Food Aid and its Relationship

to WTO Rules and the

Development Agenda
Andreas Schneider
Brussels, Belgium
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 Food Aid and its Relationship
to WTO Rules and the Development Agenda
Andreas Schneider
Brussels, Belguim
A report to the German Marshall Fund of the United States
from the Centre for European Policy Studies (CEPS)

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2 Background, Objectives, and Method . . . . . . . . . . . . . . . . . . . . . 4
2.1 Study objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Method of investigation . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3 History and Institutional Arrangements of Food Aid . . . . . . . . . . . 7
3.1 Major trends in food and flows . . . . . . . . . . . . . . . . . . . . . . 8
4 Analysis of Food Aid Definitions, Procurement, Effectiveness . . . . . . 11
4.1 Definitions of food aid type . . . . . . . . . . . . . . . . . . . . . . . 11
4.1.1 Three kinds of food aid . . . . . . . . . . . . . . . . . . . . . . . 11
4.1.2 Emergency food aid . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1.3 Project food aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1.4 Program food aid . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Food aid procurement . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2.1 The source of food aid . . . . . . . . . . . . . . . . . . . . . . . . 14
4.2.2 The (un)tying of food aid . . . . . . . . . . . . . . . . . . . . . . 15
4.3 The benefits of further untying food aid . . . . . . . . . . . . . . . . 16
4.3.1 Current obstacles to untying food aid . . . . . . . . . . . . . . . 17
4.3.2 Concepts of achieving further untying food aid . . . . . . . . . 19
4.4 Effectiveness of food aid . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4.1 Effects of food aid on local producers . . . . . . . . . . . . . . . 20
4.4.2 Conclusion of analytical components . . . . . . . . . . . . . . . 21
5 The Political Dimension of Food Aid . . . . . . . . . . . . . . . . . . . . 22
5.1 Food aid in multilateral trade negotiations . . . . . . . . . . . . . . . 22
5.2 Policy changes needed . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.3 Operational changes needed . . . . . . . . . . . . . . . . . . . . . . . 24
6 Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
 1 Introduction
E
ver since the United Nations announced its
Millennium Development Goals in 2000,
there has been an ever-increasing sense of
urgency with regard to ending global poverty. It is
widely agreed that the most important objective of
ending global poverty is eradicating global hunger.
It is estimated that more than 850 million people
Eradicating global worldwide are suffering from chronic hunger. For
hunger is a moral the first time in history, we have the means and
obligation for the resources to tackle this pervasive problem.
richer countries
in the world, one Eradicating global hunger is a moral obligation
that has received for the richer countries in the world, one that has
received increasing attention especially in light of
increasing attention
the fresh debates in the World Trade Organization’s
especially in light of
Doha Round of multilateral trade negotiations. The
the fresh debates Doha Round was designed to make development a
in the World Trade priority when making trade policy. Among the many
Organization’s contentious issues that encompass development,
Doha Round of agriculture is at the forefront. Debates over the
multilateral trade delivery of food aid have taken on increased
negotiations. significance under the “export competition” pillar of
the Doha Round agriculture negotiations. However,
along with the heightened significance placed on
agriculture have come major disagreements on what
to do. At the Sixth Ministerial Conference of the
WTO held in Hong Kong in December 2005, food
aid emerged as a key area of disagreement between
the United States and the European Union, the
world’s two biggest donors of food aid. This dispute
has continued throughout 2006, made evident by the
fact that the Doha Round has yet to deliver anything
meaningful. The situation is further exacerbated by
the many strong and often differing opinions from a
number of perspectives. On one hand, there are the
opinions of the major think tanks and significant
donor governments; on the other, there are those of
the development community and NGOs, and now,
more recently, of the economists and influential
members of the international financial institutions
(the International Monetary Fund, World Bank, and
WTO) that are in charge of monitoring the operation
 The German Marshall Fund of the United States
and efficiency of the international economy. This
ever-growing web of complexity surrounding the
interactions between trade and the effectiveness of
food aid is the central concern of this study.
At the core of the emerging debate among the donor
community (where differences of opinion exist)
and opinion formers such as the Organization for
Economic Cooperation and Development (OECD),
is the concern that food aid programs as they are
currently constituted may be counter-productive
or even contribute to long-term food insecurity in
recipient countries.
Food aid is also a matter of contention among the
various development “stakeholders” — the UN’s
World Food Program, the governments of least-
developed countries (LDCs), and influential NGOs
such as CARE and Catholic Relief Services — whose
primary concerns relate to the effectiveness of
food aid as a development tool but who also have
institutional vested interests in the operations of the
food aid regime. Here, food aid is seen as something
of a “double-edged sword,” helping substantially
in some instances but having perverse effects in
others. While the benefits of food aid are clear, its
side effects — such as causing producer disincentives
in low-income countries, or displacing commercial
trade — could mitigate its benefits. To add insult to
injury, there also have been disagreements over the
desirability of using genetically modified foods in the
midst of humanitarian crises.
This paper will provide an overview of the
magnitude and importance of food aid as a
development tool. But more importantly, this study
will focus on efficiency issues in food aid. Are issues
of efficiency and effectiveness — such as security,
cost efficiency, and management — intrinsic to food
aid? Or do they arise from ineffective donor-country
policies, such as supporting domestic farm prices
and promoting commercial agricultural exports as a
means of maintaining a viable maritime industry and plays in economic development and in the world
advancing geo-strategic aims? economy. This study will address the question of
whether a sensible strategy of reform can meet
Donor governments, development stakeholders, both the agricultural and maritime group interests
donor agencies, and, most recently, economists and of donor countries, and therefore make food aid a
international financial institutions (IFIs) have been more effective tool for advancing development and
increasingly concerned with the role that food aid humanitarian objectives.
Donor governments,
development
stakeholders, donor
agencies, and, most
recently, economists
and international
financial institutions
(IFIs) have been
increasingly
concerned with the
role that food aid
plays in economic
development and in
the world economy.

Food Aid and its Relationship 

to WTO Rules and the Development Agenda
 2 Background, Objectives, and Method
I
n terms of absolute volume, food aid, which
had begun in the 1960s, peaked around the
early 1980s at just under $4 billion. By 2004,
this amount had declined dramatically to less
than one tenth of the levels in the 1980s. But the
relative decline has been even more dramatic.
Although it had a share of more than 25 percent
Although it had of all development assistance in 1980, food aid
a share of more accounted for only about 5 percent of total overseas
than 25 percent development aid (ODA) in 2004 (see Table 1). This
of all development relative decline is, of course, partly a result of the
assistance in almost fourfold expansion of total ODA assistance
1980, food aid during that period.
accounted for only
The decline in food aid, an issue we explore
about 5 percent
more fully in Section 3 of this paper, was largely
of total overseas caused by the demise of generous farm price
development aid support programs for farmers (predominantly
(ODA) in 2004. North American farmers) that generated large
government stockpiles of food in the 1960s and
1970s. Much of this food was channeled overseas
as government-to-government food aid shipments,
commonly known as “program” food aid. Recipient
governments usually sold the food on the open
market and used the proceeds for other activities.
However, over the past 40 years, donor
governments’ farm policies have evolved,
substantially reducing or eliminating most public
food stockpiles. As a result, this sort of “program”
food aid that pervaded donor government policy
in the 1980s has waned. However, it is now claimed
by development stakeholders and NGOs alike that,
because the majority of food aid is now “tied” to
conditions set by donor countries, the real cost of
Table 1: Total ODA and Food Aid (in Millions of U.S. Dollars)
1980
Total ODA 15,991
Food Aid 3,997
Source: OECD
 The German Marshall Fund of the United States
food aid is roughly half as much as the equivalent
local food purchase and around one-third more
costly than if it were to be procured in another
nearby developing country.
Taken together, such anomalies are thought to
reduce the effectiveness of food aid by at least one-
third against other forms of overseas development
assistance (ODA), i.e., providing tied food aid instead
of financing commercial imports (WFP, 2005).
2.1 Study objectives
The main objective of this study is to assess the
relationship between food aid and WTO rules,
and therefore its sustainability and ultimate
effectiveness within the wider development agenda.
In doing this, we will closely analyze how food
aid is procured, targeted, delivered, and used.
We will then examine the implications of our
analysis to determine whether food aid, as a tool of
development aid, is, in a wider or narrower sense,
a “hidden” form of export subsidies, which may
violate WTO rules.
The study’s primary focus will be to assess whether
food aid, in its current form, is an effective way of
assisting developing countries or whether it creates
trade-distorting behavior and losses in efficiency
(see Table 2). If it is found that the delivery of food
aid is effective in achieving its primary goal of
alleviating famine and hunger, then a secondary
issue is whether this can be achieved only by means
that involve trade-distorting behavior. If evidence
% 2004 %
75% 78,000 95%
25% 300 5%
exists that food aid can be delivered more efficiently
through a system that is not trade-distorting, then
the current system of food aid provision should be
changed. If not, then the present practice should
probably remain, as the paramount importance
of delivering food to the needy is likely to take
precedence over the requirement for efficiency in
trade policy.
2.2 Method of investigation
It might appear at first glance that food aid is a
relatively straightforward and noncontroversial
issue. After all, large agricultural producers have
surplus food products and many developing
countries are poor and in need of food. However,
delivering food aid as an effective development
tool is a difficult task because of the balance that
needs to be maintained between the varying
political (regulations and agenda) and economic
(development and effectiveness) objectives of the
countries involved that are, more often than not,
unaligned. The complexity arises from the fact that
a judgment about what food aid system is best used
for any particular development provision is usually
not taken on solely economic grounds, but based
on political decisions that largely ignore economic
issues or concerns for efficiency. Hence, decisions
on food aid are generally regarded as political.
In this study we will try to come up with policy
advice that is framed in such a way that it fully
takes into account both the economic and political
considerations. This can happen only by viewing
the issue of food procurement through the lens of
the “political economy.”
For the purposes of this study, we will begin by
developing a working knowledge of what food aid
really means, both in its narrower and wider sense. Judgment about
We will also examine the degree of conditionality what food
attached to each of the three main types of food aid system is
aid — emergency aid, project aid, and program aid
best used for
— that dictates how the aid can be procured and, in
any particular
some cases, such as in the U.S. program, packaged
development
and delivered. Issues such as what commodities
to use for food aid, where to source it, and how to provision is usually
deliver it are clearly economic issues that are just not taken on
as important as political considerations because solely economic
they will affect the efficiency of the aid provided on grounds, but
a unit-by-unit basis. The intent of this paper is to based on political
depart from the current agenda of most countries decisions that
that place political objectives above economic ones. largely ignore
By objectively looking at political and economic economic issues
agendas on an equal level, we hope to develop or concerns for
effective policy advice. It is crucial that we fully efficiency.
develop a comprehensive definition of food aid so
that we can begin with sound initial assumptions
on the issue.
To develop a working knowledge of food aid, we
must start with its history as well as the institutional
setting in which food aid policy has been formulated

