International Food Aid and Food Assistance and the

Next Farm Bill

ErinC.LentzStephanieMercier

ChristopherB.Barre5

PresentedattheAmericanEnterpriseIns;tuteWashington,DCOctober19,2017

Role of US International Food Aid and Food Assistance

• Foodaidisoneresponse,butincreasinglyscarceresource• USGfoodaidfell76%from1960sthrough2010sinrealterms•  EsBmated815millionundernourishedindividuals…andgrowing•  Recordnumberofemergenciesandrefugee/IDPpopulaBon

• USistheworld’slargestdonorsoUSpolicyiskey• Morethan40%ofallfoodaidinrecentyearsisfromUS

• Inthepasttwodecades,asemergencieshavebecomemorecommon,USGhasshiQedfocusforfoodaid:•  TowardhumanitarianemergenciesandchildnutriBon–abandoningsurplusdisposalandtradepromoBon•  Yet,programinefficiencieslimitthereachofUSfoodaid

• RecentFarmBillsandotherlegislaBonhaverelaxedseveralkeystatutoryrestricBonstoimproveint’lfoodassistance•  Increaseduseofcash,vouchersandlocal/regionalprocurement•  Increasedcomplementarycash•  ReducedopenmarketmoneBzaBon•  Reducedcargopreference

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Human consequences of restrictions are great

• Annualhumancostofdisastersis~42millionlifeyears,mostlyinlow-andmiddle-incomecountries…andgrowing

• Nikulkovetal.(2016PLOSONE)esBmatethateliminaBngthecargopreferencesandrequirementstoprocurefoodintheUScouldreducechildmortalityinnorthernKenyaby16%duringseveredroughtepisodes

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US Food Aid and the Farm Bill

ThreestatutoryrestricBonsconBnuetowastetaxpayermoneyandcomeatgreathumancost:

1.  Cargopreferencerulesthatinflateshippingcostsanddelaydeliveries

2.  Limitedaccesstocash-basedfoodassistanceprograms

3.  ProcurementrequirementsthatrequirecommodiBesbepurchasedintheUS

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Cargo Preference Rule: Overview

• 50%ofUSGfoodaidmustbecarriedbyUS-flaggedvesselstotheiroverseasdesBnaBons• Goal:ensureUS-flaggedvessels’ownersstayinbusinesssothattheseshipsandtheirtrainedcrewsareavailabletocarryUSmilitarycargointheeventofbroad-basedmilitaryengagementoverseas• FoodaidcargopreferencerequirementhasbeenineffecBveandiscostly

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U.S.foodaidbeingunloadedfromU.S.-flaggedship

Cargo Preference Rule: Evidence

• USflaggedshipsareolder,smaller,andslowerthanforeigncompeBtors•  Today,US-flaggedshipscarry1%ofUSforeigntrade•  Vesselscontrolledby3foreignshippinglinesaccountedfor45%ofallfoodaidcarriedbyUSflaggedvesselsduring2012-2015

• Bojleneckisnotthenumberofships,butisthenumberoftrainedUSmarinersavailablefordeployments(MercierandSmithandGAO,both2015)• RecentesBmatesofcostofcargopreferenceisbetween$40and$50million/year(MercierandSmith2015)under50%requirement• CosthasbeenborneenBrelybyfoodaidprogramssince2015whenMARADreimbursementrequirementsended

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Cargo Preference Rule: Recommendations

1)Endcargopreferencetoallowscarcefoodaidresourcestogofurther• Bulkofprofitsgotovesselowners,nottoworkers• Foodaidcargopreferenceonlyaccountsforabout15percentofsuchshipments—remainderismilitaryequipmentandcommercialproductsfundedthroughEx-ImBank,OPIC

2)DevelopalternaBvemeanstoensureavailabilityoftrainedmarinerssoastosupportdeploymentofmerchantmarinersinthecaseofanextendedoverseasmilitaryengagement• NaBonalGuardandReservemodel,includingprotecBonoftheircivilianposiBonswhileperformingmilitaryservice

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Limited cash-based programming: Overview

• CashisneededforadministraBve,distribuBonandstoragecosts• SecBon202(e)providescashfornon-commodityresources• MoneBzaBon–thesaleofUSfoodaidinrecipientorneighboringmarkets–alsoprovidescash• 1996FarmBillseta15%minimumforthevolumeofnon-emergencyfoodaidthatmustbemoneBzed

• 2014FarmBill:raisedshareofTitleIIresources-from13%to20%-thatcanbeusedascashfornon-commoditycostsunderSecBon202(e),whichcancoverdevelopmentacBviBespreviouslyfundedthroughmoneBzaBon

