STATEMENT OF ELLEN S. LEVINSON

Government Relations Advisor, Cadwalader, Wickersham & Taft

before the

SUBCOMMITTEE ON PRODUCTION AND PRICE COMPETITIVENESS

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

U.S. SENATE

July 18, 2000

Mr. Chairman, thank you for the opportunity to testify before the Subcommittee regarding the benefits of current agricultural export programs, prospects for the future and ways to make these programs more effective.

In addition to serving as Government Relations Advisor to Cadwalader, Wickersham & Taft, I am Executive Director of the Coalition for Food Aid. The Coalition was established in 1985 and is comprised of US private voluntary organizations and cooperatives (jointly referred to as "PVOs") that conduct development and humanitarian programs overseas.⁽¹⁾ 1 Recognizing that over 800 million people suffer from chronic hunger and many others are threatened with starvation due to crises, US food aid donations are a vital component of these PVOs' international assistance efforts.

Food aid has been and can continue to be a very effective means to help people and countries faced with temporary or structural food deficits. Well-planned food aid programs can also have lasting effects. Instead of just distributing food or turning the food over to local governments or agencies, PVOs focus on food as a resource for development. Today, I would like to comment on how US food aid programs are currently administered and opportunities for greater effectiveness in the future.

PVO Approach to Food Aid: People-to-People

PVOs are very thorough when planning programs-- conducting needs assessments to identify target population groups; analyzing food habits, local markets and consulting with agricultural experts to choose appropriate commodities; working closely with local governments, businesses and community groups to develop program objectives, procedures and evaluation plans; establishing management, distribution, sales and monitoring systems; and assuring personnel and systems are in place for oversight and accountability.

The great benefit of food aid is that it can be used to address a variety of problems. For example, nutritious foods along with immunization and health care are provided during critical growth periods for mothers and children. A nutritious meal served in classrooms combined with the establishment of PTAs, teacher training and improved lessons provides an incentive for poor families to send their children to school. Infrastructure and sanitation in poor communities are improved by giving food as payment for work on sewage and water systems. Land use and conservation are enhanced when food is provided as an incentive for community participation in reforestation and land conservation projects. Agricultural productivity and incomes are improved by selling donated food and then using the sales proceeds to invest in agricultural and small business projects. Currently, PVOs are exploring ways to use food aid as part of their assistance to HIV/AIDS-effected communities.

Linkages to US Agriculture: Aid to Trade

From a US agricultural perspective, food aid is one intervention in a continuum of programs that can lead from aid to trade. Many of the countries where PVOs operate have not been analyzed or targeted by US agricultural organizations since they are low income and are not current targets for commercial sales. Yet, there is more and more interest among agricultural organizations to explore how food aid can be integrated into their long-term planning.

Food aid reaches places where there is unexpressed demand - that is, people may want the commodity, but cannot afford it. So, in the first instance, it provides an additional market for US goods. However, there is a longer term benefit, as well. If properly planned, food aid programs promote "food security" -- the ability of people to produce, to buy or otherwise to access enough food to meet their nutritional needs. As a family improves economically, it can afford to buy more and as a developing country improves its economic situation, the demand for food and higher-valued food increases. Thus, there are linkages between food aid programming and future market development.

History has shown that US food aid can be the foundation for trade. In the 1960s, 60% or more of our wheat exports were in the form of food aid, and this could amount to 10 - 14 MMT a year. Today, 40% of our commercial agricultural exports are sold to countries that were food aid recipients.

Agricultural organizations cooperate in different ways with PVOs for food aid programming. Some provide information about their products and respond to questions by PVOs about the efficacy of using a particular commodity. Others directly assist or work with a PVO to conduct market analyses and to develop monetization plans in a target country.

