Food Aid, American Agriculture, the World Trade Organization and International Development

Chris BarrettCornell University

J.W. Fanning Lecture, University of GeorgiaNovember 4, 2005

 

Cargill Flour Mill, Mankato, MN, source: http://www.vigenconstruction.com/elevatrp.htm

Millenium Development Goal #1:Reduce by half the proportion of people (i) living on less

than a dollar a day and (ii) who suffer from hunger.

What role for food aid?- Save lives- Fulfill human right to food- Protect assets (especially human health)- Facilitate productivity and asset growth where

food availability and poor market performance are limiting.

Food aid in support of MDG #1

Food aid is a complement to other resources. Need to embed food aid in development strategy, not fit development strategies to food aid policies.

Yet food aid’s effectiveness in advancing MDG #1 depends on:

- Whether it is focused on this goal. Given a tight budget constraint, need to use resource efficiently.

- How it is managed by operational agencies:- Efficacy of targeting and timing- Whether it creates net disincentive effects

that trade long-term losses for short-term gains

- Procurement and supply chain management- Whether food is the right resource for a given

problem

Food aid in support of MDG #1

Modern Food Aid’s Origins:

- Began in 1954 with Public Law 480 (PL480) in the U.S. The U.S. and Canada accounted for >90% of global flows through early 1970s.  In EC as well, food aid was surplus disposal.

- Governed by CSSD and FAC, designed for a different era of food aid with a donor focus.

- Aimed at multiple donor goals – gov’t surplus disposal, domestic farm support, export promotion, support maritime industry, and geopolitical leverage as well as development and humanitarian goals … this violates the Tinbergen Principle (1 instrument/policy goal).

Food aid’s first fifty years:A donor-driven resource

• System remains dominated by US food aid (~60%).

• Most other donors have decoupled food aid from domestic agricultural policy. US nearly only one that still has multiple objectives in food aid: humanitarian, commercial, geopolitical, domestic farm support. Specific US practices highly controversial: loans, monetization, fully tied.

• Debates muddied by longstanding, pervasive myths

• No effective international governance mechanisms

• High visibility disasters recur frequently

• Misplaced debates: GMOs, dearth of cash/monetization

Controversies now arise because …

 

US Food Aid: Facts and Myths

Title I has decreased more than 90% since 1980 in inflation-adjusted terms, while Title II has increased ~35%.

U.S. Food Aid Programs, 1979-2003

0

500

1000

1500

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3500

1979 1984 1989 1994 1999

$ m

illi

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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

Myth: Food aid is an effective form of support for American farmers

- < $1 bn/year in a ~$900 bn domestic food economy, even among $60 bn in food exports. No evidence of any price effects of food aid purchases.

- Classic confusion of correlation and causality.

- Just 4 companies sold > ½ commodities in 2004; 5 shipping companies > ½ freight costs. Shippers are the big winners, with profits 70-80% above market.

US Food Aid: Facts and Myths

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Avera

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$/ton)

1991-93 1999-2000

US-flag

Foreign-flag

Myth: A dollar spent on food aid is a dollar consumed by hungry people

- In FY2005, USAID figures indicate of $1.6 billion spent on food aid, only $654 million (40%) spent on commodities, rest on freight, storage and admin.

- By our calculations, using 1999-2000 data, the distribution of US food aid rents were:

US Food Aid: Facts and Myths

Open mkt shipping, 26.9%

Source country procurement

premium, 5.2%

Shipping premium, 20.9%

Value in destination

market, 47.0%

Myth: Nongovernmental organizations are a progressive force in food aid

- Budgetary dependence tempers NGOs’ willingness to challenge the status quo in spite of well-known problems with present policies. Defend the “least bad” option seen as feasible.

