Just when some African countries was getting attention on rejecting gene modified agriculture or crop growing, their citizen and possible food aid during emergency may have a touch with questionable hands and practices from the West. Again PDF formatted report from Oxfam on food aid.
3. Why is food aid a trade issue?
The primary objective of the WTO agreement on agriculture is to reduce distortions in world trade in agricultural products. Trade distortions targeted for elimination at the WTO include border measures such as tariffs, domestic support for agriculture, and export-related subsidies, which confer competitive advantage on farmers who receive them.
All food aid is potentially trade-distorting, and food aid will satisfy some consumer demand whenever it is distributed. In places where people are simply too poor to purchase food, or where there is no functioning market, there is little or no market distortion as any consumption will be additional. Otherwise, food aid has the potential both to reduce domestic production of food in the recipient country, damaging the livelihoods of rural populations, and to displace exports into the recipient country market from other countries.
WTO disciplines constrain the ability of countries to adopt trade-distorting measures. However, food aid is not subject to tight disciplines under the Uruguay Round Agreement on Agriculture (AoA), and rules governing food aid are not subject to dispute settlement. The AoA sets forth only guidelines to govern the provision of food aid.
For example, WTO members are required to ensure that food aid is not directly or indirectly tied to commercial exports of agricultural products — but the disciplines do not specify what this means and do not provide for raising disputes or resolving them. Article 10.4 of the AoA refers to the need to avoid trade displacement and the need to respect the FAO’s ’Principles of Surplus Disposal and Consultative Obligations’ (see below). The AoA also encourages the provision of food aid primarily in grant form. Although well-intentioned, these provisions have not been enforced and have done little to curb the market displacement caused by food aid.
A major problem in preventing abuses of food aid is the weakness of specialised oversight institutions. The Consultative Subcommittee on Surplus Disposal (CSSD) is hosted by the FAO and is made up of both donor and recipient governments. While the CSSD has little real enforcement authority, it has served as a useful reporting and oversight body, as well as a forum for complaints about food aid abuses. However, reporting of food aid transactions under the CSSD has been notoriously poor in recent years. While in 1991 average reporting rates were nearly 80 per cent of transactions, by 2001 they had dropped to a record low of just 4 per cent.7
The CSSD was set up to help guide the disposal of surpluses and oversee a code of conduct created in 1954 under the auspices of the FAO. The Principles of Surplus Disposal and Consultative Obligations set out procedures and requirements for countries engaging in concessional agricultural transactions. The goal of the Principles is to ensure that food aid does not disrupt normal agricultural production or trade, but they have no binding enforcement or dispute settlement mechanism.
In 1967, donor countries agreed on a Food Aid Convention (FAC) to enhance the capacity of the international community to respond to emergencies, by guaranteeing a predictable flow of food aid each year, irrespective of fluctuations in price or supply. The agreement has been periodically updated and revised, and was scheduled to be re-negotiated in 2002. However, negotiations on a new FAC have been put on hold pending action on food aid disciplines at the WTO. Like the CSSD, the FAC lacks a binding enforcement or dispute settlement mechanism. While both the CSSD and the FAC offer some help, neither is adequate to instigate reform or impose the discipline needed on food aid.
In the Doha Round, food aid is on the negotiating agenda as part of the discussions on export competition, along with explicit export subsidies, state trading enterprises, and export credits. The negotiating mandate calls for ‘the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect by a credible end date’. The EU has the largest stake in these negotiations, with export subsidies of $3bn in 2000. The EU has agreed to negotiate a final reduction of these subsidies in parallel with new disciplines on food aid and export credits. In the crude terms of negotiation, this represents a pretty good deal for the USA: disciplines on (but not elimination of) approximately $1.5bn in non-emergency food aid programs, in exchange for elimination of $3bn of European export subsidies.
In addition to US resistance to food aid disciplines, some net food-importing countries have raised concerns that reducing the use of export subsidies could lead to higher world food prices. These countries, among them Mongolia, fear that constraints on export credits and food aid might impede their ability to finance the food imports they need. The root cause of these problems has been the unwillingness of major WTO members to implement a decision taken in 1994, the Marrakesh Decision Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food-Importing Developing Countries.
The Marrakesh Decision calls for a recognition that increased food prices resulting from trade liberalization require additional consideration in the short-term financing of commercial imports. It asks developed country members to ensure that developing countries receive special treatment in terms of export credits, establishing sufficient food aid supplies in the early years of liberalization, assistance for requests to improve agricultural productivity, and leniency from the IMF and World Bank when implementing liberalization and other policies.
Five issues make the case that effective rules on food aid at the WTO are needed to guard against abuses and misuse:
- damage to local production in recipient countries;
- displacement of exports;
- evidence that food aid is used to dispose of surpluses;
- evidence that food aid is used to capture new markets;
- lack of clarity as to why in-kind food aid, rather than cash, is consistently provided by the USA.