As an example, in the summer of 1999, U.S. soybean producers, through their contributions to the United Soybean Board (USB) and state soybean boards, initiated a collaborative effort with PVOs to identify the best uses for donated soybean products in developing countries. The purposes are (1) to provide soybeans, soybean meal and soybean oil, which are in surplus in the United States, to countries that need these products in the near term, (2) to have a long-term benefit by integrating the proceeds from the sales of these products into economic and social development programs, and (3) to identify opportunities to use soy protein products to improve the nutritional quality of foods available in a target country.

As a first step, about 20 countries were chose for on-ground market analysis to see if a soybean donation would be appropriate. If the market analysis showed that a particular soybean product is in demand and the sale of that product under a Section 416 program would not compete with commercial sales or domestic production, then a Section 416 proposal was developed by PVOs working in that country. The 14 PVO proposals developed through the USB-PVO consortium would use the proceeds from commodity sales in projects that help improve health, incomes and living conditions of the poor. Several of these proposals were for sub-Saharan Africa, which has received very little of the Section 416 food aid, except for emergency use.

For the future, USB and PVOs are collaborating on Food for Progress and Title II proposals. In order for these and other innovative proposals to be implemented, USDA and USAID must provide a conducive environment for the submission and review of proposals.

Government Agency Administration: USDA and USAID

Two different agencies are responsible for administering US food aid programs. USAID administers PL 480 Title II and Title III, while USDA administers Food for Progress, PL 480 Title I and Section 416.

PVOs and the UN World Food Program (WFP) are eligible to implement Title II, Food for Progress and Section 416 programs. Title II emergency programs, Food for Progress and Section 416 may also be implemented through agreements with foreign governments. Title III is reserved for government-to-government agreements and Title I, although it allows agreements with private entities, is primarily government-to-government, as well.

Each agency, USAID and USDA, has its own guidelines for submitting proposals, criteria for determining which proposals will be approved and methods for program oversight. Overall,

1. Requirements for PVO programs are more detailed and extensive than those for WFP or government-to-government programs.

2. USAID guidelines for PVO programs are much more elaborate and prescriptive than USDA program guidelines.

The many requirements that USAID places on PVOs result in additional management burdens for USAID. To solve this problem USAID FY 2001 guidelines limited the number of non-emergency Title II PVO programs that they will approve to 75 and delegated more responsibility to overseas USAID missions. PVOs opposed these actions by USAID since the program number is already about 75 and this means that new programs are unlikely to gain approval. It also discriminates against (1) smaller-sized programs, even if they have very good operational plans; (2) programs in smaller countries, even where there is need; and (3) programs in the many poor countries that do not have USAID missions.

Despite efforts by Congress in the last two farm bills to streamline administrative procedures by USDA and USAID and to encourage USAID to provide greater flexibility for PVO programming, improvements are still greatly needed.

Section 416(b) Administrative Procedures: "Too Many Chefs Spoil the Stew"

Section 416(b) permits the Secretary to furnish surplus commodities to developing and friendly countries. To provide opportunity for all eligible organizations and foreign governments to submit proposals, USDA typically announces the availability of the commodities in the Federal Register and request proposals. Such proposals identify the country and why there is a need for food aid; the commodity and tonnage request; why the commodity is appropriate; and the operational plan for the program (usually monetization and the use of proceeds for certain social and economic development activities). USDA reviews the proposals, gets input from State Department, USAID and agricultural attaches, and decides which programs will be approved.

Since this is just a one-year-at-a-time opportunity, procedures are supposed to be very streamlined. Section 416(b)(8) states that "To the maximum extent practicable, expedited procedures shall be used in the implementation of this subsection."

Public announcement of the FY 2000 program never occurred. Instead, an interagency group, the Food Assistance Policy Committee (FAPC), comprised of USDA, USAID, State Department and the Office of Management and Budget (OMB), met over several months behind closed doors and decided the Section 416 countries and tonnages for each country, and how much would be allocated to WFP. In March 2000, an announcement was sent to diplomatic posts advising them of the amounts for each country and directing each post to advise its respective country government of the availability of the donation.

