2. Food Aid and Food Security

2.1 General features

Food aid represents the most prominent form of external assistance that, by nature and intention, is specifically designed to enhance food security. In a broad sense, food aid can be understood as a resource transfer in kind of food to beneficiaries at concessional terms, i.e. better terms than available on the market. This may refer to internal food transfers as presented in the previous Chapter 5, or to international transfers from donors to recipient countries at better than world market conditions, i.e. food supplies on a grant basis, at reduced prices, or at concessional credit terms. Food aid terminology is not always fully clear. For the sake of clarity, we use the term food aid if it involves some kind of external resource transfer, normally (but not necessarily) in kind of food commodities, aimed at providing food directly to beneficiaries in the recipient country or to the government in support of its food security or other development objectives.

In its origin, food aid was predominantly an instrument of surplus disposal, largely determined in kind and volume by the situation in surplus producing countries, particularly in North America after the Second World War and, later, also Western Europe. Although the availability of surpluses is still an important determining factor of food aid transactions up to the present day, the approach to food aid has substantially changed over the last 40 years (see Box 6.1). The concepts have been diversified and refined in various respects, such as:

• stronger orientation to the needs of the recipient countries,


• binding commitments of donor countries,


• multilateral food aid,


• different types of uses of food aid,


• food aid as development resource,


• local purchases and triangular transactions, etc.

2.2 Programme food aid

Programme, or non-project, food aid is not targeted at specific beneficiaries or groups but provided to the governments of recipient countries, both as loans or grants. It is usually destined for sale on the local markets, but may also be used to build up food security or food buffer stocks. The main purpose of programme food aid is to provide balance of payments and budgetary support.

Programme food aid gives balance of payments support to the extent that it substitutes for commercial food imports which otherwise would have to be undertaken by the recipient country, if programme food aid were not provided. The "aid component", or the amount of balance of payments support, depends on the conditions under which programme food aid is provided. These conditions vary significantly among donors and recipient countries, and sometimes even between different consignments from the same donor to the same recipient. Some examples of typical conditions and their implications for the amount of balance of payments support are given in the following table.

Table 6.2: Conditions of programme food aid and balance of payments support

Programme food aid is usually monetised, i.e. sold on the local market at prevailing or subsidised market prices. In the latter case, programme food aid constitutes a major resource for targeted (or non-targeted) food subsidy schemes (see section 3.3 of Chapter 5).

The budgetary support component of programme food aid depends mainly on the regulations concerning the use of the sales revenues. Some typical regulations and the corresponding budgetary effects are listed in table 6.3. In general one can say that programme food aid (as any type of commodity aid) has supportive effects for the government budget to the extent that the sales revenues from monetisation are used for purposes which, in the absence of such funds, would have to be financed by the government from its own budgetary resources.

Table 6.3: Regulations concerning use of sales revenues and budgetary effects

The effectiveness of programme food aid in achieving food security objectives depends on the conditions under which it is provided and on the situation in the recipient country, specifically the type of prevailing food deficits. We will return to this issue in section 2.5 below. Programme food aid can also play an important role in efforts to stabilise food supplies in countries and situations characterised by large production and supply variations.

2.3 Relief food aid

Relief food aid is provided on a grant basis and distributed to targeted beneficiaries to address critical food needs arising from natural and man-made disasters. It accounted for 26 percent of all 1993 food aid deliveries, and plays a particularly important role in Sub-Saharan Africa which received about two third of the total relief aid deliveries.

Typically, relief food is distributed to target groups through specifically established channels, with relatively high complementary infrastructural, logistical and managerial requirements. When emergencies arise, the necessary resources for relief assistance must be mobilised and the structures of relief distribution set up immediately, in order to reach the designated population in time. This is always difficult, and particularly hard to achieve if, as often occurs, the afflicted people live in remote and inaccessible areas.

It is in the nature of emergencies that they are mostly unpredictable. Nevertheless, certain provision can be made in order to mitigate the possible disastrous effects once they occur. Such provisions include vulnerability assessment, early warning systems, food security reserves at strategic locations, an institutional framework for effective response on all levels (involving government institutions, foreign and multilateral aid organisations, NGOs), etc. (see also Box. 6.2). Due to limited local capacities to cope with emergencies, external assistance in kind of food, other material, and financial support is often indispensable for launching relief programmes.

