Photo: Peter Casier

Obama’s Proposal for Food Aid Reform is Worth a Close Look

The April 10th release of the Presidential Budget Proposal in the United States is guaranteed to generate political waves. It contains a complete list of recommendations for how Federal spending should be allocated alongside a number of key reforms to Federal programs. Tucked away in the President’s proposal is an effort to reform international food aid. Advocates say the changes will improve food aid effectiveness, save more lives, and make federal expenditures more efficient. Congressional approval is needed, however, and some heavy-hitter special interest groups are actively opposing President Obama’s reforms.

The fight over food aid isn’t likely to generate the same kind of national attention as other proposals in President Obama’s budget, like the possible switch to a chained Consumer Price Index (CPI), but it may arguably be a more life-and-death battle for aid recipients. Oxfam America issued a report last year that found that reforming international food aid along the lines proposed by the Obama Administration would enable US assistance to reach 17.1 million more people at 2010 levels of food aid spending. This is nearly equivalent to the total amount of people who received US food aid in Africa in 2010 alone.

In terms of spending, US food aid programs are the biggest in the world, with the government allocating roughly $1.4 billion a year to provide emergency food supplies to disaster-stricken regions of the globe. They are also among the most inefficient. Oxfam’s report found that nearly half a billion of the $2.3 billion spent in 2010 was wasted. A 2011 Government Accountability Office (GAO) report puts the figure at $300 million a year.

The special interest groups opposing reform may not see this spending as having been wasted, but it isn’t being used to feed the hungry. Since the first federal food aid program was instituted by President Eisenhower in 1954, the law has required that food for aid be purchased solely from agricultural producers and suppliers in the United States. This means that US aid organizations are currently not allowed to purchase food in Tanzania for distribution to drought-stricken populations in the Horn of Africa, for example.

President Obama’s main recommendation, to allow LRP, or local and regional procurement of food in the locality of need, would change that. The United States is the only major industrialized country that does not allow LRP in its food aid program. According to Oxfam, the global average for non-domestic purchases as a total of food aid purchases is roughly 50 percent. The US is close to fifty percentage points below that, procuring most of its food for aid from US agricultural producers. US agribusiness supports this arrangement and is opposing reform.

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There is some economic rationale for domestic procurement, as US grain is often sold at some of the lowest rates in the world, a reality largely due to US technological prowess and farm subsidies. The real cost-inefficiency for taxpayers comes from shipping the food halfway across the globe. Oxfam estimates that local or regional procurement would result in a 23 percent total program cost reduction. The GAO report lambasts these costs as “inherently inefficient,” but also notes that Congress should consider the economic impact of reforms on the US maritime industry. That’s because these extra shipping costs go to the US maritime industry. They support the current arrangement and are also opposing the reform.

Even though the GAO notes that shipping costs sometimes exceed the total cost of the food delivered, proponents support reform for other reasons. One of them is speed of delivery, as moving food supplies from the United States to a humanitarian crisis can sometimes take months, delays that human life often cannot afford.

An inefficient use of money

Aside from allowing non-US procurement of food for aid, the Obama administration is seeking to end a practice known as “monetization.” The practice was instituted with the passage of the 1985 Food Security Act which authorizes development organizations to sell food purchased by the US government for aid purposes in order to finance development initiatives. Under monetization, also known as “in kind” distribution, US agricultural commodities are bought by the government and given to aid organizations that sell them in developing countries. Aid organizations then use the proceeds to finance development projects.

It often costs more to purchase food in the United States, ship it abroad, and sell it, than aid organizations gain from the process. According to the GAO, “Proceeds generated through monetization to fund development projects are less than what the US government expends to procure and ship the commodities that are monetized,” by about $219 million every three years.

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Obama is proposing that the money be given directly to aid organizations. His reform would also shift some funding from the Food for Peace initiative to the International Disaster Assistance [IDA] account and then allow non-US purchases of food for providing relief during a crisis, like the current famine in the Horn of Africa. According to the proposal, “With respect to emergencies, a majority ofIDA food aid funding would [still] be used to purchase and ship food from the United States [but] IDAfunding would also be used to purchase food from markets near crises.” Organizations that currently receive food aid for resell, known as P.L. 480 (Food for Peace) Title II development resources would be funded directly for a “more cost-effective use of taxpayer resources.”

All those opposed say “nay”

Allowing non-US procurement of food for aid and ending monetization are the two reforms that are the subject of an open letter to President Obama published by industry organizations on February 21st. The letter asks Obama to keep food aid the way it is. The signatories are mostly shipping and agribusiness interest groups, but some aid organizations are also on the list. A second letter was sent to the President by twenty-one US Senators from farm states asking Obama not to pursue the reforms. This followed “an intense lobbying campaign” according to Ron Nixon of The New York Times.