Table 2: Possible Scenarios of Food Aid and the WTO Relationship

Food Aid WTO Compliant

Outcome
Effectiveness with Rules
Scenario 1 Yes Yes = Status Quo Remains
Scenario 2 No Yes = Change the Delivery
Scenario 3 Yes No = Change the Rules
Scenario 4 No No = Radical Change
Source: author

Food Aid and its Relationship 

to WTO Rules and the Development Agenda
 for both domestic political-economic agendas as
well as international ones. It is in our review of
food aid history that we will see that the original
ideal of donating surplus food stocks in addition to
mainstream development aid has, in many cases,
been supplanted and superseded. Subsequently, we
will review the different food aid systems presently in
The original use, before undertaking an economic analysis of the
ideal of donating pros and cons of present procurement procedures,
surplus food when set against the difficulties presented by
stocks in addition institutional barriers in donor countries to the
to mainstream further untying of food aid (see Section 4).
development
To provide a complete and accurate picture of food
aid has, in many
aid and its provisions, a limited review of demand-
cases, been
side economics and the impact of food aid as a
supplanted and development tool on recipient countries has been
superseded. included in our study. Altogether, the full analysis
will attempt to evaluate the effectiveness of food aid
in development systematically, first by outlining the
institutional arrangements and then by providing
evidence of major trends in food aid flows. It is in
this analysis that we will determine whether food
aid, in its current state, is stable or declining as
a proportion of overall development assistance.
We will further break down food aid into its three
types — emergency aid, project aid, program aid
— and determine the relative proportion of funds
committed to each type. Once we develop a full
picture of the relative proportion of total food aid
designated to project, program, and emergency
aid, respectively, and the relevant trade-distorting
aspects of each, we can construct an approximate
assessment of the likely scale of the trade-distortion
problem requiring remedial action.
In the final section, we address the political
dimension of food aid and coherently put it into the
context of our economic findings. Arguments are
given as to why the political concerns override the
economic ones.
 The German Marshall Fund of the United States
We review both the macro (OECD) donor
efficiency arguments and the micro beneficiary
impact analysis (in Section 4.2). However, we
find neither particularly convincing as a holistic
approach to food aid effectiveness, neither as a
solution to the present debates between donor
countries (United States/Japan vs. EU, roughly)
nor as a guide to how we should view the emerging
debates at the WTO level.
Our rationale is based on an analysis of the
following set of important factual considerations on
food aid:
• The decline of the original concept of
“additional” food aid
• The recent emergence of tied aid
• The low proportion of food aid in total ODA
• The three different definitions of food aid and
their relative proportions in total food aid
• The relationship between each food aid type
and procurement and delivery practices
• The implications of the above for the tied vs.
untied food aid debate
• An analysis of the linkages between the facts
described above and effectiveness of aid
• Macro concern for donor effectiveness (e.g.,
OECD) vs. studies such as that by Abdulai et
al (2005) on micro distortions in beneficiary
markets
• A critique of the “effectiveness” literature,
given recent trends within the three types of
food aid
Finally, based on our analysis of the broad trends
noted above, we look at the ramifications for the
debate on bringing food aid consideration into the
WTO and examine the policy implications for the
emerging debate within the donor community on
continuing food aid.
3 History and Institutional
Arrangements of Food Aid
Food aid shipments really got under way in the 1950s
and 1960s, when generous price support programs
for farmers (predominantly North American
farmers) generated large government stockpiles of
food. In the 1970s, project food aid, in support of
local interventions ran by the World Food Program
(WFP), became even more common. Much of this
food was channeled overseas as government-to-
government food aid shipments, commonly known
as “program” food aid. Recipient governments
usually sold the food on the open market and used
the proceeds for other activities.
However, over the past 40 years, donor governments’
farm policies have evolved, reducing or eliminating
most public food stockpiles. Overall program
food aid has waned. One result of the reduction
in food aid programs is that they no longer have
the major effect that they once did on the general
prices farmers receive in OECD countries. With a
large reduction in project and program food aid,
emergency food aid, in response to natural disasters
and complex political emergencies, has emerged
as the primary form of food aid, which is usually
distributed to the acutely hungry, including refugees
and domestically displaced persons.
Figure 1: Volume of Food Aid Deliveries According to Type, 1990 – 2002
12
10
8
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: WFP, 2005
to WTO Rules and the Development Agenda
Since government food stockpiles are largely a thing
of the past, most food aid is now purchased through
government procurement systems. The means by
which this food is currently being distributed is
widely regarded as being ineffective, giving rise to
the notion that the international community must
commit itself to combating poverty directly, not
simply by making food available. With a large
reduction in
At least 30 different nations — two-thirds of project and
which are in sub-Saharan Africa — currently lack
program food aid,
sufficient food supplies to meet basic minimum
emergency food
food consumption requirements for their
aid, in response
whole population. When local production and
commercial food imports are insufficient, food aid to natural
fills a crucial gap. So the institutional setting that disasters and
governs these activities is important. An effective complex political
and efficient delivery of food aid to the nations that emergencies,
need it most is critical. has emerged
as the primary
Ongoing efforts to improve the effectiveness of form of food aid,
food aid traces back to the early 1950s, when which is usually
intergovernmental consultations focused on the distributed to the
impact of food aid on commercial trade and on acutely hungry,
agricultural production in recipient countries. This
including refugees
resulted in the adoption of the FAO Principles
and domestically
displaced persons.
Emergency
Programme
Project
Food Aid and its Relationship 
 of Surplus Disposal and the creation of the
Consultative Subcommittee on Surplus Disposal
(CSSD) in 1954. The CSSD represents a code
of conduct for governments in the provision of
food aid, seeking to ensure that food and other
agricultural commodities exported on favorable
terms for the home country result in additional
Trends will set consumption for the recipient country, and not
the platform the displacement of normal commercial imports
for the debate or disruption of domestic production. While the
about food aid principles are not a binding instrument, they
and will give rise represent a commitment by signatory countries that
to the argument helps governments to focus on their responsibilities
and avoid potential difficulties and disagreements.
about the relative
share of food aid
While originally it was mainly the United States
given by donor that provided food aid, other large donors
countries. have gradually joined in the context of official
development assistance. This increase in donors led
to the creation of the World Food Program (WFP)
in 1961, designed to broaden the resource base
of food aid and to provide a multilateral basis for
channeling such assistance. WFP is now the largest
multilateral food aid agency.
The institutional basis of food aid was further
strengthened with the signing of the Food Aid
Convention (FAC) in 1967 within the context
of the International Grains Arrangement (IGA).
Under the FAC, donors provide a minimum level
of food aid expressed in tons (grain equivalent).
The current minimum level is set at some 5 million
tons, compared to about 4.3 million from 1968 to
1980, about 7.6 million tons from 1980 to 1986,
about 7.5 million tons from 1986 to 1995, and
about 5.3 million tons from 1995 to 1999.
3.1 Major trends in food aid flows
To further our understanding of food aid
effectiveness, it is instructive to consider its flows.
The trends illustrate not only the magnitude of
 The German Marshall Fund of the United States
food aid in relation to ODA (Figure 5), but also the
development of overall donation volume (Figure 2)
and main donor countries (Figures 3 and 4). This is
important because the trends will set the platform
for the debate about food aid and will give rise to
the argument about the relative share of food aid
given by donor countries.
The total provision of food aid amounted to roughly
180 million tons in the period from 1988 to 2002.
Within that time frame, food aid was received
by 148 countries around the globe. However, the
distribution was very uneven among recipients. The
fact that almost 70 countries received food aid in
every year during that period simply indicates that
food aid seems to be a longer-term issue for needy
countries. For example, per capita food production
in sub-Saharan Africa declined precipitously
between the early 1970s and the mid-1980s. While
there has since been a modest recovery over the past
20 years, per capita food production in that region
remains almost 20 percent below the levels seen
30 years ago (see Figure 2). Over the same period
in which food production declined, food aid flows
into sub-Saharan Africa increased nearly fivefold
(Abdulai et al, 2005). All in all, the major recipients
during this period were Bangladesh, Ethiopia, and
Russia, each receiving approximately 7 percent of
the total. In addition, more than half of all food aid
was delivered to 14 countries, while an additional 89
countries were in receipt of 10 percent, leaving 42
countries sharing the remaining 17 percent.
In terms of food aid donors, the United States
contributed 56 percent of all food aid in that period,
and was by far the biggest contributor. The EU was
second, with 20 percent, followed by Japan at 8
percent (see Figure 3). The development of food aid
by donors over time has been depicted in Figure 4.
Wheat accounted for the largest share of all food
aid, making up, on average, 55 percent of the total.
 Figure 2: Total Global Food Aid, 1990–2002 (Grain Equivalent)

