United Stated Food AidIn rationalizing our farm surpluses into assets, we deceive no one but ourselves. Leaders abroad are not deceived by what we say; they see clearly that we have been making our foreign economic policy fit our internal convenience.
-Theodore Schultz (1960)

Upon hearing of a disaster on the other side of the globe, millions of Americans donate to charities voluntarily.

Would you respond with a trip to the grocery store to purchase food to send to those in the region? Likely not. It would be costly, take too long to reach those in need, and risk spoilage while transported.

Yet that’s the approach our food aid program has taken since July 10th, 1954: when the United States enacted Public Law 480 to establish foreign food aid program that would dominate the world in tonnage for the next fifty years. Passed after the Korean War, the United States Government was keen on weaponizing the embarrassing agricultural overproduction, caused by a plethora farm price support programs, against the Soviet Union as a foreign policy tool.

PL-480’s attempt to garner political support from farmers, and it’s design as a geopolitical bargaining chip came at a cost of the program’s humanitarian efficacy. These competing interests fostered a status quo  in the United States for the international food aid program to be exploited for greed — charity in name only.

Agriculture markets prior to aid

While simplified in relation to the intricacies of the real world, a Marshall diagram helps to understand the economic effects of food aid in the aggregate. To the right I’ve included a diagram of the maize market in an impoverished region.foodaiddiagram

The first observation of note is the inelasticity of domestic demand for food. Secondly, the world price level (Wp) of food is below the autarky intersection of the demand & supply lines. Domestic producers earn income by supplying quantities “X” + “Y” to the local market.

The competitive advantage of domestic farmers lies within their lower transportation costs, and ability to focus on the most productive land available. This enables local producers to “beat” the world price in regional markets. Quantity “Z” of maize is imported into the local market. Producer surplus is equal to the area above the supply curve (Sd) and below the dotted world price level (Wp).

Agriculture markets with food aid

Let us now examine the effects of an influx of food aid. Upon receiving the aid, the dotted line representing the world price (Wp) now shifts to the heavier line (Wpfa). Essentially, the world price for maize up to donated quantity “A” of food aid is provided at a price of $0 — with quantities past “A” being provided at the previous world price level (Wp). This leaves farmers to produce the quantity of food found in region “Y”. Region “Z” is still imported as it was before.

However, while local farmers could previously supply “X” + “Y” food to the marketplace, the opportunity offered by region “X” has been displaced by food aid flooding the local markets.

This results in a loss of income to farmers displayed by the shaded area “I”. Farmers are not simply an afterthought: 75% of the world’s impoverished live in rural areas, and of that number, 86% rely on agriculture as their primary source of income [World Bank Development Report, 2008]

It’s important to note that agriculture is not a fluid market  with costless entry & exit of labor. It takes time (often generations) for herds to be bred, production techniques to be refined, development of arable land, and capital to be invested into equipment.

Exporting food aid into a region over a long-term reduces local incomes and the local supply of experienced farm labor diminishes. This results in a societal reliance on receiving food aid in the future. While it may be a counter-intuitive at first, providing long-term food aid results in the unintended consequence of increasing structural food insecurity of the region.

Food aid in response to temporary shortages

It’s important to note that food aid can still be a useful tool to counteract temporary shortages in domestically food from flooding, war, pests, plant-disease, etc.

The shortage that arises between the quantity of food supplied and quantity of food required for a population to survive is often referred to in economic literature as the “food gap”. It is possible to bridge this gap by providing food aid to those in need; counteracting the shortages in the local markets with minimal negative impacts on producers. However, disincentive effects can still arise if the quantity of food aid provided exceeds the loss of production from the catastrophe.

food-aid-2Let’s now examine how the predictions of our theoretical model compare to the observed effects of food aid found in the real world. A 2006 study conducted by Cynthia Donovan drew attention to conditions leading to food aid causing the strongest negative effects on local markets:

  1. Food Aid distributed near or during time of local harvests. Long-term distribution of food aid falls into this category.
  2. Poor commodity targeting implemented: individuals are most likely to substitute away from local food to supplied aid if the commodity provided is similar to locally grown crops.
  3. Larger quantities of external food aid result in larger negative income effects for the region.

Historical example

Maize is Swaziland’s primary crop, grown by over 90% of small-scale farmers in the region. More than 80% of the food aid received by Swaziland from 1990-2003 was delivered in the form of maize grains — 42% of this aid was provided by the United States.

As a result of food aid creating a glut of maize in the local markets, the National Maize Corporation of Swaziland’s silos were so overfilled that they were unable to purchase any maize from local farmers between 2002-2004, resulting in considerable lost income to the domestic population. Remember, food aid should be supplied judiciously to alleviate production shortages, not as a long-term market distortion.

