FOOD AID February. Rob Tew. Contents. Investments to End Poverty discussion paper.

Transcription

1 FOOD AID Discussion paper 2013 February Investments to End Poverty discussion paper Rob Tew Development Initiatives exists to end absolute poverty by Contents Executive summary...2 Section 1: food aid a significant resource, dominated by one donor... 3 Section 2: food aid is valued from the donors not the recipients perspective... 5 How food aid valued in ODA... 5 Issues with the valuation of food aid... 5 Section 3: when and how should food aid be used?... 6 Criticisms of Food Aid... 7 Local and regional procurement (LRP) sourcing food aid from the developing world... 9 A decision-tree model for responses to food insecurity Section 4: concluding points for discussion The measurement of food aid in ODA When and how should food aid be used?... 12

2 Executive summary Food aid has been a long-standing feature of the international aid landscape and the value of food aid disbursed has seen something of a resurgence in the early years of the twenty-first century. The US has long been, and remains, by far the donor which reports the greatest value of food aid in its ODA statistics. Other large donors of food aid are the European Union, Japan, the UK, Canada, Germany and the World Food Programme (WFP). Food aid has also long been a subject of controversy and has been criticised as a donororiented system, which reduces the incomes of developing-country farmers through the dumping of surplus food by donors. However, a closer examination of international food aid reveals that the not all food aid is the same. In particular, the US food aid programme is now rather different from that of the majority of donors. Since the late 1990s most donors have increasingly shifted their procurement patterns in favour of Local and Regional Purchasing (LRP). This means that most donors purchase the food they deliver as food aid either in the recipient country itself or in another neighbouring country. The US, almost alone amongst major donors, has resisted this trend and still relies on shipping US-grown produce around the world. The fact that donors include the shipping costs of food aid in their ODA statistics means that US food aid is effectively overvalued in ODA compared with food aid from a donor who practices LRP (and consequently has much lower shipping costs). A detailed study of the data on food aid reported by the US to the OECD-DAC reveals that the value of this type of aid claimed by the US is much higher than the actual cost of the food if it were purchased in local markets. In an attempt to clarify the factors that donors should consider when choosing their response to a situation of food insecurity, this paper summarises a decision-tree model developed by Christopher Barrett of Cornell University. 2 Development Initiatives //

3 Million US $ (constant 2010 prices) Section 1: food aid a significant resource, dominated by one donor Where donors give aid in the form of the direct supply of food, this may be classified as humanitarian food aid or developmental food aid. Humanitarian food aid is intended to be short-term relief to targeted population groups affected by emergency situation such as famines, floods or earthquakes. Developmental food aid covers food given to people who are not experiencing an emergency situation. As well as putting a value on the food supplied, donors also count the cost of shipping the food in their reported aid Food Aid Developmental Food Aid Humanitarian Food Aid By 2011 the value of global food aid, as reported in the OECD-DAC CRS database, had almost doubled in real terms since Four-fifths of this increase was due to a rise in humanitarian food aid with developmental food aid growing comparatively slowly. The United States is by far the World s biggest distributor of food aid, accounting for more than 40% of the ODA reported as food aid in The next biggest donor is the European Union which disbursed just over one-third the amount of food aid given by the US and accounted for 14% of the global value of food aid. Other notable donors are Japan (9% of the global total in 2011), the United Kingdom (7%), Canada, Germany and the World Food programme (5% each). The United States position as the largest donor of food aid has remained unchanged for many years. Over the 10-year period , the US was responsible for 56% of the ODA classified as food aid. Development Initiatives // 3

4 United States EU Institutions Japan United Kingdom Canada Germany WFP Australia France Belgium Spain Switzerland Top donors of food aid in 2011 Developmental Food Aid Humanitarian Food Aid $ million The United States gave over 7% of its ODA in the form of food aid in 2011 and Canada 6%, compared to an average of 3% for all donors. Overall, 33 donors reported giving food aid in 2011 but, for the majority of these, this type of aid made up just a tiny fraction of their overall ODA disbursements. 4 Development Initiatives //

