The United States shipped more than 1 million metric tons of food aid in fiscal year 2013, intended to benefit 46.2 million people in 56 countries, at a cost of around $1.7 billion, which included commodity and freight cost. Under U.S. cargo preference laws, a minimum share of U.S. government cargo, including food aid, must be shipped on U.S.-flag vessels. Statutory objectives for cargo preference, which in addition to food aid are also applied to other government cargo, include the development and maintenance of a merchant marine—both vessels and mariners—capable of providing sealift in time of war or national emergency. Sealift is the process of transporting Department of Defense (DOD) and other federal agency equipment and supplies required during peacetime and war. The percentage requirement of cargo preference for food aid (CPFA) has fluctuated since Congress established the requirement in 1954, from the original 50 percent to 75 percent in 1985, and back to 50 percent in 2012.
The U.S. Agency for International Development (USAID) and the U.S. Department of Agriculture (USDA) administer food aid programs; the cost of transporting food aid is covered by the funding for these programs. In fiscal year 2014, USAID provided an estimated 1.18 million metric tons of food aid at a total cost of more than $1.5 billion, of which about $150 million was the ocean freight shipping costs. In fiscal year 2014, USDA provided nearly 195,900 metric tons of food aid at a total cost of more than $127.5 million, which included about $37.9 million ocean freight shipping costs, for its Food for Progress program; and 78,860 metric tons of food aid, at a total cost of more than $164.8 million, which included about $22.5 million ocean freight shipping costs, for its McGovern-Dole International Food for Education and Child Nutrition program. The Department of Transportation’s (DOT) Maritime Administration (MARAD) is responsible for monitoring USAID’s and USDA’s adherence to CPFA.
As of October 2015, fiscal year 2013 data were the most recent data reported to Congress on the U.S. government’s international food assistance as a whole, but GAO obtained and reported on fiscal year 2014 data for specific food aid programs.
Cargo preference laws require that a percentage of U.S. government cargo, including international food aid, be transported on U.S.-flag vessels, which usually charge higher shipping rates than foreign-flag vessels, according to geographic area of destination and vessel type. However, the term “geographic area” is not defined by statute, and USAID and USDA use different interpretations of how to implement CPFA requirements. Pursuant to a court order following a lawsuit filed against USDA, USDA must measure compliance with cargo preference laws for Food for Progress and certain other programs on a country-by-country basis to the extent practicable unless MARAD revises cargo preference regulations or policy to allow a different method for defining geographic area, or unless USDA determines that a change in method is necessary following good faith negotiations on the matter with MARAD. The country-by-country basis is a more narrow interpretation of the geographic area requirement than what USAID applies. USAID— which was not part of the lawsuit, so is not bound by the court order— currently interprets the CPFA requirement in a manner that gives it substantially more flexibility. For example, USAID defines geographic area on a global basis for its packaged food aid. For bulk food aid, USAID uses a modified country basis where it can broaden the interpretation of geographic area to the regional level when it determines that there is limited availability of U.S.-flag vessels for a particular route.
In an August 2015 report, GAO found that USDA pays higher shipping rates than USAID partly because of the different application of the CPFA requirements between the two agencies. Following the 2012 reduction in the minimum percentage of food aid to be carried on U.S.-flag vessels, USAID was able to substantially increase the proportion of food aid awarded to foreign-flag vessels, which on average have lower rates, helping to reduce its average shipping rate. In contrast, USDA was able to increase the proportion of food aid awarded to foreign-flag vessels by only a relatively small amount such that it utilized foreign-flag vessels far below the 50 percent allowed by the 2012 law, and its average shipping rate did not decrease. GAO’s analysis of USAID’s and USDA’s food aid shipments from fiscal years 2009 through 2014 found that USAID shipped an average of 82 percent of food aid on U.S.-flag vessels before the change and 54 percent after the change. In contrast, USDA shipped an average of 89 percent of food aid on U.S.-flag vessels before the change and 76 percent after the change.