Moving forward

How can we fix our program to ensure that those in need receive food without reducing the incomes of farmers in the region? One proposed solution is to purchase and provide locally grown food — fighting malnourishment without the negative income effects for producers.

Political Corruption
Reforms were proposed in 2013 that would allow USAID (the primary foreign aid organization of the United States) to procure up to half of all food aid regionally. This would not only avoid the disincentive effects on producers, but would also help to reduce emergency response times & transportation costs. Currently, USAID spends 49% of it’s budget just on the transportation of food aid. The average time for the arrival of urgent food aid shipped from the United States is 130 days. Using regional/local procurement this could be reduced to an estimated average arrival time of 56 days.

us-aid-3

On November 6th, 2013 the bill was put to a vote in the House of Representatives: the vote failed 203-220. This was not the result of political gridlock — Republican and Democrat votes split relatively evenly on the reform. The defeat was also clearly not in the best interests of those receive the aid, but it was beneficial to those who are in the business of shipping the aid, who underwent a determined lobbying campaign against the reform. House Representatives who received a donation of more than $10,000 each from AFL-Transportation Trades (a maritime union) or USAMaritime (lobbying agency of maritime unions & shipping companies) voted against the bill at a rate of seven to one.

The spending levels of our food aid program has settled between two important milestones: large enough to attract special interests intent on political rent-seeking, while still too small and relatively complex for it’s inefficiencies to be aired on the evening news. This, unfortunately, means that lobbying results in flagrant inefficiencies that are unlikely to bring about negative consequences at the polls for government representatives devoid of moral integrity.

Domestic Vessel Mandate
Mandating domestically sourced crops is not the only problem of the USAID program, however. Current cargo preference law requires that 50% of all donated food aid must be shipped on US-owned vessels that are operated by a crew comprised entirely of United States citizens. Eliminating this requirement and shipping goods on any available vessel would save an estimated $50 million per year: enabling the United States to feed more people in need, more quickly, at a lower cost to taxpayers.

food-aid-4The given rationale for the cargo preference requirement is for the United States to have skilled seamen on hand for times of war. However the United States is already the world’s overwhelmingly dominant oceanic force: of the 14 naval supercarriers in existence, 12 are owned by the United States. Furthermore, a 2010 study by Elizabeth Bageant found that 70% of the subsidized vessels are not militarily useful, and there have been no service calls for seamen from food aid vessels since PL-480 was enacted in 1954.

Regardless, these requirements provide an annual subsidy roughly equal to $100,000 per merchant mariner. Additionally, the vessels that could actually be useful for naval engagements are able to “double-dip” into federal subsidies: receiving a $2.5 million direct payment for each vessel per year in accordance with the 1996 Maritime Security Program. This defensive rationale is national security in name only, in reality it’s simply one more subsidy to our domestic shipping industry.

Fun Fact: US-Flagged food aid ships are colloquially referred to as “gravy boats” by maritime terminals — in reference to the cargo’s unusually high charged freight rates and margins as a result of lessened competition

Role of Non-Profits
Corporate greed is not the only culprit for the inefficiencies of United States food aid programs. Currently, a minimum of 15% of all USAID program food aid is required to be under “monetization” by charities and NGO’s.

The basic procedure is this: commodities are purchased domestically by the United States government, (a minimum of) 15% of which are given free of charge to these voluntary groups who then turn and dump the goods on developing countries below market prices to fund their various programs. The Government Accountability Office predicts that this “inherently inefficient” system of monetization completely wastes 25 cents of every taxpayer dollar spent, and that’s not even considering the negative effects on the developing agricultural markets.

In summary, our food aid policy is designed for domestic interest groups moreso than the world’s impoverished. Christopher Barrett aptly describes the “iron triangle” of special interests enforcing the status quo of food aid program inefficiency in the United States:

  1. The producers/processors who sell surpluses to USAID
  2. The shipping industry which benefits from a hefty transportation budget
  3. NGOs who monetize food aid for additional funding. Only 40 cents of every dollar spent on international food aid is used to purchase the food needed — with the rest being spent on administration and transport costs.

These conflicting goals within our foreign food aid program have corrupted what was once a simple adage into:

Give a man a fish, and you feed him for a day. Teach a starving man to fish, and you feed him for a lifetime. Vote to ship a man a fish, and you can grant lucrative transport contracts in exchange for campaign kickbacks.

 


Sources

Donovan, Cynthia & McGlinchy, Megan & Staatz, John M. & Tschirley, David L. (2006). Emergency Needs Assessments and the Impact of Food Aid on Local Markets.

Mabuza, Hendriks, Ortmann & Sithole (2009). The impact of food aid on maize prices and production in  Swaziland.

Barrett, Christopher B, and Dan Maxwell. (2005). Food Aid After Fifty Years: Recasting its Role (Priorities for Development Economic Development)