The US Agency for International Development has suspended food aid to Ethiopia after an investigation found supplies from international donors had been diverted or sold.
The decision could affect more than 20 million people already affected by violence and climate change in the country, which is emerging from a two-year civil war.
“After a countrywide review, USAID determined, in co-ordination with the government of Ethiopia, that a widespread and co-ordinated campaign is diverting food assistance,” a representative for the organisation said.
“As a result, we made the difficult but necessary decision that we cannot move forward with distribution of food assistance until reforms are in place.”
An investigation carried out over the past two months found donor-funded food was repurposed and sold at private markets, documents seen by Bloomberg show. In some cases the aid was sent abroad.
US Secretary of State Antony Blinken held talks with Ethiopian Deputy Prime Minister and Foreign Minister Demeke Mekonnen at the Global Coalition to Defeat ISIS meeting in Riyadh on Thursday.
Mr Blinken “welcomed the Ethiopian government’s commitment to work together to conduct a full investigation into the diversion of US food assistance and to hold accountable those found responsible", the US State Department said.
The food diversion scheme was allegedly orchestrated by federal and regional agencies in Ethiopia, as well as private grain and flour traders. It benefited military units nationwide, the documents seen by Bloomberg showed.
Representatives from the country's government and the National Disaster Risk Management Commission of Ethiopia did not respond to requests for comment.
Last month, the UN’s World Food Programme halted distribution in the northern Tigray region, the centre of the conflict, after finding evidence of significant aid sales in local markets.