II funds for this purpose, but when developing its 202(e) allocations, USAID does not want to overshoot the 10% maximum. USAID therefore limits 202(e) use to about 7-8% of the regular appropriations level; as it cannot predict how much money may be provided later in the year through supplemental appropriations, carry in funds, or maritime reimbursement. As a result, about 5-6% of the Title II program level is being provided for Section 202(e) (approximately $90 million) Setting a minimum of 10% of total funding provided from all sources will provide the additional funds needed for meeting costs associated with program implementation and improving program methodologies.

Before the early 1990's, when most non-emergency food aid was provided to Latin America and Asia, there were other ways to obtain support funds. For example, the Government of India contributed to some large-scale Title II food for education and early childhood development programs. In some countries, such as Bolivia and Bangladesh, proceeds generated from sales of commodities under government-to-government PL 480 Title III programs were available.

However, Title III programs were phased out more than a decade ago, so those funds are no longer available. Now, most Title II food aid is provided to sub-Saharan Africa, where the infrastructure is poorly developed. While non-emergency programs can be coordinated with recipient country developmental or food security plans, the governments themselves generally do not provide direct financial or logistical support. Instead, they look to the PVO to fill gaps in areas of poor coverage. Thus, over the past 10 years PVOs have relied, primarily, on monetization to generate funds to cover program costs and, secondly, on Section 202(e) funds.

4. Update Food Quality Systems and Product Formulations:

Title II funds should be provided to bring the food aid quality enhancement project to completion over the next 3-4 years.

Both the quality and formulation of food aid products are crucial to delivering safe, wholesome products to undernourished populations, particularly vulnerable groups such as infants and young children, women of child-bearing age and people living with HIV/AIDS. Formulations for the value-added products used in Title II have been static for decades and food aid distribution overseas has sometimes been disrupted due to quality concerns. Through private funding, SUSTAIN (a non-profit that provides technical assistance for food systems and was referenced in the 2002 Farm Bill), has made progress to address these issues in a scientific, systematic and impartial manner. As neither USDA nor USAID has provided funding to support these reforms, if necessary, we support the use of Title II funds for this purpose.

Assure Timely Use of the Bill Emerson Humanitarian Trust

To maintain the Trust as a contingency reserve for emergencies replenish the Trust with $60 million per year until it is full and assure it is available to respond to emergencies in a timely manner and without interfering with the provision of Title II non-emergency programs each year.

Administered by USDA, the funds and commodities in the Bill Emerson Humanitarian Trust (BEHT or "Trust") are needed to supplement P.L. 480 Title II when there are urgent humanitarian food aid needs. The commodities are provided by the Trust and CCC covers the ocean freight and delivery costs. The Trust can hold up to 4 million metric tons or cash equivalent, but currently only holds about 915,000 metric tons of wheat and $107,000,000 (which is available to buy commodities when needed). Because a diversity of commodities is needed for emergencies, it is best for the Trust to be replenished with funds that can be used to procure the appropriate commodities when needed.

Two mechanisms need to be improved to make the Trust more readily available for emergencies: the "trigger" for releasing commodities and the level of reimbursement. We urge you to make the needed changes in the 2007 Farm Bill.

Trigger: Section 302(c)(1)(c) of the Bill Emerson Humanitarian Trust Act states that a waiver of the Title II non-emergency minimum tonnage is not a prerequisite for the release of commodities from the Trust. Nonetheless, the Administration has taken the stance that it will only use the Trust commodities as a last resort after all other avenues, including the Title II waiver, are considered. This may partially be driven by the 500,000 metric ton limitation on BEHT tonnage that can be provided in any fiscal year, although if the Trust is not used one year the 500,000 metric tons for that year can be added to future year releases. Another reason may be the term "unanticipated" emergencies, which is how the BEHT Act refers to releases for international humanitarian crises versus "emergencies," which is how the BEHT Act refers to releases in case of short supply of a commodity. Thus, we have several recommendations for fixing the language.

