COMMITTEE ON COMMODITY PROBLEMS
Rome, Italy, 11-13 April 2005
MULTILATERAL TRADE NEGOTIATIONS AND FOOD AID
1. Although not explicitly specified in such terms in various international legal and policy instruments, ‘food aid’ has traditionally been used to refer to international transactions that result in the provision of ‘aid in the form of a food commodity in a country deemed in need of receiving such aid’. It has had its origins in the 1950s as a result of surplus disposal programmes of some developed countries, but has also served as a policy instrument to address certain aspects of food insecurity in vulnerable developing countries. Over the years, however, the nature and structure of delivering food aid have changed substantially, reflecting changing global policy environment and food aid needs as perceived by various stakeholders.
2. The "commodity" nature of food aid means that it could have a "direct" impact on domestic food markets in recipient countries, the magnitude and nature of which depend on who receives it and how the recipients use it.1 Since food aid, the major source of food assistance provided to people in need, flows across national borders, international commercial trade patterns could also be affected "directly". However, since food aid currently constitutes only a small fraction of the value of imports of food commodities by developing countries, its international market effects are not likely to be too large, although they might potentially become so, were food aid to regain its past significance (see Chart 2 below).
3. The Agreement on Agriculture is being renegotiated in the WTO currently and the discussions point to the possibility that food aid might be brought under further disciplines. In the decision adopted by the WTO General Council on the Doha Work Programme food aid is part of the export competition pillar of the negotiations on agriculture, together with other instruments of export subsidization, all of which will have to be reformed in parallel. This document has been prepared to provide background information so as to assist the deliberations of the Committee under Agenda Item 5.b. It provides a short summary of the essential features of the structure of food aid flows in order to put in context the details of the latest discussions being held in the WTO negotiation process.
4. Cereals have constituted the bulk of the food aid shipments to developing countries through the past three decades, reaching nearly 13 million tonnes in 1987/88 (Chart 1). It had, however, declined sharply to one-third of that level, just above 4 million tonnes, by 1996/97; though it has recovered somewhat since then. A similar development path can also be observed for non-cereal food aid. It should be stressed that most of the food aid of both types, just over 70 percent of the total during the past five year for which data are available, are provided by only three countries, the United States, the European Union and Japan. The United States alone has provided over 50 percent of the total. Moreover, more than 95 percent of total developing country food aid has been destined to low-income food-deficit countries (LIFDCs) over the same period; though there have been times when that proportion has fallen as low as 75 percent.
Chart 1: Volume of food aid shipments to developing countries
5. The value of food aid shipments have also been declining when expressed as a share of not only the food import bills of the developing countries but also the official development aid received by them (Chart 2). The relative decline is fairly steep for both and indicates that during the most recent period, food aid has largely lost its importance as a development policy instrument as well as a large influence in global food markets.
Chart 2: Share of food aid in official development assistance and in food import bills of developing countries.
6. Indeed this view is strengthened when one looks at the changing nature of the food aid being provided. Emergency food aid now constitutes nearly two-thirds of total food aid, while the share of programme food aid, which is the least targeted and hence the most market disruptive form of food aid, is below 15 percent. These shares at the beginning of the 1990s were reversed: with programme food aid constituting above 60 percent and emergency food aid less than 15 percent. The remaining part of the food aid shipments goes to development projects that tend to have smaller international market impacts than programme food aid.
7. From the perspective of individual recipient countries, the developments in and impacts of food aid shipments could of course be different. This can be seen more clearly if the share of the value of food aid in food import bills is calculated for different groups of developing countries by taking simple averages of the shares across different countries2. Three groups are considered (Chart 3): the least developed countries (LDCs) and net food-importing developing countries (NFIDCs), of importance to the Marrakesh Ministerial Decision of the Uruguay Round Agreement on Agriculture (URAA) (see next section for details); and the low-income food-deficit countries (LIFDCs), of importance to FAO and WFP in allocating its institutional resources among developing countries. As can be seen the LDCs, the most vulnerable of the country groups, rely the most on food aid to meet their food import needs on the international markets, followed by the LIFDCs that have a very similar pattern to that observed for the LDCs (essentially because of the degree of overlap of countries in the two groups). Nevertheless, for an average country in each group, the decreased reliance on food aid since the mid-1980s may simply reflect a decreasing need for food aid. However, taking other variables into account, such as income growth, ability to import food, and restraints that food imports place on importing other commodities, it has been found for the LDCs that the decline has been contemporaneous with increasing domestic constraints on importing food; a development opposite to that of the NFIDCs3Chart 3: Average share of food aid in commercial food import bills in certain developing country groups.
