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USA/Africa: Call for Food Aid Reform

AfricaFocus Bulletin
Sep 6, 2005 (050906)
(Reposted from sources cited below)

Editor's Note

On August 26, just before Hurricane Katrina hit the Gulf Coast of the United States, the World Food Programme called for the international community not to turn away from Niger, as food contributions began to tail off with less than half of the budget funded. As subsequent images of devastated New Orleans both displaced and evoked comparisons with "Third World" catastrophes, there was abundant material for reflection on U.S. and international responses to entirely predictable disasters.

The debate on the U.S. government failure to respond to Hurricane Katrina and the fault lines of race and class it exposed to public view is just beginning, and hopefully will continue. The public debate on the parallel structural failure to respond to ongoing crises in Africa, however, has hardly been opened.

Most reporting on the failure to respond to famine in Niger, and the ongoing food crises elsewhere in Africa where donors are not meeting UN emergency appeals, has focused on the quantity and timing of aid. A report released in July by the Institute for Agriculture and Trade Policy in Minneapolis takes on another issue. U.S. food aid, which represents 57 percent of world food aid deliveries, is particularly inefficient, most notably because government policy prioritizes shipping food from the U.S. at high expense rather than providing cash for purchase of food in the affected countries or their neighbors. The interruption of river traffic on the Mississippi, the export channel for most U.S. grain, has further highlighted the importance of having flexibility to resort to other sources.

The report analyzes these and other flaws in the current program, and proposes specific reforms. Despite the vested interests in the current system, it notes, none of the major U.S. beneficiaries - - large agribusiness firms, shipping companies, and non-governmental organizations used to channel the aid - - would be seriously damaged by reforms.

This AfricaFocus Bulletin contains the press release from IATP on the new report, and excerpts from an article by IATP director Sophia Murphy and from the full report, which is available on the IATP website (http://www.iatp.org).

[Note: This is the first AfricaFocus Bulletin after a break for the month of August. Bulletins this month will include important material from earlier in the summer as well as more recent material.]

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

U.S. Food Aid Needs Major Reform, New Report
Current System Not Addressing Long-term Causes of Hunger

July 27, 2005

Contact: Ben Lilliston, 612-870-3416, blilliston@iatp.org

Minneapolis - U.S. food aid programs are plagued by inefficiency and are not addressing the long-term causes of hunger and food insecurity in the developing world , according to a new report by the Institute for Agriculture and Trade Policy (IATP).

The report, U.S. Food Aid: Time to Get it Right, points out that the main beneficiaries of the U.S. food aid system are agribusiness companies bidding on food aid contracts, U.S. shipping companies that transport the food internationally, and private voluntary organizations (PVOs) that rely on sales of food aid in developing countries to generate funds for their other aid work (a practice called monetization).

The report found that this unusual political alliance blocks urgently needed reforms of U.S. food aid. The U.S. practice of sending food for sale or distribution in countries facing hunger is inefficient, expensive and slow. The U.S. should move towards food aid programs based on cash for purchasing food in or near the country where food aid is required. Almost all other major food aid donors have moved away from the donation of commodities.

The report, authored by IATP Trade Program Director Sophia Murphy, and Kathleen McAfee, Visiting Scholar in Geography, University of California-Berkeley, can be read at: http://www.iatp.org.

"Food aid is about saving lives often in desperate situations," said Murphy. "But food aid also has to be part of a much larger strategy to build and protect food security. We have to make sure we are not feeding children now who will still be food aid recipients in 20 years. U.S. food aid today fails this critical test."

U.S. food aid programs are a hot topic at the World Trade Organization (WTO), where other countries criticize the two practices that are largely unique to the U.S. First, the monetization of food aid generates development dollars for PVOs at enormous expense and often to the detriment of local producers and traders in developing countries. Second, taxpayer-funded export credits facilitate food dumping: overseas sales of program food aid for less than the costs of production. A European Union proposal at the WTO would require that all food aid be cash-based and untied from requirements to source commodities in the donor country. Food aid is expected to be a point of contention at the next WTO Ministerial in Hong Kong in December.

