Missed opportunity to make US food aid more effective

USAID food aid

The United States Congress looks set to approve a farm bill in the coming weeks that would pass on a chance to improve the way the US distributes aid.

The US House of Representatives passed a farm bill last week, sending the comprehensive piece of agriculture legislation to the Senate after voting 251-166 in favor. The previous farm bill originally expired in 2012 before being extended to the fall of last year. Setting out broad swaths of agricultural policy over five years, the farm bill had been a major legislative hurdle up to now.

There were some hopes that this bill would address lingering inefficiencies that have made US aid for disaster relief abroad slow and costly. However, the current bill does little to reform the system.

Monetization

In the 2014 budget, President Obama had asked for a more “cost effective” approach that would end the practice of “monetization”, where foodstuffs are donated to aid organizations that then sell it to fund their projects. This process, know as monetization, “results in an average loss of 25% on each dollar of monetized food aid.” By decreasing the required percentage of aid that has to come in the form of physical commodities, the US could have streamlined its aid while getting more out of each dollar spent.

Instead, the version passed by the House does nothing to end monetization, ensuring that many of aid organizations will continue to be able to fund themselves in this way. There is some desire on the part of NGOs to change the system, however. The humanitarian organization CARE ended its involvement in monetization in 2007 because it believed the process “impedes efforts to support country-ownership, local production self sufficiency, and long term sustainable development.”

A slow and expensive system

Much of the aid the US donates has to be in the form of agricultural commodities purchased in the United States. Most international aid varies from cash transfers, local procurement, and physical food shipments. However, the US is relatively unique in stipulating that only 15% of aid can be “untied,” while the remainder has to come in the form of US food. While providing an outlet for US food surpluses, this has had the adverse effect of making US aid more inefficient and costly.

By buying food in the US and then shipping it overseas, the requirements for US international aid drastically delays the delivery of key resources. A GAO report from 2009 found that aid provided in this way ended up costing on average 25% more and taking up to 100 days longer to be delivered. Shipping food from the US abroad took closer to five months to be delivered, while relying on locally procured food reduced the response time to a little over a month. Although challenges exist in buying in the foreign country, the GAO argued that “local and regional procurement offers donors a tool to reduce food aid costs and delivery time.”

In some disasters, local agricultural systems might be destroyed, making it necessary to ship food in from abroad. However, many times a local or regional market still exists and can be relied on for supplying food. Flooding the local market with cheap US crops can have the unintended effect of undercutting local growers.

Why it matters

USAID estimates that ending monetization and making aid more flexible would bring aid to between 2 and 4 million more people per year while saving $155-$215 million dollars. By focusing on using the increase in “untied” aid toward locally procured cereals (among other strategies), the Center for Global Development claims that these reforms could actually help 4-10 million more people.

The requirements have proved resistant to change because of the vested interests in the status quo. In the USAID estimate of savings, $50 million come just from savings on shipping costs alone. Huge shipping companies like Maersk make a lot of money from transporting US food. They can capitalize on the American desire to protect farmers and exports to argue for continuing the current system. While international aid only makes up 0.5% of agricultural exports, food lobbies have ardently defended the program too.

While the farm bill being considered now does accomplish a lot of policy, US lawmakers missed a major opportunity to improve disaster relief while getting more value from precious federal dollars. The Senate will likely take up and pass the House version this week. Despite the lack of reform, it is worthwhile to be familiar with this issue.The status quo seems to be safe for now but could be changed in the coming years, changing the funding of large international aid organizations and displacing revenues of major shipping firms.

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Categories: Economics, North America

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