By Phil Stewart

ROME, Aug 22 (Reuters) - The United Nations agency known for battling starvation and deadly disease now risks a "terminal decline" of its own unless it radically restructures, according to a withering draft evaluation released on Wednesday.

The unprecedented, 395-page review of the Rome-based U.N. Food and Agriculture Organisation (FAO) was funded by member states, and piles enormous pressure on the 62-year-old agency dedicated to defeating hunger.

The evaluation said FAO's governance was "weak and is failing not just the organisation but the people of the world it serves". It cited a lack of transparency, accountability and cash, adding FAO's financial outlook was "unsustainable".

While it commended many areas of FAO's work, it also suggested the organisation founded in 1945 may be clinging to some outdated strategies, including in rural development.

"If the FAO does not make major changes, its current trajectory will lead to terminal decline," the evaluation said.

The United States helped finance the study, which cost upwards of $4 million and claims to be possibly the largest and most ambitious evaluation ever of a global inter-governmental organisation. It is also FAO's first independent review.

The document did not recommend FAO be dismantled.

"If FAO were to disappear tomorrow, it would need to be re-invented. The challenge is to re-invent it before it fades into insignificance," the report said.

FAO declined comment on the draft evaluation, which is still subject to consultation and changes. But the organisation is expected to issue a management response in October, when the final evaluation may also be released.

BIRD FLU, LOCUSTS

On headline-grabbing issues like bird flu and locust swarms that ravage crops in Africa, FAO was given a mixed review.

The evaluation levelled some criticism but said FAO's monitoring of locusts "has had a very significant impact on this pest and its damage to people's livelihoods".

The U.S. ambassador to FAO criticised the agency in 2004 for being slow to respond to locust swarms, failing to put experts in the field and failing to allocate its funds properly.

On bird flu, the evaluation said the crisis "demonstrated both FAO's strengths and weaknesses". It cited a lack of funding and inability to quickly partner with other bodies, like the World Health Organisation.

"(FAO) was plagued by management uncertainties and the significant bureaucratic delays," it said.

The report can be viewed at: http://www.fao.org/unfao/bodies/IEE-Working-Draft-Report/K0489E.pdf

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