NAVIGATING THE LABYRINTH OF GOVERNMENT RULES & BUREAUCRACY IN THE FOOD AID PROGRAM
(Published April 2002)President Bush recently announced that the United States will dramatically increase the United States budget for foreign aid. This is likely to result in a substantial increase in funding to the current $2 billion dollar foreign food aid budget which is used to provide food products to feed millions of people in need throughout the world. A network of government and private organizations facilitates the purchase and distribution of the food from farmers throughout the United States. Ocean carriers provide the crucial overseas transportation link in the process.
Each year, the United States government, through its Farm Service Agency, Foreign Agricultural Service and the U.S. Agency for International Development, brings the various participants in the Food Aid Program together in Kansas City, Missouri. The conference offers a forum to improve communication and cooperation between government, private voluntary organizations ("PVO's") and industry representatives. Over 500 representatives are expected to attend the conference this year, and Vice President Richard B. Cheney and Secretary of Agriculture Ann M. Veneman are invited as featured speakers. George McGovern, Global Ambassador on Hunger, former U.S. Ambassador to the United Nation's Food and Agriculture Organization, First Director of the U.S. Food for Peace Programs and former U.S. Senator will be giving the keynote address on Global Food for Education Initiative. Kaye, Rose, and Partners is proud to have provided ,co-sponsorship for the conference recently held in Kansas City, Missouri and will continue to remain at the forefront in this highly specialized area of maritime law. As an introduction to this somewhat arcane specialty, we provide a brief overview of how the Food Aid Program works.
The U.S. Department of Agriculture ("USDA") and the Agency for International Development ("AID") are responsible for several foreign food assistance programs where U.S. agricultural commodities are donated abroad for humanitarian and developmental purposes. Assistance is provided through three channels: The P.L. 480 Program (Title II and Title III), which is administered by AID, the Section 46(b) Program and the Food for Progress Program - both of which are administered by USDA. All of the foreign food assistance programs are designed to address nutritional problems throughout the world. This requires coordination among commodity suppliers, package manufacturers, domestic transportation carriers and ocean carriers; and input from PVO's, the United Nations World Food Programme ("WFP") and foreign governments ("Cooperating Sponsors").
The Title II Program provides for the donation of agricultural commodities to meet emergency and non-emergency food needs. Most of the commodities are distributed through networks created in the receiving country by non-profit PVO's such as CARE, the Catholic Relief Services, or through WFP, which is the humanitarian feeding organization of the United Nations. Approximately 75 percent of the non-emergency food aid under Title II must be distributed by these types of organizations. The Title III Program provides for government-to-government grants to support long-term growth in agriculture and related activities in the lesser developed countries. The Section 46(b) Program permits donations of food and feed commodities owned by the Commodity Credit Corporation ("CCC") for humanitarian assistance overseas. The Food for Progress Program provides commodities to support countries which have made commitments to expand free enterprise in their agricultural economies. Over 25 different commodities are obtained for inventory, including bulk and bagged whole grains, processed grain products, dairy products and miscellaneous products, such as milled rice, peas, beans, lentils and vegetable oil.
Shipments are made according to the requirements of the Merchant Marine Act of 1936, as amended, and the Food Security Act of 1985, as amended, which requires that at least 75 percent of the annual tonnage of all commodities under these programs be shipped on U.S.-flag vessels. Within these parameters, commodities are procured and supplied on the basis of the estimated lowest total cost to deliver the commodities to their foreign destinations. This cost, called the lowest landed cost, is calculated on the basis of the estimated freight cost added to the commodity price. Thus, the principle of lowest landed cost evaluation not only determines the vendors from which the commodity is procured, but also determines the coastal range(s) or port(s) through which shipments are exported. The states supplying the bulk of these products are: Texas, Kansas, Wisconsin, Illinois, Louisiana, Nebraska, Missouri, Oklahoma, Tennessee, Washington and California. These production areas and their geographic location have an important impact on inland freight rates to U.S. ports and the ultimate cost of the commodities when landed at the foreign destination.