Since there was no public announcement of the total amount of commodities available for FY 2000 and proposals were not requested, PVOs were not able to have fair access to the program. Examples of opportunities that were lost are the proposals developed through the USB-PVO collaboration. Because the FAPC pre-determined the countries, the market analyses and the operational plans developed by PVOs for specific countries did not have a chance to be considered. In addition, the closed-door negotiations took so much time that USDA was given at most 6 months to develop agreements and to order commodities. This is a terrific administrative burden and does not contribute to good program planning, orderly delivery of commodities and effective implementation.

Prior to the 1990 Farm Bill, an interagency group called the Food Aid Subcommittee decided which programs would be approved under PL 480. The 1990 Farm Bill eliminated that group and gave direct authority to each implementing agency -- either USDA or USAID -- for food aid programs under its jurisdiction. Below as an excerpt from the Senate Agriculture Committee Report 101-357, pp 159-160:

If any message regarding the PL 480 program came through loud and clear to the Committee it was the wide ranging expressions of concern from both inside and outside the Administration that bureaucratic procedures and delays have seriously and adversely affected U.S. food aid programs. This frustration has been focused on the Food Aid Subcommittee of the Development Coordination Committee (DCC). The DCC is an interagency group comprised of USDA, AID, State, Treasury, OMB an occasionally the NSC.

Just as an employee can not work well with five bosses, Public Law 480 does not work well with five agencies overseeing its operational decisions. . . . The bill makes specific government agencies responsible.

It seems that history is repeating itself, with unfortunate consequences.

Food Aid and the WTO

Under Article 10.4 of the Uruguay Round Agriculture Agreement, food aid is permitted as long as it meets the requirements set forth by the Food Aid Convention (FAC). Food aid may be provided for emergencies or non-emergency purposes and through governments, international organizations or PVOs. The food may be distributed or sold in the recipient country. US food aid programs meet these requirements.

The treatment of food aid should not be subject to change under the new WTO agricultural negotiations, since it is very important that donor countries maintain their commitments to less developed and food deficit countries. The US position paper submitted to the WTO contains this recommendation.

Monetization, the sale of food aid commodities and the use of the proceeds for specific assistance programs, is a very important form of food aid and is permitted under the FAC. Care must be taken in program development to assure that commodity chosen does not interfere with commercial sales or local marketing. In cases where a country is experiencing economic hardships, food aid can also be justified for temporary assistance.

Monetization has multiple benefits. First, it increases the availability of the commodity in the market, which is particularly important for a "net food-importing, developing country." These are low-income countries that depend on imports to meet basic food requirements. Under the Uruguay Round Trade Agreement, the Ministers acknowledged that such countries may not benefit from expanded trade, since they do not have adequate hard currency earnings from exports. Thus, they will need assistance, and food aid is cited as one way to provide the aid. Second, the funds are used in programs that have an impact on economic and social development. Most important, there is flexibility to adapt the program to meet local needs.

As examples, some foreign governments or PVOs may use the funds to procure medical equipment or medicines for immunizations. The proceeds can also be used for public works, agricultural development, education, AIDS prevention and small enterprise development projects. In countries that are undergoing difficult IMF economic restructuring programs, are heavily burdened with debt and/or are trying to establish democratic institutions, the food aid and the funds generated from monetization provide an important boost. For countries that regularly experience seasonal flooding or drought, the funds can be used to improve land conservation and develop protective infrastructure.

Administrative Reforms: Positive Partnerships with PVOs

Reform of food aid programs should be built around core principles to assure effectiveness while eliminating excessive administrative requirements. In general, the strictest and most burdensome requirements are applied to PVOs, so relief is primarily needed for these organizations. Key components of successful food aid programs, whether administered by USDA or USAID, are:

Partnership relationship between the PVO or and the administrative agency. If a PVO has the capability to conduct programs, the administrative agency should give the PVO flexibility to develop a program that responds to local needs without trying to micromanage PVO decisions.

