Tuesday, December 03, 2019

Food Aid, Trade and WTO

It is a strange world.

There is enough farmland producing more than enough surplus food to feed each and every child and adult in every country in the world, year after year. And yet, what is actually happening is that many countries that produce surpluses actively seek to undermine local farming systems, and to turn entire countries dependent on hand-outs.

It is called the Law of Comparative Advantage. On the face of it this law, based on a theory David Ricardo published in 1817, makes perfect sense. However, in the real world of natural and man-made disasters, it plays out rather differently. Consider these cases -

  • Malawi: In the early 2000s, Malawi faced severe food shortages. Enthusiastic food aid donors over-reacted to a projected 600,000-tonne food deficit, and sent close to 600,000 tonnes of food in aid. However, commercial and informal importers brought in an additional 350,000–500,000 tonnes. Malawi was flooded and had very large carry-over stocks. Maize prices dropped from $250 per tonne to $100 per tonne in the course of a year. Local production of maize, cassava, and rice fell markedly, and in a larger disaster that played out subsequently, estimated losses to the Malawian economy were approximately $15m.
  • The Philippines: US PL 480 food aid was used to finance the purchase of US exports. Ten years later, the Philippines was the largest market for US high-protein soybean meal, with US exporters accounting for 90 per cent of total imports.
  • India: In India the same PL480 scheme resulted in the creation of one of its finest engineering schools. India was required to pay for the food aid in Rupees (plus 50% of ocean freight cost) which was deposited to the account of the US Technical Cooperation Mission in India. These funds were to be spent on programmes approved by Government of India. One of these schemes, guided by PK Kelkar, was used to obtain US expertise in building IIT Kanpur.

According to a study by the OECD, shipping food from donor countries is 33 per cent more expensive than buying it from a third-party country (usually closer to the destination) and 46 per cent more expensive than buying it locally in the destination country. And yet this is exactly what happens on a fairly regular basis.

The WTO has been trying to do its bit but the opposition is formidable. The Doha Round negotiations took this up in light of evidence that the USA sometimes uses food aid to dump agricultural surpluses and to attempt to create new markets for its exports. Nothing came of it - successful  manoeuvring ensured the removal of the clause prohibiting surplus disposal via food aid.

While food aid continues to save millions of people in Sudan, Syria and Afghanistan from starvation, preventing such aid from destroying local production systems, and creating dependencies continues to be a challenge..


* Narayanan (1960): India-US Food Agreement and State Trading in Food Grains, EPW -https://www.epw.in/system/files/pdf/1960_12/39/indous_food_agreementand_state_trading_in_foodgrains.pdf

* The Kanpur Indi-American Program (1962-72) - https://www.iitk.ac.in/doaa/convocation/data/KIAP_Report.pdf