GAO found that a clearer definition of geographic area could provide USDA more flexibility in how it interprets the CPFA requirement, which could potentially allow it to achieve greater cost savings on shipping of food aid. The 1954 Act specified that at least 50 percent of the gross tonnage of U.S. food aid commodities be shipped on U.S.-flag vessels “in a manner that will ensure a fair and reasonable participation of commercial vessels of the United States in those cargoes by geographic areas.” However, neither this Act and subsequent laws modifying the CPFA minimum percentage requirement nor the cargo preference regulations promulgated by MARAD define geographic area. GAO recommended in April 2007 and again in May 2009 that USAID and USDA work with DOT and relevant parties to expedite updating a memorandum of understanding (MOU) between U.S. food assistance agencies and DOT to minimize the cost impact of cargo preference regulations on food aid transportation expenditures and to resolve uncertainties associated with the application of CPFA requirements. Pursuant to the terms of the court order requiring USDA to comply with CPFA on a country-by-country basis, an MOU embodying an agreement between USDA and MARAD on a consistent definition of “geographic area” would allow USDA to administer CPFA using a method other than country-by-country. However, the agencies did not fully implement GAO’s recommendation; their signed MOU in 2009 did not resolve some uncertainties among agencies, including the definition of geographic area. A clearer definition of geographic area could potentially allow USDA to reduce costs by more fully utilizing the flexibility Congress granted when it lowered the statutory cargo preference requirement.
The parties to the lawsuit agreed to the court order to settle the litigation.
Act of Aug. 26, 1954, ch.936, 68 Stat. 832.
GAO, Foreign Assistance: Various Challenges Impede the Efficiency and Effectiveness of U.S. Food Aid, GAO-07-560 (Washington, D.C.: Apr. 13, 2007), and 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 (Washington, D.C.: May 29, 2009).
Prior to August 2015, GAO twice recommended that agencies agree on consistent interpretation of cargo preference for food aid requirements through an MOU, but agencies have not addressed the definition of “geographic area.” As a result, GAO suggested in August 2015 that Congress take the following action:
If Congress takes the action GAO describes to clarify language in cargo preference legislation, cost savings could result from potentially lowering the overall shipping rates USDA pays to ship food aid for its two food aid programs by transporting a higher proportion of commodities on foreign-flag carriers, which on average charge lower rates than U.S.-flag carriers. Calculating definitive cost savings in this area is challenging because food aid shipping data needed to calculate cost savings are not readily available. Nonetheless, assuming that a congressional action to clarify the definition of “geographic area” would reduce USDA’s costs to something more comparable to USAID’s, GAO estimates that this action could potentially result in millions of dollars of savings.
GAO estimated for its August 2015 report that the CPFA requirements increased USAID’s costs by 16 percent and USDA’s costs by 36 percent over the period from April 2011 through fiscal year 2014. GAO further estimated that if USDA’s costs had only increased by 16 percent over that period, USDA would have avoided millions of dollars of spending on ocean shipping in fiscal year 2014.
The information contained in this analysis is based on findings from the products listed in the related GAO products section. GAO interviewed USAID and USDA officials and analyzed cargo preference legislation, as well as USAID’s and USDA’s guidance and data on CPFA. To determine CPFA requirements’ impact on food aid shipping cost, GAO analyzed food aid procurement data for both USAID and USDA from April 2011 through fiscal year 2014, including some bulk food commodities and all packaged food commodities and shipment data for fiscal years 2011 through 2014. During this time period, CPFA requirement levels changed from 75 to 50 percent. Furthermore, GAO obtained data on bids received to ship all USDA food aid and USAID’s packaged food commodities and used regression analysis to identify the impact of the changes in cargo preference for food aid requirement on the cost of shipping U.S. food aid.
GAO provided a draft of the report on which this analysis is based to DOT, USDA, and USAID, among other agencies, for review and comment but did not receive agency comments on its matter for congressional consideration.
GAO provided a draft of this report section to DOT, USDA, and USAID for review and comment. DOT, USDA, and USAID provided technical comments, which were incorporated as appropriate. In response to this report section, a USDA official noted that in 2015, MARAD has submitted a draft notice of proposed rulemaking to the Office of Management and Budget (OMB) that would amend the current cargo preference regulations. A DOT official also confirmed, in an email received by GAO in February 2016, that MARAD was working through the interagency process to issue this notice of proposed rulemaking proposal that would update its cargo preference regulations and provide definitions and clarity to implement cargo preference requirements consistent with the cargo preference statute. According to the USDA official, USDA and USAID met with MARAD and OMB on several occasions and provided comments on the proposed language that addressed, among other issues, the expansion of the geographic regions for the USDA food assistance programs. USDA officials further informed us that OMB and MARAD were scheduled to meet in early March 2016 to discuss USDA’s and USAID’s comments. As of March 8, 2016, the agencies had not reached consensus on changes to cargo preference regulations, no notice of proposed rulemaking has been published in the Federal Register, and agency officials had not confirmed whether or how any proposed rule would address the definition of “geographic area.”
For additional information about this area, contact Thomas Melito at (202) 512-9601, or firstname.lastname@example.org.
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