5 US$ price per tonne Section 2: food aid is valued from the donors not the recipients perspective A 2005 OECD study indicated that in-kind food aid carries quite heavy efficiency costs at least 33% more than less restrictive procurement methods. A UN study of bilateral aid to sub- Saharan Africa suggested that more than half the value of U.S. food aid is lost due to tying the majority of which is eaten up by shipping costs. Therefore it appears that, from a recipient s perspective, the value of this type of is not as great as the official figures suggest. How food aid valued in ODA As noted above, in the ODA statistics food aid is split between developmental and humanitarian food aid. Developmental food aid is defined as supplies and transport of food, cash for food, and intermediate products (fertilisers, seeds, etc.) provided as part of a food aid programme whereas humanitarian food aid comprises supplies of food, and associated costs, provided for humanitarian relief purposes 1 Issues with the valuation of food aid As noted above, it has been argued that the value which donors place on the food aid they disburse is perhaps a poor reflection of its true worth to the recipients of this type of aid. One previous study commented that...premiums paid to suppliers and shippers, combined with the increased cost of food aid due to lengthy international transport raise the cost of food aid by over 100 per cent compared to local purchases. 2 One factor affecting the transportation costs of US food aid is the fact that it is written into the 1985 Farm Bill that 75% of all US food aid must be shipped in American ships. A review of the aid data for 2010 shows that the amount of ODA claimed per tonne of US sorghum shipped to Chad was 215% higher than the average local market price. For sorghum shipments to Sudan, Somalia and Ethiopia the figures were 63%, 95% and 20% respectively Sorghum - US Food Aid cost v. local market price, Chad Sudan Somalia Ethiopia US Food aid cost in US$ per tonne Local market cost in US$ per tonne 1 From DAC Statistical Reporting Directives, Frederic Mousseau, Food Aid or Food Sovereignty? (The Oakland Institute, 2005) 3 Comparison of ODA data from the DAC CRS database with wholesale commodity prices from the FAO s GIEWS Food Price Database. Development Initiatives // 5

6 US$ price per tonne Similarly for US wheat shipped as food aid the value per tonne was higher than the local market price in all the countries surveyed Wheat - US Food Aid cost v. local market price, Afghanistan Ethiopia Bangladesh US Food aid commodity cost in US$ per tonne Local market cost in US$ per tonne Section 3: when and how should food aid be used? In view of the fact that hundreds of millions of people throughout the developing world do not have access to sufficient nutrition, the case for giving food aid may appear, at first sight, to be clear-cut. Understandably, the agencies involved in distributing food aid focus their justification for this type of aid on the numbers of people who have benefited from such assistance, for example: U.S. international food assistance has long played a critical role in responding to global food insecurity. This tradition continued in FY 2010, with the USG providing more than 2.5 million metric tons of commodities to more than 65 million beneficiaries in 73 countries worldwide. 4 In situations of acute food insecurity, the benefits of food aid go beyond just feeding those who do not have enough to eat. Mousseau (2005) 5 writes: Food aid not only saves lives in crisis situations but also prevents the use of coping strategies that can be damaging for economic recovery such as the consumption of seeds, the slaughtering or the sale of livestock, depletion of capital goods, migration to cities or deforestation. However, this is not the whole story and food aid has come in for a considerable amount of criticism over the past few years. A number of these criticisms are summarised below: Food aid favours interests of producers over those of recipients Food from developed countries drives down local prices Food aid creates a negative cycle of dependency among recipients Food aid shipments reduce when global supplies are scarce and prices are high Food aid does not respond to food shortages in a timely manner There is also a debate over the method of procurement of the food commodities involved. Many donors have, in recent years, increasingly switched to a local and regional procurement (LRP) model. Under LRP the food which is to be supplied as food aid is purchased not in the donor 4 US International Food Assistance Report, USAID, Mousseau, F., Food Aid or Food Sovereignty? Ending World Hunger in Our Time, Oakland Institute, Development Initiatives //