Use of performance standards and best practices, rather than prescriptive requirements. User-friendly program guidance and flexibility for PVOs to adapt a program to meet the changes encountered during the implementation phase are necessary. Once guidelines are in place, modifications or new requirements during the program cycle should be rare. USAID guidance in particular needs to be streamlined and stabilized.

Grant PVOs greater managerial responsibility for food aid programs. PVO programs are independently audited, are subject to US government audit and are independently evaluated. The value added by a PVO is its ability to develop a program that meets local needs and to implement this program. US government agencies should rely more heavily on these abilities and provide PVOs greater flexibility to make programmatic changes as they work to achieve program objectives.

Food aid programs should be based on local needs assessments. Programs should be d eveloped to address local constraints to food security. For example, under USAID guidance, a PVO is supposed to develop a program that will either show a measurable increase agricultural productivity or improved nutritional status of children under the age of five within a five-year period. These are good measures of success for certain programs, but are not useful for food for education where improved attendance in school and improved educational quality may be appropriate, or for programs that help people create enterprises and increase incomes.

Other than emergencies, multi-year programs are necessary in most parts of the world to achieve impact. This is particularly the case for low-income, food deficit countries ("LIFDCs"), where 7- 10 years may be needed to show enduring results. USAID currently provides 5-year agreements for Title II countries, most of which fall in the LIFDC category. Transitional countries, such as those covered by Food for Progress, may require less time, perhaps 3 years, but multi-year programs are currently not the norm. Section 416 is only available when there are surplus commodities, so multi-year agreements are not possible. Through monetization of Section 416 food aid, however, generated funds can be used effectively over several years for social and economic development programs.

Administrative Reforms: Commodity Use Improvements

Flexibility is needed to permit delivery of the appropriate commodity. Currently, there are set specifications for each type of commodity purchased by USDA for food aid programs and the specifications may not be appropriate for a particular target country. Processing, cooking and eating habits vary country-to-country, it is important to be able to provide, for example, the right variety of wheat, the appropriate type of rice, specific color of dry bean or specific heat treatment and quality tests for dry milk.

Establish a transparent method for selecting eligible commodities. Many processors and commodity groups are interested in having their products reviewed for eligibility in US food aid programs and to have USDA develop specifications for their products. The procedures for such determinations should be transparent, should permit PVO and agricultural group input, and should aim for a range of cost-effective products to meet a variety of food security needs of recipients.

Collaboration between US agricultural organizations and PVOs. U.S. agricultural organizations can provide technical assistance for determining the appropriate commodity for distribution or monetization in a target country. This could extend to assistance with monetization or using the food or generated proceeds to improve local agricultural processing, food manufacturing, in the quality of the food and local marketing.

Monetization should be guided by fair market price. The cost recovery should be the local market value of the commodity at the time of sale. This benchmark is used by USDA. USAID requires the recovery of 80% of the C&F value (plus local administration costs) or the FAS price. This can preclude US commodities that are more costly than the world market price, such as flour and milled rice.

The reality of the market should be factored into program agreements. The sales value of a commodity estimated in the proposal will likely differ from the actual market price at time of sale since proposals may be developed a year or even more before a commodity is received. Flexibility should also be provided to allow the Cooperating Sponsor to switch to a different commodity or to modify the tonnage level in response to market conditions.

USAID and USDA should to continue to work with industry to address the issues of micronutrient losses and quality control for Title II. Since fortification was first introduced to PL 480 commodities in the 1960s, the program has grown to where nearly 40% of Title II commodities are now fortified. A recent study commissioned by USAID found significant losses of Title II micronutrients from production to consumption. To assure that micronutrients can maintain their potency in field conditions and reach those in need, and to justify the cost of fortification, appropriate technologies -- such as more heat stable, bioavailable, and cost-effective micronutrient compounds - should be considered.

