U.S. Food Aid: We Pay for Shipping

Critics say the No. 1 aid donor is wasting money by insisting on sending farm products, not cash. And that will only worsen food shortages
Farmers take their crop to market in India Getty Images

In the midst of a worldwide hunger crisis, Congress signed on to a food aid program last month that sends hefty paychecks to agribusinesses and shipping companies, but an ever-shrinking supply of food to hungry people. Critics of the farm bill passed into law by Congress over President Bush's veto on June 18 say the inefficiencies in U.S. food aid will only exacerbate food shortages.

The U.S. earmarks about $2 billion per year on food for the world's hungry, more than any other country. Nearly two-thirds of that, however, is spent on items other than food. The $290 billion farm bill, like others before it, requires commodities be bought in the U.S. and shipped to needy countries. And as shipping and delivery costs have risen, the amount of actual food the U.S. sends overseas has fallen dramatically—by 52% between 2001 and 2006—according to one government report. The situation is even more dire this year, due to sky-high prices for commodities like wheat and corn, as well as for fuel.

President Bush asked Congress to modify the farm bill this year so that up to 25% of the food aid budget would be spent on food purchased in other countries, instead of shipping it from the U.S. He even mentioned the proposal in the State of the Union address in January, generating a round of applause. But when the clapping died down, Congress essentially passed the same food aid package it has in previous years.

Congress Opts to Go Slow

Granted, buying food in the U.S. and shipping it overseas has important advantages. There are undeniable political and diplomatic benefits of sending abroad food stamped with the letters USA. Supporters of the current way of doing things also say buying hundreds of millions of dollars' worth of food in developing countries could destabilize agricultural markets and lead to new problems.

Whether those benefits outweigh the inefficiencies of the U.S. program received little debate during consideration of the farm bill. In the House, a proposal to boost local and regional purchases died quietly in the Rules Committee. The Senate was willing to study the idea, but not to divert much money toward it. Eventually, the bill included $60 million over four years—less than 1% of the likely food aid budget over that period—to fund a study and pilot program for local-food purchases. A supplemental funding bill added $50 million more for local and regional purchases. Senator Tom Harkin (D-Iowa), the chairman of the Senate Agriculture Committee, said, "It is important that we act cautiously [and evaluate] the effectiveness, efficiency, and any potential consequences" before altering the food aid program.

Others were disappointed by the go-slow approach. "I was very upset that they did that in the middle of a crisis like this," said Andrew Natsios, the administrator of the U.S. Agency for International Development, or USAID, from 2001 to 2006 and now a professor at Georgetown University. "We don't need a pilot like this. It works. We know it works."

Aid Groups Struggle with Inflation

Getting food to developing countries efficiently has taken on a new urgency this year. Hunger crises, brought on by record high commodity prices and droughts in Ethiopia and elsewhere, have led to rioting in more than 30 countries, and could help push an additional 100 million people into extreme poverty this year, according to the World Bank.

Aid groups have been struggling to keep up (BusinessWeek.com, 6/3/08). The World Food Program, which is run by the U.N., has spent $650 million on 1.15 million tons of food through the first six months of 2008, compared with the $400 million the program spent through June 2007 to buy about the same amount of food. A report released in May by the U.S. Government Accountability Office, or GAO, showed the number of undernourished people has held steady at about 850 million, despite a pledge by 180 world leaders in 1996 to cut that number in half by 2015.

Regardless of what methods countries use to donate food, there are simply too many hungry mouths this year. But even so, other countries have taken steps to stretch their food aid dollars.

Most other countries have shifted their food aid programs so that they give cash instead of commodities. Canada decided a few months ago to move to a cash-only system. The World Food Program, which distributes about half of the food from USAID, buys most of it in developing countries. World Food Program officials contend that process is more efficient, because it cuts out the cost and delays of shipping the commodities. It can take up to six months for food to get to its destination, Henrietta Fore, the administrator of USAID, said in testimony before Congress earlier this year. Buying locally also helps support farmers in developing countries.

CARE Says No to U.S. System

"It's one of the tools we can use to stimulate production, market efficiencies, and market capacity throughout the world," said Kenn Crossley, the deputy director of U.S. relations at the World Food Program.

Neither USAID nor the World Food Program could estimate how much the U.S. would save by buying locally. But Gawain Kripke, the policy director at Oxfam America, said he thinks moving to local and regional purchase could cut costs by 40% to 45%, based on two studies that looked at the cost of shipping food vs. buying it locally.

USAID's inefficiencies extend beyond the cost and speed of shipping. Aid groups actually sell tens of millions of dollars' worth of USAID commodities in other countries to fund development projects, a process called monetization. That means taxpayers are buying food in the U.S. and paying to ship that food, so aid groups can turn around and sell it for cash. Even the groups themselves acknowledge that this is not the most efficient way to pay for aid. But they say it is necessary to pay for long-term projects.

The inefficiencies in the aid program have become so glaring that the Cooperative for Assistance & Relief Everywhere, or CARE, a large global charity, announced last year it would pass up millions in aid and no longer monetize food.

Some aid groups contend politicians are simply too beholden to large U.S. business groups to change the system. In fiscal year 2008 the government has awarded contracts for more than 40% of the commodities for USAID to Archer Daniels Midland (ADM) and Cargill—more than $150 million worth for each—according to the U.S. Agriculture Dept.

Bounty for U.S. Shipping

Shipping companies like Maersk Line Limited also play a large role in the food aid process, and have lobbied against changes to the program. Ocean shipping costs have become increasingly burdensome. USAID spent $340 million to ship food aid over the past 12 months, and has seen average shipping costs jump from $160 per ton in June 2007 to $270 per ton last month.

Government investigators found that requirements in the farm bill make shipping food particularly expensive. The bill mandates that 75% of the commodities travel overseas on U.S.-flagged ships, which charge more than other ships, a GAO report found. U.S. shipping companies acknowledge that because of regulations, it often costs more to ship with them.

"In the current conditions it's a scandal that we're taking more than half of this money and giving it to these companies," said David Beckmann, president of Bread for the World, an advocacy group that lobbies to change food aid policies. "This is a clear case of waste." The shipping companies argue that aid groups that buy food in developing countries also incur expensive transportation costs.

Indeed, some who follow the aid process think there's more to it than greedy business interests imposing inefficiencies. Emmy Simmons, a development consultant who worked at USAID for 30 years and was a top administrator there from 2002 to 2005, said, "It's a little more complicated than pork-barrel spending" and has to do with the history of the program.

USAID's Food for Peace program started in 1954, when the government was wondering what to do with its surplus grain. Along with the food, the U.S. was exporting goodwill. USAID's motto is "From the American People," and bags of American-made food that arrive in troubled regions serve as a potent symbol. Sending U.S. food is politically more palatable than sending a check, and aid groups such as World Vision worry that a change in the program would lead to a decrease in popular support for food aid.

Risk in Changing the Program

"There was a concern that you'd lose the resource," said Robert Zachritz, the director for advocacy and government relations at World Vision, which opposed the President's proposal to source 25% of food aid locally.

Groups lobbying against more regional purchasing point out that donations from the European Union dropped after its food contributions switched to cash. Even people who support regional purchases recognize the political danger of changing the program.

Beckmann, of Bread for the World, says the program "is understandable for historical reasons." But he thinks Americans are more internationally minded than they once were and would be willing to embrace a better aid program. "There is more concern than there was in the '90s. Taxpayers are willing to put more money in."

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