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Obama proposes end of monetized food aid

Maize fields in Iowa state Courtesy of USDA NRCS
In a major development, President Barack Obama has proposed an end to the sale of US food aid in developing countries, with options for buying food locally and cash transfers, among other radical reforms to the system. USAID has accounted for more than half of the world's food aid every year for decades.

The President's budget, tabled on Wednesday 10 April, ends years of US reliance for food aid on its agriculture surpluses. However, NGOs have been asking for removing the requirement to buy most of the emergency food aid in the US and transporting it on US vehicles to reduce costs and save time.

This has been met with stiff resistance from various interest groups. In a compromise move to ensure the proposals garner much-needed support in Congress and improve efficiency, the Obama administration has proposed allowing around 45 percent of emergency aid to be bought locally, and using the funds for cash transfers or food vouchers. But 55 percent of emergency food aid would still be bought in the US.

Emergency food aid - US$1.4 billion - forms a substantial chunk of the total food aid assistance package of $1.8 billion.

The changes make the food aid system more efficient and flexible, and will help feed four million more people every year, said Rajiv Shah, the administrator of the US Agency for International Development (USAID) in an address to a forum at the Centre for Strategic and International Studies (CSIS), webcast live on Wednesday evening.

Of the $1.4 billion for emergency assistance, $1.1 billion will be provided to International Disaster Assistance (IDA) for emergency food response in times of crises, which could be ongoing.

The 2014 budget also creates a new Emergency Food Assistance Contingency Fund worth US$75 million - roughly five percent of the total emergency food aid allocation of $1.4 billion - allowing USAID to provide emergency food assistance for “unexpected and urgent food needs worldwide”. It will also have various aid options - cash assistance, purchasing food locally, or food vouchers - according to details posted on the USAID website.

The remainder of the funds goes towards development assistance to address chronic food insecurity.

Shah said existing food aid restrictions denied the US government the flexibility to provide cash transfers that could have prevented Somali children from slipping into severe malnutrition. “Inefficiency was inexcusable“ in the country’s efforts to “accomplish something so profound [as helping people in need],” he noted.

Various studies - from the US Government Accountability Office (GAO), an independent investigative arm of Congress, to Cornell University - have pointed out that millions of US taxpayers’ dollars are wasted because of inefficiencies in the existing food aid system.

"There is no doubt that some advocates of reform would have wished to omit the guarantee of 55 percent of the 2014 budget still going to commodities purchased in the US"
There have been several attempts to fix the system. The George Bush administration, pushed by former USAID administrator Andrew Natsios, called for similar reforms but failed to get the necessary support in Congress. 

Reforms have usually faced tough opposition from a lobby referred to as the "iron triangle", comprising agribusiness, the shipping sector, and some development organizations and NGOs, but food aid experts, NGOs and think-tanks, who have all welcomed the Obama administration’s efforts, are more optimistic this time.

The problems

There are two major flaws in the US food aid system. One is monetization, in which US agricultural commodities are donated to NGOs and development organizations, who then sell these in countries that need assistance to raise the money for their programmes.

This practice has prevailed since the beginning of food aid, which was based on the idea of providing surplus produce as gifts. Almost all major donors have now given up this practice because selling gifts of maize, wheat or other staples in developing countries often distorted local markets, and surpluses to gift are much smaller than before for various reasons, including shrinking production.

But the US has kept up with the practice. In 2007, US charity CARE was the first to turn down the monetized approach. The US has also been under pressure from the World Trade Organization (WTO) to end this trade-distorting form of development aid, which now comes to an end with Obama’s proposal.

The other flaw is a policy called the Agricultural Cargo Preference (ACP), which requires that 75 percent of US food aid be shipped on privately owned, US registered vessels, even if they do not offer the most competitive rates. Some of these costs are reimbursed by the Department of Transportation's Maritime Administration, but ultimately the US taxpayer foots the entire bill.

This policy affects the shipping sector of the "iron triangle", and any efforts to change it have met with stiff resistance. In 2010, a study led by Christopher Barrett, a food aid expert at Cornell University showed that US taxpayers spent about $140 million per year to ship food aid to global destinations on US vessels - money that could have been used to feed more people.

The Obama administration has not called for the end of this policy entirely, but has reduced the percentage of food aid that has to be bought in the US and shipped on US vessels to 55 percent of the total requested $1.4 billion for emergency food assistance.

“I imagine that trying to garner political support, or at least neutralizing opposition, is part of the reason for some of the proposals such as retaining over half of the 2014 budget going to US commodity purchases,” said Daniel Maxwell, a food aid expert at Tufts University, who wrote about the “iron triangle” in the 2005 book, Food Aid After Fifty Years: Recasting Its Role, co-authored with Barrett.

Maxwell described the proposals as “a huge step” in a positive direction. “It finally puts to rest the wasteful and sometimes harmful practice of monetization. It highlights the speed and cost effectiveness of local and regional purchase of food, and it emphasizes flexible and evidence-based approaches to food assistance.”

He told IRIN, “There is no doubt that some advocates of reform would have wished to omit the guarantee of 55 percent of the 2014 budget still going to commodities purchased in the US, and… [have been disappointed] that the role of cash transfers isn't highlighted more in the proposed changes… But the administration is clearly committed to a long-term course of reform.”

Barrett said the tabled proposal had been watered down "from the informal proposal that was floated discretely a month or so ago and elicited intense opposition from vested agribusiness and shipping interests, as well as a few NGOs". The earlier proposal called for doing away with procuring food aid in the US only. "But that's the political reality", and even this proposal will face "stiff opposition". He added, "Congressional lawmakers from both parties are indicating openness to this proposal and most of the major NGOs are strongly supporting these proposals."

Ben Grossman-Cohen, of Oxfam America, speaking on behalf of several NGOs and think-tanks in the US who have lauded Obama’s efforts, noted that “This budget goes farther than previous reform proposals have… [and] common sense changes that get taxpayers more bang for their buck will be hard for legislators to overlook.”

Republican Congressman Vin Weber backed that view in the CSIS discussion that followed Shah’s address on Wednesday evening, saying that "budget tightness", where even Obama has agreed to take a pay cut to show solidarity with other government officials, will force everyone to consider the reforms seriously.

Republican Congressman Ed Royce, Chairman of the House Foreign Affairs Committee, and Democrat Eliot Engel, the Committee’s Ranking Member, issued a joint statement supporting the reforms.


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