8. A more direct link between food aid deliveries and food insecurity and its importance to more vulnerable developing countries have also been demonstrated, strengthening the conclusions stated above. The results of the analysis are summarised in Chart 4 and indicate that relatively more food insecure countries4 not only rely on more food aid and are also more prone to face food emergencies, but are also under greater economic stress:
Chart 4: Profiles of food secure and insecure developing countries on selected variables.
9. Food aid is part of the disciplines on Export Competition agreed under the WTO Agreement on Agriculture (AoA). The AoA contains disciplines on food aid under Article 10.4 which spells out some specific requirements on how food aid should be provided to be in conformity with the WTO (i.e. to prevent the circumvention of Export Subsidy Commitments) and in this context it also makes specific reference to existing provisions on food aid, specifically under FAO’s Principles of Surplus Disposal and Consultative Obligations of Member Nations (the Principles) and the Food Aid Convention (the Convention). Article 10.4 states that:
“Members donors of international food aid shall ensure:
10. Another relevant text of the AoA is paragraph 16 which makes reference to specific provisions for Least-developed and Net Food-Importing Developing Countries agreed under the Marrakesh Decision (which is an integral part of the Uruguay Round Agreement). Paragraph 16.1 states that:
“Developed country Members shall take such action as is provided for within the framework of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-developed and Net Food-Importing Developing Countries.”
11. In turn, the relevant parts of the Marrakesh Decision that pertain to food aid are paragraphs 3 (i) and (ii), which read as follows:
“3. Ministers accordingly agree to establish appropriate mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level which is sufficient to continue to provide assistance in meeting the food needs of developing countries, especially least-developed and net food-importing developing countries. To this end Ministers agree:
12. Basically, paragraph 16 and the Marrakesh Decision do not add anything new (to what is already contained in Article 10.4) as regards the disciplines that would govern the provision of legitimate food aid. What they do is to raise some concerns about the level of food aid and add an obligation on the part of donors (specifically developed country Members of the WTO) to review the situation “to review the level of food aid…and…to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform program”. Additionally, the Decision goes further as regards the terms of food aid to LDCs and NFIDCs, namely “an increasing proportion” (as opposed to “the extent possible” of Article 10.4) be provided “in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention 1986”.
13. The explicit referencing of the Principles and the Convention provisions in the AoA was significant. It was significant in the sense that, in principle, the Principles and the Convention became part of the rights and obligations of WTO members under the legal framework of the WTO. In that sense to the extent that these provisions are not adhered to, members of the WTO that view this as creating an imbalance between agreed rights and obligations under the AoA could potentially have recourse to the dispute settlement mechanism (as they do for other provisions in the WTO agreements). However, no operational mechanisms have been explicitly put in place for determining whether these outside-the-WTO provisions are faithfully adhered to and in the case they are not for establishing the extent of injury and remedial action.
14. Food aid issue in the Doha Round negotiations remains under the “export competition” pillar of the AoA as was the case under the UR negotiations. But for a variety of reasons, food aid became, much more than before, intertwined with other components of export competition having to do with export subsidies, export credits and state trading enterprises (STEs). The main reason that certain members of the WTO insisted on such links is that there is a danger that some forms of food aid transactions could act like other forms of export subsidization, i.e. export subsidies and credits. In view of this, the text on food aid in the July Framework established full “parallelism” between food aid and other forms of export subsidization, including export subsidies, export credits, and trade distorting practices of exporting STEs.
15. The relevant text on food aid that constitutes a reference for further negotiations is contained in paragraph 18 of the July Framework5. As for other parts of the Framework, while the language is very general as regards the specific provisions that would govern food aid, it is fairly clear on the objective, namely that, in parallel with other forms of export subsidization, those types of food aid that do not conform with disciplines to be agreed will be eliminated by some future date.
16. The Framework also mentions two key issues on food aid that would have to be addressed in the negotiations (i.e. the role of international organizations in the provision of food aid by WT Members and the question of providing food aid in fully grant form). These issues are not new but have been debated all along since the launching of the Doha round and refer to the following6:
17. Currently FAO and WFP are the only international agencies that assess food aid needs in vulnerable countries facing emergencies. Despite the shortcomings of the methodology, theirs are the only independent and unbiased assessments of food aid needs in emergency situations. The methodology employed by them to determine food aid needs arising out of emergencies is being improved to ensure that food aid is received only by those who cannot otherwise afford to buy the same quantities on the market, thus minimising the adverse effects on domestic food markets and the displacement of their commercial imports. The conditions under which the provision of food aid minimises these adverse market effects have never been specified in detail in any of the international instruments. This may be necessary in order to establish clear boundaries for delineating ‘legitimate’ food aid transactions from others. If an agreement is reached identifying those food aid transactions that minimise the effects on domestic and international markets, many of the issues related to the ‘form’ and ‘nature’ food aid and who delivers them may become easier to resolve.