20
18 Total global food aid

16 Monetized food aid

14
Million Metric Tonnes

12
10
Food aid has lost
8
its importance as
6 a development
4 policy tool in
2 the recipient
0 country and also
1990 1992 1994 1996 1998 2000 2002 as an indirect
Source: IPC, 2005 Year
price support
mechanism in
Among the remainder, maize accounted for 14 donor countries.
percent, non-cereals for 12 percent, rice for 11
percent, other coarse grains for 5 percent, and
blended foods for 3 percent. Among non-cereals,
the biggest share fell to pulses, oils and fats, sugar Figure 3: Global Food Aid by Donor, 2004
in Percentages
and dairy products, and fish.

The value of food aid as a share of ODA and food Others 5

import bills has declined considerably over the China 2.75
last 20 years (see Figure 5). It can be argued that Australia 2.75
this trend clearly signals that food aid has lost its Canada 2.75
importance as a development policy tool in the Rep Korea United States
recipient country and also as an indirect price 2.75 56
support mechanism in donor countries (FAO, 2005). Japan
The argument is supported by the changing nature 8
of food aid modalities, in which emergency food aid
now constitutes nearly two-thirds of total food aid.
There are two significant aspects of food aid that EU
20
have shaped its development and the major trends
in its delivery. First, food aid has been further
institutionalized with the introduction of the Food Source: OECD, 2005
Aid Convention to oversee donations. Secondly,
food aid has declined significantly over the last
50 years since its origins in the 1950s. In order to
understand the implications of these trends, we

Food Aid and its Relationship 

to WTO Rules and the Development Agenda
 Figure 4: Food Aid Deliveries by Main Donors from 1994 to 2003
18
EU
16
USA
14 Other
Million Metric Tonnes

12 Total

10
8
6
4
2
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Year
Source: IPC, 2005

must develop a working knowledge of the types of
food aid presently in use. This means we must have
a workable definition of each of the types of food aid
that explains how that type of food aid is being used
to achieve its goals and with what conditionality.
Lastly, an analysis of the trends among the three
types of food aid, an analysis that often gets
unnoticed in the debate, is paramount in achieving
food aid’s intended goal. The following section
provides definitions of food aid and its major types.

Figure 5: Share of Food Aid in ODA and in Food Import Bills of Developing Countries

12
ODA
10
Share of food imports

6
%

0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Year
Source: WFP, 2005

10 The German Marshall Fund of the United States

4 Analysis of Food Aid — Definitions,
Procurement, Effectiveness
4.1 Definitions of food aid type
P
rior to any analysis of food aid and its
significance, it is necessary to define
food aid in its narrower and wider sense.
The definition of food aid has been widely
debated, but the traditional term “food aid” has
been uncontroversial, used generally to refer to
“international transactions that result in the provision
of aid in the form of a food commodity in a country
deemed in need of receiving such aid” (FAO, 2005).
This view was formed originally in the 1950s after
surpluses, mostly from cereal production, that had
accumulated in developed countries found their way
into vulnerable countries to mitigate food scarcity.
The original idea was that these surpluses could
be utilized or disposed of in such a way as to assist
needy countries. In 1954, leading international
organizations such as the Food and Agriculture
Organization of the United Nations (FAO)
established the Principles of Surplus Disposal, a
code aimed at regulating international conduct and
encouraging the constructive use of agricultural
surpluses. Following regulation came a strong
wave of “additionality” in this type of assistance, an
increase in the total amount of aid provided.
If food aid is perfectly targeted to beneficiary
groups that otherwise would not be able to
purchase the food on the market, the aid does not
distort markets since commercial trade would
not occur even without the food aid. Thus, in
an ideal world, the imports of food aid serve as
complements to, not substitutes for, commercial
imports and domestic production.
Unfortunately, this sort of ideal case rarely happens,
due to the virtual impossibility of accurately
targeting the additional food aid (e.g., IPC, 2005).
If the food aid displaces commercial imports or
locally traded production in the recipient country, a
to WTO Rules and the Development Agenda
market distortion will occur that will hurt domestic
and foreign producers (Barrett, 2002). In an effort
to address these concerns, donor countries have
largely replaced surplus disposal with other forms
of food aid, so that food aid can be legitimized
and seen more as an integral part of the overall
development assistance budget.
In terms of ODA,
Several authorities have recently analyzed the financial aid is
impact of food aid on recipient countries. For
almost always the
example, studies by Barrett and Maxwell (2005)
preferred option,
and WFP (2005) revealed that, in terms of ODA,
financial aid is almost always the preferred option, since it is seen as
since it is seen as the most effective and efficient the most effective
way of funding direct distribution of food. and efficient way
of funding direct
Before analyzing the procurement of food aid and distribution of food.
its subsequent effectiveness, we first must develop
a working knowledge of the three different kinds of
food aid used because they differ in their impacts
and implications on donors and recipient countries.
We will see that these distinctions, in turn, have an
impact on the crucial procurement and dispatch
policies — an assessment of which is required in
order to determine food aid’s effectiveness.
Finally, we will analyze the procurement of food aid
in the light of its conditionality, that is, whether it
is tied or untied. This will help us assess sourcing
issues or potential barriers to greater efficiency in
procurement and delivery.
4.1.1 Three kinds of food aid
Each of the three major classifications of food aid
(Table 3) serves a slightly different purpose. Any
food aid initiative’s effectiveness rests largely with
allocating the right type of food aid (this is true
for any economic development initiative, for that
matter) to the right situation so that the aid addresses
the problem at hand without aggravating others. The
three general types are:
Food Aid and its Relationship 11
 • E mergency (or relief) food aid, which is
targeted and freely distributed to victims of
natural and man-made disasters
• Project food aid (including monetized food
aid), which is targeted to vulnerable groups
to improve their nutritional status and to
support specific developmental activities
Because of • Program food aid, which is provided directly
the urgency of to a recipient government or its agent for
the needs it sales on local markets, and the proceeds of
responds to, which are under the control of the recipient
emergency food government but are subject to some form
aid is subject of agreement with the donor about their
management and use
to slightly
different rules.
4.1.2 Emergency food aid
Emergency food aid is targeted and freely
distributed to victims of natural and man-made
disasters and conflicts. Because of the urgency of
the needs it responds to, emergency food aid is
subject to slightly different rules. Due to a recently
proposed change in procedure, emergency food aid
will be exempt from requirements that food aid be
untied. However, according to a communication
note from the European Commission, the European
Union’s position in the Doha Round is that only
in exceptional circumstances should emergency
food aid be exempt from being untied (EU, 2004).
Complete agreement on this text has not yet been
reached, of course. However, given its unique status
and clear objective, emergency food aid will not be
widely discussed in this study.
4.1.3 Project food aid
Project food aid is funded by grants and is
channeled multilaterally, through NGOs, or
bilaterally to support development projects that
specifically support poverty-alleviation and
disaster-prevention activities that target the poorest
groups in recipient countries. The purpose of
these grants is to promote social and economic
development and, thereby, greater nutrition,
income for food purchases, and the creation of a
policy and institutional environment that facilitates
agricultural and trade development. Such projects
help to provide a platform from which to respond