U.S. food aid also suffers from administrative confusion, according to the report. Two departments - USAID and the U.S. Department of Agriculture - oversee six separate programs. The U.S. is the world's largest food aid donor, funding 57 percent of global food aid deliveries in 2004. Yet, the U.S. is the only food aid donor, aside from South Korea, that sells part of its food aid. All other countries donate all their contributions. And, the U.S. provides less food aid when food prices are high and aid is most needed.

The report concludes, "in the name of the poor overseas, very large sums of money are now paid to prop up U.S. shipping firms and to buy food at higher than market prices from U.S. based food processors and other agribusinesses." The report found that most food aid is self-interested and politicized, rather than focused on the needs of the hungry.

While the world has seen increases in food production, food dependency in many developing countries has grown. Food production per in Africa is 10 percent less than it was in 1960. Sub-Saharan Africa now receives half of total food aid contributions. More than 200 million people in Africa are undernourished and of those, about 40 million in any one year face acute hunger. Countries in parts of Latin America and much of sub-Saharan Africa that once fed themselves and exported food are now net food importers.

"African farmers are capable of producing a lot more food for their communities and nearby regions. But policies of the U.S., the WTO, and the World Bank promote the use of African land and resources for export crops instead, and many African governments neglect agriculture for domestic food needs. This must change, or hunger will increase," Dr. McAfee explains.

Food aid programs must have a two-fold objective: to meet emergency needs, preventing deaths today, and to help build sustainable and self-reliant food systems across the world for tomorrow. The report makes a series of recommendations on how to improve U.S. food aid, including:

  • Transition to an untied, cash-based food aid system;
  • Phase out sales of food aid;
  • Impose strict limits on in-kind food aid;
  • Protect and promote people's right to food;
  • Protect and promote countries' rights to determine their own food security strategy;
  • Establish strong and enforceable multilateral guidelines.


Feeding More for Less in Niger

By Sophia Murphy

New York Times, August 19, 2005

[Excerpts. For full text visit http://www.nytimes.com]

The famine unfolding today in Niger has too many familiar characteristics. One of the poorest countries in the world is in a deadly crisis - one foreseen and ignored until the cost of intervention had jumped from $1 per child to $80, according to the United Nations. Many people have died and more will die in the coming weeks and months because rich countries failed to respond in time. United Nations agencies first appealed for money and food in November, but governments have only started to respond seriously in the last few weeks.

... the United States' food-aid system has two main problems - ones that other major donor countries have already taken steps to solve.

First, almost all the aid is in the form of food produced in the United States. The government buys food from American commodity traders. The food is fortified, bagged and shipped by American firms. This approach usually results in costs well over market rate for food, handling and transport. The emphasis on using American commodities and firms is grossly inefficient and means that food is slow to arrive where it is needed. It also prevents the establishment of local food systems.

Most other major donors, particularly those in the European Union, give money instead of food. This frees agencies like the United Nations World Food Program to buy food from farmers near the affected country - farmers who are often very poor - and to send the food quickly where it is most needed.

To its credit, the Bush administration proposed designating an additional $300 million for food to be bought from local or regional sources this year, but Congress rejected the proposal.

The second major problem is that the United States sells some of its food aid. It is the only country other than South Korea to sell food aid (albeit for less than commercial prices) or give it to intermediaries that then sell it. Private American aid organizations receive American food aid and sometimes sell the food at local markets to raise money for their other aid programs in the country. Governments of recipient countries also sell food aid at local markets to raise money. The result is a subsidized sale that creates unfair competition for local farmers and commercial traders.

The current system ensures that the United States' food aid falls far short of its potential. While our food aid saves lives, it could save many more. And most important, the system fails to strengthen food production and systems of food distribution in vulnerable countries. If we want our contributions to tackle the root causes of hunger, then the United States government needs to make immediate changes to the food-aid system.

It should transition to cash-based aid and phase out sales of food aid. The United States also needs to work with other donors and local governments to establish regional reserves in the most vulnerable parts of the world so that local authorities and private agencies can respond to crises quickly. The government should make multi-year guaranteed donations to the World Food Program so that the agency has the financial reserves to allow it plan its responses to emerging crises. The United States should also simplify its food aid system, which consists of six different programs administered by two agencies.

The best food aid is flexible, timely, responsive and provides a buffer for tragic food shortfalls caused by devastation from disease, war or nature, while strengthening the systems of food production and distribution in the countries and regions it is trying to help. ...

