Monetization of U.S. in-kind food aid

Last updated

Monetization of U.S. in-kind food aid is the sale of food commodities purchased in and shipped from the United States and sold for local currency in a recipient country by "cooperating sponsors", which are typically U.S.-based non-governmental organizations (NGOs) or recipient governments. [1]

Contents

In the case of the monetization of U.S. food aid, the U.S. provides food commodities for free or under favorable terms to a cooperating sponsor, which could be a recipient country's government or an NGO working there. The recipient organization sells the commodities to local processors or traders who turn around and sell the commodity on the market in raw or processed form. Proceeds from the sale to the processors or traders support technical assistance projects or public infrastructure investments in the same country, or in the case of third-party monetization, another country in the region. [2] Money can also be used in “targeted monetization”, where the cooperating sponsor sells small quantities with the purpose of developing the market, reducing market volatility, or improving food access. [3]

According to a study by Barrett and Lentz, monetization in the United States is driven by the "iron triangle" of producers and processors, the U.S. shipping industry, and NGOs. Producers and processors supply almost all of the procurements of U.S. food aid through the USDA on behalf of USAID. [3] Furthermore, U.S. law requires 75% of nonemergency food commodity tonnage be purchased, bagged, or processed, which provides U.S. companies with business. The law requires 50% of Title II grains to be bagged in the U.S. and 75% of U.S. food aid must ship on U.S. flag carrier vessels. [4] Many NGOs also favor monetization because aid through monetization funds their programs. [3]

Monetization of food aid is controversial. Critics claim it carries the risks of other types of food aid, which include displacing imports and disruption of local markets. These issues have brought a number of objectors, including the WTO, U.S. commercial exporters, and recipient country producers and traders. [4] The United Nations Food and Agriculture Organization also called for an end to monetization in The State of Food and Agriculture report in 2006, alleging monetized food aid represents over 30% of project food aid globally and is "often a dangerous way of destroying local farm prices." [5] Additionally, monetization has been labeled “inefficient” by a number of analyses, including that of the Government Accountability Office (GAO). [6] For these reasons, some NGOs, such as CARE, have decided to reduce or forgo monetization in the future. [4]

Background

Use of Monetization by Program Authority: Percentage of funds used for monetization and direct distribution GAO-07-560-MonetizationChart.gif
Use of Monetization by Program Authority: Percentage of funds used for monetization and direct distribution

Monetization of food aid is almost solely a practice of the United States and U.S.-based NGOs. The World Food Programme and European donors have discontinued most programs that provide food for monetization, while the United States government requires monetization by law. [7] The Food Security Act of 1985 introduced this requirement by allowing “cooperating sponsors” to cover administrative costs through the sale of United States in-kind food donations. In 1988, Title II PL 480 expanded to cover development projects as well, and non-emergency funding through monetization had a minimum level of 10%, which increased to 15% with the 1996 Farm Bill. [1] Additionally, it allowed for third-party monetization, which means food aid can be sold in one county to generate money to finance emergency or development programs in another country. [8] The Food for Progress Program and the McGovern-Dole International Food for Education and Child Nutrition Program also allow for monetization. [1]

According to the Food for Peace Monetization Field Manual Title II food aid has two objectives,

First, Title II food aid monetization is programmed to enhance food security. Second, Title II food aid is used by a CS [cooperating sponsor] to generate foreign currency to support development activities.
Monetization offers the potential to improve the marketing of food to permit greater access to those who are food insecure. Indeed, there is an important direct link between food security and how food aid is monetized. The process of monetizing can be used to promote low-cost, competitive food markets by encouraging investment in transportation, infrastructure and human capital (traders, entrepreneurs). In essence, food aid monetization can enhance long-term food security by encouraging the development of competitive food marketing systems that have built-in incentives to provide the poor with affordable staple foods. [8]

The United States reinforced its dedication to food aid and monetization for nonemergency development through the 2008 Farm Bill. This bill enacted hard earmarks for the first time, setting annual minimum commitments for nonemergency Title II programs: $375 million in FY2009, $400 million in FY2010, $425 million in FY2011, $450 million in FY2012(Sect. 3021).

