Food Aid After Fifty Years: Recasting Its Role

Food Aid After Fifty Years: Recasting Its Role Chris Barrett, Cornell University and Dan Maxwell, CARE Department of Applied Economics and Management Cornell University April 15, 2004

Basics of Food Aid Key Distinctions/Definitions Food Assistance Programs (also “food-related transfers”): any intervention to address hunger and undernutrition (e.g., food stamps, WIC, food subsidies, food price stabilization, etc.). Food Aid: - international concessional flows in the form of food or of cash to purchase food in support of food assistance programs. Key distinction: international sourcing of concessional resources tied to the provision of food, whether by a donor or to a recipient.

Basics of Food Aid • A Quick History of Modern Food Aid: • 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, when the UN’s World Food Programme became a major player. • Peaked at 22% of global aid flows in ’65, now <5% • Food Aid Convention agreed 1967, guides policies of 22 nations and EU, monitored through the Consultative Sub-Committee on Surplus Disposal. • - Rise of WFP since mid-1970s, decline of US PL 480. Move to multilateralism. EU/Canada move to cut program food aid and to decouple from domestic farm programs. • - Emergence of SSA and CEE/FSU as focal points and of CPEs and emergency food aid in 1980s/90s • - Modest rise of triangular transactions/local purchases since 1984.

Basics of Food Aid Relative to international standards, ~30% of the world’s nations suffer macronutrient availability shortfalls relative to international standards (2350 Kcal/55 g protein/day per capita) … … concessional food flows have potential to fill the gap.

Basics of Food Aid Food aid accounts for little in the way of annual flows of food … … and the share is declining, especially relative to commercial trade.

Basics of Food Aid Program : subsidized deliveries of food to a central government that subsequently sells the food and uses the proceeds for whatever purpose (not necessarily food assistance). Program food aid provides budgetary and balance of payments relief for recipient governments. Project : provides support to field-based projects in areas of chronic need through deliveries of food (usually free) to a government or NGO that eithers uses it directly (e.g., FFW, MCH, school feeding) or monetizes it, using the proceeds for project activities. Emergency/Humanitarian: deliveries of free food to GO/NGO agencies responding to crisis due to natural disaster or conflict. Three Types of Food Aid:

The Rise of Emergency Food Aid In 1979-80, Title I expenditures were roughly twice those on Title II. By 2002-3, Title II had more than tripled in nominal terms and had become nearly ten times larger than Title I.

Basics of Food Aid The geography of food aid flows has changed over time, although US remains dominant.

Basics of Food Aid Suddenly food aid is a big issue again: • FAC expired and is presently on short-term extensions • US prepared to scrap it entirely. • Its efficacy has collapsed (less than 5% reported through CSSD in 2000-1). • WTO negotiations • Europeans view US food aid as an export subsidy. • US has put Titles I/III PL 480 on the table in trade negotiations. • GMO disputes • India, Zambia, Zimbabwe • Recent crises/near-crises • Ethiopia 2003 ($500 mn US food aid; $5 mn ag dev’t assistance) • S. Africa: 2002-3 (HIV and drought and Zim/Angola) • NGO financing • OMB/USAID battle over monetization, NGO dependence

US food aid remains largely driven by domestic farm and foreign policy concerns … Food Aid: A Donor-Driven Resource

Food Aid: A Donor-Driven Resource GAO: $35 mn/year excess spending, 120 day delay NAMA protests over WFP purchases in Central Asia

Food Aid: A Donor-Driven Resource A few key myths: Myth 1: American food aid is primarily about feeding the hungry Myth 2: Food aid is an effective form of support for American farmers Myth 3: American food aid is no longer driven by self-interest Myth 4: Food aid is wholly additional Myth 5: Food aid builds long-term commercial export markets Myth 6: Cargo preference laws effectively support the U.S. maritime industry Myth 7: NGOs are a forece for change in food aid

So who does benefit? Food Aid: A Donor-Driven Resource i) Small number of food vendors (11% procurement premium) ii) Very small number of shippers (78% cargo preference premium) iii) NGOs (resources, esp. monetized)

Food Aid Management: Five Key Issues • 1. Targeting • - “Leakage” to nontargeted individuals in the household, region (errors of inclusion) • - Missing intended beneficiaries (errors of exclusion) • - Tough question: Is food aid curative or preventive? • Consequences of targeting errors: • Inclusion: - ~35% avg. added consumption • int’l trade/dom. sales displacement • producer/labor supply disincentives • added costs • Exclusion: - low humanitarian impact

Food Aid Management: Five Key Issues 2. Timing - Aid should flow counter-cyclically to stabilize food availability … it doesn’t - Food aid flows budgeted on monetary not physical basis - Delivery lags are great Late/low deliveries are a form of exclusion errors High pro-cyclical deliveries are a form of inclusion errors

Food Aid Management: Five Key Issues • 3. Disincentive effects • - Product price effects • Labor supply disincentives • Government policy effects given persistence

Food Aid Management: Five Key Issues • 3. Incentive effects • Positive Incentives: • Factor prices/availability (e.g., seed, fertilizer, assets) • - Risk effects • - Labor supply/availability

Food Aid Management: Five Key Issues 4. Procurement Modalities Role for local purchases/triangular transactions Efficiency of US Procurement: $1.00 food costs $2.13 European program food aid, $1.33/$1 food

Food Aid Management: Five Key Issues 5. Monetization Generates more cash resources for NGOs, much like program food aid did for governments. But … • Efficiency problems compounded: • $1 of cash costs US gov’t $2.66 • plus NGO staff time/hassle/cost of capital • No targeting of food distribution • disincentive effects maximized • additionality minimized • timing becomes more complicated (Bellmon compliance)

Recasting Food Aid Decision Tree For Appropriate Response To Humanitarian Emergencies Are Local Food Markets Functioning Well? Yes No food aid. Instead provide cash transfers or jobs to targeted recipients. No Is There Sufficient Food Available Nearby To Fill The Gap? Yes Provide food aid based on local purchases/ triangular transactions. No Provide food aid based on intercontinental shipments.

Conclusions Ultimately, the only justification for food aid lies in three key roles. (1) Short-term humanitarian assistance to food-insecure populations. (2) Provision of longer-term safety nets for asset protection. (3) Limited, targeted “cargo net” interventions for asset building among chronically poor/vulnerable populations where food aid is relatively efficient. In each case, -use food aid if and only if a problem of food availability and market failures underpin lack of access to food. -Monetization rarely appropriate. - food is merely one resource to employ (and often not the most necessary or best).

Thank you for your time, attention and comments! Draft book chapters are available for reading and comment at http://aem.cornell.edu/faculty_sites/cbb2/foodaid.html

Food Aid After Fifty Years: Recasting Its Role