Non-Emergency Title II Monetization Rates

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1990

1991

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% T

itle

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oo

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Minimum Title II Monetization Rate

Approved Title II Monetization Rate

US Food Aid: Facts and Myths

Food Aid As % 2001 Gross Revenues  

Technoserve 49.6%

Catholic Relief Servcies 41.8%

Africare 40.2%

Adventist Dev’t and Relief Agency 39.7%

Project Concern International 38.8%

CARE 38.1%

Food for the Hungry International 28.3%

World Vision 9.6%

Myth: Food aid builds long-term commercial export markets

- food aid has a negative rate of return in commercial food export promotion at horizons out to beyond 30 years (-8.3% IRR over 30 yrs based on SVAR estimates’ impulse response fns).

US Food Aid: Facts and Myths

Myth: Food aid necessarily hurts recipient country producer incentives

- Because income elasticity of food consumption is less than one, even among the very poor, income transfers in the form of food necessarily displace some net commercial market demand.

- When food aid reasonably well-targeted, can stimulate, rather than impede local production.

- Thus main effects appear to be wrt commercial imports. Hence the controversy in the WTO.

US Food Aid: Facts and Myths

Existing institutions no longer credible or effective. It’s not enough to remake their rules, location, etc. :1. FAO Consultative Sub-Committee on Surplus Disposal (1954)

- no legal authority, no enforcement, only 41 members

- based on economic illogic of UMRs- reporting has fallen to <5% food aid flows,

2000-3.2. Food Aid Convention (1967)

- donors-only club (7 countries + EU) run from the International Grains Council

- signatories breaching treaty routinely now3. Uruguay Round Agreement on Agriculture Article 10 (1994)

- definition of tying differs from OECD/DAC (2001)

- endorses UMR illogic, inconsistent with tying ban4. Self-regulation (e.g., Bellmon Analyses)

- conflict of interest problems in quality control

Need to reform food aid governance

Lack of effective governance mechanisms, combined with trade displacement concerns and the politics of agricultural trade liberalization make food aid one of the hot button issues at the WTO DRAA negotiations.

Competing proposals by EU, US, Canada, Mongolia

Issues: - protecting resources for developing

countries - trade displacement and export promotion

- grant vs. loan- needs assessments- tying status

Our Global Food Aid Compact (GFAC) proposal

The WTO and Food Aid

Effectively Targeted

Untargeted/ poorly targeted

Untied food aidTied food aid

Non-emergency food aid

Emergency food aid

Bona

fide fo

od a

id

in su

pport o

f

MDG#1

Conversion principle: maintain value of flows, but shift towards food aid forms with greatest development benefits and least trade distorting.

The WTO and Food Aid:The GFAC Proposal

Implementing a GFAC requires key innovations:

Inclusiveness: Need all recipient countries and operational agencies, enabling a universal code of conduct and broad-based ownership.

Donor commitments: Move beyond tonnage minima, extending coverage to complementary financial resources and commitments to flexible procurement (in accord with OECD/DAC convention on aid tying)

Monitoring and enforcement mechanisms: embed within DRAA to secure access to the WTO DRM so as to credibly prevent misuse of food aid, especially if some existing export promotion tools limited by DRAA.

Recognize that food security, like food safety, has equal standing to free and fair trade: Codex-like commission to provide technical support in evaluating credibility of programs with possible trade impact.

All parties code of conduct: for donors, recipients and operational agencies.

A Global Food Aid Compact

1. Food aid is an essential tool for addressing MDG #1, but need faster and more flexible emergency response.

2. But need to decouple food aid from other, donor-oriented objectives that impede its developmental effectiveness. (Moreover, food aid is ineffective at advancing other goals.)

3. In Farm Bill, need to reform US policies wrt local and regional purchases, cargo preference and other subminimum restrictions in order to put taxpayer dollars to more effective use in support of their intended purpose: food security.

4. Existing global food aid governance institutions ineffective. Need a new framework, such as the Global Food Aid Compact.

Conclusions

Thank you for your time, attention and comments!

Christopher B. Barrett and Daniel G. Maxwell, Food Aid After Fifty Years: Recasting Its Role (London: Routledge, 2005)