However, a provision in the same bill (Sect. 3008) raised the cap on funding under Section 202(e), which allows cash resources to be “made available to Cooperating Sponsors for establishing new programs and meeting the specific administrative, management, and personnel costs of programs”(7 USC 1722(e)). Previously, the law restricted this funding to "not less than 5 percent nor more than 10 percent." The 2008 Farm Bill raised those values to 7.5 and 13 respectively and expanded the list of uses for those funds, giving the Office of Food for Peace greater flexibility to provide cash to cooperating sponsors when monetization would not be appropriate.

Since the introduction and subsequent changes of Title II, non-emergency food aid and the number of cooperating sponsors, most of which are US-based NGOs, have increased. [9] Monetization of food aid was originally intended to help agencies cover the cost of distribution of food and implementation of food-based development programs. However, monetization has since become much more prevalent as more organizations enter the field and existing cooperating sponsors expand their programs. Programs have also become inclusive of other activities such as maternal and child health. [4] According to a 2007 report from the United States Government Accountability Office, while the minimum level of nonemergency funding through monetization is 15%, it reached almost 70% in 2001. It declined to around 50% in 2005, likely due to the Office of Management and Budget's (OMB) recommendation to decrease monetization and due to the increasing demand for emergency food aid. [6] In a report prepared by Mendez England and Associates for the U.S. Office of Food for Peace, monetization of Title II food aid increased from 1987 with $21 million and five cooperating sponsors in 19 countries to 1994 with $80 million and 43 projects in 24 countries. [10] Between FY1999 and 2005, the overall contribution of monetized food aid could conservatively be as large as $900 million in support of projects with the assumption of a 60% recovery rate from the delivered commodities. This could be as high as $1.2 billion with an 80% recovery rate from US monetized Title II food aid. [1]

Potential effects

Positive

Negative

According to the USAID Food for Peace Manual, “Above and beyond the generation of funds for food security activities, monetization is one more tool among the set of programming options available to enhance the food security of vulnerable households through the use of U.S. food commodities." [8] Monetization also creates opportunities for American businesses to produce, process, and ship in-kind food aid. [1]

Increase of Food Quantity and Nutritional Benefits

Food aid aims to provide additional food consumption to that which would have taken place without food aid. Calculating whether monetization of food aid causes additional food consumption can be complicated because food aid provided can displace food provided locally and through imports in the market. USAID uses the Bellmon analysis to determine the level of food that would have already been available on the market. The Bellmon analysis guidelines intend to ensure food aid provides, “no substantial disincentive to domestic production and marketing.” “Usual Market Requirements” used by food aid organizations, Bellmon analyses, and Title II funding aim to ensure that monetization of food aid does not replace imports or displace local production completely. Thus, food aid can claim to provide additional food to what would have already been available. [1] Among regular recipients of food aid in the 1999-2005 period, 32% of the value of food for monetization qualified as “additional.” [9]

Furthermore, the food provided from the United States is generally high quality and provides vitamins, minerals, protein, and energy. Value-added food aid products such as corn soy blend and wheat soy blend have provided nutrition to impoverished societies data shows, and processed foods require less time to cook, which results in less need for fuel. However, not all aid is as nutritionally valuable because monetization aims to maximize funding for programs rather than maximize nutrition. For example, the most common value addition to products is production of vitamin A-fortified vegetable oil. [9]

Generation of Income for Development Projects and Food Distribution

Many cooperating sponsors see the most important advantage of food aid as the accomplishments of the projects established through funding provided by monetization and the future benefits of those projects. Projects funded through monetization address causes of hunger and malnutrition and aim to reduce the need for emergency food assistance. [1]

In 2001, the USDA released a report listing some of the projects monetization has funded. These range from “Promoting Agricultural Development in Cape Verde” to “Funding Agricultural Lending in Moldova.” The report includes 11 countries and concludes, “The monetization of food aid commodities has significant food security and development impacts. In addition, monetization provides a modest benefit to U.S. farmers by contributing to U.S. agricultural exports. While there are challenges and constraints to the effective use of monetized proceeds, experience demonstrates that food aid monetization can be an effective resource for grassroots development in foreign countries.“ [11]

