US food aid revolution: rumour or reality?

Added 27 Mar 2013

On 27 February, 11 humanitarian organisations released a joint statement welcoming the Obama administration’s proposal for US food aid reform, which recommends a shift to local and regional procurement of US food assistance.

According to the Center for Global Development, the “proposal would restructure funding for PL480 – more commonly known as food for peace – and shift some or all of the food aid budget to cash that could be used flexibly to provide assistance in ways that reduce costs and speed the delivery of food aid”.

The joint statement focuses on two aspects of the US food aid programme:

  • reliance on ‘in-kind’ food and shipments from US suppliers, where food is directly delivered to developing countries;
  • monetisation, where aid agencies are forced to sell off US food in developing country markets to finance development projects.

The statement stresses the importance of using local and regional procurement as part of the food aid toolbox, as well as the inefficiency of the monetisation procedure. This position is in line with Eurodad research, which assesses the boomerang effect of aid – that sees the majority of money coming back to donors rather than reaching developing countries. Purchasing from firms from donor countries is the least effective form of procurement. It deprives developing countries of receiving the full potential of aid as a driver for long-term development projects and undermines the recipient countries’ ownership of the development process.

The independent evaluation report of the US Department of Agriculture’s local and regional food aid procurement pilot project highlights the fact that “local and regional procurement is a triple win: providing considerable cost savings, faster humanitarian response, and support for the local farmers and agricultural markets that are the key to providing long-term global food security”. In line with this, recent Eurodad research notes that, when procurement is locally sourced through country procurement systems, aid can have a double dividend – contributing to the development of smallholder farms and to the eradication of poverty. Smart procurement can improve access to markets, increase cooperation among farmers, diversify and improve the quality of crops, protect producers from external and unpredictable shocks, help farmers to access finance and invest in their land. Moreover, it can contribute to increasing people’s purchasing power, for instance by creating jobs and improving living standards.

This research also points out that the US is one of the world’s largest providers of global food aid, accounting for 60%, together with Japan. US food aid is still tied aid, relying on ‘in kind’ food and shipments from US suppliers. The US uses its programme as ‘corporate welfare’ for its agribusiness companies, undermining local farmers in developing countries and reducing food aid effectiveness. Eurodad has highlighted that less than 2% of US aid to Haiti supports local firms and pointed out how aid can have a double dividend if locally sourced.

The US is not the only black sheep. Despite international commitments, donors continue to tie their aid formally or informally. Eurodad research shows that two thirds of contracts awarded by bilateral donors still go to firms from Organisation for Economic Co-operation Development (OECD) countries and donors continue to have a strong influence on designing procurement reforms, undermining the opportunities for local firms to win contracts.

Changes in the international mindset are already underway. The World Bank and the EU are currently reviewing their procurement policies and civil society groups are pushing forward the issues of domestic preferences and the use of developing countries’ procurement systems. These changes are critical to achieving concrete reforms that promote aid effectiveness and local economic development.