Table 3: Government-to-Government Food Aid, 2000

Emergency Project Program Total (% of total)

Metric tons, grain equivalent

Australia 49,500 49,500 (1.6)
Canada 10,000 51,577 61,577 (2.0)
EU 33,000 33,000 (1.0)
France 57,805 79,905 137,710 (4.5)
Italy 6,328 13,507 10,969 30,804 (1.0)
Japan 37,109 112,346 149,455 (4.8)
United States 149,686 350,512 2,103,231 2,603,429 (85.0)
Total 199,014 508,433 2,358,028 3,056,475
% of Food Aid Type 6.5 16.5 77.0
Source: IPC, 2005

12 The German Marshall Fund of the United States

rapidly to emergencies. In most cases, project
food aid is distributed directly to its targeted
beneficiary groups, but sometimes it is sold on the
open market as “monetized” food aid. In general,
project food aid (or monetized food aid) tends to
be less disruptive to local markets, although the
sheer volume of donations within the concept of
project food aid can cause local market distortions
and can negatively impact commercial trade. In
recent years, there has been a trend favoring project
food aid (Figure 1), because it is believed to be the
most cost-effective way of procuring, targeting, and
delivering food aid.
Monetized food aid is defined as food aid that is
sold in a recipient country for local currency, which
is then used for direct support to developmental
activities or for balance of payments assistance. In
economic terms, there is little difference between
monetized project food aid and program food
aid. The main difference between the two is that
monetization is allocated for specifically defined off-
budget uses through NGOs, whereas program food
aid is bilateral assistance to government agencies.
Monetization is deemed useful in certain “niches”
to enhance food security and/or poverty alleviation.
For example, it can be useful for keeping the NGO
force on the ground during less urgent times and,
therefore, ready for emergencies. However, the
process can result in displacing production or
importation of food, and may not be the most cost-
effective way to meet needs.
The biggest problem with food aid monetization is
that it is difficult to recover some of the transaction
costs associated with conversion. Because this
problem has been experienced by many donors, this
system of providing food aid has only a limited degree
of success in terms of efficiency and effectiveness.
Once popular and deemed an innovation in
international food aid, monetization has seen less
to WTO Rules and the Development Agenda
and less support over the years. The Canadian
government remains one of the few frequent users
of monetized food aid despite its view that food aid
should be used only where there is a food deficit.
An analysis done by the Canadian government
shows that monetization is the best and most cost-
effective alternative to respond to the food deficit
(Clark, 2001). However, a more detailed analysis of Due to its
the developmental consequences of monetization controversy and the
is needed to assess the impacts on markets in debate surrounding
beneficiary and neighboring countries. Therefore,
it, program food aid
a context-specific rationale is always required for
has declined in the
relying on food aid in preference to financial aid.
last couple of years
4.1.4 Program food aid in importance
and volume.
Program food aid was originally designed to
dispose of commodity surpluses in donor countries
that could not find a commercial market for
their surplus goods. Because such surpluses vary
enormously from year to year, program food aid is
the most volatile category of food aid.
The relatively large size of program food aid in
comparison to other forms of food aid coupled
with its extreme variability makes it a controversial
and unreliable form of delivering food aid. Due
to its controversy and the debate surrounding it,
program food aid has declined in the last couple of
years in importance and volume. To add insult to
injury, the fact that program food aid is sometimes
monetized disrupts local markets. In addition,
this form of food aid is often misused by recipient
country governments. On the other hand, program
food aid is frequently funded by stock arising out of
domestic support policies (IPC, 2005).
Despite the fact that program food aid is most
disruptive to international markets it is widely
used, in part because it is less fungible than cash.
In addition, this type of aid ensures that more
food is available at lower prices on domestic
Food Aid and its Relationship 13
 markets, in comparison to situations in which there
may be no food aid available at all, which bears
great significance for severely affected regions.
Furthermore, policymakers often argue that if
program food aid were to be eliminated, it seems
unlikely that any other form of food aid would
replace it, simply because it is the program that
Today’s growing makes most food aid available.
need for rapid
response to Within the food aid package, all of the
large-scale crises, predetermined uses and targets and the varying
often in situations implications associated with them, underscore
where normal the differences among the three types of food aid.
Because of the vast implications associated with
government
these differences at each step of the food aid process
channels have
it is important to look deeper and analyze these
been weakened or steps, starting with the conditionality of food aid
destroyed, has led procurement, its source, and the potential barriers
many donors to to greater efficiency in procuring food aid.
allocate increased
responsibility for 4.2 Food aid procurement
management
of food aid to Central to this study is an analysis of how food aid
multilateral is procured because it largely determines its delivery
institutions and effectiveness. It is an often-cited argument that
NGOs. food aid is not just simply off-loading an excess of
noncompetitively sourced food. Procurement of food
aid is often seen as the main sticking point in the entire
food aid debate — especially in the United States,
where food aid is tied to a number of conditions such
as the restriction that food aid must be sourced from
the United States as well as delivered and packaged by
U.S. vessels and labor (Barrett, 2002; OECD, 2004; IAP,
2005). This current practice of procuring food aid with
a restrictive conditionality has led to great inefficiencies
and ineffectiveness in the delivery of food aid.
Critics of the status quo in procuring food aid say
that unless the procurement regime is dramatically
changed, food aid will continue to cause trade
distortions and will also continue to fall short of its
expected optimal level of effectiveness. The debate
14 The German Marshall Fund of the United States
about untying food aid has gained great attention
in recent years and has subsequently been subject
to numerous studies (Hilditch, 2001; FAO, 2004;
Outterside et al, 2004), which almost all conclude
that a complete untying of food aid would be
beneficial and would increase food aid efficiency.
4.2.1 The source of food aid
More and more food aid is derived from a diverse
range of donor sources and involves substantial
quantities of cash to procure the food in developing
countries for its targeted uses. Food aid no longer
necessarily represents a surplus commodity
provided by a small number of countries. As a
result, it is used less often as bilateral program
assistance. Greater trade liberalization and a
reduction in food surpluses in developed countries
has led to more than 1.5 million tons of food
commodities being procured in developing
countries (WFP, 2005). The renewed uptake of
food aid in the DDA is expected to contribute to
further reductions in structural surpluses of major
foodstuffs in traditional donor countries.
Because of the rise in emergencies in recent years,
more and more donors are procuring food aid in
response to a specific need. Today’s growing need
for rapid response to large-scale crises, often in
situations where normal government channels have
been weakened or destroyed, has led many donors
to allocate increased responsibility for management
of food aid to multilateral institutions and NGOs.
Multilaterals and NGOs together handle nearly 80
percent of global food aid today, compared with
28 percent as recently as the latter half of the 1990s
(Figure 6). It should be noted that NGOs are often
contracted by multilateral agencies to deliver food
aid and thus can handle some of their share of
food aid. The share of food aid handled by NGOs
has grown the fastest during the late 90’s, from 10
percent to 21 percent.
The relative shift away from program food aid, Figure 6: Breakdown of 2003 Food Aid
coupled with the increasing role of multilateral Deliveries by Channel, in Percentages
institutions and nongovernmental organizations
in handling food aid, has brought added benefits.
For example, an increasing share of food aid is now NGOs
28% Multilateral
offered on grant terms to the poorest countries. In 51%
the 1960s, 75 percent of food aid was provided on a The last option for
loan basis, whereas 80 to 90 percent of total food aid sourcing food aid
was being offered on a grant basis by the late 1990s. is through local
Bilateral
purchases. Only
Traditionally, food aid is sourced through direct
21% about 15 percent
transfers, triangular transactions, and local purchases.
are sourced this
Direct transfers are a form of tied aid that originates Source: WFP, 2004
in the donor country. This type of sourcing often has way, although this
additional requirements attached to it. In a triangular method is claimed
transaction, food aid is purchased in one country (not 4.2.2 The (un)tying of food aid to be the most
the donor one) for use as food aid in another country. cost-effective way
This is often financed by a cash contribution from the According to some OECD figures, untying food of providing
donor for the initial purchase of food. The last option aid could increase its effectiveness by between 15 food aid.
for sourcing food aid is through local purchases. Only percent and 25 percent. Untying European food
about 15 percent are sourced this way, although this aid (both multilateral and bilateral) could result in
method is claimed to be the most cost-effective way 350–600 thousand tons of grain-equivalent food aid
of providing food aid (IATP, 2005). per annum (OECD, 2004).