However, the benefits of these projects are often descriptive, so the actual impact in numbers and estimates on sustainability and broad impact are difficult to estimate. Save the Children has tried to accomplish more analytic evaluation by commissioning its own evaluation of its multi-year project in Mozambique and working with an independent team from Michigan State University (MSU). These studies and others have concluded, “evidence that the use of food aid, and, specifically, effective programming of the revenues from monetization, can support expanded food availability and other beneficial outcomes.” [1]

Development of markets and stabilization of prices

Barrett and Maxwell state in Food Aid After Fifty Years:Recasting its Role, "that monetization can be done in such a way as to encourage local market development by promoting private sector development." They provide the example of selling food through small traders and processors based in villages to help stimulate competitive distribution channels. Operation Flood in India is a specific example cited to illustrate monetization of food aid developing a market. The European Community via WFP provided skimmed milk powder and butter to fund the first phase of the project. Eventually the project, which targeted linking milksheds with markets in cities, created a self-sustaining system of 43,000 village cooperatives and connected 136 milksheds to 290 markets. Thus, monetization promoted market development "through enhanced value-added in upstream production, processing and direct marketing by smallholder producers, increasing their share of the profits from retail milk sales in India." [7]

Criticisms

The production and shipment of in-kind food aid is often more costly than other methods of providing food assistance, and persistent provision of food aid can create a dependency of the recipient country on food aid. [1] Monetization is controversial in the international community; according to critics, “in addition to being highly inefficient, monetization has also proven harmful to regional markets and poor farmers in recipient countries and sometimes to U.S. producers." [3] The GAO has stated, “the current practice of using food aid to generate cash for development projects—monetization—is an inherently inefficient use of resources.” [6]

While many private voluntary organizations support monetization of food aid because it funds their programs, some have begun to fall on the other side. CARE ended its open-market monetization in 2009. TechnoServe announced in 2003 that it would not enter into new Food for Peace contracts because it was an unreliable source of funding. Catholic Relief Services, Save the Children, CARE, and other aid groups signed a 2006 declaration stating monetization is inefficient and diverts food from the poor. [3] Catholic Relief Services states it, “sells commodities only when it has determined that there are no alternative methods of funding and that the sale of the commodities will have no negative impacts on local markets and local production. CRS will seek to replace monetization with cash funding to cover program costs.” [12]

In 2007, CARE announced it would phase out all monetized food aid by 2009, choosing to forgo the $46 million in food aid it received from the United States government. CARE made the declaration in the International Herald Tribute. [13] CARE's 2006 White Paper on food Policy finds three problems with monetization of food aid:

1. Experience has shown that monetization requires intensive management and is fraught with risks. Procurement, shipping, commodity management, and commercial transactions are management intensive and costly. Experience has shown that these transactions are also fraught with legal and financial risks.
2. Monetization is economically inefficient. Purchasing food in the US, shipping it overseas, and then selling it to generate funds for food security programs is far less cost-effective than the logical alternative – simply providing cash to fund food security programs.
3. When monetization involves open-market sale of commodities to generate cash, which is almost always the case, it inevitably causes commercial displacement. It can therefore be harmful to traders and local farmers, and can undermine the development of local markets, which is detrimental to longer-term food security objectives. [14]

Many NGOs indicate monetization is an inconvenience at best and can take resources and focus away from their development goals, as they have to hire personnel with expertise in “commodity marketing, commercial contracting, finance, and logistics” to handle monetization. When NGOs fail to handle food aid with expertise, local traders have complained, “about the adverse effects on the commercial marketing channel of inept competition.” Although NGO practices have improved over the years, they have often sold commodities below market prices, which undersells local traders and adversely affects the market. [7]

Moreover, funds generated from monetization are often unpredictable as they depend on market prices, and this fluctuation in funding can affect NGOs’ programming. Also, monetization often recovers a fraction of the worth of the food commodities, leading to complaints about efficiency. [7]

Most NGOs agree and have supported and campaigned for reform. [15]