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Limited cash-based programming: Evidence

• MoneBzaBontendstobewasteful• ReturnonmoneBzaBontendstobe70-75cents/dollar• USDAFoodforProgress:58cents/dollar(GAO2011)• Upto$70millionlostannuallyduetomoneBzaBon(GAO2011)

• MoneBzaBoncandestabilizecommoditypricesinlocalmarketsinrecipientcountries(Gargetal.2013)

• Following2014FarmBillexpansionof202(e),therehasbeenasharp(90%)reducBoninmoneBzaBonforTitleIIprojects

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Limited cash-based programming: Recommendations

1)  ReduceoreliminatethestatutoryminimumonmoneBzaBon

2)  MaintainorexpandcurrentshareoffundsfromSecBon202(e)• Thiswasperhapsthemostimpacoulfoodaidreformof2014FarmBill

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Relax domestic procurement requirements: Overview

•  Eversince2004IndianOceantsunami,substanBalevidencethatcash,vouchers,andlocallyandregionallyprocured(LRP)foodarecheaper,fasterandpreferredbyrecipientsthanUS-sourcedfoodaid•  2002FarmBill:introducedpreposiBoningoffoodaid•  2008FarmBill:fundeda$60millionLRPpilotproject•  FundswereauthorizedforLRPunderthe2014FarmBill,butnofundswereappropriatedin2014–2016soprogramdoesn’toperate

• Complementaryprograms:•  EmergencyFoodSecurityProgram,fundedthroughInternaBonalDisasterAssistanceandOverseasConBngencyOperaBonsAccounts,hasgrownfrom$244millioninFY2010to$1BillioninFY2015(Schnepf2016)•  In2008BillEmersonHumanitarianTrustmovedtoholdingcashratherthancommodiBes,providingmoreflexibleresponseforunanBcipatedcrises

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Relax domestic procurement requirements: Evidence

• TherightresourcecansaveBmeandmoney• ResourcemustbeappropriateforlocalsituaBonandobjecBvesoftheprogram• Cashandvoucherstendtobecheapestandfastest• Transoceanicfoodaidisslowest,especiallyifdelayedbyCPconstraint• PreposiBoningisfasterthantransoceanicfoodaid,butmorecostly—esBmatedat$56/ton• LRPisfasterthantransoceanicfoodaid,andoQencheaper.Butnotalways(e.g.,vegetableoiltoLaBnAmerica).

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7Source:SmithandBallou,AEI2015

Relax domestic procurement requirements: Recommendations

1)Reducethe100%USsourcingrequirement•  “Untying”USfoodaidwouldbethesinglemosteffecBvereform•  CanadianfoodassistancedollarsareunBedandgotwiceasfarasUSfoodassistancedollars(LentzandBarrej2014)b/cUSspendsmoreonshippingandhandlingthanonfood•  CouldreachanaddiBonal4to10millionpeopleatnoaddiBonalcost(ElliotandMcKijerick2013)

2)Allow21stcenturyfoodassistanceinstruments(cash,vouchersandLRP)withinTitleII•  Keepprinciple:needflexibilitytomeetspecificneedsinagivenhumanitarianresponsecontext(conflict,infrastructure,inflaBon,nutriBonalneedsanddietarypreferences,etc.)

3)DirectlyappropriatefundsforLRPandexpanditssize

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Conclusions • USinternaBonalfoodaidandfoodassistanceprogramsareanimportantsymbolofAmericans’commitmenttohelpthoseinneed.ButUSprogramscandobejeratsamecost.• RemovingthestatutoryrestricBonswillallowtheUSGtoemploycurrentbestpracBces,stopthewasteofUStaxpayerdollars,andreachmorepeople,savinglivesandlivelihoods.•  The$350-400mn/yrnowwastedcosts~3mnchildlifeyears.•  Asmanyas40,000avoidablechilddeathsfor~400marinerjobsaffected.

• Seriesofmythsperpetuatethewasteintheseprograms:•  Cargopreferencerequirementsadvancemilitaryreadinessandsupportemploymentfortrainedmarinerswhomightneedtobedeployed•  FoodaidpurchaseshelpAmericanfarmers•  Purchasingfoodaidabroadcompromisesfoodqualityandsafety•  CashbasedprogramsaremorevulnerabletotheQanddiversion

• Carefulresearchfindsthesemythsunfounded.• Wemustupdatethedebateandpromotebestuseofascarceresourcethatsaveslives.

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ThanksforyourBmeQuesBons?