Monetised food aid under scrutiny

US charity CARE International made headlines last month when it said it would turn down US government aid to sell American food in developing countries. The funds generated by "monetisation" programmes typically were reinvested into other projects.

The US is one of very few countries that sell food aid in recipient countries; most donors give food in kind or supply cash to UN agencies or NGOs for buying food on national or world markets.

CARE’s position was that monetisation risked distorting markets in developing countries and was having an overall negative effect. Monetisation, or monetised food aid, is when food is bought at subsidised prices in the donor country and sold in the recipient country to generate funds for development projects.

In a two part analysis, IRIN examines the debate over monetisation and the linked issue of rising demand for food for manufacturing of biofuels.

The "iron triangle"

"The CARE move is critically important because it marks the end of the so called Coalition for Food Aid of NGOs, which combined with [farm] industry and shipping interests (as the so-called iron triangle) to support US food aid," said Edward Clay, senior research associate at the Overseas Development Institute, a UK-based think-tank. The "iron triangle" here refers to the coalition of agribusinesses, shipping companies and NGOs, that lobbies for food aid.

The CARE move is critically important because it marks the end of the so called Coalition for Food Aid of NGOs, which combined with [farm] industry and shipping interests (as the so-called iron triangle) to support US food aid

"The US is under considerable pressure in the WTO [World Trade organisation] negotiations to end monetisation and, notably, has found little support amongst African governments. Monetisation is not usually used as famine relief, but is an inefficient and trade-distorting form of development aid."

However, the 15-member Alliance for Food Aid, a group that favours monetisation, including US-based NGOs Africare and World Vision, in a website article, refuted the claim that monetisation destroyed local agriculture and said the sale of food commodities was conducted in a transparent manner.

The food is sold in countries that are poor and depend on imports for a substantial part of their food supplies.

In May 2007, however, the US Government Accountability Office (GAO), an independent investigative arm of Congress and congressional watchdog charged with auditing and evaluating government programmes, reported that the monetisation rate of non-emergency food aid had far exceeded the minimum requirement of 15 percent, reaching close to 70 percent in 2001 before declining to about 50 percent in 2005.

Monetisation "diverts resources"

CARE's decision came as the GAO report criticised monetisation as ineffective and called for an overhaul of the way food aid is distributed.

"Monetisation entails not only the costs of procuring, shipping and handling food, but also the costs of marketing and selling it in recipient countries," said the GAO.

"Furthermore, the time and expertise needed to market and sell food abroad requires NGOs to divert resources away from their core missions. In addition, US agencies do not collect or maintain an electronic database on monetisation revenues, and the lack of such data impedes the agencies' ability to fully monitor the degree to which revenues can cover the costs related to monetisation."

George Odo, a CARE official in Kenya said a proposal that 25 percent of the food aid dispensed by the US government be in cash to buy food for recipient countries locally or regionally, which the George Bush administration had been promoting for the last three years, also strengthened CARE’s position.

"We were also encouraged by the Bush administration's move to push the proposal as part of the 2007 Farm Bill, which is up for review this year ... and even the administration recognises that reforms have to made to make food aid more effective," said Odo. The Farm Bill, which determines US agricultural policy and also structures the country's food aid programmes, comes up for review every five years.

Food aid scarcer

CARE’s move comes at a time when rising oil prices are driving a growing demand for biofuel, making "free" food aid increasingly scarce.

Food aid is getting scarce and expensive; we need to use it strategically . . . where it is needed the most, which is in emergency situations

"Food aid is getting scarce and expensive; we need to use it strategically . . . where it is needed the most, which is in emergency situations," said CARE's Odo. "We have to rethink and reinvent food aid."

"CARE is absolutely right," said Christopher Barrett, who teaches development economics at Cornell University, in New York, and is the co-author of the book, Food Aid After Fifty Years: Recasting Its Role. He added "increased demand for maize and sugar for biofuel is driving up food prices and making food aid commodities more expensive."

In their book, Barrett and co-author Daniel Maxwell, a former CARE official, estimate that it costs more than two dollars of US taxpayers' money to deliver one dollar’s worth of food procured as in-kind food aid.

Barrett told IRIN that since the food aid budget in the US, and globally, "will not grow by anything approaching the price increases for commodities and the rate increases for freight - if the food aid budget grows at all - the tonnage available for shipment will surely fall. It becomes ever more important to target an increasingly scarce resource to use where it has the greatest impact: in this case, that's emergency food aid."

Change is on the menu

CARE's decision to say "no" to monetised aid provided "additional ammunition" to those attempting to reform US food aid, because "they are turning down an important source of revenue that funds many of their projects in developing countries," noted Nicholas Minot, a senior research fellow at the International Food Policy Research Institute (IFPRI), a US-based think-tank.

But, in the short term, the strength of agricultural interests in the US Congress, "in which sparsely populated agricultural states are over-represented", would override any attempts for change, he said.

"In addition, a basic principle of political economy is that a small group whose members have a large stake in a policy decision (e.g. farmers) will have a louder voice than a large group whose members have a small stake in the decision (e.g. non-farming taxpayers)," Minot said.

Barrett, of Cornell University, said it was "too early to tell what will emerge", as the Farm Bill has not yet been passed by Congress. "It's unlikely, unfortunately, that the Bush proposal for 25 percent [of cash] ... for local and regional purchases will go through; there will likely be a smaller pilot programme authorised."

Photo: Manoocher Deghati/IRIN

Monetised food aid can have a destabilising effect on markets in recipient countries

Clay pointed out that USAID had tried to bring about change five years ago during the last Farm Bill review. Andrew Natsios, the agency’s administrator at the time, had proposed that USAID use 25 percent of food aid funds to buy and ship food procured either locally in the recipient country, or in the region, for famine relief or in an emergency. "This seemingly reasonable proposal was poorly supported by US NGOs, and was rejected by the Congress."

The WTO is another pressure point that could force change. "WTO members, particularly the EU, consider food aid that is tied to home-country production to be a form of agricultural export subsidy," Minot commented.

According to the WFP, some donors have stopped donating food aid in the form of commodities, providing cash instead, and up to 15 percent to 25 percent of all food aid is now purchased in the country or region where it is needed.

John Hoddinott, a senior research fellow at IFPRI, said it would be a matter of the US catching up with global trends. "The discussions [in the US] have started at a technical level, but have to get to the policy level."

Odo said CARE was trying to lobby private donors to make up for the revenue lost for its development projects and hoped that "we can show a way to other NGOs."

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