First, create safebox for 1,200,000 metric tons (about $600 million total cost) for Title II non-emergency programs that cannot be waived. This takes away the confusion about whether the waiver is used before the Trust can be accessed. Second, eliminate the part of the Trust that refers to "short supply," as it is a vestige of a time when food aid was considered "surplus" and is outdated now that the Trust can hold funds. Third, change the terminology and allow commodities or funds to be released when there are emergency food aid needs. And, forth, allow up to 1,000,000 metric tons to be released in any fiscal year.

Replenishment: Currently, the Trust may be replenished either through a direct appropriation or by capturing $20 million of funds reimbursed to CCC from PL 480 as repayment for previous use of the Trust. The Administration has never requested a direct appropriation, but Congress provided $67 million for replenishment as part of the FY 2003 Iraq supplemental appropriations act. In addition, USDA has twice captured $20 million from PL 480 reimbursements. Thus, the Trust now holds $107,000,000. This amount plus the 915,000 MT of wheat held in storage makes up the total value of the Trust, which is about 1,500,000 metric tons in wheat equivalent prices. To bring the Trust to its full 4 MMT wheat-equivalent level, we urge that the $20 million be raised to $60 million per year.

Expand Food for Progress

Increase the Food for Progress to 500,000 metric tons for programs that improve private sector agricultural, food and marketing systems in developing countries that are implementing market reforms.

The Food for Progress Act directs USDA through the Commodity Credit Corporation (CCC) to provide a minimum of 400,000 metric tons of commodities each year to developing countries that are introducing market reforms and supporting private sector development. These programs may be implemented by PVOs, the World Food Program and recipient country governments. The amount actually provided through CCC falls short of 400,000 metric tons because there is a cap on the amount of funds that CCC can provide for delivering the commodities and administering the programs overseas.

USDA has authority to use PL 480 Title I funds in addition to the CCC funds to implement Food for Progress programs. In FY 2006, about 75 percent of Title I funds were used for this purpose. As no funds were appropriated for Title I in FY 2007, and the Administration seeks no funding in FY 2008, this means a cut in funding in Food for Progress.

Many poor, developing countries are undergoing economic reform and, therefore, the demand for Food for Progress programs is great. Forty-six different PVOs apply for Food for Progress programs. For FY 2007, 100 proposals were submitted by PVOs and 16 by governments, but only 11 new proposals were approved and 3 other programs were provided second year funding.

We therefore recommend increasing the minimum to 500,000 metric tons and assuring that this amount is available for proposals submitted by PVOs. To accommodate the additional tonnage the amount available for transporting the commodities would have to be lifted or increased.

Example: International Relief & Development (IRD), Azerbaijan

Commodities: 10,000 MT soybean meal; Total value: 2,125,467 (one year)

Beneficiaries: 26,899

IRD targeted Ganja, Goranboy, and Khanlar in western Azerbaijan, because in these regions there is a high concentration of internally-displaced persons (IDPs), the level of unemployment is close to 70%, and the local farmers and IDPs are poor and are not able to support their basic needs. Soybean meal monetization was chosen because of shortages of feed grains in the country. IRD trained farmers in crop and livestock production and market development and distributed small grants to start-up local businesses. HIV/AIDS awareness was also conducted in the targeted communities.

Results:

• Business development classes were provided for 1,532 farmers, in the town of Ganja and four local regions (Kahnlar, Geranboy, Samukh and Zakatala). As a result, farmers submitted business proposals to IRD, and IRD funded 106 of them.
• IRD published two leaflets, "Raising chickens in your backyard" and "Chicks' diseases and their prevention"; five handbooks on various agricultural topics: "Recommendations for sheep keepers", "Recommendations for cattle keepers", "Recommendations for beekeepers", and "Recommendations for chicken keepers".
• The total number of people who benefited from the small grants was 26,899. The farmers and small entrepreneurs formed several groups that were eligible for receiving grants. Recipients included 16 cattle breeding groups, 22 women poultry groups, 38 sheep breeding groups, two women geese groups, 19 agro-service groups, two harvesting groups, and seven beekeeping groups. Within a year, monthly income of beneficiaries at least doubled. Each of the 19 agro-service groups received approximately $5,090 and in the first year members provided services in their communities valued at $46,421.