Figure 7: Share of Total Bilateral ODA and Food Aid That Is Untied, 1982–2003
80%
70%
60%
50% ODA
Food Aid
40%
30%
20%
10%
0%
1983-85 1986-88 1989-91 1992-94 1995-97 1998-00 2001-03
3 year average
Source: OECD DAC, 2005

Food Aid and its Relationship 15

to WTO Rules and the Development Agenda
 The way in which food aid is delivered influences
its tying status. By its very nature, food aid given “in
kind” — i.e., sourced from the donors’ own markets
— is tied. Donors have been providing food aid in
a number of ways (Figure 6): 21 percent bilaterally,
28 percent through NGOs, and 51 percent through
multilateral institutions, (99 percent of which is
Sourcing food via the UN’s World Food Program)1. European
aid in an food aid is primarily donated through multilateral
internationally agencies, with some through NGOs. However, even
competitive when provided through multilateral channels, food
marketplace aid still can be (and is) tied.
would effectively
To illustrate, in 2002, 42 percent of EC food aid
reduce the
was sourced from European markets, 32 percent
overall costs of
from local purchase,2 and 26 percent through
acquisition and triangular transactions3 involving other developing
better allocate countries. Conversely, the United States procures 99
the available food percent of food aid solely from its own markets. In
aid funds. particular, U.S. legislation requires that food aid be
provided in this tied manner. Japan also sources the
majority of its food aid from its domestic markets.
In 2002, 78 percent of the total Japanese food aid
budget originated from its own markets.
However, an increasing number of donors and
developing countries — e.g., the EC, Japan,
Mercosur, Namibia, and Norway — are calling for
further untying. The United States remains the
strongest opponent.
4.3 The benefits of further untying food aid
There are wide-ranging benefits to untying food
aid. The benefits cited most often are:
• Decreased costs in sourcing
• Greater competition and better value for money
• Enhanced local production
• Removal from trade distortion
• Increased effectiveness and ownership
Making use of wider international markets to source
food products will result in greater competition
and widespread offers. Sourcing food aid in an
internationally competitive marketplace would
effectively reduce the overall costs of acquisition and
better allocate the available food aid funds.
For example, buying agricultural produce based on
the supplier’s nationality or the purchase price of
the produce does not take into consideration other
important costs such as transportation, shipping,
handling, storage, etc. These other costs can often
add an additional 30 percent to the overall costs of

Table 4: Food Aid Donors During the 1995–2001 Period

Donor 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01
(Thousand tons grain equivalent)
EC 2,488 1,948 1,756 2,573 2,297 1,528
EU Bilateral 757 849 865 1,016 910 820
United States 3,037 2,273 2,787 6,403 7,247 4,697
Rest of World 1,115 535 833 1,258 714 1,419
Total 7,397 5,605 6,241 11,250 11,168 8,464
Source: WFP, 2005

1
2002 figures.
2
Food aid procured in a country and used as food aid in the same country.
3
Food aid procured or exchanged in one country for use as food aid in another developing country.