Relief assistance can be considered as effective, if it is targeted by commodity type, quantity, and time according to need. However, due to the problems involved in sudden and large scale relief operations, targeting is usually only achieved to a certain extent. It is imperative to phase out general food relief as soon as the emergency is over, in order to avoid dependency and severe distortions of local food production and marketing systems.

2.4 Project food aid

Project food aid is similar to relief aid in that it is provided on a grant basis, in support of specific development objectives and beneficiary groups. Classical approaches to project food aid are FFW projects and special feeding programmes (addressed in Chapter 5, section 3). The distinction between project and other forms of food aid is not always clear. Project food aid may serve relief purposes (e.g. FFW or feeding projects for vulnerable groups), programme or relief aid may be used for food security projects (e.g. to build up food security reserves), or the counterpart funds generated through monetised programme food aid may be allocated for specific projects. Part of project food aid deliveries may also be monetised in order to generate funds to pay the costs of internal distribution of the project organisation, or for complementary financial inputs required in project implementation. The difference between programme and project food aid is, in the latter case, largely reduced to the fact that food aid is not provided directly to the government but to the project implementing agency. This may be a national or an international, a governmental or a non-governmental organisation.

2.5 The role of food aid interventions in alleviating food insecurity

The primary function of food aid consists in alleviating food insecurity resulting from temporary or structural food deficits. Which food aid approach, and whether any form of food aid, represents an appropriate intervention depends, to a large degree, on the nature of existing food deficits and their causes. The food deficits may apply to a country as a whole, to a specific drought prone or disaster affected area, or to a particular vulnerable population group, and they can be the result of demand or supply based factors (e.g. shortfalls in income, or in food production and supplies).

In order to analyse the role of food aid interventions in alleviating food insecurity, a clarification has to be achieved as to the type of prevailing food deficits. The main distinction to be made is between a market supply/import deficit and an effective demand deficit (for details see typology of food deficits presented in Annex 1, section 2).

Figure 6.1 depicts the situation of an overall aggregate food deficit in a country, composed of a market supply/import deficit (C-B) and an aggregate demand deficit (D-C). It applies to an open economy, with p indicating the level of world market prices (border price expressed in local currency units, see Annex 2B for explanation).

Figure 6.1: Food deficits and the scope of food aid interventions

2.5.1 Programme food aid to mitigate market supply deficits

A market supply/import deficit (B-A) determines the potential scope for programme food aid to the extent that programme food aid deliveries substitute for commercial food imports. Such a substitution is desirable or necessary if a country is short of foreign exchange. Programme food aid has, in this case, the main function of foreign exchange support. As the effective demand for food exceeds domestic production and market supplies, food (aid) imports can be monetised up to the amount of a prevailing deficit, without the risk of market distortions and disincentives on local food production. This, however, only applies under two essential conditions:

i) The commercial food imports and programme food aid together do not exceed an existing market supply/import deficit. This condition point to the problem of and the need for a careful assessment of the "Usual Marketing Requirements" (UMRs) fixed by donors in food aid agreements with recipient countries. UMRs are set to ensure that a country maintains specified levels of commercial food imports when it receives food aid.

ii) Programme food aid being monetised and channelled into the food market is not sold at "dumping prices", hence does not depress the local market prices below "reasonable" price levels. Depending on the situation, reasonable price levels are determined by regional production costs and/or shadow world market prices.

Such disincentive effects may also occur if the government of a recipient country is, through abundant food aid supplies, enabled or even encouraged to keep the producer prices for food artificially low, and/or to neglect the agricultural and food sector as a whole (policy disincentive of food aid).

2.5.2 Relief and project food aid to mitigate demand deficits

A demand deficit (R-B) results from the fact that people have insufficient income, hence purchasing power, to express their essential food needs as effective market demand. Such a situation requires, as already discussed in Chapter 5, primarily targeted approaches of employment and income generation in favour of the poor and vulnerable groups and/or direct food transfers. These are classical fields of relief and project food aid.

Although relief and project food aid are thought to cover the food deficits of food insecure households, the sale of relief and FFW rations by the beneficiaries is a common phenomenon. This could be an indication of poor targeting. There are, however, also many other reasons for such behaviour, e.g. immediate cash needs or the need or preference for other types of food commodities, etc. (see Box 6.3). Such factors may cause the recipients of relief and project food aid to sell part of the rations received, in spite of the fact that their household food requirements are not fully met.