The USAID value-added list should include crude soybean oil and soybean meal. For non-emergency Title II programs, 75% of commodities must be processed, fortified or bagged. USAID created a "value-added" list identifying commodities that are eligible, but did not include crude soybean oil or soybean meal. ASA, NOPA and the Coalition have asked USAID to add these products since they are processed and can be used effectively in food aid programs.

Administrative Reforms: More Staff and Less Time

Staff enhancement at USDA and USAID. Right now, neither of these agencies has adequate staff dedicated to food aid programs. USAID's Food for Peace Office uses consultants to process proposals, develop program requirements and conduct evaluations, which seems to help in handling the workload. USDA's Export Credit Division only has a handful of full time employees to dedicate to their food aid programs, yet about 150 proposals were submitted for Food for Progress for FY 2000 and Section 416 is supposed to provide about 3 MMT.

Eliminate micromanagement by the FAPC. The FAPC should not be used to make decisions on specific programs and countries. This is the responsibility of the administrative agency which receives and reviews program proposals. In the case of Section 416, Title I and Food for Progress, this is USDA. For Title II and Title III, this is USDA.

Reliable and consistent time frames and transparent procedures for proposal submission and approval are needed. This will give potential Cooperating Sponsors fair access to the programs and will allow for orderly delivery of commodities and program implementation. For Section 416, commodity amounts available should be publicly announced in the Federal Register either right before the start of a fiscal year or as soon thereafter as possible.

Rationalize the Approach to Food Aid for the Future

Establish a reliable mechanism to provide food aid for urgent emergencies. When a crisis occurs, rather than diverting commodities away from on going valuable programs, a mechanism is needed so the US can respond quickly and effectively to mitigate the loss of life and suffering. One way to achieve this goal is to fill the Bill Emerson Humanitarian Trust, which currently holds about 2.5 MMT of wheat, to its 4 MMT capacity, using surplus commodities. The Trust can hold up to 4 MMT of a mix of wheat, rice, corn and sorghum. When commodities are released for overseas emergency needs, they can be fortified, processed or exchanged for other commodities, including soybean oil, powdered milk and dry peas, beans and lentils. Modifications are needed to make the Trust a more reliable source of commodities when there are emergencies and the US does not have surplus stocks.

Double the Food for Progress program from 500,000 to 1,000,000 MT per year and permit multi-year programs. A staggering number of proposals have been submitted to USDA for this program, which targets countries in transition. The amount of commodities should be doubled since there are many excellent opportunities for using this program to assist people overseas. The funds available for transportation should be tripled. This program is funded through CCC.

Simplify and expand P.L. 480 Title II. As described previously, this program needs to be streamlined to allow greater flexibility and innovation for effective programming by PVOs. Recently, a proposal has been set forth by His Excellency George McGovern and Senator Bob Dole to establish additional school feeding and WIC-type programs in developing countries. PVOs currently conduct such programs, which are called "Food for Education" and "child survival" using Title II resources. There is a great possibility for expanding these child development programs, particularly for pre-school and school-age children, focusing on both cognitive and physical growth. In order to do so, however, additional funding would have to be provided for multi-year programs through a mechanism such as P.L.480 Title II. It would not be wise to try to fund a new initiative at the expense of ongoing and valuable programs that are currently helping the poor.

USAID should reform procedures for the Food Aid Consultative Group (FACG) so final recommendations can be made on outstanding topics. At the last meeting of the FACG, PVO members distributed a list of recommended organizational improvements so that (1) non-governmental input could be timely and meaningful, (2) there is a timetable for action on specific issues, and (3) there are reliable procedures to address different topics and to prepare for meetings. The FACG was established by law to require USAID to consult regularly with PVOs and agricultural groups on Title II procedures and guidance.

Mr. Chairman, thank you for this chance to testify. I would be glad to answer any questions you may have.

1. .1 The members are Adventist Development & Relief Agency International, Africare, ACDI/VOCA, CARE, Catholic Relief Services, Food for the Hungry International, International Relief & Development, OIC International, Save the Children, TechnoServe and World Vision, Inc.