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Aid has many hidden costs

JOHANNESBURG, 13 July 2010 (IRIN) – US taxpayers spend about US$140 million every year on non-emergency food aid in Africa, and roughly the same amount to ship food aid to global destinations on US vessels; money that could have been used to feed more people says a new study by researchers at Cornell University in the US.

The US Agency for International Development (USAID) has accounted for more than half of the world’s food aid every year for decades, but has been “the last and slowest donor to reform its food aid policies”, noted Christopher Barrett, a leading food aid expert, and his colleagues, Elizabeth Bageant and Erin Lentz.

Their study, Food Aid and Agricultural Cargo Preference, has come up with the numbers to back a long-standing call for reforms, and goes a step further in showing that the policy designed to “nurture” or subsidise the US shipping industry “under the guise of humanitarian assistance” is not doing either effectively.

Most donors have moved towards cash transfers or vouchers to buy food, instead of providing food as aid, but the paper points out that most countries only had agribusiness and some NGO interests to contend with while reforming their food aid policy.

Reforms in the US have faced much tougher opposition from “a uniquely effective lobby”, referred to as the “iron triangle”, comprising agribusiness, the shipping sector and some NGOs.

Barrett and Daniel Maxwell, an associate professor at Tufts University, Boston, in the US, who wrote at length about the “iron triangle” in their 2005 book, Food Aid After Fifty Years: Recasting Its Role, estimated that it cost more than two dollars of US taxpayers’ money to deliver one dollar’s worth of food procured as in-kind aid.

If our objective is to generate US jobs, why do so through a humanitarian food aid programme, rather than focusing on generating jobs directly

Little known shipping subsidy

Little has been written about the costs and effects of a policy called the Agricultural Cargo Preference (ACP), which affects the shipping sector of the “iron triangle”, and USAID, the world’s largest food aid programme.

The ACP requires that 75 percent of US food aid be shipped on privately owned, US registered vessels, even if they do not offer the most competitive rates. Some of these costs are reimbursed by the Department of Transportation’s Maritime Administration, but ultimately the US taxpayer foots the entire bill.

The Cornell researchers used data available for every USAID food aid shipment in 2006, when ACP cost US taxpayers $140 million, “The amount paid above the regular cost of ocean freight on the competitive market,” said Barrett.

ACP was calculated by taking into account the costs of transporting the food aid on competing foreign vessels plying the same waters, after deducting the ACP costs borne by US Department of Agriculture food aid programmes, and reimbursements.

The un-reimbursed cost of ACP to food aid agencies was almost the same as what USAID spent on non-emergency food aid to Africa, which benefited 1.2 million people and was “widely deemed important to preventing food emergencies”. USAID declined to comment on the findings of the study, saying the research “spoke for itself”.

About 20 years ago the US Government Accountability Office (GAO), an independent investigative arm of Congress, looked at the costs of shipping food aid in US-flag vessels rather than using cheaper foreign ships, and estimated that it cost $150 million each year. Another report in 1994 put the cost as high as $200 million a year.
Failing shipping as well

The ACP was put in place to achieve four objectives: ensure that US vessels remained seaworthy and prepared should a war break out; maintain skilled jobs for American seafarers; maintain the financial viability of US ships; protect US ocean commerce from foreign domination.

Barrett, Bageant and Lentz found that “contrary to its national security and ‘buy American’ objectives”, ACP used vessels which were not useful to the military, and most of the vessels used were ultimately owned by foreign corporations.

They recommended that the US administration revisit the ACP, and suggested separating security objectives from humanitarian ones, with direct support for the Maritime Security Program.

But shipping industry says

The US shipping industry, which produced its own study – Impacts on the US Economy of Shipping International Food Aid – around the same time as the Cornell researchers, argues that eliminating the ACP would shrink the US-flag merchant fleet by 15 percent to 30 percent, with the loss of between 16,500 and 33,000 jobs.

Barrett said the shipping industry’s study had used “very crude multipliers not developed for this application, and seem to use the total ocean freight costs, not the marginal cost of cargo preference, thereby assuming that every maritime job would disappear. That’s a highly questionable assumption that they then inflate, using highly questionable multipliers”.

The Cornell study’s calculations showed that US taxpayers were paying a subsidy of almost $100,000 every year per mariner on an ACP vessel shipping food aid. “That’s a pretty handsome subsidy,” he commented.

“One would hope there would be some economic multiplier. The question is whether that’s the best use of those funds, if our objective is to generate US jobs; and if the objective is to generate US jobs, why do so through a humanitarian food aid programme, rather than focusing on generating jobs directly?”

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