16 The German Marshall Fund of the United States

acquiring food aid. The high transportation costs
associated with importing food aid from donor
countries or other developed-nation markets can
significantly reduce the value of food aid.
In the mid-1990s, for example, Japan gave tied food
aid totaling ¥300 million (US$3.5 million) to Malawi.
Two Japanese suppliers purchased 3,000 metric tons
of Argentinean maize costing ¥79 million (US$0.9
million). The remaining ¥221 million (US$2.6
million) was spent on transportation and insurance
costs. Only 26 percent of the aid was spent on actual
food for Malawi. In this instance, if Malawi had been
able to buy the maize within southern Africa, the
same money could have bought more than three
times as much — 10,000 tons of maize. Japan has
since updated its policies, but this example serves
as a case in point of the glaring inefficiencies of tied
food aid.
Not only is untied food aid more efficient, but
it also leads to greater opportunities for local
producers to market and sell their produce in
partnering countries. Greater sourcing from “local”
markets would have a twofold benefit — increased
income and agricultural production for developing
countries and a reduction in the transportation
costs of providing food aid (Outterside et al, 2004).
According to Canadian analyses, it was found that
food sourcing in donor countries was relatively
more costly than purchasing the food in recipient
countries. Moreover, it stated that local procurement
is generally: 1) cheaper than donor country sourcing,
2) better suited to recipient preferences and
conditions, and 3) conducive to greater local food
production (Clark, 2001). However, caution must
be exercised not to disrupt local markets by raising
food prices through large-scale purchasing, thereby
hurting the intended beneficiaries.
4
A view held, in particular, by the United States and Japan.
to WTO Rules and the Development Agenda
The analysis by Clark (2001) showed that, in the
case of the Canadian wheat donor agency, it paid
more than the prevailing international market
prices and average export prices. Factors that
impact price include supply and demand, price
stability, international trade rules and regulations,
domestic procurement regulations and guidelines
related to the food aid commodities, and food Not only is
quality. It is therefore recommended that agencies untied food aid
and their partners utilize open commercial markets
more efficient,
to source food aid, including domestic food
but it also
commodities as well as local regional products.
leads to greater
Despite the many studies that have shown food opportunities for
aid to be more effective if untied, many in the local producers
donor community fear that untying will introduce to market and
inflexibility and result in a reduction in food aid sell their produce
volumes and availability.4 However the WFP’s view in partnering
is that, if this were to happen, the resultant lower countries.
levels would be more effective and make a greater
impact on development goals (WFP, 2005).
4.3.1 Current obstacles to untying food aid
Although other forms of aid are witnessing
increased levels of untying, food aid remains
predominantly tied. Because food aid originated as
an “in kind” provision, as a means of redistributing
surpluses in donor countries, the link between
food aid and trade has increasingly become a major
barrier to the further untying of food aid.
The main barriers to further untying food aid
are cultural, institutional, and political. Cultural
barriers are often linked to political hurdles and
exist predominantly in the United States. The
provision of food aid is seen by many as the
simplest means of providing aid, similar to the
way in which a member of the public donates to
a disaster relief charity. Although this is perhaps
Food Aid and its Relationship 17
 justifiable in relation to relief/humanitarian food
aid, there is a common misunderstanding of the
purpose of program food aid and its sustainable
development objectives.
It is often said that food aid policies have never
fundamentally addressed institutional barriers.
Some Despite the creation of the FAC, the WFP, and to
governments, some extent the WTO, a clear regulatory mandate has
notably the pro- never been handed to any of these institutions. While
agricultural reform the FAC was trying to address controversial food aid
countries of the practices with various degrees of success, the food
EU, combined aid debate entered the WTO arena, and with it, the
perception that the provision of food aid is not merely
with almost all the
the disposal of surpluses of some countries, or indeed
NGOs and charity
a means of providing aid, but also a policy instrument
organizations, are to support domestic producers by circumventing
advocating for the WTO. However, the inclusion of food aid in the
further untying of WTO Agreement on Agriculture (AoA),5 which
food aid, to allow explicitly stated that a reduction in subsidies would
recipient countries be met with a reduction in food aid, did nothing to
to procure food enforce this commitment. The reiteration of this
locally. commitment in the Doha Development Agenda
has been seen as an opportunity to exert pressure
on those WTO members who do not comply with
the AoA. In this way, the political barriers to further
untying might be lifted.
The political barriers seem to be the most apparent
ones in this entire debate. This is particularly
true for the U.S. government, NGOs, food aid
organizations, and farm lobbyists, all of which are
divided in this debate about procuring and hence
further untying of food aid. Some governments,
notably the pro-agricultural reform countries of
the EU, combined with almost all the NGOs and
charity organizations, are advocating for further
untying of food aid, to allow recipient countries
to procure food locally. This stands in contrast to
other governments (such as those of the United
5
Articles 9 and 10 of the GATT Uruguay Round.
18 The German Marshall Fund of the United States
States and Japan), and farm lobbyists, as well as, to
some extent, NGOs and food aid organizations that
by and large seek to purchase food domestically
before shipping it off to needy regions.
This means that the United States, as the biggest
“opponent” of untying food aid, but also the largest
provider of it, is required by legislation to provide
it both “in kind” and tied. The farm lobbyists in
the United States, comprised of the National Farm
Bureau, the National Farmers Union, and the
National Family Farms Coalition, maintain a large
political pressure on both the U.S. government and
the international donor community to maintain this
level of tying. It is in their vested interest that food
be purchased within the United States, as it provides
a guaranteed purchase of agricultural commodities
and hence guarantees farm revenues. This is precisely
the reason food aid has been placed at the forefront
of the current WTO negotiations, because it is seen
as a domestic farm subsidy within the United States
rather than as a genuine provision of aid. To further
illustrate this point, in years with a good harvest
(and a domestic surplus with high prices) food aid
volumes are higher than in other years.
The adamant advocacy of some NGOs toward
domestic food aid purchase may be explained by
the fact that they rely solely on cheap food for their
programs. They have a mandate to provide food
to needy regions, but they lack resources to either
purchase food by themselves or provide cash so
that recipient countries can engage in a triangular
transaction. It seems that they are hiding and
operating behind the public image of helping the
poor and the starving children all over the world.
The viewpoint of the food aid organizations
may also seem a bit controversial. As the biggest
contributor of food aid, the WFP is opposed to
local purchasing because it receives the majority
of its food aid from the United States in terms of
bulk commodities. The WFP also handles cash
provided by donors, which is turned into local
purchasing. But the bulk of its food aid is the
distribution of commodities from donor countries,
most notably the United States. It therefore follows
that if the WFP were to take a stance in support
of local purchasing, this would probably lead to a
reduction in U.S. support. This reduction of bulk
commodities would result in a reduced role for the
WFP. This view is shared by some, but contradicted
by others, who claim that less food aid would lead
to a better targeting of food aid.
The debate over these political hurdles merits an
independent and separate study because it is a
complex topic. Our study will take up the analysis
of the political dimension in Section 5, where this
dimension will be weighed up against the economic
arguments. However, it can be asserted that
political will is a major barrier to further untying.
4.3.2 Concepts of achieving further untying of
food aid
An emerging view by stakeholders is that food
aid should be untied and clearly separated from
commercial trade policies. As was discussed in the
previous section, the main barriers appear to be of
a political nature, particularly in the United States
and Japan. This political dimension was partially
addressed in the recent DDA negotiations, in which
food aid became an integral component, partly due
to peer pressure from the EU, which then forced
political attention on the issue.
One option discussed was to place food aid under
the “parallelism” discipline of the WTO. The benefit
of this is that food aid would be treated in the
negotiations as an equal to export subsidies, export
credits, and state trade enterprises. The prospect
of abandoning current trade-distorting practices
to WTO Rules and the Development Agenda
remains largely unclear, especially with the recent
collapse of the Doha Round. But so far, sourcing
commodities for food aid domestically is a form
of supporting local producers by circumventing
the WTO.
The EU is in a good position to achieve full untying
of food aid, partly because European food aid does Trends have
not form a large proportion of bilateral budgets. shown that the
Most EU member states already make use of untied use of project food
delivery channels, such as multilaterals or simply
aid is growing,
direct support to a recipient government. The EC
largely because
strongly promotes sourcing food aid in developing
it is increasingly
countries, as stated in the Food Aid Regulation
(EU, 2004). Reciprocity in the food aid sector could possible to
offer the EU an opportunity to influence others to procure it untied.
follow. Given the already significant untied status of
European food aid, it would be sensible to consider
ways to untie it completely.
It is becoming more and more transparent that
untying food aid is the way to go. Until recently,
program food aid was the favored type of aid
because it had a greater conditionality attached and
made use of domestic surplus. But this is starting
to change, as is demonstrated by recent trends and
studies of the various methods of procurement and
the definitions attached to them, which show that
food aid is best procured untied. It also has become
apparent through this study that untied food aid
should be given in the form of project food aid,
ideally for monetization, since it is the most cost-
effective way of delivering food aid. Trends have
shown that the use of project food aid is growing,
largely because it is increasingly possible to procure
it untied.
To support our argument that untied project
food aid is the most effective form of food aid, an
analysis of food aid effectiveness follows below.
Its effectiveness is considered from both sides, the
perspective of the donor and that of the recipient.
Food Aid and its Relationship 19
 4.4 Effectiveness of food aid
Evaluating the degree of effectiveness of food
aid is presently a divisive issue within the donor
community, since many governments prefer an
assessment based on food aid deliveries rather than
on its effectiveness in recipient countries. However,
Emergency food the issue also splits stakeholders such as NGOs
aid emerged in the and food aid organizations. This is partly because
OECD study as the any assessment is often undertaken in a populist
least cost-effective style, rather than with careful economic analysis.
form of food aid, However, one difference is that the latter group
due to the costs tends to be more concerned with improving food
supply conditions in recipient countries.
associated with
providing urgent
Even a recent OECD study, which aimed to
responses in rank food aid types according to their degree
life-threatening of effectiveness — and/or import displacement
situations and — concluded that the issue was far from
lack of opportunity straightforward (OECD, 2005). The OECD focuses
to do forward on the value-for-money approach of the overall costs
planning. of supply and compares individual donor country
actions with an alternative commercial transaction
that could have been supplied by an OECD or
another developing country on at least a cost basis.
Here, the idea of “import parity” provided a general
basis for assessing cost-effectiveness.
The OECD study compared the actual costs of
delivering food aid provided at the point of entry to
the recipient country with an estimated “reference
cost” for a hypothetical alternative commercial
transaction for providing the same commodity.
This led to an overall measure of cost-effectiveness,
i.e., the ratio of the actual food cost per ton to the
cost of the alternative commercial transaction.
That study’s conclusions support the case being
made in this one, namely that the most cost-
effective way of delivering food aid is project aid,
and in particular, project aid for monetization.
Emergency food aid emerged in the OECD study as
20 The German Marshall Fund of the United States
the least cost-effective form of food aid, due to the
costs associated with providing urgent responses in
