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Oxfam Make Trade Fair


Food aid or hidden dumping?

Oxfam Briefing Paper 71

Oxfam

March 2005

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Summary

While more than 850 million people suffer chronic malnutrition, many food aid resources are wasted due to inefficiencies, policy obstacles, and poor targeting. Actually, food aid is often not provided at the right time, the right place, or in sufficient quantities. And donor response consistently falls short of emergency appeals by the World Food Program (WFP).

Oxfam believes that food aid can, sometimes, be essential to humanitarian response. However, for many development and humanitarian needs, food aid is not an appropriate or efficient tool. Even in most emergencies, in-kind food aid often fails to improve access to food due to delays in delivery, as well as mismatches between recipient needs and the commodities donated.

Why is food aid a trade issue?

Agricultural exporting countries have called for new disciplines on food aid as part of the Doha Round negotiations at the World Trade Organisation (WTO), in light of evidence that the USA sometimes uses food aid to dump agricultural surpluses and to attempt to create new markets for its exports. Indeed, food aid has the potential both to reduce domestic production of food, damaging the livelihoods of poor farmers, and to displace exports from other countries into the recipient country.

This paper shows that current practices, especially those of the USA, create substantial adverse side-effects in trade that damage the livelihoods of poor farmers and stymie their economic opportunities to develop.
  • Damage to local production in recipient countries: in 2002/2003 food aid donors over-reacted to a projected 600,000 metric tonne food deficit in Malawi, causing a severe decline in cereal prices and hurting local producers.


  • Displacement of exports: in 2000, Guyanese rice exports to Jamaica were displaced by US food aid which suddenly doubled following a bumper crop in the USA.


  • Food aid is used to dispose of surpluses: in-kind food aid peaked in 1999-2000 when there were large surpluses and low prices for cereals. This depressed prices for poor farmers around the world.


  • Food aid is sometimes used to capture new markets: US legislation for Title I food aid programs states that priority is given to export of US agricultural commodities to those developing countries which have demonstrated the potential to become commercial markets. This is a major, and unfair, subsidy to exporters of the donor country.


  • In-kind food aid is used instead of cash: 90 per cent of all food aid is provided in commodities rather than cash. This can destroy or damage local markets that poor farmers depend on.


  • Monetization of in-kind food aid: increasing volumes of food aid provided for development projects is sold straight onto local markets to generate cash. This displaces local farmers’ produce and slashes their income by reducing prices.
As the world’s largest donor of food aid, the USA has a special responsibility to ensure the quality of its food aid program and to minimize any trade distortions. The USA is the only donor making major use of concessional sales (rather than grants) for food aid; it is the only food aid donor to distribute a large proportion of its food aid bilaterally; and it requires virtually all food aid contributions to be in the form of US commodities.

Strong disciplines are needed

The Doha Development Round offers a unique chance to create more economic opportunities for developing countries and poor farmers by eliminating agricultural dumping, protecting vulnerable farm sectors in developing countries, providing new market opportunities, and implementing the Marrakesh Decision (see below). New disciplines on food aid are an important part of the overall reform needed.

Unfortunately, the debate so far at the WTO has made little progress. The current text, from the August 2004 framework agreement, is sufficiently ambiguous that it would add nothing to current disciplines on food aid.

As members start negotiating the modalities of the final agreement on agriculture in the run-up to the December Ministerial in Hong Kong, it is now crucial that strong disciplines on food aid are incorporated to ensure it stops destroying poor people’s livelihoods.

Recommendations

  1. Food aid is provided exclusively in grant form.


  2. Food aid should not be linked, either explicitly or implicitly, to commercial transactions or services of the donor country.


  3. The use of in-kind food aid should be limited to situations of acute local food shortage and/or non-functioning local food markets, where regional purchase is not possible. In other situations, food aid should be provided in cash form, to purchase food locally or regionally.


  4. Monetization of food aid should be limited and replaced with cash donations, to avoid displacement of local production or commercial imports.


  5. Food aid should only be provided in response to calls from national governments, specialized United Nations agencies, other relevant regional or inter-governmental agencies, non-governmental humanitarian organizations, and private charitable bodies.


  6. All food aid transactions must be notified in a timely manner to the Food and Agriculture Organization of the United Nations (FAO) and WTO.
In addition, the new Agreement on Agriculture should:
  1. Eliminate all other surplus disposal instruments, such as export subsidies and subsidized export credits.


  2. Implement the Marrakesh Decision on Net Food-Importing Countries by:
    a) putting into place multilateral financing mechanisms to facilitate commercial purchases in the event of higher prices for staple foods due to reforms linked with the Doha Round or other market trends; and
    b) increasing amounts of development aid to relieve food supply constraints and develop efficient local production of staple foods in net food-importing developing countries (NFIDCs).


  3. Curb the subsidized production of food surpluses through adequate disciplines on domestic support.


  4. Increase funding levels for development assistance, particularly for agricultural development.



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