In areas with large-scale relief or FFW operations, informal monetisation of relief or FFW rations by the beneficiaries can significantly increase local market supplies, with substantial implications for the local market structure and market prices (see dashed lines in Figure 5.7, Chapter 5). Such effects need to be taken into consideration when food aid operations are planned and must be closely monitored during implementation, in order to avoid major market distortions. Informal monetisation of relief and project aid needs also to be taken into account when the scope for programme aid is assessed. As informal monetisation means an increase of market supplies, it leads to a corresponding reduction of the potential of the market to absorb formally monetised programme aid.

2.5.3 Food aid to stabilise supplies and prevent temporary food shortages

Food aid can play an important role not only in alleviating existing food deficits once they occur, but also in preventing temporary food shortages. Major approaches to reduce the risk of temporary food shortages resulting from supply instabilities are early warning and immediate response mechanism, multi-annual programming and/or food aid contributions to buffer stocks and emergency food security reserves (see section 2.2.2 of Chapter 5 on the latter issues). These measures apply, in principle, to all types of food aid supplies: programme, relief and project food aid.

2.5.4 Local purchases to compensate for demand deficits

Experiences have shown that, even in countries with structural food deficits, there are usually regions and periods with surplus production and un- or under-utilised production potentials. Market surpluses and poverty-related food deficits often emerge side by side, and existing production potentials remain unused if, due to wide-spread poverty, effective demand is weak. The phenomenon of market surpluses coinciding with food deficits has been analysed in detail in Annex 1. The perception that food deficits are often related to poverty and insufficient effective demand provides the rationale for local purchases of food aid commodities in the recipient countries: local purchases compensate for the lacking effective demand of the poor and vulnerable groups (see Figure 6.2).

Compared to the conventional approach of providing food aid supplies from abroad, the local purchase of food aid commodities has several important advantages (GTZ, op.cit.).

• In compensating for the lacking effective demand of the poor, local purchases stimulate local food production, hence contribute to reducing existing production and supply deficits.


• Induced production increases mean also increased agricultural employment and income in the recipient country, which contributes to an improvement of demand factors affecting food security.


• In taking into account the transport costs for imported food (aid) commodities, local purchases are often more cost-effective than food aid imports, if there are no major distortions of the currency exchange rate (see example in Box 6.4).


• Local purchases enhance local food markets and marketing, instead of possibly creating disincentive effects and market distortions associated with concessional food imports.


• Local purchases help to avoid the common problems of irregular and delayed food supplies from abroad.


• Locally purchased relief and FFW food items are in accordance with prevailing consumption habits, avoiding the risk of inducing changes in local dietary patterns which may have adverse implications for health, local food production and the trade balance (once people get accustomed to exotic food, demand for locally produced food may go down and future commercial food imports may become necessary).

Adapted from: M. Metz, Food Aid: Transfer of Food Surpluses Versus Local Purchases in Developing Countries, Economics Vol. 24, T�bingen 1981.

In spite of the striking advantages of local purchases from a food security and development perspective, there are also two major constraining factors limiting the potential scope of local purchase operations:

i) The local purchase potential which is determined by the marketable surpluses available in a country or region which can be absorbed by local purchases without disturbing the local food market. Close market and price monitoring is required to assess such potential, in order to avoid severe market distortions that may occur if local purchases exceed available market supplies. It appears, however, realistic to assume that such market potentials can be gradually developed by repeated local purchase operations in the same areas (demand induced expansion of local marked production).

An already widely applied alternative, incorporating most of the advantages of local purchases mentioned above, consists in so-called triangular or trilateral transactions, specifically if neighbouring countries or countries belonging to the same region as the recipient countries are involved. Triangular transactions function according to the following principle:

Figure 6.3: Triangular transactions in food aid

ii) The funding requirements for local purchases. While food aid deliveries from surplus producing countries are often additional to other development aid, local purchases require additional and specifically allocated financial resources. This is likely to limit the potential scope for local purchases.

In spite of such limitations, the share of food aid procured in developing countries has substantially increased in recent years, reaching 16.2 percent of all food aid deliveries in 1995 (see Table 6.1). About 70 percent of the commodities were procured in a third country through triangular or trilateral transaction and 30 percent through local purchases in the recipient country itself.

