Facts about Food Aid Reform

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WASHINGTON, D.C.- The urgency of providing $100 million of food aid to feed 2.5 million displaced survivors of colossal Typhoon Haiyan has rekindled pressure on Congress to change the requirement that U.S. food aid be purchased from United States farmers and transported on expensive U.S. ships halfway around the world.

Below are seven facts that support key issues related to the much needed food aid reform.

1. Need for Flexibility in its Approach

When Typhoon Haiyan slammed into the Philippines,  the U.S. Agency for International Development (USAID) responded by sending a ship with rice that was stored or prepositioned in Sri Lanka, airlifted 55 tons of biscuits from Miami and procured food locally. Dr. Rajiv Shah, the administrator of USAID, said changes to the food aid program did not have to be an either/or situation.

“As you see from the initial response to the typhoon, we need both—American food and locally grown food. It works in tandem. All we’re asking for is a little bit more flexibility to meet the humanitarian needs of a much more complex and changing world,” Shah told the New York Times.

2. Local and Regional Procurement (LRP) – Saves Time, Money and Lives

A 2012 Cornell study found that purchasing food locally or issuing cash or vouchers was more cost and time efficient when compared to shipping U.S. food aid to the recipient country. It sliced off nearly 14 weeks from the usual length of time to deliver foreign aid, which is a 62 percent gain in timeliness. Although the study indicated that the amount of time saved varies by country. It strongly suggests that LRP is “positioned as a means to achieving cost and time savings relative to transoceanic food aid.”

Currently, USAID can only spend up to $300 million on local procurement, which is approximately 20 percent of the annual $1.5 billion U.S. food aid budget. Most of what the U.S. can spend on LRP has already been pledged to Syria and the Democratic Republic of Congo and set aside as a reserve to other projected humanitarian crises around the world.

Since the U.S. has spent $8 million of its $10 million contribution to the Philippines, it would not be able to continue any further local procurement under its current laws.

3. Monetization Increases Cost to the U.S. Government

Monetization is the sale of U.S. food in developing countries to fund development activities. The U.S. Government and Accountability Office (GAO) found that proceeds generated from monetization were often less than what the U.S. government spends on purchasing food aid and shipping it to the recipient country. To understand the implication of how monetization increases costs to the U.S. government, one has to understand what cost recovery is.

Cost recovery is the ratio of proceeds generated from partners implementing monetization and the cost incurred by the government to bring food aid to the recipient country for monetization.

GAO used cost recovery as the basis to evaluate the effectiveness of monetization. Between 2008 and 2010, GAO noted that USAID obtained an average cost recovery of 76 percent, which is $91 million less in proceeds than what the U.S. government had spent in purchasing and shipping food aid during the same period. On the one hand, the U.S. Department of Agriculture (USDA) obtained a cost recovery of 58 percent or $128 million less than what was spent during the period 2007 and 2009. This implied a total loss of $219 million, which could have been used for development activities.

By eliminating monetization, USAID estimates it could save $30 million per year.

4. Unclear Metrics Falls Short

The Food for Peace Act stipulates that monetization through USAID and USDA must attain a “reasonable market price” in the recipient country. However, there is no clear definition on what constitutes a reasonable market price. GAO found that more than one-third of monetization transactions fell short of the import price parity (IPP).

World Food Program uses IPP to determine the potential impact local or regional purchases may have on the given market. By comparing monetization sale prices to IPP, it provides a point of reference to find out “the extent to which monetization transactions occurred at a fair and competitive price for commercially imported supplies,” according to GAO.

GAO found that more than one-third of the 42 transactions reviewed had sale prices lower then 90 percent of the commercially imported products. This implied that it could have obtained higher prices. For example, in 2008, USAID allowed the monetization of vegetable oil at 70 percent of the IPP.

With unclear metrics or benchmarks, monetization in reality increases cost to the U.S. government.

5. U.S.-Flagged Ships Cost More

Seventy-five percent of U.S. food aid must be shipped on U.S.-flagged ships in accordance to the cargo preference mandate. The Great Lakes Set-Aside mandate requires 25 percent of Title II bagged food aid tonnage to be transported via Great Lakes ports each month. These legal requirements reduce competition, leading to higher freight rates for foreign food aid.

“Ocean transportation represents about a third of the cost to procure and ship commodities for monetization, and legal requirements to ship 75 percent of commodities on U.S. flag vessels further increase costs,” revealed GAO in its study.

Since 2002, the number of U.S.-flagged ships participating in transporting foreign food aid had decreased by 50 percent. With less competition, freight costs have inevitably increased.

GAO attributes the decline in numbers of eligible ships to the lengthy three-year wait period before former foreign-flagged vessels can be recognized as U.S.-flagged ships. To augment the number of participating U.S.-flagged vessels, GAO recommended removing the three-year waiting period as this would help increase competition and reduce shipping costs.

The Depart of Transportation (DOT), however, disagreed with the GAO’s recommendation of removing the three-year waiting period, and cited concerns of its impact on the U.S. maritime industry.

GAO estimates between 2008 and 2010, cargo preference cost $30 million more because of the higher freight rates charged by U.S.-flagged ships. A survey on 29 partnering organizations by GAO revealed that 19 partners indicated that allowing food aid to be carried by a foreign-flag would “greatly improve” or “very greatly improve” cost recovery rates. Currently, food aid shipments on non-U.S.-flagged ships cost $25 per ton less than U.S.-flagged ships.

6. Current Food Aid Program is Structured Around Economic Interests

The Obama administration indicated that the calamity in the Philippines underlined the need to amend the food aid program, but strong objections have arisen from members of Congress, especially those from farm states or states where the maritime industry is a central employer.

According to the New York Times, the American Maritime Congress, an advocacy group for the U.S. merchant marines, said the changes to foreign aid would take out of service as many as 10 U.S ships used for food shipments and hundreds of people would lose their jobs.

Danny Murphy, president of the American Soybean Association, commented that the food aid program was fine the way it was and did not need changing, according to the New York Times.

“For the most part it has worked well for 60 years,” said the Mississippi farmer. “It provides jobs in this country, and people get the food they need. Why change that?”

7. Dumping U.S. Food in Recipient Country Undermines Local Economy

Eric Munoz, a Washington policy analyst with Oxfam International, a humanitarian group, told the New York Times his concerns on U.S. food being shipped to the Philippines and how it might affect the local economy. This was evident in the aftermath of the 2004 tsunami that struck Indonesia and the 2010 earthquake in Haiti. Foreign food aid from the U.S. undermined the local markets for rice and undercut prices in both countries, which further impeded recovery.

– Flora Khoo

Source: Center for Public Intergrity, Cornell University, Brookings, United States Agency for International Development, Government and Accountability Office, New York Times
Photo: USAID

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About Author

Flora is from Singapore and she graduated from Regent University with a master’s degree in Journalism. She was drawn to The Borgen Project because of her love for writing and interest in international development issues. She speaks both English and Mandarin and enjoys canoeing.

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