Who Benefits from Food Aid

1. Who Benefits from Food Aid Barracu Elisa Beyene Tesfaye Viet Nguyen Duc Pavia, June 3rd, 2008

2. Food Aid: a Donor-Driven Resource for the Last Two Decades A Few Key Myths: Myth 1: American food aid is primarily about feeding the hungry (but always aimed to advance self serving goals of surplus disposal, export promotion, and geopolitical leverage to benefit privileged domestic interest groups- it is donor oriented, not pledged by recipient needs or rights). Myth 2: Food aid has been an effective product of support for American farmers rather than a sources of support. Myth 3: American food aid is no longer driven by an effective use of FA for long-term humanitarian Assistance and Econ. Development; rather, short-term self-interest. Myth 4: Food aid is wholly additional (each extra kg of food received increases food consumption by a whole kg-with no displacement of purchases-a false statement). Myth 5: Food aid builds long-term commercial export markets for donors (but in reality FA does not work as a market development tool, rather displaces commercial exports). Myth 6: Cargo preference laws effectively support the U.S. maritime industry (benefits small number of shipping lines & freight forwarders.; shipments on US flag carriers cost nearly 80% more on average, than identical shipment on foreign flag carriers). Myth 7: NGOs are progressive forces (for change) in food aid policy improvement. They recognize problems that arise from field practices; nevertheless their revenue stream depends heavily on the amount of FA that they receive and deliver. Budgetary dependence Vs willingness to publicly: they defend the status quo as "least bad”.

3. So Who Benefits? The Iron Triangle • Small number of food vendors (11% procurement premium) • Very small number of shippers (78% cargo preference premium) • NGOs (resources, esp. monetized)

4. Iron Triangle of Food Aid • Profits are bottom line (Price supported Procurement & Sales of Food Commodities) • Receive significant Mark-ups on FA Cargo • Monetization-Mix of Interna. Dev’t&Humanitar. Assistance Mission (Poverty Reduction Concern) and it heavily depends on FA as a resource for their operations. Consequence = Abysmally poor financial efficiency of FA as a means of Providing overseas dev’t & humanitarian assistance

5. Sources of Food Aid • Direct transfers (74.5%) • donations originated in the donor country & limited to food sourced there • Use of donor-country contractors (the US requires that at least 75% of the procurement, bagging, shipping be handled in the US by US firms) • Triangular transaction (12%) • Food aid purchased in one country different from the donor’s for use as food aid in another country • Triangular purchases in developing countries (73%), usually financed by cash contributions from the donor for the initial purchase of the food. Ex. Commodity swaps used by the US involves the delivery of a food commodity to one country where it is sold to buy a food commodity that gets shipped to a third country for use as aid

6. Sources of Food Aid (2) • Local Purchases (15%) • Procurement of food in the recipient country • One of the most cost-effective ways to source food aid • 2 and 3 are preferable to food direct transfers: since food is purchased locally or from nearby developing countries the purchase, transportation.. are less costly and there is a higher probability to stimulate local agriculture • 3 IS NOT ALWAYS THE MOST APPROPRIATE USE OF FOOD AID RESOURCES. Make an assessment before buying food locally (is there enough food available in the market?, risk of a price spike?, transportation networks?)

7. Kinds of Food Aid • In-kind food • Cash • Monetised food aid

8. Inefficiency Inefficacy Insufficient amount of aid Timeliness Low quality of food Distortion in use of resources (monetisation) implies limitations in targeting the most vulnerable populations Food Aid Management Efficiency & Efficacy Issues Targeting errors & other forms of mismanagement: HUMANITARIAN & ECONOMIC IMPACTS!!!

9. Humanitarian impacts Associated with health & nutrition Risk: FAILURE TO PROTECT HUMAN NUTRITIONAL STATUS (under-coverage errors of EXCLUSION= not assistance urgently required) • Issue: there is an improvement in dietary intake NOT in the intake problems of nutrients! Favourable effects BUT does it really change the situation? • Scarcity of evidence on the nutritional impact of food aid difficulty in calculating nutrient intake, lack of info, the inclusion of people whose need is modest, tardy delivery… • Other factors reducing impact: i.e. bad sanitary conditions • Food aid: not always the most appropriate aid even in case of malnutrition

10. Economic impacts Related to disincentives, market distortions, dependency. Liked to leakage errors of INCLUSION = people that do not need food aid urgently receive it Main risks: • Food Aid Dependency: not such a strong evidence (scarce food provision compared to the size of population; uncertainty about amount and timing taught residents not to depend on it: Horn of Africa, Kenya…) • Labour Supply Disincentive: low evidence IF well-targeted distribution, otherwise opposite effects. (LS becomes more responsive as people grow wealthier)

11. Economic impacts (2) • Induced change in local consumptions IF INAPPROPRIATE DISTRIBUTION (i.e. shifting from a protein to carbohydrate-heavy diet, culturally inappropriate food…) & UNITENDED CONSEQUENCES if excessive • Donor orientation of export promotion (demand for new food previously unfamiliar) BUT food aid is not very efficient in promoting export right now • Impact on the natural environment • Distortion of community norms from “food aid as a wage”: risks affecting private transfer and community solidarity. Not statistically significant IF good management and if LRRLD.

12. Economic impacts (3) • Food Market Price Effects • Partial substitution free food with purchased food • Supply increase that leads to reduction of residual demand for local production strongly affecting the poorest • Fall of prices in destination markets undermining agricultural production perpetuation of vicious cycle BUT… IF food aid is well-targeted Very positive effect: it reaches ONLY the poorest HOUSEHOLDS otherwise out of the market. Stimulation of the production

13. Monetisation Practice based on the current use of food aid as a mean to raise cash to fund development projects INEFFICIENT • Original objective: to fund expenses related to direct food aid delivery for humanitarian purposes. • Nowadays: it has expanded and it funds NGOs projects from rural to health services most strictly correlated to food needs. • Corrective: Bellmon Analysis, but still unintended beneficiaries & not-effective pro-poor targeting • Higher risk that food aid affects local market prices negatively

14. Not only a matter of target group.. Benefits from food aid to recipients also comes from: • A right match between sources of food aid and recipient countries needs • The kind of food aid • Not conditional food • A pro-cyclical intervention rather than countercyclical • A stronger focus on access issues to food

15. Pro-cyclical/Countercyclical Pro-cyclical: less is sent when more is needed (more food when commercial prices are low: USA) Countercyclical: WFP (out of the risk: half resources provided in cash & most food bought in developing countries) Focus on Access to improve benefits for recipients • Access as the hearth of food security!! • Even though there is enough food.. Not everyone can afford to buy it • Holistic approach and “bundle of factors”

16. Conclusion • Food aid is still donor-oriented but has been moving slowly towards a more recipient-oriented approach • Controversy about the use of food aid mostly in development programs since it is much more influenced by donors’ interest than the emergency food aid programmes • Food aid must be tied to other broader programmes otherwise good effects only in the short-term • Assessment quality and technical support must be developed