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

1. 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

2. 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.

3. Food aid in support of MDG #1 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

4. Food aid’s first fifty years:A donor-driven resource • 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).

5. 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

6. 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%.

7. US Food Aid: Facts and Myths 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.

8. 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:

9. 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.

10. 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).

11. 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.

12. Need to reform food aid governance 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 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

13. 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

14. The WTO and Food Aid:The GFAC Proposal Tied food aid Untied food aid Untargeted/ poorly targeted Non-emergency food aid Effectively Targeted Bona fide food aid in support of MDG#1 Emergency food aid Conversion principle: maintain value of flows, but shift towards food aid forms with greatest development benefits and least trade distorting.

15. 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.

16. 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.

17. 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)