7 country, but in the country where it is to be disbursed, or in neighbouring countries in the recipients region. Criticisms of food aid Food aid favours interests of producers over those of recipients Mousseau (2005) is unequivocal in referring to food aid as a donor-oriented system and pointing to its role in promoting domestic interests of donor countries. Although food aid began at a time when a policy of price support for agricultural commodities generated large surpluses of cereals in developed countries, by the 1980s these surpluses had shrunk. Since then, as Mousseau notes, food aid is now driven more by the individual interests of a few groups and businesses rather than political objectives that favor an entire economic sector. Barrett & Maxwell (2005) 6 echo this, arguing that food aid represents the interests of the privileged few with preferential access to procurement process. This assertion appears to be borne out by a recent article in The Guardian 7 which used analysis of US food aid contracts to point out that most US food aid is supplied by a small number of very large agribusinesses. The largest supplier, ADM, was responsible for almost a third of US Food Aid in fiscal year and the top 5 companies accounted for approximately 70% of the total in that year. The data from this analysis is represented in the chart below. Value of US Food Aid Contracts by Supplier in ADM CAL WESTERN PACKAGING CORPORATION CARGILL INC BUNGE NORTH AMERICA INC DIDION INC UNITED PULSE TRADING INC ADVOCACY AND RESOURCES COLUMBUS FOODS COMPANY FARMERS RICE MILLING COMPANY 40 other producers Million US$ Food from developed countries drives down local prices and disadvantages local producers As noted by Barrett (2006) 8 food prices almost invariably fall in local markets after food aid distribution. Food aid can drive down local, or indeed national, food prices through a number of mechanisms: Households receiving food aid may decrease their demand for the type of food received, or locally-produced substitutes Recipients may sell food aid in order to purchase other necessities 6 Barrett, C. B. and Maxwell, D.G. Food aid after fifty years: Recasting its role. Routledge, New York, US Food Aid Programme Criticised as Corporate Welfare for Grain Giants: 8 Barrett, C.: Food Aid s Intended and Unintended Consequences, Food and Agriculture Organization of the United Nations ESA Working Paper No , 2006 Development Initiatives // 7

8 The monetization of food aid by NGOs or other actors may increase supply to the extent that the market is flooded Although, for a population facing food shortages, a reduction in local market prices may be beneficial, the lower prices will disadvantage local producers. If food aid deliveries occur regularly, local producers may lose incentives to invest in local agriculture and could even lose their livelihoods as a result of food aid. The effects of food price reduction on producers may be felt not just in the communities that receive food aid, but in neighbouring areas that were not targeted by the food aid programme. For example, Barrett and Maxwell (2005) describe a collapse in sorghum prices in southern Somalia in 2000, linking it, in part, to poorly timed sorghum food aid delivered to Ethiopia that then moved across the border and adversely impacted producers in southern Somalia. Food aid creates a negative cycle of dependency among recipients Mousseau (2005) sees food aid as part of a trading system that can lock recipient countries into a situation of dependency on overseas food. Mousseau points to the declining terms of trade in agricultural products faced by developing countries and the trend for some of these countries to specialise in growing non-food products such as coffee or cocoa. These trends, Mousseau argues, are facilitated by a combination of food aid and cheap imports of food which ultimately undermine the recipient countries ability to feed their own populations. However Barrett (2006) states that: Many of the alleged negative effects of food aid or negative dependency triggers...are supported only by unverified anecdotes rather than by detailed ethnographic or econometric research. Also, Barrett and Maxwell (2005) contend that claims of dependency seem to have the direction of causality wrong. Shocks cause behavioral change that may necessitate various types of safety nets, including food aid. But food aid volumes transferred, in almost all cases, are simply too modest to make people dependent upon them, although they can help keep them alive and they can surely change the incentives that affect the behavioural choices they make Food aid shipments reduce when global supplies are scarce and prices are high As with any commodity market, scarcity in food supply is typically associated with increases in the price of food. As one could reasonably expect that the need for food aid rises as food becomes more scarce, it would also seem reasonable to expect some degree of correlation between periods of high food prices and periods of high food aid shipments. However, as reported in Mousseau (2005), food aid flows actually exhibit a negative correlation with global food prices with, for example, peaks in the price of wheat in 1996 coinciding with the lowest tonnage of food aid shipped in any year between This led Mousseau to conclude that:...the main driver of food aid remains the domestic support to agribusiness interests rather than the needs of developing countries. Typically, food aid flow increases in periods of low prices and high levels of food stocks in developed countries. Food aid does not respond to food shortages in a timely manner Mousseau (2005) refers to the 2005 food crisis in the western Sahel as an example of the slowness of response that can be associated with food aid: Terrible images of starvation in Africa once again hit the western world in July Reports from Niger were shocking as they came soon after publicized worldwide concerts and international mobilization against poverty and the G8 summit in Gleneagles. They were not only appalling because of unacceptable images of starving children but above all, because the food shortage had been announced nearly a year before, without triggering a response which would have prevented the famine. 8 Development Initiatives //

