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Hungry for Cash: The Congressional Experiment with Food Assistance

June 22, 2012

Tucked away within the 1,000-page Senate Farm Bill is a unique provision that has the potential to revolutionize the distribution of the annual $2 billion of foreign food aid financed by American tax dollars. The current bill, headed toward a vote on the Senate Floor, makes permanent a $40 million cash voucher program that permits local purchase of food. While this reform will impact less a meager fifth of a percentage point of the total foreign food assistance budget, the inclusion of the cash for regional food purchases represents the consideration of a more effective and responsible way to combat global hunger.

A grateful recipient of U.S. food aid

The politics of U.S. governmental food aid have long been tied to agricultural and maritime shipping interests. Signed into law by Dwight D. Eisenhower in 1954, Public Law 480 (later renamed the Food for Peace Program) provided and continues to provide the regulatory framework governing distribution of food assistance. Created to provide an outlet for agricultural surpluses, the law stipulates that American food aid must be purchased domestically and then shipped aboard U.S.-flagged vessels. While such practices may benefit American farmers and shipping companies, they have drawn sharp criticism for their shortcomings.

Logistical problems abound with the distribution of American food aid. For one, it is a lengthy process to move the food from point A to point B; the Government Accountability Office discovered that it took an average of 147 days to deliver food aid to 10 sub-Saharan African countries. By contrast, the same study found that local procurement of the same food took a mere 35 days. In times of conflict or natural disaster, the ability to buy food and quickly distribute it can spell the difference between life and death.

Sending the food aid from home is also costly. Limited resources are wasted when food is shipped out of the agricultural heartland, placed in cargo ships, and sent halfway around the world. As a result, only 40 cents of every taxpayer dollar actually goes towards buying food. Obviously, not every cent in the dollar can go to feed the hungry because of overhead costs, but improvements can clearly be made on such dismal returns. An OECD study found that in comparison to local purchases, the current food aid regime is 50 percent more expensive.

But perhaps the worst impact of the status quo is the market disruption felt by recipient countries. When sufficient quantities of food are imported into a country at little or no costs, markets are distorted with excess food supplies, leading to reduced food production in the area to compensate for the disequilibrium. This unintended consequence has been documented time after time. In Ethiopia, food aid depressed the price of wheat from $295 per metric tonne to $193 per tonne, resulting in less production, compounding the food shortage. Local purchase, on the other hand, avoids such distortions while creating an incentive for future production. In a case study of seven countries that receive food aid from local purchases, Cornell economist Christopher Barrett found no significant impact on food market prices.

Purchasing food aid locally maximizes the effectiveness and minimizes unintended consequences.

Comparatively speaking, it is clear that purchasing food aid locally offers many advantages that domestic production does not. It is little wonder that Local and Regional Procurement (LRP) increased from 11 percent of global food aid spending to 67 percent in 2010. LRP has become the food aid of choice for Canadian and European Union Governments. Numerous global organizations, including the WTO, OECD, World Bank, and the G-20 have all praised the merits of LRP and have called for more extensive use. A broad spectrum of political ideologies have embraced the idea, with organizations as diverse as the Heritage Foundation and the Center for American Progress calling for similar reforms to U.S. food aid programs. What’s not to like?

The Senate’s resolve to extend the pilot LRP program found in the previous Farm Bill of 2008 is an encouraging development. Small as it may be, it can provide the foundation for future reform. Continuance of it may prove to be the gateway of U.S. food aid modernization.

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