Sophia Murphy is the director of the Trade Program at the Institute for Agriculture and Trade Policy in Minneapolis.


Excerpts from U.S. Food Aid: Time to Get It Right

[5] Who Benefits from U.S. Food Aid?

To understand the politics of U.S. food aid, particularly the government's reluctance to reform food aid in line with internationally recognized best practices, it is essential to understand who benefits from the existing system. Three interest groups support the status quo on U.S. food aid: agribusiness firms (especially food processors but also some farmer cooperatives), maritime companies, and a small but powerful group of non-governmental organizations, or private voluntary organizations (PVOs), as they are more commonly known in the U.S. Some food-aid analysts refer to this group as the "iron triangle" because of their stranglehold on food aid practice. While their goals and activities differ greatly, these three interest groups cooperate to perpetuate food aid programs in their current form. All three use the same myths to rationalize food aid.

Agribusiness

Agribusiness companies bid on food aid contracts offered by the USDA Farm Service Agency (FSA). U.S. law requires that a minimum of 75 percent of U.S. food aid be sourced, fortified, processed and bagged in the U.S. Only a limited number of firms are qualified to bid on the procurement contracts and a few large corporations dominant. In 2003, just two firms, Cargill and Archer-Daniels Midland (ADM), won the contracts to provide a third of all U.S. food aid shipments. ...

Agribusiness in the U.S. is a highly concentrated business: three firms (Cargill, ADM and Zen Noh) export over 80 percent of U.S. corn and over 60 percent of U.S. soybeans; three firms (Cargill, ADM and Conagra) dominate flour milling; three firms (Bunge, ADM and Cargill) have 71 percent of the U.S. soybean crushing business; and, three firms (Cargill, Cenex Harvest States and ADM) dominate export terminal handling facilities (which are essential to shipping the grain out). This dominance is the main reason just two firms and not just any two firms, but Cargill and ADM handle so much U.S. food aid. ...

Shipping Companies

The second, and perhaps most important, beneficiary of U.S. food aid programs are shipping and maritime interests. U.S. law stipulates that 75 percent of all food aid must be transported on ships fl ying U.S. fl ags. The percentage was increased from 50 percent in the 1985 farm legislation, against the wishes of USDA, USAID and farm groups. ...

According to Barrett and Maxwell, "In the 2000- 2002 period, nearly 40 percent of total costs of U.S. food aid programs were paid to U.S. shipping companies."

U.S. shippers are failing as businesses. U.S. carriers now handle only 3 percent of U.S. imports and exports (excluding food aid). Using 1991-93 data, the U.S. General Accounting Office (GAO) established that U.S. bulk carriers cost 75.9 percent more than foreign bulk carriers over the same routes and shipping the same commodities. Barrett and Maxwell used the same methodology to analyze the 1999-2000 date for 416(b) and Food for Progress shipments, and found the premium for using U.S. ships had gone up to 77.7 percent. ...

Just as food aid is not significant enough a share of global totals to make a difference to the price received by farmers at the farmgate, so it is not particularly significant as a share of the global shipping business. Most of the U.S. shipping companies involved in food aid make their real money on container vessels, where they are more competitive. Food aid brings in a tidy and reliable profit, safe from competition, but only a small number of shippers would go bankrupt without it. ...

Private Voluntary Organizations and Monetization

Private voluntary organizations (PVOs) comprise the third arm of the iron triangle. Barrett and Maxwell reviewed the numbers for eight of the main NGOs engaged in food aid. Together these eight NGOs had almost $1.5 billion in gross revenues in 2001, and three alone (CARE, World Vision and Catholic Relief Services) account for well over four-fifths of this total. The eight reviewed were Adventist Development and Relief Agency International, Africare, CARE, Catholic Relief Services (CRS), Food for the Hungry International, Project Concern International, Technoserve, and World Vision. Barrett and Maxwell calculated that food aid was worth an average of 30 percent of these eight organizations' gross revenues in 2001.

The PVOs' interest in protecting the status quo is less obvious than that on the private companies involved.