life-threatening situations and lack of opportunity
to do forward planning.
The OECD study also confirms the widespread view
(and our own, described in Sections 4.2 and 4.3)
that untying aid is the preferred option, and cites the
United States as having the highest resource transfer
efficiency ratio, or, to put it differently, the least cost-
effective sourcing. This is not too surprising, since
this outcome is associated with the United States’
relatively high cost levels for direct transfers of tied
aid. The paper concludes that the most cost-effective
donors are those who have untied their food aid, or
have the least restrictive procurement rules. This is
also observed at the recipient end, where typically
direct transfers (tied aid) are less cost-effective than
triangular or local purchases.
However, despite its useful contribution, the OECD
study does not attempt to place its findings within
the wider political or global economic context. In
particular, its economic analysis does not take into
consideration the practical suitability of food aid
in a complex multilateral world order — and hence
that study’s scope is somewhat more restricted than
the concerns raised in this study.
4.4.1 Effects of food aid on local producers
Despite claims by the FAO in 2001 that the global
food supply at that time was sufficient to feed the
world’s population, the distributional issue is not
simply one of redistributing food from countries
producing surpluses to those countries in deficit
(Oxfam, 2005). The key issue is proper targeting.
In fact, there is a lack of convincing evidence
that food aid has disincentive effects on recipient
countries’ domestic agriculture. However, by
the same token, there is no evidence that delays
and inflexibility in food aid provision stimulate
government action in poor countries, or act as a
spur to policy reform either. This is probably due
to the fact that the widespread “conditionality”
influencing the availability of food aid makes it a
poor development tool.
Most food aid systems are regarded as inferior
options compared to financing public imports
through the commercial sector. Financing public
imports commercially would allow the private
sector to respond to rapidly changing market
conditions, assuming well-functioning internal
markets and trade linkages exist. This has led
to a rethinking of project food aid, which was
previously thought to be under-performing. A
recent study by Abdulai et al (2005) looked at
the debate on the impact of food aid on markets
and households using advanced econometric
techniques, but found no evidence that food aid
creates any disincentives to local production, labor
supply, or investment.
The study did reveal disincentives of food aid on
household behavior in Ethiopia; however, when
household characteristics were taken into account,
many of these adverse effects vanished. These findings
were compared with data across sub-Saharan Africa,
which suggested that whatever negative effects food
aid may have on food production and on government
incentives to invest in agricultural development are
offset by food aid’s positive effects on human nutrition
and food security.
The conclusion that food aid has a mildly
stimulating effect on African agricultural
production brings to prominence the importance
of market failure in limiting productivity in these
regions, as well as the importance of targeting food
aid in making it effective.
to WTO Rules and the Development Agenda
4.4.2 Conclusion of analytical components
Our analysis of the evidence from both micro-
level findings from household data and the
macro-level findings from national data (OECD)
suggests that observers should be cautious about
criticisms that food aid has disincentive effects. The
evidence suggests that, if appropriately provided If appropriately
and targeted, food aid need not inevitably lead to provided and
disruption in local markets nor, as we shall see, targeted, food
should it inevitably distort trade.
aid need not
inevitably lead
Taken together, the findings from this section
to disruption in
conclude that food aid best serves its goals of
providing food for the needy when used as local markets nor,
project food aid for monetization that is not tied as we shall see,
to any conditions. Parameters such as sourcing, should it inevitably
procuring, delivering, and targeting are crucial in distort trade.
the debate about food aid. Taking all these factors
into consideration, we find project food aid to
be the only current type of food aid that can be
delivered untied, with no conditions attached.
This is supported by the procurement analysis,
where it is also made clear that food aid should be
untied, since it reduces sourcing costs and increases
effectiveness. Further support comes from our
analysis of food aid effectiveness, which shows
untied food aid to be the most effective form of
applying food aid. Furthermore, the analysis also
shows that the claims that food aid distorts trade
and acts against local production are unfounded.
However, despite this evidence, the shift toward
a greater use of untied project aid — abandoning
costly or less well targeted food aid — has yet to
occur. Political progress in changing the system has
been slow, partly due to the vested interests of donor
countries. Therefore, an analysis of the political
dimension will be given in the following section.
Food Aid and its Relationship 21
 5 The Political Dimension of Food Aid
T
he history of food aid as a surplus
disposal mechanism and as a vehicle for
promoting future export sales has drawn
the WTO into the food aid fray and, in particular,
the debate about the effectiveness of food aid,
i.e., the targeting and procurement of it. The
inclusion of food aid in the WTO negotiations
The inclusion of means that the debate over food aid becomes even
food aid in the more political, in addition to being an economic
WTO negotiations concern. Food aid was a political decision in the
means that the first place, partly to accommodate food shortfalls
debate over food in developing countries, but also as a welcome
aid becomes even avenue for disposing of agricultural surpluses. Until
recently, the issue of food aid was of little concern
more political, in
because talks about trade liberalization in the
addition to being
agricultural sector were slow to materialize, with
an economic protected agricultural sectors being the norm. The
concern. introduction of agriculture into the GATT Uruguay
Round and subsequently into the DDA Round
— coupled with the emergence of agriculturally
developing countries and the G-20 group — sped
up talks on agricultural liberalization. With that
came increased pressure to eliminate any form of
domestic support, i.e., income support or border
support. This debate about food aid being a
domestic support tool initiated the discussion of
food aid in WTO terms.
The institutions that control or influence food aid,
such as the FAC and the FAO, have been to some
degree successful in regulating food aid deliveries,
but they have not been successful in regulating
the impact of food aid on trade issues. Hence, the
task of dealing with that issue was handed to the
WTO. However, because the WTO is a change
agent and not a stakeholder in food aid, many
observers, notably economists and government
officials, remain skeptical that the WTO has the
competence, or even inclination, to as act as an
arbiter on food aid (IATP, 2005). Nonetheless,
effective implementation of the right international
22 The German Marshall Fund of the United States
trade rules for agriculture could do a lot to clean up
food aid practices.
It is therefore essential to analyze how food aid has
fared in multilateral negotiations and what role the
WTO can play in this. The political role should
be to evaluate the part that food aid plays within
the WTO negotiations, how to treat it, and, in
particular, what reasons are behind the suggestion
that food aid has been used as a domestic support
tool and whether this, if true, can be regarded as an
overriding effect on the provision of food aid.
The political dimension is important domestically
but also internationally, notably at the WTO, but
also within the various agencies that provide or
delegate food aid, such as the FAC, WFP, and other
NGOs. The United States, as the biggest provider of
food aid and biggest opponent of untying food aid,
is required by legislation to provide food aid both
“in kind” and tied to U.S. producers and shippers.
The farm lobby in the United States maintains a
large political pressure on both the U.S. government
and the international donor community to
maintain this level of tying. Political will is
therefore a major barrier to further untying and,
consequently, to an agreement on improving the
U.S. food aid regime. However, it is fair to say that
the overall food aid issue has made some progress
within the U.S. administration. From a “no go
zone” only a few years back, this topic has moved
to congressional hearings, with the result that now
a quarter of any U.S. food aid must be given under
less restricted terms.
5.1 Food aid in multilateral trade
negotiations
Food aid was first mentioned in Article 10 of
the Agreement on Agriculture (AoA) that was
established in the Uruguay Round. However, the
recognition of the need for reform was met with
little change in WTO members’ food aid practices.
With the AoA, the supply of food available on
concessional terms decreased and the cost of
food imports increased, despite the promise by
WTO members to provide financial assistance if
the situation required. When the FAO concluded
that food security remains precarious and that the
costs of food imports have risen dramatically, the
WTO stood firm and did nothing to help, as it was
believed that trade liberalization on agriculture was
not the cause of the food deficit. This illustrates
that the WTO does not see itself as an institution
responsible for development. This has changed,
however, with the strong emergence of developing
countries within the WTO negotiations.
The debate about food aid in the context of
multilateral trade negotiations gained some
momentum with the DDA of the WTO but talks
have since stalled and the future of agricultural trade
liberalization remains in limbo as the main players,
the United States and the EU, continue to disagree on
a number of multilateral trade issues, most of which
have to do with agriculture. The DDA has failed to
make any inroads with regard to the disputed food
aid issue. The EU has put agricultural reform at the
forefront of trade issues and has proposed using the
review of the AoA to pass new rules that mandate
food aid be cash-based and untied. However, such
an outcome seems unlikely because the United
States, together with some of the food aid recipient
countries, would argue that such a narrow definition
of food aid is too restrictive and altogether not
feasible. Furthermore, because it is a humanitarian
intervention, this proposal would place the WTO at
the center of rule making for which it has no mandate.
It has been suggested in some quarters that
the pressure for agricultural reform is just a
smokescreen that the EU is using as a bargaining
to WTO Rules and the Development Agenda
tool to push for a better deal on the issue of
geographical indicators (GIs), which are closer
to the EU’s heart. However, the same can be said
about the United States — that it might give in
on the food aid issue to preserve something more
important to it, possibly cotton or export credits.
Hence, in the bigger picture, food aid constitutes
only a small portion of trade for either side, and Outdistancing all
one can assume that either side could be willing to other nations in
“trade” it in. food aid delivery,
the United States
It remains to be seen whether enough political
could set an
momentum can be gathered to change the rules
example for other
governing food aid. And in this context, it becomes
apparent that the debate about food aid in the nations by making
DDA of the WTO is as much a political debate as a few key reforms
a technical one. And even though the technical that would allow
aspects of determining what food aid system would its food aid to
be best for addressing efficiency and effectiveness help more people,
matters, it is the political dimension that ultimately in a more timely
carries the most weight. fashion, at a lower
cost to American
5.2 Policy changes needed taxpayers.
While some may consider the current food aid
mechanisms to be sufficient, there are many ways
to improve their effectiveness and efficiency. The
rules of the WTO and other food aid agencies
should be reformed. Outdistancing all other nations
in food aid delivery, the United States could set
an example for other nations by making a few key
reforms that would allow its food aid to help more
people, in a more timely fashion, at a lower cost to
American taxpayers.
One aspect of reform that the United States could
and should implement would be to negotiate a
new Global Food Aid Compact (GFAC) to replace
the expired Food Aid Convention (FAC). The
FAC was an agreement among donor countries
to ensure that a minimum volume of food aid did
Food Aid and its Relationship 23
 not disrupt commercial trade. Lacking monitoring
or enforcement capacity, it languished. A new
GFAC, to replace the FAC, would give recipient
country governments and the agencies that
distribute food aid explicit responsibilities under
an international code of conduct that would
strengthen accountability, effectiveness, fairness,
To increase the and transparency. By committing donor countries
flexibility of food not only to traditional tonnage minimums, but
aid, the sale of also to the provision of adequate financial resources
food in recipient complemented by a relaxation of rules that
mandate donor-country procurement, processing,
countries to
and shipping services, a new GFAC could enable
generate cash humanitarian and development agencies to bring
resources for
appropriate resources to bear in any given context
other programs to
