PHA-Exchange> CARE: Monetised food aid under scrutiny

[Claudio Schuftan]

From: RKoppenleitner RKoppenleitner at t-online.de

- Global: Monetised food aid under scrutiny

JOHANNESBURG, 12 September (IRIN) - 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 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," 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."

 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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