Chris Barrett, Cornell UniversityFebruary 2006

U.S. Food Aid :It’s Not Your Parents’ Program Any

More!

Much has changed since modern food aid began with the enactment of PL480 in 1954.

Yet contemporary policy debates often become derailed by failures to appreciate the significant changes that have already occurred.

This paper identifies the most important of these changes and explains how these set the stage for further desirable changes to U.S. food aid programs.

Overview

In 1954:

- Generous farm price supports and gov’t held stocks

- Limited global trade in bulk commodities

- Hunger widespread globally

- Cold War

PL 480 was a direct response to these conditions and succeeded in meeting some of the resulting goals.

Times have changed and so must US food aid programs.

Overview

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

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lion

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shel

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Data source: USDA Economic Research Service

1. Price Supports and Gov’t Grain Stocks History:

- Gov’t stocks (CCC/FOR) down 95% 1987-2005

- Now procure based on IFBs, at a premium

- No price impact, yet myth persists b/c people conflate correlation with causality

What Has Changed

2. Ineffective and Disruptive Tool for Trade Promotion:

- Trade promotion hypothesis in 1954

- Not only fails to grow donor exports, disrupts markets, especially 3rd party commercial exports

What Has Changed

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0 2 4 6 81012141618202224262830Years After Food Aid Shipment

Commercial Aid Impacts of Food Aid(Impulse Response Estimates, mvg avg)

3. The Cold War Is Over :

- Diplomatic challenges now quite different. - Beyond fulfilling human rights (1948 Universal

Declaration of Human Rights and 1966 International Covenant on Economic, Social and Cultural Rights), no evidence it works.

- Geopolitical impact? Top 1960 recipients: India, Poland, Egypt, Pakistan, BrazilTop 2000 recipients: North Korea, Ethiopia, Bangladesh, Kenya and Russia

What Has Changed

4. Alternative Means of Supporting Merchant Marine:

- 1954 Cargo Preference Act to support merchant marine for national security purposes … share increased 50-75% in 1985

- Impact: higher freight costs. 60% of FY2005 food aid bill was freight, storage and admin

- CP premia were ~69-78% in early 1990s-2000 … yet merchant marine continued to shrink

- Windfall profits among a small # carriers: 13 bidders, 5 receive >50% all freight expenses

- Yet no impact b/c CP 5-15% US flagged ships’ cargoes and >3/4 US-owned ships flagged outside US today … FA too small to make a difference in viability of merchant marine

- Maritime Security Program (1996) provides $2.1/ship-year … double dipping

What Has Changed

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1980 1985 1990 1995 2000 2005

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PL 480 Title I PL 480 Title II Other (Title III, Food for Progress, IFEP, etc.) Section 416(b)Data sources: U.S. Dept. Of Agriculture, General Accounting Office, Bureau of Economic Analysis

5. Shift From Program to Emergency Food Aid:- As recently as 1992, most US food aid was “program” –

govt-to-govt concessional sales on credit: Title I and Section 416(b)

- Now mainly to NGOs (43%) and WFP/IEFR (35%) for emergency response (80% of Title II now emergency)

Title I down 93% 1980-2005 from 62.6% to 6.6%Title II up 43%, from 34.4% to 77.7%, 1980-2005

What Has Changed

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Approved Monetization Rate

6. Relief Traps and Reduced Cash Resources for Devt:- Insufficient cash resources to meet needs: distorts NGO

behavior … monetization is the result- Monetization akin to program food aid – untargeted and

relatively disruptive of markets, terribly inefficient- Relief trap problem

What Has Changed

1. Recasting Food Aid in Support of MDG #1:

- Must be focused solely on the one relevant goal for which it is effective

- Must be embedded within broader development strategy, not resource-driven

- Next Farm Bill must make short-term humanitarian and long-term development goals the sole objective of U.S. food aid programs.

What Still Needs To Change

2. The Golden Hour, Partial Untying and Procurement Flexibility:

- Imperative of rapid response: average delay ~5 months for emergency Title II (even worse for European emergency aid)

- FY06/FY07 budget proposals and resulting debate: local and regional purchases no magic bullet, but do improve timeliness and reduce costs, on average.

- Follows other donors’ precedent and WFP – spent $684 mn in 2004 alone, buying more in South Africa and India than in the US (lots in Pakistan, Ethiopia, Turkey, Thailand, Uganda and Kazakhstan too).

- WTO: dealing US partial untying for $2 bn reduction EU export subsidies

What Still Needs To Change

3. Decoupling from Agribusiness/Maritime Support:

- MSP a cleaner mechanism than CP … savings spillovers (commodities)

- Reduce bagging/processing minima: Danish example: change in processing level yielded 6x calories and 3x protein at reduced cost 1990-97

- FY2007 budget proposal zeroes out Title I and Section 416(b), ending all credit-based food aid … given low repayment likelihood on $8.6 bn owed by recipient govts today, wise change and costless concession to WTO

What Still Needs To Change

4. Restored/Expanded Cash Resources for Food Security:

- NGO opposition to FY2006 proposal based on prioritization: more resources not form of resources.

- Best way to meet emergencies is to address structural causes and thereby head off crises before they arise.

- Are increased resources possible? Absolutely. US ODA up >60% since 2000 and historically grow most when one party controls all govt. Other sectors/interventions gaining handsomely, why not food security?

- Must make the case for food security programming … food insecurity as much a cause as a consequence of poverty. NGOs failing at this.

What Still Needs To Change

5. Program Consolidation:

- Put remaining 4 programs – Title II, Food for Progress, McGovern-Dole, and Bill Emerson Humanitarian Trust – all under USAID

- Eliminate wasteful bureaucratic duplication

- Moving under State helps decouple and focus

What Still Needs To Change

6. Develop Viable Global Food Aid Governance:

- Food Aid Convention expired: donor-only club being violated with impunity by signatories. Need more inclusive, enforceable mechanism

- CSSD horribly outdated and ignored by donors, <5% reporting 2000-2.

- Global Food Aid Compact (GFAC) proposal based on inclusion of all parties, universal codes of conduct, minimum cash/commodity commitments and enforcement under DRM of WTO. Follow precedent of 1994 SPS Agreement to recognize credible reason to permit some disruption of commercial food imports. Imminent WTO disciplines are key, to be followed by a renegotiated FAC.

What Still Needs To Change

Much has changed … and much still needs to change.

Food aid remains an important policy instrument, but for markedly different reasons than in mid-1950s, even than in 1990, when last seriously revisited in Farm Bill debates.

Improving awareness of changes already will help build the coalitions necessary for further change.

Conclusion

Thank you for your time, comments and interest!