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Food aid group releases monetization study

As part of a battle over the Senate and House food provisions in the farm bill, an alliance of development groups that sell U.S. food aid commodities overseas has released a study that says this “monetization” of food aid has previously unrecognized benefits.

The Senate version of the farm bill says that any U.S. food aid sold overseas should be priced at 70 percent of its cost, but the House Agriculture Committee-passed provision says that the commodities must be sold at fair market value. The alliance favors the House version.

About 85 percent of the commodities that the U.S. government purchases for food aid are distributed, but U.S. law has long allowed private voluntary organizations and cooperatives involved in agricultural development in poor countries to sell U.S. –purchased commodities that are in short supply in those countries and use the money for development projects.

The Government Accountability Office and some development economists have criticized the practice on the grounds that it is inefficient and sometimes interferes with local markets. Many of these same advocates have argued that the U.S. government should provide cash assistance to countries and international organizations to buy commodities in nearby countries.

But the study commissioned by the Alliance for Global Food Security in five countries — The Gambia, Guatemala, Liberia, Mozambique and Uganda — concluded that monetization of food aid has a number of benefits, including addressing poor countries’ needs for credit, hard currency, access to small volumes of commodities and international commodity market volatility.

The study, conducted by conducted by Informa, a consulting firm, was presented to congressional staff at a briefing in the House Agriculture Committee hearing room last week.

Under current practices, development groups applying to distribute U.S. commodities tell the Agriculture Department or the U.S. Agency for International Development that they are planning to sell commodities and estimate what percentage of the cost they expect to recover.

The Senate bill includes a provision that would require the agencies to inform Congress if a group is planning to sell commodities for less than 70 percent of their cost.

The Alliance for Global Food Security, which includes Land O’Lakes, ACDI/VOCA, World Vision and other groups, says that most food that is monetized is sold for at least 70 percent of its cost, but that putting in an exact percentage and requiring that sales at under 70 percent of cost go through special procedures will slow down the process and make it difficult or impossible to use monetization.

Ellen Levinson

Ellen Levinson
“The Alliance for Global Food Security believes that the House farm bill monetization provisions make sense,” Executive Director Ellen Levinson said in an email.

“The bill clarifies that the sale of the commodity should be for the fair market value in the recipient country, which mitigates chances of displacing commercial trade,” she said. “In addition, it requires identification of the benefits of monetization to the country where the sale takes place and calls for greater USDA and USAID coordination, since both agencies administer food aid programs.”

“Hopefully, this study will dispel the notion that food aid is somehow ‘inferior’ to providing cash directly to conduct programs.,” Levinson said. “At the most basic level, monetization has a double benefit in a food insecure country: it provides a commodity that is in short supply and generates funds to carry out programs that improve food security and economic development.”

“What’s most revealing from the Informa study is that the design of a monetization program can also address market constraints, stimulate economic activity or improve the quality of the food supply,” Levinson said.

Catholic Relief Services is not a member of the alliance, but a representative of that group said in an interview, “Monetization may not be the most efficient [mechanism] but it delivers resources to where [USAID’s] Feed the Future program doesn’t operate.”