James Caponiti, executive director of the American Maritime Congress representing the US shipping industry, opposes reform because he says it could cost US jobs. “We are talking about hundreds of jobs lost. This is a very, very bad idea.” Caponiti’s remarks have been ridiculed since, with Jonathan Zasloff, an advocate of food aid reform from a faith-based humanitarian organization, the American Jewish World Service, simply writing, “Hundreds?”

The opposition to aid reform from aid organizations is due to political calculus. According to The New York Times, the president of Food for Hungry signed onto the opposition letter because he is unwilling to trust Congress to directly fund aid programs if part of the funding does not also support American shipping and agribusiness interest. But many humanitarian groups, including Oxfam andCARE, have supported and campaigned for these reforms.

In 2007, CARE – one of the largest US based aid organizations – went so far as to drop out of the monetization program. The move cost them $45 million dollars a year in monetization revenue but it allowed them to procure food locally and reach more people.

Digging deeper, the international context

Within the United States, food aid reform is a fight about the effective use of federal expenditures. If the goal is to provide food aid, then allowing distributors to cut out US agribusiness when it is cost-effective and therefore appropriate to do so makes sense. If the goal is to also support US agriculture and shipping industries, then the inefficiencies are a form of domestic US stimulus or subsidy. But some proponents of reform see a more international debate.

The practice of monetization has been criticized for its impact on the future food security of nations where food aid is sold to finance development initiatives. The GAO sums it up as: “Critics view the practice of converting cash to commodities and then back to cash as an inefficient use of resources that may also have adverse market impacts in recipient countries. These market impacts may include displacing commercial trade and discouraging local food production.”

The concern is that subsidized US food aid, sold at below market rates, might undercut demand for food grown by local farmers in developing countries. This pushes them out of business or causes them to produce less, ultimately reducing local or regional food security and making a bad problem worse.

In trade policy lingo, the practice of selling goods at below cost in order to displace competitors and gain market share is known as “dumping” and it is outlawed by the World Trade Organization (WTO). Although the goal of the WTO is to promote free trade between nations, its signatories are allowed to impose import restrictions when they are intended to prevent dumping.

Anti-dumping measures of this kind are allowed to protect essential domestic industries, like food production, from unfair foreign competition. Some onlookers like the Food First Institute for Food and Development Policy’s Eric Holt-Gimenez and author and academic Raj Patel view the strict procurement policy of US food aid as a strategy to promote the competitiveness of US agribusiness at the expense of developing nations’ food security. In simpler words, it’s an aid strategy that produces and maintains dependence.

The law governing US procurement of food aid may violate the WTO’s Agreement on Government Procurement, although it has never been taken to a WTO tribunal for interpretation. The Agreement on Procurement asks that no country favor its domestic enterprises over foreign ones in determining the award of government contracts, or to favor domestic over foreign goods in determining government purchases. The government purchase of food from domestic suppliers to be sold at below market rates in developing countries would legally be considered an export subsidy in violation of the WTO treaty except that a loophole was negotiated: food aid has been explicitly exempted from WTO prohibitions on export subsidies.

The last round of WTO negotiations, known as the Doha Round, collapsed because of disagreements between nations on agricultural policies. At the crux of the collapse was a battle over “hidden” agricultural subsidies to US farmers and the maintenance of barriers on US market access for developing country’s agricultural exports. With the US unwilling to move on these issues, other countries refused to move on other issues and the talks collapsed in 2009, after eight years of negotiations.

In the middle of those discussions was food aid. After the Hong Kong Ministerial Meeting of the WTOin 2005, trade ministers declared their intention to create a mechanism for one country to sue another over hidden subsidies in food aid. They promised to, “agree to effective disciplines on in-kind food aid, monetization, and re-exports so that there can be no loop-hole for continuing export subsidization.” A report from the Overseas Development Institute explained in 2006 that the fight over food aid, which was the United States versus the World, was blocking “progress” on “wider agricultural negotiations.” The US refused to “untie” their aid by allowing LRP and the current US food aid policy became one of the reasons that WTO trade negotiations collapsed and have yet to resume.

President Obama’s reform attempt has sweeping implications for the efficacy of US humanitarian assistance, global food security, and maybe even the resumption of global trade negotiations, but US agriculture and its allies are expected to continue petitioning Congress to oppose it. How Congress responds is worth following.

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