Related Research Articles

<span class="mw-page-title-main">Economy of Niger</span>

The gross domestic product (GDP) of Niger was $16.617 billion US dollars in 2023, according to official data from the World Bank. This data is based largely on internal markets, subsistence agriculture, and the export of raw commodities: foodstuffs to neighbors and raw minerals to world markets. Niger, a landlocked West African nation that straddles the Sahel, has consistently been ranked on the bottom of the Human Development Index, at 0.394 as of 2019. It has a very low per capita income, and ranks among the least developed and most heavily indebted countries in the world, despite having large raw commodities and a relatively stable government and society not currently affected by civil war or terrorism. Economic activity centers on subsistence agriculture, animal husbandry, re-export trade, and export of uranium.

<span class="mw-page-title-main">United States Agency for International Development</span> United States government civilian foreign aid agency

The United States Agency for International Development (USAID) is an independent agency of the United States government that is primarily responsible for administering civilian foreign aid and development assistance. With a budget of over $50 billion, USAID is one of the largest official aid agencies in the world and accounts for more than half of all U.S. foreign assistance—the highest in the world in absolute dollar terms.

<span class="mw-page-title-main">Agricultural subsidy</span> Governmental subsidy paid to farmers and agribusinesses

An agricultural subsidy is a government incentive paid to agribusinesses, agricultural organizations and farms to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.

<span class="mw-page-title-main">CARE International</span> International humanitarian agency

CARE is a major international humanitarian agency delivering emergency relief and long-term international development projects. Founded in 1945, CARE is nonsectarian, impartial, and non-governmental. It is one of the largest and oldest humanitarian aid organizations focused on fighting global poverty. In 2019, CARE reported working in 104 countries, supporting 1,349 poverty-fighting projects and humanitarian aid projects, and reaching over 92.3 million people directly and 433.3 million people indirectly.

<span class="mw-page-title-main">Humanitarian aid</span> Material or logistical assistance for people in need

Humanitarian aid is material and logistic assistance, usually in the short-term, to people in need. Among the people in need are the homeless, refugees, and victims of natural disasters, wars, and famines. The primary objective of humanitarian aid is to save lives, alleviate suffering, and maintain human dignity.

<span class="mw-page-title-main">Daykundi Province</span> Province of Afghanistan

Daykundi, also spelled as Daikundi, Daikondi, or Daykondi, is one of the thirty-four provinces of Afghanistan, located in the central part of the country. It has a population of about 516,504 and is a Hazara dominated province.

Trade can be a key factor in economic development. The prudent use of trade can boost a country's development and create absolute gains for the trading partners involved. Trade has been touted as an important tool in the path to development by prominent economists. However trade may not be a panacea for development as important questions surrounding how free trade really is and the harm trade can cause domestic infant industries to come into play.

Aid effectiveness is the degree of success or failure of international aid. Concern with aid effectiveness might be at a high level of generality, or it might be more detailed.

The Foreign Agricultural Service (FAS) is the foreign affairs agency with primary responsibility for the United States Department of Agriculture's (USDA) overseas programs – market development, international trade agreements and negotiations, and the collection of statistics and market information. It also administers the USDA's export credit guarantee and food aid programs and helps increase income and food availability in developing nations by mobilizing expertise for agriculturally led economic growth. The FAS mission statement reads, "Linking U.S. agriculture to the world to enhance export opportunities and global food security," and its motto is "Linking U.S. Agriculture to the World."

<span class="mw-page-title-main">Aid</span> Voluntary transfer of resources from one country to another

In international relations, aid is – from the perspective of governments – a voluntary transfer of resources from one country to another. The type of aid given may be classified according to various factors, including its intended purpose, the terms or conditions under which it is given, its source, and its level of urgency. For example, aid may be classified based on urgency into emergency aid and development aid.

Monetization is, broadly speaking, the process of converting something into money. The term has a broad range of uses. In banking, the term refers to the process of converting or establishing something into legal tender. While it usually refers to the coining of currency or the printing of banknotes by central banks, it may also take the form of a promissory currency. The term "monetization" may also be used informally to refer to exchanging possessions for cash or cash equivalents, including selling a security interest, charging fees for something that used to be free, or attempting to make money on goods or services that were previously unprofitable or had been considered to have the potential to earn profits. And data monetization refers to a spectrum of ways information assets can be converted into economic value.