18. For example, as long as it is known that the food to be delivered as aid minimises commercial displacement, because most of it will have been received by those who would not have had the ‘effective’ demand to purchase them on the markets, it would not make much difference whether the donors provide the aid in commodity or financial form. Moreover, since it is the characteristics of the ultimate recipients that will determine what would be considered as ‘legitimate’ food aid, it would also not make much difference whether the food aid is provided as grant or as loan under concessional terms to be paid back by an appropriate agency.
19. However, choosing such a path would require careful monitoring, reporting and analyses to ensure that food aid deliveries reach those who are in need. Given the experience, know how, personnel and organizational capabilities of some of the international agencies already involved in international food aid transactions, e.g. FAO, WFP, FAC or even OECD’s Development Assistance Committee, it may be necessary to combine and strengthen their capabilities to undertake such tasks and provide the necessary information that would allow implementation of the requirements of the new AoA.
20. Given that the international agencies that deal with food security dimensions of food aid have the appropriate experience, know how, personnel and organizational capabilities to monitor, analyse and report on the provisioning of food aid and its impacts on local and domestic markets;
21. Given that the Committee on Commodity Problems has been the principle forum that pioneered the discussions on food aid issues in an international setting in 1953 and subsequently developed the conceptual framework underpinning the principles of evaluating the impact of food aid flows on domestic and international agricultural markets;
22. The Members may wish to consider discussing the process and the manner in which the Principles and the operational procedures of the CSSD could be strengthened to allow it to become credible, dependable, effective and enforceable instrument in monitoring adherence of food aid transactions to the new disciplines to be agreed at the WTO. In this respect the following issues may require attention:
1 Food aid also affects the markets in which they are procured by creating pressures for raising the prices of the relevant commodities, even when it is provided from public surpluses.
2 This shows the developments in the share of a ‘typical’ country falling into each country grouping.
3 A. A. Gürkan, K. Balcome and A. Prakash, “Food import bills: experiences, factors underpinning changes and policy implications for food security of least developed and net food-importing developing countries, in Commodity Market Review – 2003-2004, FAO, Rome, 2003.
4 FAO, Global food markets, trade and aid: a perspective on vulnerable and food insecure countries, presented at International Workshop on Defining the Role of Food Aid in Contributing to Sustainable Food Security, Berlin, 2003 (also available at http://www.fao.org/es/ESC/common/ecg/36727_en_FAO_Berlin_web_E.ppt in French and Spanish). Food insecure developing countries have been defined as those that have more than 15 percent of their population undernourished (see FAO, The state of food insecurity in the world - 2003, Rome, 2003).
5 Paragraph 18 covers all forms of export subsidization, stipulating that those elements that do not conform to disciplines to be agreed will be eliminated. For food aid it states:
“18. The following will be eliminated by the end date to be agreed:
• Provision of food aid that is not in conformity with operationally effective disciplines to be agreed. The objective of such disciplines will be to prevent commercial displacement. The role of international organisations as regards the provision of food aid by Members, including related humanitarian and developmental issues, will be addressed in the negotiations. The question of providing food aid exclusively in fully grant form will also be addressed in the negotiations.”
6 The most concrete attempt so far to reconcile the various positions was Attachment 6 of the draft modalities text of March 2003 (Harbinson text). This text no longer has any legal status, therefore, will not be dealt with explicitly in this document.
7 In the URAA providing concessional international food aid was possible: “such aid shall be provided to the extend possible in fully grant form or on terms no less concessional than those provided for in Article IV of the Food Aid Convention 1986” (URAA, Article 10.4.c). In the 1986 Convention this is defined as “sales on credit, with payment to be made in reasonable annual amounts over periods of 20 years or more and with interest rates which are below commercial rates prevailing in world markets”. In the 1999 Convention, the relevant article number was changed but the wording remained the same, with one specific change that qualified the word ‘sales’ so that the relevant subsection of the article now reads as “sales of food on credit…” (Food Aid Convention, 1999, Article IX.a.iii).