9 The severity of the food shortage was made known as soon as October 2004, when Niger s government and WFP appealed for international support. The response by the international community was initially very limited: four months after its first appeal, WFP had received only 10 percent of the required funding. According to UN Humanitarian Coordinator Jan England, in October 2004, 1 dollar per day per child would have been initially necessary to save lives, whereas 80 dollars per day were required in July It would have been possible to organize an appropriate response as soon as food shortages were predicted by providing funds to the government for food imports and distribution and allowing smooth and organized support from the international community. However, the international community largely ignored the situation in Niger until July 2005, when expensive emergency air cargos were sent from Europe with nutritional products to treat malnutrition. Regional purchases of food months before could have easily prevented the severity of the situation. Barrett and Maxwell (2005) also point out that: direct shipments of emergency food aid from the USA take nearly five months at the median to arrive at the recipient s harbour. More recently Kuhlgatz and Abdulai (2012) 9 stated that:...temporary shocks are often neglected and...us food aid does not respond to crisis shocks. Local and regional procurement (LRP) sourcing food aid from the developing world When most people hear the term food aid it usually conjures up an image of physical shipments of food from the donor countries to the recipients. However, over a number of years there has been a move on the part of most donors to purchase food aid in the developing world, close to the communities for whom the food aid is intended. This is referred to as Local and Regional Procurement, or LRP. Proponents of LRP argue that it is both faster and more cost-effective than food aid shipped from the donor country (transoceanic food aid). Studies showing some evidence to support this view include Coulter et al. (2007) 10, Haggblade and Tschirley (2007) 11 and Hanrahan (2010) 12 Further, some agencies argue that procuring food locally can strengthen local markets, support farmers, and improve food quality and safety (WFP ). The World Food Programme (WFP) began procuring food locally in Asia in the 1970s and in Africa in the 1980s. But until the past decade or so, most agencies procured only a small amount of their food aid via LRP, if any. More recently, however, LRP has gathered momentum. For the European Union and its member states an important step came in 1996 when the EU issued a regulation favouring LRP over transoceanic food aid shipments (EC 1996). Similarly Canada now provides virtually all of its food assistance in the form of cash for local procurement, vouchers, or cash distributions. These policy changes increased LRP s share of global food aid from just 11 percent of global food aid flows in 1999 to 39 percent by 2008, according to World Food Programme (WFP) FAIS data 9 Kuhlgatz, C. and A. Abdulai. Food Aid and Malnutrition in Developing Countries: Evidence from Global Food Aid Allocation. Journal of Development Studies, Coulter, J., Walker, D., Hodges, R., Local and Regional Procurement of Food Aid in Africa: Impact and Policy Issues. Journal of Humanitarian Assistance, Haggblade, S. and D. Tschirley, Local and Regional Food Aid Procurement in Zambia. Food Security Country Working Papers, USAID s Office of Food for Peace, Hanrahan, Charles E., Local and Regional Procurement for U.S. International Emergency Food Aid. Congressional Research Service, , World Food Programme. Summary P4P Procurement Report Sept 2008 March 31, Development Initiatives // 9