Monetization's Continued Contribution

Monetization is an important component of food aid programs and we support its continued use where appropriate, based on market analysis.

Monetization is the sale of commodities in net food-importing, developing countries and the use of proceeds in projects that improve local food security. It can have multiple benefits and is appropriate for low-income countries that must depend on imports to meet their nutritional needs. Limited liquidity or limited access to credit for international purchases can make it difficult for traders in these countries to import adequate amounts of foodstuffs and monetization is particularly helpful in such cases. In all cases, the proceeds are used to support food security efforts or the delivery of food in the recipient country.

Monetization can also be an effective vehicle to increase small-scale trader participation in the local market and financial systems, can be used to address structural market inefficiencies, and can help control urban market price spikes. The commodity can also be integrated into agricultural processing operations, helping to establish and expand feed mills, fortified foods, and other locally-important products. For example, International Relief & Development used bulk wheat and soy flour provided through Food for Progress to establish small noodle production plants in Cambodia and the soy-fortified products were incorporated into school feeding programs. ACDI/VOCA used soybean meal donated by USDA to help reestablish the feed industry in Indonesia after the economic crisis. Both of these activities expanded local enterprise, increased jobs, and had a long-lasting food security benefit.

Market analysis is an important element of all food aid programs, but is more extensive for monetization programs. A "Bellmon Determination" is required for both monetization and distribution to make sure the commodities chosen will not interfere with local production and marketing and that there is adequate storage for the commodities provided. Commodities chosen for monetization are not locally produced, are produced in small amounts or are available only during certain times of the year. Therefore, the likelihood of creating local disincentives to production is small. However, some countries in a region have linked markets, so the analysis must also consider inter-country trade. For example, there is a Bellmon analysis that covers all the countries in West Africa.

As the potential disincentive effect of food aid is oft cited, but little researched, one study worth noting is by Abdulai, Barrett and Hoddinott [October 2005], which looks at disincentive effects of food aid provided in Ethiopia, the largest food aid recipient country in Africa over the 10-year review period. It received food for distribution and monetization. The study found no disincentive effect and note on page 1701 of the article: "In rural Ethiopia, simple test statistics.suggest that the disincentive effects of food aid on household behaviors are many, large in magnitude and statistically significant. However, when we take into account household characteristics.--that can affect behaviors and on which food aid is commonly targeted-many of these adverse effects vanish. In fact, there is some suggestion in these data that food aid leads to increases in labor supply to agriculture, wage work, and own business activities."

Save the Children and World Vision prepared a review of the PVO monetization programs under Title II, covering 6 commodities in 30 countries and 48 programs from 2001-2005. They found that the commodity choice and quantities avoided competing with local production and marketing and therefore diminished potential disincentive effects. As the commodity levels provided were small in comparison to needs and required imports, the potential for commercial import disruption was also small.

Example: Africare's PL 480 Title II Development Program in Guinea

Africare began implementation of a five-year Guinea Food Security Initiative (GnFSI) in the Prefecture of Dinguiraye in the Upper Region of Guinea in September 2000. This program represents an expansion of a very successful first phase program (1995 - 2000). This multi-sector program is currently operating in 50 of 84 districts of the Prefecture providing support to a population of 107,750 people.

Africare's program focuses on decreasing post-harvest storage losses, improving the nutritional status of children under the age of five, and increasing the capacity of District Development Committees to understand and address the challenges to food availability, access and utilization. Dinguiraye is an area that prior to Africare's intervention, received no outside assistance and limited support from its own governmental ministries. Chronic malnutrition of under-5 children was in excess of 50% and the amount of food available to households was adequate for less than four months per year.

The program's positive impacts due to the introduction of improved storage techniques include adding a month to post-harvest storage without damage to commodities, and doubling the months when adequate food is available in the households.

Working with the Ministry of Health, Africare's nutritional program reduced chronic malnutrition rates from 50% to 21% and the number of caretakers of under-5 children that participate in growth monitoring, food demonstrations and guided health discussions increased to more than 90% of the population. The prospective for these activities to continue under the auspices of the Ministry of Health is strong, because they are low cost and very popular with the beneficiaries themselves. More importantly, the target population has had an active role in improving the methodology by which more nutritious foods are identified and made available.

The financial resources for the program are generated by monetization of Title II food commodities (approximately 4,600 MT's of vegetable oil during FY 05 for Africare and two other PVOs). This innovative program promotes private sector development and broadening of local markets, both for producers and consumers, independently of the food security activities funded with the sales proceeds.

Vegetable oil was chosen for monetization because little is produced in country. The amount imported for monetization was small in comparison to import needs, which minimizes the likelihood of interfering with commercial imports. Further, vegetable oil availability is concentrated in the main city, not the outlying areas. Africare therefore arranged for the sales to reach the outlying areas through the sale of small lots to multiple buyers.

Africare worked with the Guinean government and private sector to increase the involvement of small-scale distributors to have access to vegetable oil, which is usually sold at the high end of the local market. A consequence has been the increased distribution of vegetable oil throughout the country, outside of the capital and principal urban markets to key rural areas that had never been served. Cost recovery was at or above local prices and averaged about 87% of the full cost of US procurement and shipping. This methodology included private sector sales techniques (e.g. closed tender bids, bank guarantees reflecting local interest rates and payment of required taxes by the buyer), and generated the following benefits:

1. Higher prices received from the buyers compared to if it was just sold to regular importers, which translates into a larger amount of sales proceeds to support the development activity.

2. Increased sophistication and understanding of commercial business practices by the private sector, especially the small-scale operator who was often unable to participate in these types of transactions (or even the formal financial system).

3. Increased availability of high quality commodities throughout the national market.

Example: Joint Aid Management Processing Plants in Africa, USDA Programs

One Alliance member, Joint Aid Management, is a Christian humanitarian organization based in South Africa that focuses on nutrition programs in schools and for the needy, assistance to orphans and vulnerable children, water and sanitation, skills development and community training. It established food processing plants to produce corn soya blend and other blended and fortified foods for use in its nutrition programs, including sales to the UN World Food Program and distribution through their own programs. While much of the food it uses is locally procured, it also participates in USDA food aid programs, processing donated commodities that are then used for nutrition programs. This is one of the ways that food aid programs allow the creative use of monetization to support local processing while also contributing to targeted food security programs.

Pilot Program for Local/Regional Purchase

We recommend a field-based, pilot program for local purchases for famine prevention and relief.

In-kind food aid continues to be the most dependable and important source of food aid. Commodities committed by and sourced directly from donor countries, which have more than adequate production to meet their domestic needs, is required to assure that sufficient levels food aid are available each year. However, there are situations where purchases closer to the area of need could provide more timely response, diversity of the food basket, and benefits to local agricultural development.

Members of the Alliance were under the impression that Title II gives broad discretion to the Administrator of USAID under section 202(a) to provide commodities under any terms or conditions deemed necessary for an emergency. Therefore, we assumed local purchase was already possible, albeit not meant to be used on a regular basis. However, we understand that USAID interprets this section differently.

The Administration has proposed to provide up to 25% of Title II funds for local or regional purchase for emergencies. Many of the areas where food aid is delivered need additional commodities from imports to meet their needs and there may little room to expand on the local/regional purchase, considering the large amounts that the UN World Food Program is already procuring. Therefore, we recommend assuring adequate US commodities are assured to meet the minimum tonnages under Title II and to add a field-based pilot program for local purchase.