The Commodity Credit Corporation (CCC) is a wholly owned United States government corporation that was created in 1933 to "stabilize, support, and protect farm income and prices". The CCC is authorized to buy, sell, lend, make payments, and engage in other activities for the purpose of increasing production, stabilizing prices, assuring adequate supplies, and facilitating the efficient marketing of agricultural commodities.

<span class="mw-page-title-main">Agricultural Act of 1949</span> United States federal law

The Agricultural Act of 1949 is a United States federal law that is known as the "permanent legislation" of U.S. agricultural policy and is, in its amended form, still in effect. The Act was enacted on October 31, 1949. The purpose of the act is "To provide assistance to the States in the establishment, maintenance, operation, and expansion of school-lunch programs, and for other purposes."

<span class="mw-page-title-main">United States African Development Foundation</span> Agency of the United States government

The U.S. African Development Foundation (USADF) is an independent U.S. government agency established by Congress in 1980 to invest directly in African grassroots enterprises and social entrepreneurs. USADF's investments aim to increase incomes, revenues, and jobs by promoting self-reliance and market-based solutions to poverty. USADF targets marginalized populations and underserved communities in the Sahel, Great Lakes, and the Horn of Africa. It partners with African governments, other U.S. government agencies, private corporations, and foundations to achieve transformative results.

In different administrative and organizational forms, the Food for Peace program of the United States has provided food assistance around the world for more than 60 years. Approximately 3 billion people in 150 countries have benefited directly from U.S. food assistance. The Bureau for Humanitarian Assistance within the United States Agency for International Development (USAID) is the U.S. Government's largest provider of overseas food assistance. The food assistance programming is funded primarily through the Food for Peace Act. The Bureau for Humanitarian Assistance also receives International Disaster Assistance Funds through the Foreign Assistance Act (FAA) that can be used in emergency settings.

<span class="mw-page-title-main">Agricultural marketing</span> Process of moving agricultural products from the farm to the consumer

Agricultural marketing covers the services involved in moving an agricultural product from the farm to the consumer. These services involve the planning, organizing, directing and handling of agricultural produce in such a way as to satisfy farmers, intermediaries and consumers. Numerous interconnected activities are involved in doing this, such as planning production, growing and harvesting, grading, packing and packaging, transport, storage, agro- and food processing, provision of market information, distribution, advertising and sale. Effectively, the term encompasses the entire range of supply chain operations for agricultural products, whether conducted through ad hoc sales or through a more integrated chain, such as one involving contract farming.

Market information systems are information systems used in gathering, analyzing and disseminating information about prices and other information relevant to farmers, animal rearers, traders, processors and others involved in handling agricultural products. Market information systems play an important role in agro-industrialisation and food supply chains. With the advance of information and communication technologies for development (ICTs) in developing countries, the income- generation opportunities offered by market information systems have been sought by international development organizations, non-governmental organizations (NGOs) and businesses alike.

The McGovern-Dole International Food for Education and Child Nutrition Program (IFEP) is a food aid program authorized in the Farm Security and Rural Investment Act of 2002 which provides for the donation of U.S. agricultural commodities and associated financial and technical assistance to carry out preschool and school feeding programs in foreign countries. Maternal, infant, and child nutrition programs also are authorized under this program. It is named after former U.S. Senators George McGovern and Bob Dole, who advocated in the U.S. Congress for its passage.

Community-driven development (CDD) is an initiative in the field of development that provides control of the development process, resources and decision making authority directly to groups in the community. The underlying assumption of CDD projects are that communities are the best judges of how their lives and livelihoods can be improved and, if provided with adequate resources and information, they can organize themselves to provide for their immediate needs. CDD projects work by providing poor communities with direct funding for development with the communities then deciding how to spend the money. Lastly, the community plans and builds the project and takes responsibility for monitoring its progress.

