Food Aid Lecture

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Food Aid, American Agriculture, the World Trade
Organization and International Development
Chris Barrett Cornell University J.W. Fanning
Lecture, University of Georgia November 4,
2005  
Cargill Flour Mill, Mankato, MN, source
http//www.vigenconstruction.com/elevatrp.htm
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Food aid in support of MDG 1

• 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 is a complement to other resources.
Need to embed food aid in development strategy,
not fit development strategies to food aid
policies.
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Food aid in support of MDG 1

• Yet food aids 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

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Food aids first fifty yearsA donor-driven
resource

• Modern Food Aids Origins
• Began in 1954 with Public Law 480 (PL480) in the
  U.S. The U.S. and Canada accounted for gt90 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 govt 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).

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Controversies now arise because

• 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

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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.
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US Food Aid Facts and Myths

• Myth Food aid is an effective form of support
  for American farmers
• - lt 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 gt ½ commodities in 2004
  5 shipping companies gt ½
  freight costs. Shippers are the
  big winners, with
  profits
  70-80 above market.

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US Food Aid Facts and Myths

• 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

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US Food Aid Facts and Myths

• 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.

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US Food Aid Facts and Myths

• 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).

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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.

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Need to reform food aid governance
Existing institutions no longer credible or
effective. Its 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 lt5 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 now 3. Uruguay Round
Agreement on Agriculture Article 10 (1994) -
definition of tying differs from OECD/DAC
(2001) - endorses UMR illogic, inconsistent with
tying ban 4. Self-regulation (e.g., Bellmon
Analyses) - conflict of interest problems in
quality control
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The WTO and Food Aid
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
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The WTO and Food AidThe GFAC Proposal
Untied food aid
Tied food aid
Untargeted/ poorly targeted
Non-emergency food aid
Effectively Targeted
Bona fide food aid in support of MDG1
Emergency food aid
Conversion principle maintain value of flows,
but shift towards food aid forms with greatest
development benefits and least trade distorting.
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A Global Food Aid Compact
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.
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Conclusions
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.
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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)