While PVOs have experience using privately-raised funds and, to a limited degree, USAID International Disaster and Famine Assistance account funds for local purchases, information from these programs has not been systematically collected and therefore is inadequate to use for developing appropriate methodologies and best practices for future programs. Thus, as part of the 2007 Farm Bill we recommend a pilot program for local purchases for famine prevention and relief -

(1) Within recipient countries or nearby low-income countries,

(2) In cases where the procurement is likely to expedite the provision of food aid,

(3) Where the procurement will support or advance local agricultural production and marketing, and

(4) Conducted by PVO implementing partners that have experience with food aid programming in the recipient countries and are fully audited according to US Government regulations.

To assure that accepted practices for food aid programs are followed and to identify appropriate methodologies and best practices for future programs, each PVO implementing a pilot program shall:

(1) Prior to implementing a local purchase program, conduct an analysis of the potential impact of the purchase on the agricultural production, pricing and marketing of the same and similar commodities in the country and localities where the purchase will take place and where the food will be delivered;

(2) Incorporate food quality and safety assurance measures and analyze and report on the ability to provide such assurances;

(3) Collect sufficient data to analyze the ability to procure, package and deliver the food aid in a timely manner;

(4) Collect sufficient data to determine the full cost of procurement, delivery and administration; and

(5) Monitor, analyze and report on the agricultural production, marketing and price impact of the local/regional purchases.

McGovern-Dole Food for Education

The McGovern-Dole Program provides incentives for poor families to send their children to school. Requiring an appropriation of no less than $100,000,000 each year will give certainty that funds are available for multi-year programs. These types of programs used to be included in Title II, but with the establishment of McGovern-Dole in 2002, such programs under Title II are being phased out. Increased funding would allow more multi-year programs, improve program impact, and allow broader use of the authority in the law to support both educational programs and programs for children under the age of five, which is when malnutrition can have its most devastating impact on child development.

Eliminate Objectives that Link Food Aid to Expansion of Export Markets

Policies and programs for U.S. and other international food aid should be established and operated based on the food security needs of recipient countries and vulnerable populations rather than donor country objectives to expand its export markets. In practice, US food aid programs do not include objectives to expand US markets and their success is not measured on this basis, but there are provisions in current law that state market expansion as an objective. Changes are needed to correct this problem: (1) Eliminate the statement in the preamble to PL 480 that it is the policy of the United States to use food aid to "develop and expand export markets for United States agricultural commodities." (2) In PL 480 Title I, eliminate the priority for countries that "have the demonstrated potential to become commercial markets for competitively priced United States agricultural commodities" and other references to using Title I for market development purposes.

Conclusion:

In conclusion, Mr. Chairman, we can see the many benefits US food aid programs are now creating for poor communities, improving incomes, living conditions and nutrition and sowing the seeds for a promising future.

Thank you for supporting these life-giving programs. I would be pleased to answer any questions you may have.

Attachments:

Attachment A, PL 480 Title II Program Request and Approval Process, FY 2007

Attachment B, PL 480 and Section 416(b) Title II Funding Chart, 2001-2008

ATTACHMENT A

ALLIANCE FOR FOOD AID

Summary of PVO/Cooperative ("Cooperating Sponsor") Proposal Planning Process for PL 480 Title II Multi-Year Assistance Programs (MYAPs) for FY 2007 (These are commonly called "non-emergency" or "development" programs.)

FY 2007 Title II Proposal Time Line:

February 22, 2006 -- Title II Draft FY 2007 MYAP Guidelines for Cooperating Sponsors (CSs) were provided for submitting new program proposals. The Guidelines list 8 evaluation criteria that will be used for grading proposals.

The Guidelines state that activities must fit within the Food for Peace (FFP) Strategic Plan 2006-2010, which focuses on reducing food insecurity in vulnerable populations and is available on the USAID/FFP website. A variety of activities may fall under this overall objective, such as natural resource management, income security and social services, community development, agriculture development, employment-labor-training, food and nutrition, disaster prevention and relief. Proposals must clearly describe each objective, its rationale and implementation plan, and the method for tracking and measuring impact.