Food aid can displace local production
The greatest concern around food aid is the possibility that it can undermine the livelihoods of poor farmers by creating disincentives for local food producers, by flooding markets and depressing prices. Substantial volumes of food aid provided over a long-term basis could discourage local production, result in increased poverty, and create long-term food insecurity due to increased dependence on food imports. Regenerating agricultural production and local markets is central to any strategy for longer-term recovery and development.8
At the local level, there are numerous cases where producers report falling prices and market displacement as a result of an influx of food aid commodities.9 For instance, in 2002 and 2003 food aid donors over-reacted to a projected 600,000-tonne food deficit in Malawi, and sent close to 600,000 tonnes of food in aid. However, commercial and informal importers brought in an additional 350,000–500,000 tonnes. Malawi was flooded and had very large carry-over stocks. Maize prices dropped from $250 per tonne to $100 per tonne in the course of a year. Local production of maize, cassava, and rice fell markedly, and estimated losses to the Malawian economy were approximately $15m.10
Unfortunately, economic studies are often inconclusive about the extent of disincentives for local production caused by food aid. Most studies of food aid impacts are conducted at a national or global level, using aggregated data.11 This hides impacts in local markets, where price depression and displacement are more likely, especially in the fragmented markets typical of many countries receiving food aid.
In fact, there is strong historical evidence that the use of food aid tends to correlate with long-term dependence on food imports — either food aid or commercial imports. In the early 1990s, the Philippines was unable to sustain imports of high-protein soya meal because of foreign exchange difficulties. US PL 480 food aid was used to finance the purchase of US exports. Ten years later, the Philippines was the largest market for US high-protein soybean meal, with US exporters accounting for 90 per cent of total imports. When food aid declines, it is usually replaced by commercial imports rather than by local production. But importing food rather than producing it locally has important implications for development. Reliance on commercial imports can lead to balance-of-payments problems in times of high prices, in addition to undercutting opportunities for local farmers to sell their crops. In addition, if imported food prices rise too high, food security can be jeopardized.12
Food aid crowds other exporters out of markets
There is strong evidence that food aid displaces commercial imports in recipient countries. In markets that are relatively open, food aid imports result in the displacement of other commercial imports. Demand is therefore reduced for commercial imports.13
Some food aid programs are specifically intended to replace commercial imports, for example in order to help out countries with balance-of-payments problems. But for agricultural exporters, including many developing countries, this distortion has negative impacts. In regions with well-integrated agricultural markets, displacing commercial imports can simply transfer a balance-of-payments problem, and poverty, from one developing country to another.
In the 1990s, for example, Guyanese rice producers found an important export market in Jamaica, which grows little rice itself. Rice exports from Guyana to Jamaica grew from 7,700 tonnes in 1994 to 57,700 tonnes in 1997. However, Guyanese rice exporters found themselves facing intense competition from large volumes of US food aid rice, which began pouring into Jamaica in comparable quantities at the same time. As a result, Guyanese exporters were forced to look for other markets for their rice and many producers faced ruin.
’PL 480 [US food aid] was meant to boost food security… It was supposed to assist in the elimination of poverty, not in creating it. And we have seen a direct effect whereby in the very process of eliminating poverty [in one place], we have poverty being created in another region.’ — Dharankumar Seeraj, General Secretary of the Guyana Rice Producers’ Association14
By displacing imports, food aid deprives agricultural exporters of market opportunities. Since many developing countries are agricultural exporters, the development aspect of this issue is significant. Regional integration between neighboring developing countries, as in the case of Guyana and Jamaica, is an important economic goal in strengthening developing country economies and encouraging growth. However, by displacing export opportunities, food aid can impede this kind of integration.
Ulterior motives: surplus disposal
A key concern for many WTO members is that food aid can be used as a convenient way to dispose of surpluses and to circumvent disciplines on export subsidization. There is compelling evidence that this has often been the case over the past three decades.
This is certainly clear in the case of the private sector: US agriculture industry groups often consider food aid as a means of surplus disposal and market expansion. For example, the US rice industry views food aid as a critical escape route at times when prices are low and production is abundant (see Box 3).
Box 3: Food aid or dumping: the case of US rice
The USA produces only about 1.5 per cent of the world’s rice, but is the fourth largest exporter. Between 50 and 60 per cent of all US rice production is exported. As domestic consumption of rice has stagnated over the past decade, US rice producers have increasingly relied on export markets to dispose of rising production yields. When those markets have not been available, the US rice industry has frequently turned to food aid programs as a buyer for surplus rice production.
