Costs of Transporting Food Donated for Distribution Abroad

Published by the Government Accountability Office on 1971-08-17.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

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                                                     _ 035543‘
                                             UNITED §T~TES GENERAL M&J
                                                         WASHINGTON.    D.C.

    lNlERNATWNAL.          DWISION


                    Dear Dr. Hannah;

                         During a recent follow-up    review            concerning I costs of transporting
                    food donated for distribution   abroad2             we observed several matters which,
                    we believe,  deserve your consideration.,

                        We have found that the United States continues         to pay considerable
                amounts of ocean freight     costs under nonprofit      agency food donation
                programs for recipient     countries  which appear to be financially         able to
                bear all or part of such costs.       Also we have found no evidence that the
              I Agency for International     Development (AID) has developed criteria          to     17
                evaluate the financial     capability  of recipient     countries    to bear part or
                sll. of such costs,    and no documentation   is available       to show that periodic
                efforts    have been made to have recipient     countries    bear some or all of the
                shipping costs.

                          In response to a prior     General Accounting    Office   (GAO) report,    AID
                    advised us of positive     steps that it was taking to persuade financially
                    capable recipient   countries    to absorb ocean transportation      costs,   to
                    make these efforts    on a continuing     basis, and to document efforts      made,
                    We believe that significant     progress has been made under Government-to-
                    Government donation programs-bui       that a further   effort   now is needed
                    under the nonprofit    agency programs,

                           These matters           are discussed   in more detail        below.


                            In April1967   GAO reported to the Congress on the potential          savings
                    that could be realized     by AIDls making efforts      to obtain contributions
                    toward shipping costs from recipient        countries   for donated food dis-
                    tributed    abroad under nonprofit  distributing      agency programs.1

                    lVotential           Savings   in Costs of Transporting           Food Donated   for   Distribution
                      Abroad"        (B-159652,    April 28, 1967).

                                                      50TH ANNIVERSARY         Wit-     1931

       At that time we stated that,         of 10'7 countries   receiving     donated
American foods, only four contributed            toward the ocean freight       costs,
Food for Peace program legislation           permits payment by the United States
of ocean freight        costs for food donated by the American people to non-
profit   distributing        agencies to assist the needy in foreign         countries.
Regulations      followed     by AID, however, did not require      an assessment of
the recipient        countries r financial   means, or willingness,       for defra@.ng
ocean shipping charges.

       We found that the question        of whether foreign     countries    could or
should pay ocean freight        costs had been considered       only in isolated
cases.     We proposed that AID exert every reasonable           effort   to obtain
contributions     from recipient      countries  whose financial     condition    indi-
cated that this would be a reasonable course of action.                 We suggested
that these efforts     be made a matter of record and be periodically
reviewed in the light      of changing economic and other conditions            in
each of the recipient      countries.

       AID agreed, in general,      with the matters discussed          in the report.
AID advised GAO of positive        steps which it was taking to           persuade
financially    capable recipient      countries  to absorb ocean        transportation
costs, to make these efforts        on a continuing   basis, and        to document
the efforts    made.

      Responding to our draft report     of this matter,           the Assistant
Administrator   for Administration  stated that:

            ItWe agree that these evaluations           [of a country*s
            financial   ability    to,pay transportation       costs]
            should continue and that AID should ma&e periodic
            efforts   to persuade financially          capable recipient
            countries   to absorb such ocean transportation             costs.
            We have taken positive        steps in this direction.
            Future determinations       relating     to a country*s
            financial   position,     as well as the results        of our
            efforts   to obtain recipient        country contributions,
            will be properly      documented.1~

       We recently     concluded a reassessment      of the relative  success of
these efforts.       In the 4 years since the issuance of our report,         the
United States has continued         to pay significant     amounts of ocean freight
costs.    AID officials      advised us that at least four recipient       countries


(Spain, Portugal, Poland, and Malta) continued to absorb some or all
of the ocean freight costs during this period.  Ocean freight costs
of donated commodities, administered under nonprofit agency programs,
borne by the United States during fiscal years 1968 to 1971 are
presented below.
                    Fiscal   year