After all, the PVOs' credibility depends on delivering, and being seen to deliver, help that goes straight to those in need, making a real difference on the ground in developing countries. These agencies pride themselves keeping their overhead costs low and are committed to the eradication of poverty. This makes their active lobbying to preserve the status quo around food aid much more difficult to justify than the lobbying of firms whose obligation is to maximize corporate profits. In fact, most NGOs would probably prefer to manage financial resources than to act as food brokers to fund their development work.

The trap for these NGOs is dependence on monetization: the relatively new but rapidly expanding feature of project food aid. Monetization is the sale of food aid on local markets in developing countries to generate funds for development projects. Originally, limited monetization was allowed to enable PVOs to cover the financial costs associated with handling food aid (storage, for example). Since 1990, however, monetization has become an important revenue stream for PVOs' funding of their ongoing development work. The problem is uniquely American because other aid-donor governments provide much of their food aid in the form of cash, so few non-U.S. NGOs are tempted to sell food aid to cover their costs. ...

The PVOs are caught for several reasons: large sums of money are involved relative to NGOs non-food aid revenues, the money comes with relatively few strings attached, and food aid shipments are good for the books, because a relatively large sum of money can be realized for relatively little administrative cost. And, they fear that attempts to reform food aid will simply end food aid altogether, when politically powerful U.S.-based agribusiness and U.S. maritime shippers lose their stake in the system. ...

Is U.S. food aid worse than others?

Two things stand out about U.S. food aid. One, as it contributes roughly 65 percent of the global total, what the U.S. does really matters in the food aid world. Two, the U.S. has continued to spend a lot of money on expensive and sometimes damaging kinds of food aid, rather than showing leadership towards best practice. It is not that the U.S. is alone in its bad habits: Canadians have an even higher domestic procurement requirement, with a 90 percent minimum threshold for in- kind food aid. South Korea also sells food aid, rather than providing only grants. The E.U. disbursement of food aid funds is so slow that the timing of their assistance a critical variable in assuring good results can make it less useful than in-kind donations, even those these have to be procured and shipped from thousands of miles away. Japan uses food aid to get rid of unwanted rice imports, forced on it by the WTO Agreement on Agriculture's minimum import requirement for countries that did not convert market access barriers into tariffs. Nonetheless, most food aid donors have made important reforms to their food aid programs in recent years: the U.S. has not.

The main problems with U.S. food aid are:

  1. Food aid sales, under Title 1 of PL 480. Although program food aid is now less than a tenth its former size, the U.S. continues to sell food aid.
  2. The insistence on minimum levels of U.S. procurement, processing, bagging and shipping. Best practice would create a more flexible system, designed to be responsive to recipients' needs. The E.U.'s greater reliance on local and triangular purchases contributes to shipping costs of less than one half those paid by the U.S. The Bush administration this year proposed carving out a further $300 million for local and triangular food aid from existing food aid resources. Congress, encouraged by food aid PVOs and other lobbyists for the status quo, rejected the proposal.
  3. The time lag created by insisting on in-kind food aid. Food aid shipments from the U.S. take an average of five months to reach their destination making them pointless for rapid response, and potentially harmful if the shipments arrive at a time when domestic production is available in the market. It is true the E.U. has bureaucratic problems with the disbursement of its food aid cash that can make its local and regional purchases slow as well. This situation has to be improved. But the U.S. will not be able to improve its performance until it moves towards an untied system that favors food purchases in developing countries, near where the food aid is needed.
  4. In-kind food aid wastes money. An OECD study published in 2005 determined that in-kind food aid, by conservative estimates, is at least 30 percent more costly per metric ton than the much smaller portion of food aid that is purchased in third countries. Food aid that is purchased in the recipient country usually costs less than food purchased in the open global market and far less than food aid procured in donor countries.
  5. Food aid needs a single government home, with an agency that is responsive to recipient needs and which knows how to work with the multilateral community engaged in responding to emergencies and fostering long-term food security. ... In 1990, the Farm Bill declared the sole purpose of all U.S. food aid to be food security. It is time its administration reflected that worthy ambition.
  6. Continued links between ... the storage of domestic commodities and food aid contributions, such as exemplified in the Bill Emerson Humanitarian Trust. The trust pays private companies to store food against possible shortfalls; the result is the companies involved have become an active lobby to stop the commodities being used (they are only paid if they hold the grain in their silos). ...


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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