From 1997/8 to 2004/5, rice exports under food aid programs have accounted for an average of 10 per cent of US rice exports. In years when prices are low, food aid represents as much as 20 per cent of rice exports.
In 2001, US government efforts to reduce food aid purchases of rice were perceived as a crisis by the US rice industry. According to one Louisiana rice producer, ‘The sharp decline in rice food aid allocations has had a devastating impact on the rice industry… Many mills, especially in the south, are running at just 20 to 30 per cent of capacity.’ (Delta Farm Press, July 20, 2001)
In response to this crisis, Congressional leaders swung into action, with senators from the 16 rice-producing states urgently calling upon President Bush to provide immediate relief in the form of food aid and other export assistance programs. Ultimately, they were successful, and US food aid programs purchased more rice.
Influential commodity groups have had a big say in the composition and volumes of food aid. For example, producers of rice, soybean oil, and non-fat dry milk powder have notably used food aid as an export safety valve for surpluses. In 2003, marketing difficulties for Californian raisins produced an initiative to include raisins among food aid commodities.15 Demonstrating a purposeful blindness to real humanitarian needs, the US Member of Congress for a California raisin-growing district issued a press release: ‘The purchase of surplus raisins from California farmers will serve the nutritional needs of hungry people anywhere, as well as provide relief to farmers suffering from the worst agriculture economy since the Great Depression.’16
This anecdotal evidence is confirmed by a historical pattern showing that food aid flows tend to expand during times of surplus production and contract when production is tighter. However, poor countries are more likely to need assistance when production is tight, and prices higher. But that is not how food aid works.
During the economic shocks of 1973, when prices for cereals peaked at record post-war levels, many developing countries faced chronic food shortage problems. Shipments of non-emergency US food aid under the PL 480 program dropped to less than one-tenth of the levels provided in the mid-1960s. The reason? Commercial sales made surplus disposal unnecessary. Thirty years later, the pattern continues: when commodity prices were high in 1995–1997, for example, food aid accounted for 4–7 per cent of US cereals exports. When prices declined in 1999 and 2000, food aid increased to 12–20 per cent of US cereals exports.17
Another example: over the 50-year history of US food aid, there is a close positive correlation between year-end carry-over stocks of wheat and US food aid flows. When US farmers produced bumper crops of wheat, food aid donations increased in the following year.
Sources: WFP International Food Aid Organization System (INTERFAIS) Database; USDA Production, Supply, and Distribution (PSD) Database. From Barrett and Maxwell, Food Aid After Fifty Years: Recasting Its RoleThe fact that food aid flows tend to follow surpluses reflects the fact that most food aid programs have their origins in domestic agriculture policy. US food aid programs were first formalized in the 1950s through PL 480 as a method of disposing of government-held surplus stocks. Surplus stocks accumulated as a function of price-stabilization policies in domestic agriculture, designed to support US farmers. A similar process occurred in Canada.
As European agricultural production recovered after World War II, European countries also began donating food aid. In some cases, donating food as aid was cheaper than storing it. During the Cold War, surplus disposal was harnessed as a tool in the great geopolitical rivalry between the USA and USSR, and large volumes of food aid were distributed to support friendly governments and to assist with humanitarian concerns among allied nations.
Food aid is sometimes aimed at capturing new markets
The historical record of food aid distribution certainly indicates motives other than those of addressing hunger and sustainable development. In 1992-93 and again in 1998–99, the USA made massive shipments of food aid to Russia. However, Russia is not a poor country by global standards and, by most nutritional measures, hunger was not a serious concern. The more relevant factors were falling US commodity prices, bumper crops, election-year politics, and a geopolitical interest in supporting the Russian government at the time. The USDA’s Economic Research Service acknowledges that ‘allocations [of food aid] to individual countries do not always correspond to levels of need’.18 Even Russian recipients of US largesse understood that something was amiss:
‘If they wave [the food] in front of us, of course we'll take it. But the policy is wrong. This aid will be damaging to Russia.’ — Nikolai Bandurin, poultry farmer in Rostov, Russia, July 199919
Moreover, the commercial purposes of some food aid programs are quite explicit. A US government website, for instance, states: ‘When allocating assistance under the Title I program, priority is given to agreements that provide for the export of US agricultural commodities to those developing countries which have demonstrated the potential to become commercial markets…’20
Supporters of US food aid loudly advertise its commercial benefits, as an opportunity to enter new markets, create new tastes for US products, and utilize preferential financing and valuable distribution networks. USAID, the primary US development agency, notes, ‘Of the 50 largest customers for US agricultural goods, 43 — including Egypt, Indonesia, Korea, Taiwan, and Thailand — formerly received food assistance. In short, aid leads to trade, from which Americans stand to benefit directly.’21
Although a careful analysis debunks the idea that food aid creates new markets for food aid donors, the commercial motive undermines the humanitarian purpose of food aid.22
Box 4: Food aid and genetically modified (GM) food
The USA has been accused of using food aid to push open new markets for its GM products, sometimes in the face of opposition from local governments and consumers. Since GM commodities are unwelcome in major markets such as the EU, US exporters are seeking other outlets for these products. Countries facing food shortages are vulnerable to pressure to accept GM commodities. There have even been claims by GM proponents that this technology could be the answer to chronic production problems in Africa and elsewhere.
