Phasing Out Monetization

Not all U.S. food aid is distributed directly to hungry people. Every year, hundreds of millions of dollars’ worth of food aid is “monetized”—sold in recipient country markets for cash to pay for development projects. The practice started in the 1980s and has grown steadily. It has been used primarily to improve long-term food security—for example, providing technical training to farmers or improving the infrastructure farmers need to gain access to markets.³⁸

Monetization has been widely criticized as an inefficient way of funding development projects. Research by the GAO in 2011 is one of many reports showing that monetization costs significant amounts of money that would otherwise go to programs for hungry and poor people. Of $722 million in food aid that was monetized between 2007 and 2009, $508 million was spent on development programs, while $219 million (30 percent) paid for freight charges to ship food aid commodities from the United States, transportation to bring the commodities to markets in the recipient countries, and other costs of monetization. U.S. cargo preference policies accounted for most of this lost funding.³⁹

In addition to being inefficient, as the GAO report notes, monetization can also displace or crowd out of the market the products of domestic farmers. Ironically, flooding the market with food aid hurts the sales of the same people the commodities were intended to help—the smallholder farmers who count on domestic markets for their livelihoods.

There’s a general consensus that long-term food security depends on new investments in agricultural development.⁴⁰ But for too long, the principal source of U.S. assistance for agricultural development was—in another striking irony—food aid. For most of the last 30 years, there has been little interest in agriculture’s role in development. U.S. agricultural assistance plummeted from $400 million in the 1980s to $60 million by 2006,⁴¹ while World Bank lending for agricultural assistance fell from 30 percent of all loans to 8 percent over the same timeframe. Governments of aid-recipient countries followed the international community and slashed their own support for agriculture.

With donors slashing agricultural assistance and using food aid as their preferred mode of conducting food security policy, monetizing food aid kind of made sense: otherwise, development organizations simply had no resources to support smallholder farmers. But this is no longer the case. In 2009, the U.S. government launched Feed the Future, a new agricultural development program, starting with 20 countries, and President Obama pledged $3.5 billion over three years to support agricultural development initiatives. The United States also called on other developed countries to prioritize agriculture, and several donors pledged resources at the 2009 G-8 meeting in L’Aquila, Italy.

Although no one can promise that funding for Feed the Future—or any government program—will be allocated in coming years, its establishment signals a major shift in U.S. government policy on global food security. Feed the Future is the first initiative of its kind to explicitly focus on overcoming long-term food security challenges. It should mean that it is no longer necessary to monetize food aid to obtain resources for long-term food security programs. Food aid is still a valuable tool, but now there’s a division of labor: food aid can be used for humanitarian emergencies and protracted food shortages while Feed the Future promotes longer-term food security.

The need to improve the nutritional quality of food aid, discussed earlier, is one major reason to reassess U.S. food aid policy. Another is the need to phase out the practice of monetization as Feed the Future and multilateral initiatives make more resources available for agricultural development. The two areas of change dovetail quite well: saving hundreds of millions of dollars per year in monetization costs would make it possible to fund significant efforts to improve the nutritional quality of food aid.