Food aid or hidden dumping?: separating wheat from chaff

This briefing shows how current practices in food aid, especially those of the USA, create substantial adverse side-effects in trade that damage the livelihoods of poor farmers and prevent their economic opportunities from developing. Consequences include:

• damage to local production in recipient countries: in 2002/2003 food aid donors over-reacted to a projected 600,000 metric tonne food deficit in Malawi, causing a severe decline in cereal prices and hurting local producers.
• displacement of exports: in 2000, Guyanese rice exports to Jamaica were displaced by US food aid which suddenly doubled following a bumper crop in the USA.
• food aid is used to dispose of surpluses: in-kind food aid peaked in 1999-2000 when there were large surpluses and low prices for cereals. This depressed prices for poor farmers around the world.
• food aid is sometimes used to capture new markets: US legislation for Title I food aid programmes states that priority is given to export of US agricultural commodities to those developing countries which have demonstrated the potential to become commercial markets. This is a major, and unfair, subsidy to exporters of the donor country.
• in-kind food aid is used instead of cash: 90 per cent of all food aid is provided in commodities rather than cash, which can destroy or damage local markets that poor farmers depend on.
• monetisation of in-kind food aid: increasing volumes of food aid provided for development projects is sold straight onto local markets to generate cash. This displaces local farmers’ produce and slashes their income by reducing prices.

Based on these findings, the brief offers a number of recommendations:

• food aid should be provided exclusively in grant form
• food aid should not be linked, either explicitly or implicitly, to commercial transactions or services of the donor country
• the use of in-kind food aid should be limited to situations of acute local food shortage and/or non-functioning local food markets, where regional purchase is not possible. In other situations, food aid should be provided in cash form, to purchase food locally or regionally
• monetisation of food aid should be limited and replaced with cash donations, to avoid displacement of local production or commercial imports.
• food aid should only be provided in response to calls from national governments, specialised United Nations agencies, other relevant regional or inter-governmental agencies, non-governmental humanitarian organisations, and private charitable bodies
• all food aid transactions must be notified in a timely manner to the Food and Agriculture Organization of the United Nations (FAO) and WTO.