As for the nuts and bolts of the program, the first step in the operation is for both the Farm Service Agency ("FAS") and the Kansas City Commodity Office ("KCCO") to issue a bid solicitation to all interested parties indicating the approximate quantity of each commodity needed. The invitation includes a list of intended destinations with the quantities for each country and discharge port. Although vendors naturally use the most advantageous port or range of ports in order to offer their lowest prices, they are also encouraged to make competitive offers at alternate ports. The quantities to be purchased are grouped by commodity, ocean rates and service. The KCCO then reviews the available ocean service and applicable ocean freight rate quotations from interested steamship companies and enters the information into its computer files for use in analyzing bids and determining the lowest landed cost. Tariff Rates, which are ocean freight rates published and filed with the Federal Maritime Commission, are used to determine ocean rates when no rate quotations or service offers are received from carriers to certain destinations.
Methods of transportation for programs include extensive use of the inland waterway system and intermodal movements by boxcar and container vans. A variety of different vessel types are utilized to transport the commodities including breakbulk, bulkers, tankers for grain, container ships, LASH barges, and seagoing barges. The competitive transportation situation results in detailed and specific offers of service from many carriers and makes the evaluation process more complex. For example, carriers may offer rates that are contingent upon minimum or maximum tonnages, a maximum number of ports a vessel will call upon within a coastal range, or a maximum number of ports of discharge, or different rates for each port within a coastal range.
Immediately upon making the decision from which ports the commodities will be shipped, KCCO offers them to freight agents, who in turn contract for ocean transportation on behalf of the cooperating sponsors. Each cooperating sponsor privately contracts for the services of freight forwarders and freight agents for making ocean transportation arrangements. However, AID contracts the ocean transportation arrangements for all government-to-government shipments under Title II and Title III, P.L. 480.
KCCO advises the booking agent of the lowest landed cost evaluation results. Booking agents are required to solicit offers and submit the lowest U.S.-flag and foreign-flag offers to KCCO for a determination whether the award must be made on a U.S.-flag or foreign-flag basis.
Agents may exclude individual carriers because of poor past performance only after providing the carrier its due process rights. However, such exclusions must be done in writing and prior to the issuance of a freight solicitation. This information is shared by all booking agents in ad hoc meetings created to discuss carrier performance.
Commodity requests and awards are examined for possible consolidation of cargo for vessel charter. When charterable quantities are purchased at a port or range of ports destined to the same or approximate foreign destination, KCCO requests the booking agents consider consolidation of tonnage for charter bookings. If the consolidated tonnage cannot be chartered, it is booked as liner cargo. Confirmed bookings and shipping instructions are then issued to vendors and documents are prepared.
Prior to the cargo arriving at the foreign destination, the PVO's or KCCO will arrange for inspection of the commodities by a qualified survey firm. The surveyor is responsible for observing discharge and reporting the count and condition of the cargo as it is unloaded from the vessel. Based solely on the survey information, the carrier is held accountable and a claim may be filed by CCC cargo owners for any quantity or quality deficiencies noted at discharge. Therefore, carriers are well advised to retain their own surveyors at the discharge port. It is recommended for the carrier to maintain established relationships with surveyors who specialize in food aid cargo.
If a resolution between CCC and the carrier cannot be reached at the initial claims level, CCC refers the claim to the U.S. Department of Justice ("DOJ") for litigation. DOJ routinely seeks a much greater percentage of the claim amount than that reasonably expected in normal commercial disputes. Given the number and size of the food aid claims, DOJ amassed a number of experienced federal court litigators to handle these claims, who are very familiar with the unique rules and regulations governing food aid cargo.
An example of a law peculiar to the transport of food aid cargo can be found in the case of M/V TAY, 1996 A.M.C. 210. In that case, the federal court for the Western District of Louisiana held that the COGSA one-year statute of limitations does not apply to the carriage of certain food aid cargo. The vessel owner had argued that the one-year statute of limitations of COGSA, which was applicable by a "clause paramount" contained in the charter party signed by a PVO, barred the government's affirmative claims for cargo damage as untimely on behalf of CCC as assignee of the PVO's claim. The DOJ successfully argued that since the assignment of the claim from a PVO occurred within the one-year period of COGSA, the six-year statute of limitations contained in 15 U.S.C. 714b (1988) applied.
This is but one example of the many unique legal issues which can arise in claims litigation involving the carriage of food aid cargo. Our new partner, Timothy Lord, represented the government in numerous food aid claims in his former position as a trial attorney at DOJ in its Admiralty Section. He can help you navigate the maze of government rules and bureaucracy in order to ensure you are on equal footing with the government in all phases of the process, not just in litigation. Should you need assistance with a food aid issue, Tim may be found in our San Francisco office.