The controversy over GM food became red-hot during the Southern African food crisis of 2002–03. More than 15 million people across seven countries faced a food deficit. The Famine Early Warning System raised alarms as early as November 2001, as a result of drought conditions in southern Zambia.
Zimbabwe’s was the first government to raise concerns about the use of GM food aid and rejected a 10,000-tonne shipment of GM maize at the July 2002 World Food Summit in Rome. In August 2002, the Zambian government decided to halt food aid shipments containing GM-contaminated food and to stop distribution of existing stocks. Other countries followed suit, as they determined appropriate food security policies with regards to GM foods and food aid.
Other countries have also rejected GM food aid. In 2001, Uganda confiscated a shipment of corn-soy blend (CSB) from the USA; Bolivia, Columbia, and Ecuador independently rejected US food aid containing GM food; and in 2002 India halted the import of 23,000 tonnes of CSB originating from the USA.
In general, Oxfam believes that:
- The underlying causes of hunger and the denial of people’s right to food are less to do with food production, crop yields, and related technologies (including GM) than with the inequalities of power that lie behind access to technologies and markets.
- GM crops are at present largely irrelevant to the problems of hunger and food insecurity in most developing country contexts.
- In the context of humanitarian crises, Oxfam recognizes both the rights of governments and people to choose what they eat and what they introduce into their food systems, and the humanitarian imperative to avert hunger and starvation. The urgent need for food aid can leave vulnerable people and their governments in a difficult and morally-repugnant bind. Governments and civil society groups have legitimate concerns about GM products, and have the right to informed consent on this issue.
- To avert the real prospect of human suffering and death in the short term, all parties must work to ensure access to food — in sufficient quantity, quality, and variety. In specific instances, this may require the delivery of GM food, if that is the only practical alternative. However, this should be an option of last resort.
- Measures should be taken to minimize the potential risks that GM food may present when it is utilized as an option of last resort. These alternatives might include milling GM grain on-location, or public education campaigns to raise awareness about the risks of planting GM seeds.
- The USA, the WFP, and other donor governments have the responsibility to respect rights and to take measures to ensure that recipient governments and vulnerable populations are never again pressured to accept GM food aid.
Sources: Hansch, S. et al., ’Genetically Modified Food in the Southern Africa Food Crisis of 2002–2003’, Institute for the Study of International Migration, Georgetown University School of Foreign Service; and Oxfam (2002), ’Q+A on GM Food Aid’, Oxfam GB, 25 October 2002
Monetization
Conversion of food aid to cash — a process known as monetization — is a controversial aspect of food aid programs. Critics argue that it is simply a hidden form of export subsidy, since the end result is more donor commodities sold into recipient country markets. In some cases, monetization may serve additional objectives, such as stabilizing local food prices, or encouraging the development of small-scale food distribution and marketing enterprises. Usually, however, the cash itself is the main objective.
A substantial portion of non-emergency project food aid is monetized, and this trend has been increasing in recent years. In 1990, approximately 10 per cent of US food aid donations were monetized to generate cash. In 2002, the monetization rate was approximately 60 per cent, after peaking at 70 per cent in 2001.23 This means that a large proportion — even a majority — of food donated as project food aid is not used as food at all, but is converted to cash. The cash may be used to finance anti-hunger projects, or to run nutrition programs, or for any number of other worthy purposes. However, the fact remains that a large part of the food that is donated as aid is simply a heavily discounted and cumbersome cash contribution.
Monetized food aid is untargeted food aid: selling food aid on markets permits little or no targeting of distribution or consumption to the most food insecure or malnourished populations. In this way, monetized food aid is the most trade-distorting form of food aid. While monetization raises concerns about the impact of food aid on trade displacement, a deeper problem lies in the low levels of funding dedicated to development and humanitarian projects.
Many NGOs, for example, recognize that monetizing project food aid is a hugely inefficient, and potentially counterproductive, way to generate funds for development projects. However, many politicians and development agencies believe that there are few alternative means to generate funds for critical needs such as maternal and child nutrition, HIV prevention and treatment programs, and schooling for young girls. The shame of monetized food aid is that such an inefficient system is seen as necessary to acquire funds to meet human needs.
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