in an economical and timely fashion. Moreover, by
address the cause linking a GFAC to the next WTO agreement — as
of hunger should endorsed by international experts in the September
be implemented — 2003 Berlin Statement — effective disciplines for
the practice known reducing trade-related disputes over food aid could
as monetization. finally be put in place.
Another reform that would improve food aid
effectiveness and efficiency would be the elimination
of unnecessary bureaucratic duplication. Many
different food aid programs currently run through
different agencies (e.g., the USAID and USDA in
the United States). A consolidation into a more
coherent program would yield a more streamlined
food-aid system that would result in smaller costs.
In particular, shipping food aid is costly due partly
to subsidies to the shipping industry. In this respect,
shipping U.S. food aid is 60 percent more costly
than shipping European food aid because Europe
commonly procures its food closer to its ultimate
distribution points, and the United States’ cost is
significantly higher than what the Canadians pay to
ship food from North America because they do not
have the massive maritime industry subsidies that
the United States does.
24 The German Marshall Fund of the United States
In addition, government administrators such as
those in USAID should have authority to procure
and process food aid in developing countries that
are closer to ultimate distribution points. Only
about 10 percent of global food aid is procured
in developing countries despite the fact that it is
done at a lower cost and with greater timeliness
in deliveries. Food aid programs need to move
further in this direction. Sensible reforms would
also require decoupling government support for
shipping from humanitarian programming.
Over the years, it has become clear that although
direct distribution of food can address acute hunger
in emergencies, it is not sufficient to address the
causes of hunger. To increase the flexibility of
food aid, the sale of food in recipient countries
to generate cash resources for other programs to
address the cause of hunger should be implemented
— the practice known as monetization. Monetized
food has been a valuable, flexible resource that
many NGOs have put to good use in combating
poverty and hunger. Food aid policy needs to focus
more on food security through poverty reduction
and less on food as a resource. However, this
requires greater flexibility in resource programming
— not just a greater volume of food resources. Such
flexibility will require legislative reforms to existing
U.S. food aid policies.
It therefore follows that there needs to be an
elimination of outdated forms of food aid in
exchange for reduced EU export subsidies that
harm both US/EU and developing-country farmers.
Food aid for surplus disposal or export promotion
motives often stands accused of undermining both
agricultural growth in recipient countries — and
thus food aid’s food security objectives — as well as
commercial trade. Food aid has therefore become
a point of contention in WTO negotiations. To
promote food security objectives in developing
countries, it makes good sense to eliminate the
export subsidies and export credit programs that
have failed to bolster farm prices or commercial
farm exports.
5.3 Operational changes needed
Along with policy reforms by governments,
operational procedures especially the targeting of
food aid must also be improved by the implementing
agencies in the field. Targeting errors are the root
of most operational problems associated with food
aid. Targeting includes not only the question of
who should receive food aid, but where such groups
are located, what kind of assistance they need,
and how and when to deliver it. Good targeting
means ensuring that food aid reaches those who are
genuinely food insecure and do not have adequate
money to purchase food. Good targeting also
ensures that it does not go to other groups. Failing to
reach truly food-insecure groups would mean that
food aid fails to have its intended positive impacts.
Accidentally providing food to relatively food-secure
groups displaces trade, hurts production incentives,
or both. NGOs and the WFP have improved
targeting methods over the years. Nonetheless,
further progress is needed. This will require
improving the information systems used to identify
where and when food insecurity is developing, and
who is affected.
to WTO Rules and the Development Agenda
Food aid has been used as a resource to address not
only acute hunger, but also to improve agricultural
production, develop infrastructure, improve health
and education, and a variety of other desirable
goals. Yet experience shows time and time again
that there is one major role for which food aid is
ideally suited: addressing acute food insecurity in
humanitarian emergencies that are underpinned There is one
by both an outright shortage of food and a failure major role for
of markets to respond to demand stimuli (e.g., which food aid
through cash from unconditional transfers or
is ideally suited:
public employment schemes). Although food aid’s
addressing acute
use in other applications is understandable — it is
food insecurity
often the only available resource — this inevitably
increases the risk of the harmful side effects of in humanitarian
which food aid often stands accused. emergencies that
are underpinned
The goal should be to limit the size of this form of by both an
aid and, in particular, to trim its use as a political outright shortage
tool, which may limit its possible market impacts. of food and a
It should be noted that these measures would failure of markets
not guarantee the elimination of commercial to respond to
displacement or any disincentive effect. It has to demand stimuli.
be stressed, however, that limiting food aid to
only low-income countries would not address the
concerns over potential disruption to recipient
countries. However, eliminating this form of food
aid would risk jeopardizing development projects
funded by it and would fundamentally reduce the
overall amount of foreign assistance provided to
developing countries.
Food Aid and its Relationship 25
 6 Summary and Conclusions
O
ur analysis suggests that food aid per se
is not a wasteful way to help the poor if
it is procured and targeted in an efficient
way. This is the core finding of this study, which
suggests that if food aid is granted in the form of
project food aid for monetization, and completely
untied and targeted in an efficient manner, it can be
If food aid is an effective way of alleviating hunger while having
granted in the minimal effects on trade and local production.
form of project
food aid for This study has endeavored to systematically
monetization, and dissect the various arguments around food aid by
completely untied providing definitions, outlining the broad trends in
food aid types, and analyzing the procurement and
and targeted in an
effectiveness of food aid.
efficient manner,
it can be an We have observed the following recent trends:
effective way of • There has been a decline in the absolute
alleviating hunger amount of “additional” food aid
while having • Food aid is also less important in relative terms,
minimal effects as is the proportion of food aid in total ODA
on trade and • The emergence of tied food aid means that
local production. it is important to be clear on the three
definitions of food aid and their relative
components in total food aid
• The relationships among food aid types,
procurement, and delivery practices have
implications for the tied vs. untied debate
The analysis undertaken in Section 4.1 demonstrates
that — of the three food aid types — project food
aid is the only one that can be provided with few
or no conditions attached. This is reasonably
encouraging, as project food aid now accounts for
16 percent of total food aid (Table 3) and is growing
in importance. As also discussed in Section 4, the
conditions attached to food aid — rather than any
intrinsic defects in this type of aid — act as a barrier
to its more effective use, as these conditions affect
the targeting and delivery of the food aid.
26 The German Marshall Fund of the United States
However, even within the general class of project
food aid, specific problems can emerge. Evidence
reviewed in Section 4.2 shows that project food aid
is most effective when it is flexibly sourced — i.e.,
when it is sourced in the recipient country or any
third country and not tied to other aspects of
ODA funding.
Figures in Section 4.2 point out that further untying
of food aid in general (all types) could result in
a 15 percent to 25 percent increase in efficiency.
This would be achieved by a decrease in the cost of
sourcing, as local purchases or triangular transactions
are always more cost-effective than direct transfers
and hence lead to an increase in efficiency.
Section 4.3 shows that untying project food aid,
in particular, would deliver the largest efficiency
benefits for donor and recipient countries alike.
This is because donors with a large amount of tied
aid have high levels of transfer efficiency, but this
comes with high costs attached to it. Tied aid is
less cost-effective, as the food could be sourced
more cheaply elsewhere. However, if we look at
recipient-country efficiency, we see that we cannot
substantiate the frequently made claim that food
aid automatically leads to agricultural market
distortions or barriers to local production. This
suggests that food aid per se is not the problem so
long as it is effectively targeted and sourced.
In addition to these “economic” arguments,
understanding the political dimension is crucial
if we wish to pursue a better food aid regime.
The lack of political force to change the present
regime exacerbates the present (but not inevitable)
economic distortion inherent in food aid. Covert
donor-country protectionist behavior, driven by
strong agricultural lobbies, attaches sourcing and
delivery conditions that contribute to the inherent
economic difficulties. Despite some signs of an
understanding that this behavior may not be
sustainable, a clear and far-reaching strategy to
move toward untied project food aid is still lacking.
It is this lack of political will at an international
institutional level that pervades the food aid debate.
The present institutions, such as the FAO and the
FAC, have proved to be successful in delivering
food aid but lack powers to challenge donor
behavior in the sourcing of food aid.
The fact that these institutions are relatively powerless
to influence strongly established donor practices lies
behind recent suggestions that the WTO (as a stronger
multilateral institution) take a more central role in
this debate, by placing food aid under a “parallel
discipline” on par with export subsidy measures for
other, nonfood, goods and commodities. This would
force donors to change their food aid regimes. In
addition, a new, stronger body would be needed to
oversee food aid administration.
Now, if we finally turn to the WTO issues, in the
light of the analysis presented in Section 5 — and as
recently pointed out by U.S. Trade Representative
Robert Portman (FT, 2005) — it is difficult to
see precisely why food aid should be a matter for
the multilateral trade system (the WTO). Hence,
as previewed in Section 2, Table 5 presents the
conclusions of our study on food aid and the
WTO dimension.
The rationale for the conclusions outlined in Table
5 is that, in the course of this study, we have seen Food aid can be
that food aid can be effective. This can occur if it effective. This
is provided mainly (or more so than is presently can occur if it is
the case) in the form of untied project food aid.
provided mainly
This desirable outcome would tend to be compliant
(or more so than
with WTO rules, if the food aid were placed under
is presently the
the “parallel discipline” that is used at the WTO to
address trade-distorting issues. case) in the form
of untied project
Considering the small percentage of food aid in food aid. This
overall ODA terms, it remains to be seen whether desirable outcome
enough political momentum can be brought up would tend to be
by donor countries to change the rules of the food compliant with
aid debate. It may yet be possible for food aid to WTO rules, if the
be treated as a “bargaining chip” in the present food aid were
WTO negotiations — as a tool to be traded off by placed under
some donors in order to obtain other interests, e.g., the “parallel
geographical indicators versus food aid. But such a
discipline” that is
conclusion may lie beyond the scope of this study.
used at the WTO
to address trade-
distorting issues.

Table 5: Effective Scenarios of Food Aid and the WTO Relationship

Food Aid WTO Compliant

Outcome
Effectiveness with Rules

Scenario 1 √ √ = Status Quo Remains

Scenario 2 X √ = Change the Delivery
Scenario 3 √ X = Change the Rules
Scenario 4 X X = Radical Change

Food Aid and its Relationship 27

to WTO Rules and the Development Agenda
7 References
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“Does food aid really have disincentive effects? New
evidence from sub-Saharan Africa,” forthcoming in
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Barrett, C. 2002. “Food Security and Food Assistance
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of Agricultural Economics, Amsterdam, Elsevier.
Barrett, C., and Maxwell, D. 2004. “PL480 Food Aid:
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Clark, C. 2001. “Food Aid in WTO Agricultural
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ODI. 2000. “Reforming Food Aid: Time to Grasp the
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OECD. 2004. “Food Aid: Is It Effective and Does It
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OECD. 2005. “The Developmental Effectiveness of
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Outterside, K., Vasquez Medina, B., La Chimia, A.,
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