10 The one major exception to this trend in the US, the world s largest donor of food aid. Historically the US has provided virtually none of its food aid via LRP. However, the 2008 Farm Bill authorized funding of $60 million between fiscal years for the US Department of Agriculture (USDA) to undertake the Local and Regional Procurement Pilot Project (LRPPP). The LRPPP, and some other smaller initiatives, saw the share of LRP in US food aid rise to as high as 10% by However, this 10% figure is food aid as measured by tonnage rather than by value, the distorting effects of shipping costs on the ODA value of food aid means that the share of LRP in the value of US food aid was much lower than 10%. Also, this is still well below the share of LRP in the food aid disbursements of other donors (see figure below 14 ). Furthermore the LRPPP pilot project has now expired and, at time of writing, no agreement has been reached to extend it. Food Aid Shipments by Method of Delivery, 2011 United States of America Luxembourg Japan Italy Netherlands, the Australia Sweden Switzerland France Norway Canada European Community WFP Republic of Korea, the Spain Belgium Germany Denmark Austria New Zealand Ireland Finland United Kingdom 0% 20% 40% 60% 80% 100% %of total tonnage of food aid disbursed by each donor Transoceanic From this data one can see that, of the major donors of food aid, only the US and, to a lesser extent, Japan make extensive use of transoceanic food shipments. Indeed, although the US was responsible for 54% of food aid disbursed (by weight) in 2011, it was responsible for nearly 90% of transoceanic food aid shipments. LRP 14 Data sourced from WFP s Food Aid Information System (FAIS) database 10 Development Initiatives //

11 A decision-tree model for responses to food insecurity Christopher Barrett of Cornell University has developed a decision-tree model to help clarify when it may be more appropriate to use transoceanic shipment, LRP or cash transfers when responding to situations of food insecurity. This model is summarised below 15 : 15 Adapted from diagrams in: Barrett, C., Bell, R., Lentz, E. and Maxwell, D., Market Information and Food Insecurity Response Analysis, Food Security, 2009 Development Initiatives // 11

12 Section 4: concluding points for discussion In our conclusions we look at the issues surrounding food aid from two perspectives: How should food aid be measured and accounted for in the ODA statistics reported by donors? What are the factors affecting the appropriate use of food aid? The measurement of food aid in ODA The value of food aid as reported by the donors is clearly greater than its value on the ground in developing countries. The cost of shipping transoceanic food aid, especially in the case of the US is the largest distorting factor in this equation, but other factors, such as the timliness of emergency response, also have an effect. Shipping costs On average, shipping costs approximately double the ODA value of transoceanic food aid when compared to the actual value of the aid delivered to recipients. The fact that many donors now deliver the vast majority of their food aid via LRP mechanisms calls into question the necessity of the US (and, to a lesser extent, Japan) providing such a high proportion of food aid via transoceanic shipment. For example, although the data indicate that the US gave three times the value of food aid given by the EU, the fact that around half of the US figure may represent shipping costs means that the difference in the value of food aid actually delivered to recipients by these two donors is far smaller. In future, should donors be required to systematically report the commodity value of food aid separately from the shipping cost? This would enable much greater clarity as to the true value of aid delivered to recipients. Developmental food aid Whilst food aid can undoubtedly save lives in crisis situations, the developmental effect of food aid in areas not facing acute food shortages are mixed and may even be negative. An influx of food from donors into an area not facing acute food shortages, whether it is delivered directly to the population or monetised by NGOs selling it in local markets, will invariably drive down the income of local food producers and, over time, may provide a disincentive to investment in local agriculture. Is the direct supply of food an appropriate tool for development in areas not suffering from food shortages? Should there be tighter rules around the circumstances under which the supply of food is allowed to be counted as ODA? When and how should food aid be used? LRP, transoceanic or cash transfer making the right choice The economic and nutritional effects of transoceanic and LRP-sourced food aid can be dramatically different. Indeed, in some circumstances, cash transfers may be a more appropriate form of aid than any kind of food aid. The decision-tree model proposed by Barrett offers a potentially transparent method for donors to make an informed choice about the best way in which to deliver this kind of aid. 12 Development Initiatives //

13 Should donors agree and adopt a model along the lines proposed by Barrett? What other factors should be considered when choosing whether, and how, to give food aid? The timeliness of response to crises Food aid, especially transoceanic food aid does not always respond in a sufficiently timely manner to crisis situations. As noted above, in reference to the crisis in Niger in 2005, UN Humanitarian Coordinator Jan England stated that, when the food shortages were first identified, 1 dollar per day per child would have been initially necessary to save lives, whereas 80 dollars per day were required some nine months later. This gives some indication of the increase in value that could be achieved if food aid arrived when it is needed. What can be done to make food aid respond better to crisis situations? Should the speed of response be a factor in determining whether a given for aid shipment is eligible for inclusion in ODA? Development Initiatives // 13

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