                       1968              $39.2
                       1970               $z*:
                       1971               43:7b
aWe have been advised by AID personnel that, when ocean carriers of
 recipient.excess-currency   countries are used for the nonprofit agency
 shipments, ocean freight costs are paid in U,S.-owned excess currencies,
 which results in balance-of-payments benefits.    AID records in Washington
 indicate that ocean freight costs of about $8.2 million were paid during
 fiscal year 1970 for nonprofit agency shipments to India using U.S.-owned
 Indian rupees. Data was not available for payments made in U,S.-owned
 excess currency of other countries.
 During fiscal.year   1970 about 22 recipient countries were required to
 pay about 10 percent of the ocean freight charges--representing     the
 recipien%country    port costs. Because this policy became unworkable,
 AID discontinued it.     AID personnel informed us, however, that, when
 shipments were made on U.S. or third-country    carriers to excess-
 currency-country   destinations;  foreign port charges on nonprofit
 agency shipments were paid using U.S.-owned excess currency.       We were
 advised that the U.S. dollar outflow in fiscal year 1970 was reduced
 by about $1.2 million by following this practice.
bEstimated at May 1971.
       In addition to the freight costs paid by the U.S. Government on
nonprofit agency programs (under authority of title     II of Public Law
4.80, as amended--formerly title III of this law), AID administers other
donation programs wherein ocesn freight costs are incurred.      These
programs include donations made pursuant to Government-to-Government
agreements end through the World Food Program, a United Nations
undertaking, under the authority of title II.     In fiscsl year 1970 the
ocean transportation   costs for these two programs totaled about $22.6
million and $12.2 million,    respectively.

       Under the nonprofit        agency programs,     the United States usually
bears 100 percent of the ocean freight             costs; whereas, in Government-
to-Government     programs,     the United States contributes        about 90 percent
of these skipping        charges for donated commodities.          The remaining10
percent--which      represents     estimated foreign      port charges composed of
unloading,     handling,     and warehousing costs --are borne by the recipient

      Financial    criteria

        Agency officials    could not furnish   us with documentation   showing
action taken by AID to develop criteria         measuring a country's  financial.
ability    to pay transportation     costs.   There was no evidence that peri-
odic efforts    were made to persuade recipient       countries to bear some or
all of such costs,

       In our 1967 report we obtained information             used by the Department
of Agriculture     (USDA) as a guide in evaluating          the financial      condition
of recipient    countries    to absorb ocean freight        costs.     We selected     the
USDA standard because AID had not published             a list    that grouped foreign
countries    by their relative    financial     condition.      Recently,    in a further
attempt to estimate the potential          for savings,     we expanded on this gauge
by obtaining    economic indicators      used by the Export-Import          Bank, the
Treasury Department,      and the International        Monetary Fund.       Using the
four criteria,     we attempted   to determine the estimated           range of potential
savings for the United States.

      We recognize    that the criteria       that we used are only a starting
point in dete rmining specific        countries'    capability     to pay; however,
as shown in the following      table,     the potential      annual savings under
the voluntary    agency programs are substantial          and range from about
$1.5 million   to approximately       $6.5 million,     depending on the standard



                         Total Potential  Annual Savings Based on
                 GAO Estimates  of Fiscal Year 1970 Shipping Costs Which
                      Might Have Been Psid by Recipient   Countries

                     Politicel-          External
                      economic           fii?ancial        Reserves-           Gross national
                          risk           position          to-import       product per capita
    countw            criteria           criteria          criteria               criteria

        A           $2,400,000          $2,400,000        ~2,4wooo               $
        B                                   494,000                                  494;ooo
        C            1, .@o,ooo                            1,400,000
        D                                   154,000
        E               759,000             759,000           759,000                759poo
        F                65,000              65,000            65,000                 65,000
        G                                    79,000            79,000
        H                                   226,000           552,000
        I                                1,002,000
        J                                   232,000           232,000                232,000
        K                                   492,000           985,000
        L                                    6Ez,ooo
        M                                   259.000

    savings         $4,,624,000         $6,230,000        $6.472.000             $1.550,000

              Recent developments

           Because of budget reductions,         on June 7, 1971, AID issued regulations
    requiring    that,    on a selective   basis, recipient      countries pay 50 percent
    of ocean transportation        costs of fiscal      year 1972 shipments under Public
    Law 480, title      II donations.     At the time of OUT review in June 197l, AID
    already had informed Brazil,         Korea, Morocco, and Tunisia that they would
    have to pay 50 percent of the transportation             costs of commodities   shipped
    under the Government-to-Government           donation programs of title     II.  We were
    advised that some or all of the ocean freight             charges were paid by the
    recipient    countries    of Jordan, Indonesia,       and Romania under other bilateral

              AID considered      asking additional    countries  to similarly      contribute
    toward       transportation     costs of Government-to-Government        shipments.        The
    initial        determinations     considered   the size of the-programs,      the economic


growth rate and the relative             foreign    exchange reserve balances of the
respective      countries,      and/or the limited        availability   of AID f'unds.
We have been advised, however, that,                notwithstanding    these economic
determinations,        recipient     countries    will not be asked to share in the
cost of transporting           commodities     donated under the voluntary      agency
programs of title          II.

