Never mind the waste… here are the benefits of food aid monetizationNovember 30th, 2012 | by Eric Muňoz
With Farm Bill negotiations simmering on the back burner and an all-consuming Congressional focus on dealing with the fiscal cliff, the Alliance for Global Food Security, a group of Private Voluntary Organizations who have opposed common sense reforms to food aid programs, took the opportunity to launch a new study on the use of food aid monetization—essentially the sale of agricultural commodities in developing countries—to generate revenues for use in development programs. The Value of Food Aid Monetization: benefits, Risks and Best Practices sets out to provide additional information and evidence on one of the thornier issues in food aid programs authorized through the Farm Bill.
The problem: As the report rightly notes, the Government Accountability Office (GAO) has, on more than one occasion criticized the practice of monetization as a wasteful and inefficient use of US assistance. In their most recent accounting, the GAO found that over a recent three year period, monetization resulted in a loss of $219 million. The reason? It’s difficult to recoup the full cost of purchase, shipment, and delivery of food aid in competitive transactions in developing countries. Cost recovery for monetization activities for USAID administered programs averaged 76 percent. Activities managed by USDA fared slightly worse.
Then there is the question of market impact. Concerns have long been raised (including in the GAO report) that monetized food aid can compete with locally produced goods (or more relevantly, goods produced by smallholder farmers in the same market/country), disrupting lives and livelihoods.
How the Alliance responds: The study produced by the Alliance admits that on a pure cost recovery basis, monetization programs score poorly. But fixating on how much money is lost in monetization only tells part of the story and ignores all the good that can come from selling food aid. To elaborate this point, the study looks at five monetization activities in Gambia, Guatemala, Uganda, Liberia and Mozambique.
So, what exactly does the report tell us?
- In the cases under review, monetization did not disrupt domestic production or marketing. A positive finding, though I suspect there would have been resistance to publishing cases in which monetization did disrupt markets;
- Even if not explicit, it’s pretty clear that monetization serves as an export promotion program and an export subsidy to US producers. Take this language from the Liberia case study in which rice is the monetized commodity: “The six importers [which dominate rice imports] would not import as much [US] parboiled rice commercially because it would be cost-prohibitive, which is overcome by selling in smaller lots and allowing incremental payments.” Is this why we have food aid programs, to promote US agriculture products abroad?
- Program results achieved from the monetization process (as opposed to the ones achieved with the resulting funds generated through monetization) demonstrate benefits in terms of improving food markets, though not necessarily agriculture markets. For instance, one of the key benefits of wheat sales in Uganda has been the contribution to a stronger milling sector. But no data is presented to demonstrate that the improved capacity of millers has resulted in stronger linkages with farmers, particularly smallholder farmers who are the subject of much focus in Feed the Future and other development programs.
And what does the report not tell us?
Whether the positive outcomes associated with the monetization program could be achieved through other means. The crux of the issue is not whether monetization proceeds fund good programs that benefit producers or consumers. It is whether monetization is really the only or the optimal means of achieving positive results. For example, several of the case studies note instances of increased market participation by small vendors because of favorable credit or financing provisions accompanying monetization schemes. But these outcomes could also be achieved through strengthening commercial financial services and other assistance provided directly to traders.
And finally, even if one agrees that this study presents compelling evidence that the practice of monetization should continue to be part of US food aid programs, it does not mean having to accept the status quo. If organizations continue to insist on monetization—and if by law a minimum amount of food aid must continue to be sold on markets—we need smart policies and strong guidance and indicators regarding outcomes and acceptable levels of loss in the program. Provisions in the Senate-passed Farm Bill take a step in this direction by directing agencies practicing monetization to achieve at least 70 percent cost recovery (though USAID and USDA would have discretion to authorize monetization even in instances where this could not be achieved). Of the cases reviewed in this study, this level is met or exceeded in all but one instance. The Senate provisions would not have precluded any of the positive outcomes these activities appear to have achieved.
From the outside, losing 24 percent of aid resources on average in the process of monetization seems like a terrible waste of scarce resources. But what’s worse is that some aid groups that regularly practice monetization seem to be ok with this cost of doing business and are opposed to the Senate reforms. Shame on them. We should strive to do better.