<span class="mw-page-title-main">Farmers' Market Nutrition Program / Senior Farmers' Market Nutrition Program</span>

The Farmers' Market Nutrition Program (FMNP) is a federal assistance program in the United States associated with the Special Supplemental Nutrition Program for Women, Infants and Children that provides fresh, unprepared, locally grown fruits and vegetables and nutrition education to WIC participants. Women, infants and children that have been certified to receive WIC program benefits or who are on a waiting list for WIC certification are eligible to participate in the FMNP.

References

  1. 1 2 3 4 5 6 7 8 9 10 11 Simmons, E. (2009), Monetization of Food Aid: Reconsidering U.S. Policy and Practice (PDF), Washington, D.C.: The Partnership to Cut Hunger and Poverty in Africa, archived from the original (PDF) on 2012-03-22, retrieved 2011-03-25
  2. ↑ Abdulai, A., Barrett, C. B., & Hazell, P. B. (2004), Food Aid for Market Development in Sub-Saharan Africa (PDF), Washington, D.C.: International Food Policy Research Institute.{{citation}}: CS1 maint: multiple names: authors list (link)
  3. 1 2 3 4 5 Barrett, C., & Lentz, E. (December 2009), U.S. Monetization Policy: Recommendations for Improvement (PDF){{citation}}: CS1 maint: multiple names: authors list (link)
  4. 1 2 3 4 Barrett, Christopher B. (2007), U.S. International Food Assistance Programs: Issues and Options for the 2007 Farm Bill (PDF)
  5. ↑ Food and Agriculture Organization of the United Nations (2006), The State of Food Aid and Agriculture, Rome{{citation}}: CS1 maint: location missing publisher (link)
  6. 1 2 3 United States Government Accountability Office (2007), Foreign Assistance: Various Challenges Impede the Efficiency and Effectiveness of U.S. Food Aid (PDF), Report to the Committee on Agriculture, Nutrition and Forestry, U.S. Senate, Washington, D.C., GAO-07-560.{{citation}}: CS1 maint: location missing publisher (link)
  7. 1 2 3 4 5 Barrett, C., & Maxwell, D. G. (2005), Food Aid After Fifty Years: Recasting its Role, New York: Routledge{{citation}}: CS1 maint: location missing publisher (link) CS1 maint: multiple names: authors list (link)
  8. 1 2 3 Monetization Field Manual, Office of Food for Peace, August 1998, archived from the original on 2011-10-31, retrieved 2011-03-25
  9. 1 2 3 Tschirley, David & Julie Howard (2003), Title II Food Aid and Agricultural Development in Sub-Saharan Africa: Towards a Principled Argument for When, and When Not, To Monetize (PDF), MSU International Development Working Paper No. 81
  10. ↑ Mendez England and Associates (1996), Shaping the Future of Monetization: An Evaluation of P.L.480 Title II Monetization Program (PDF), Arlington, VA{{citation}}: CS1 maint: location missing publisher (link)
  11. ↑ United States Department of Agriculture (2001), Report to Congress on Food Aid Monetization
  12. ↑ Catholic Relief Services, The U.S. International Food Aid Program, archived from the original on 26 February 2011, retrieved 7 April 2011
  13. ↑ Harrell, Eben (15 August 2007), "CARE Turns Down U.S. Food Aid", TIME, archived from the original on August 17, 2007
  14. ↑ CARE (6 June 2006), White Paper on Food Aid Policy (PDF), Atlanta: CARE USA
  15. ↑ "An open letter to Congress: Please support the Royce-Engel Food Aid Amendment".

Bonnard, Patricia, Patricia Haggerty, Anne Swindale, Gilles Bergeron, and James Dempsey (2002), Report of the Food Aid and Food Security Assessment: A Review of the Title II Development Food Aid Program (PDF), Washington, D.C.: Food and Nutrition Technical Assistance Project, Academy for Educational Development{{citation}}: CS1 maint: multiple names: authors list (link)

International Food Aid Programs: Background and Issues (PDF), Ft. Belvoir: Defense Technical Information Center, 2010{{citation}}: CS1 maint: location missing publisher (link)

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.