There is a section in the Guidelines called "legislative mandates for type of commodity, programming and program size," but no mention is made of the 1,875,000 metric ton minimum requirement for non-emergency programs. No information is provided about the amount of funding available or the tonnage level available for MYAPs. However, simultaneously, the USAID FFP Office issued a "priority country plan" that made clear that there would be little, if any additional commodity available overall and it the amount available for all non-emergency programs would be approximately 750,000 MT ($350 million).

The priority country plan was introduced at meetings between the FFP Office and CSs. USAID informed CSs that for FY 2007, new programs will only be accepted in 15 "priority countries," while for FY 2006 there were 32 countries. Multi-year programs that were underway in the 17 countries not on the priority list would be phased out over the next 2-3 years, requiring changes in many of the already-approved program plans.

CSs were advised to check with the USAID Missions in each country and the USAID/Food for Peace Office (FFPO) to find out how much commodity would be available. However, the amount available was not clear in any case, as USAID kept adjusting the levels downward over the next 6 months.

May 1, 2006, a final set of Guidelines was published, which were similar to the February 22 draft, but specifically reference the "priority country plan" for phasing out 17 countries and identifying the 15 countries where programs will be allowed.

May 15, 2006 -- Proposals are due. [They were originally due on March 15th, but this was extended to May 15th.]

September 11, 2006 -- 120 days after proposal submission and according to the law, the deadline for USAID/FFP to send approval or disapproval letters to CSs. Disapproval letters must include reasons and what needs to be corrected to be eligible. In the past, the CS and FFP would discuss the outstanding issues in a disapproval letter and after clarification, the proposal was often approved. An approval letter does not guarantee a program agreement will be signed. A Transfer Authorization (TA) must be signed before a CS can "call forward" (order) commodities and receive funds under the agreement.

CS Program Planning (typically starts 4 months or more before submission)

1. Decision to write proposal. CS headquarters and country office staff discuss whether a Title II program would be appropriate for a particular country. CS staff meets with the FFP representative at the USAID Mission in the recipient country or regional office to determine the Mission's views about Title II programs and whether the USAID Mission received notice from USAID/FFP that non-emergency (e.g. multi-year) food aid will be made available for that country. A CS will also confer with other CSs operating in the country.

2. Proposal preparatory work. A team is developed to work on the proposal, which may in HQ and field staff as well as consultants. The skill sets include: (a) Ability to conduct a Bellmon analysis (e.g. to determine which commodities can be provided as food aid without having a negative impact on the local market or creating a disincentive to local production and to assure availability of adequate storage). Bellmons may be conducted through the USAID mission or in conjunction with other CSs working in the recipient country. (b) Technical skills in collecting baseline data, assessing nutritional and other information indicative of food security status, and knowledge of program interventions. (c) Country-specific knowledge and relationships.

3. Needs assessment. Identify the target population and needs broadly by available nationwide data and more specifically through a variety of techniques such as informant interviews, focus groups and weighing children. Collected data are combined with information and input from the USAID Mission, national and local governments, community-based groups and others to determine (a) which areas and populations the project will target and (b) what information to collect in the baseline survey (which, if the proposal is approved, is updated at the project start-up when the detailed implementation plan is developed.) Baseline survey data may include percentage of children under age 5 with stunting or underweight (the primarily measures of poor nutrition), adequacy of household food supplies, agricultural productivity and sales, and other indicators of food security. These indicators are also measured at intervals during the 5-year tenure of the typical program. Comparisons of baseline data to mid-term or final data are used to determine whether the program is making the progress intended, whether adjustments are needed in methodologies and to measure impact.

4. Develop the core elements of the proposal. Compile all data collected and begin to determine the following:

a. Activities that will address the constraints to food security, e.g. the situations and risks that threaten availability of food (such as the types and amounts of food available in local markets during different times of the year), access to food (such as household income levels), and utilization of food (such as the degree of malnutrition/under-nutrition among children and women of reproductive age). As 100% monetization programs are no longer allowed, even if these types of programs are considered well suited to the needs, they cannot be proposed. Typically, a mix of monetization and commodity distribution activities are selected to achieve identified objectives.