        An   agency official     stated that he personally      was hesitant  to apply
provisions         of the AID June 7, 1971, regulation       to the voluntary   agency
donation       programs because he considered       this step to be overly harsh;
he also      felt    that it would be inconsistent      with the objectives   of the
donation       program which is to assist needy countries          which have limited
budgetary        resources.    He further  felt  that this position     was consistent
with the       World Food Program wherein donor nations would pay for trans-
portation        of commodities,

       In justifying       their    reluctance      to seek additional      contributions,
AID personnel       with whom we discussed the matter told us that recipient
countries     already were making contributions               toward the inland distri-
bution (transportation,           warehousing,        and administrative)      costs for
commodities      and, in certain        instances,      matched U.S. contributions
with local commodities.             They felt     that the imposition       of additional
costs upon these countries             might become onerous.           They informed us
that certain      voluntary      agency donation programs might have to be
reduced or discontinued           if the U.S. Government insisted             on recouping
these costs and that such a situation                  might result     in domestic and
international      political      repercussions.


       It is possible      that certain      countries    may not be able to afford
or msy choose not to pay the ocean freight                costs of receiving       donated
commodities.      It is also possible         that some of the programs might be
reduced or discontinued         if recipient      countries    are asked to share more
of the program costs.          We continue to believe,         however, that further
direct    efforts   should be made to obtain contributions               from financially
able recipient      countries     for ocean transportation         costs.     Their will-
ingness to pay would provide an indication                of the worthiness       of the
program to those countries           who are financially       able to bear a share
of program costs.

        The continuing    deterioration        in the U.S. balance-of-pqments
position    and other national        priority    needs, we believe,    should
provide further      impetus for AID to take initiatives           to obtain con-
tributions    toward ocean transportation            costs where appropriate.    In

       any event, AID reserves      the option       to pay ocean transportation    costs if
       it is satisfied    that the recipient         country is unable to contribute     to
       these costs and that payment by the             United States is necessary to carry
       out the objectives     of the donation        programs.

              In line with AIDfs self-help      philosophy,    we believe that it is
       incumbent upon the recipient      countries     to absorb, to the extent possible,
       the transportation    costs involved     in the nonprofit     distributing      agency
       programs.     This approach would ensure an orderly        transition      to the
       eventual assumption of all program costs by financially               capable recipient
       countries    and the phasing out of U.S. support--a        basic tenet of aid for

               Because of changes in the size of the yearly donation programs,
       fluctuations       in the financial   position    of recipient     countries,     and the
       possible     unwillingness     of some countries      to take on the additional
       costs of ocean transportation,         it is difficult       to calculate     precisely
       the potential        annual savings to the U.S., Government.         It seems reason-
       able to us, however, that a concerted            effort    on AIDIs part could yield
       significant     further    budgetary  and balance-of-payments         savings,

             In view of the considerable          potential     savings   to be realized,    we
       again recommend that:

             --AID exert every reasonable              effort,    on a continuing   basis,
                to obtain contributions          from financially        capable recipient
                countries    to defray ocean transportation              costs on all
                donated commodity programs.               To measure a countryls      eco-
                nomic viability,        we recommend that AID develop and apply
                appropriate      financial    criteria        and that the periodic
                evaluations      be documented.

             -The psymnt       of ocean freight    charges by the United States
                be authorized      only after appropriate  certification    that
                reasonable    efforts   have been made to obtain recipient-
                country contributions.

               This report   contains   recommendations  for yovr consideration.         Your
       attention    is directed     to section 236 of the Legislative     Reorganization
       Act of 1970, which requires         submission of written   statements    of the
       action taken with respect        to the recommendations.     The statements     are
61'    to b e sent to the House and Senate Committees on Government Operations                ~w=-
  L/   and to the House and Senate Committees on Appropriations.                            <-$!lc'
.s   &=159652

            We shell appreciate     it if    you will send copies of the statements
     furnished     to the congressionel      committees to the Office  of the Director,
     International      Division,  GAO.

           Copies of this report    are being sent to the Director,      Office of
      Management and Budget; the House and Senate Committees on Government
 5 Operations;     the House Foreign Operations    and Government Information      1-I ril'
  b Subcommittee;     the House and Senate Appropriations    Committees;      the
      House Foreign Affairs   Committee;   and the Senate Foreign Relations
  1 , Committee.

                                                 Sincerely   yours,


     The Honorable     John A, Hannah
     Administrator,     Agency for
       International     Development        q1