For an assessment of the efficacy of food aid interventions in enhancing food security, various aspects have to be taken into account. These are in summary:

• The objectives of the food aid interventions: improving food security (mitigating acute food shortages, transitory, chronic food insecurity), foreign exchange support, budgetary support, compatibility of objectives of donors and the recipient country, distinction between short-run and long-term objectives.
• The type of prevailing food deficits (production, market supply, and/or demand deficits, latent, transitory or chronic food shortages) to be addressed by the food aid interventions.
• The agricultural sector and food policy in the recipient country, and the role of food aid in national food and/or nutrition strategies, if defined.
• The intended and the actual use of food aid interventions (relief, project, programme aid, food security reserves).
• In the case of relief and project aid: the extent to which target groups are effectively reached and their food and nutrition situation status improved.
• Disincentive risks of food aid resulting from distortions of the local food system (prices, markets, production, consumption), caused for example by the effects of formal and informal monetisation or changes of consumption patterns induced by food aid interventions. Distinctions must be made between short-run and long-term effects.
• The costs of food aid interventions (comprising procurement costs, international transport costs, internal transport and storage costs, administrative and management costs, leakage, etc.), in comparison with alternative forms of food aid procurement and use (e.g. financial aid to effect commercial imports, conventional supplies versus local purchases or triangular transactions, direct distribution versus subsidies or normal marketing channels).
• Clarification, as to what extent food aid supplies represent additional resources (considering all cost components involved in food aid transactions, see above), and to what extent food aid competes for resources with other forms of development assistance.
• Assessment of the cost-effectiveness of food aid interventions in achieving food security in comparison, and/or in combination, with other forms of foreign assistance and external resource transfers, i.e. financial and technical assistance.

On the recipient country side:

• Formulation of a national food security programme and integration of food aid within the same.


• Development of national preparedness plans, including early warning system.


• Development of institutional and physical infrastructure for storage and distribution.


• Priority use of counterpart funds according to food security objectives.


• Commitment of complementary local resources to food aid projects (or, alternatively, integration of food aid components in development projects).

• Multi-annual country programming of food aid commitments, specifically concerning the provision of programme and project food aid.


• Sensible use of regulations concerning "Usual Marketing Requirements" in food aid agreements with recipient countries.


• Timely and co-ordinated response to food shortages.


• Allocation of funds for local purchases or commercial food imports.


• Promotion of triangular transactions.


• Provision of complementary financial and technical assistance.

3. International Development Co-operation and Food Security

3.1 Technical assistance

Technical assistance refers to know-how and material transfers in support of economic and social development. In contrast (and complementary) to food aid which primarily has a short-term perspective in alleviating transitory food security, technical assistance can play a highly important role in mitigating the causes of transitory as well as chronic food-insecurity, by improving the basis for sustainable development. Technical assistance can also provide useful complementary resources to food aid projects and make them more effective.

Technical assistance for food security is usually considered as an instrument to accelerate agricultural development and to increase food production, hence to address the supply side of the food system. This refers to material and/or manpower inputs in potentially all spheres of agricultural and rural development, from research, training and extension, through input supply, irrigation and mechanisation, up to processing, storage and marketing. Reference is made to section 2 of Chapter 5.

Ideally, external technical assistance contributes to government policies and local initiatives in cases where the available technical know-how and/or capacities are inadequate, insufficient, and form a major constraint to tackling specific problems or to making a more effective and efficient use of exiting potentials. This applies, in principle, to all issues listed in Table 5.1, Chapter 5, and specifically to those measures benefiting vulnerable target groups.

Technical assistance may be provided by bilateral, multilateral or private donors, on a grant or credit basis, and may be channelled through national governmental and non-governmental institutions at central or local levels, or through foreign implementing agencies. An example of a new recent approach to multilateral technical assistance, specifically aimed at enhancing food security through production improvements, is FAO's "Special Programme on Food Production for Food Security in Low-Income Food-Deficit Countries (LIFDCs)" (see Box 6.5).

Given that long run food security is a matter of achieving economic growth and alleviating poverty, there are many other approaches to technical assistance with potential positive implications for food security. This would include all measures in support of policies aimed at promoting growth with equity.

In essence, the effects of such measures, if appropriate and successfully implemented, are illustrated in the model of section 6 of Annex 1. Supply based approaches will lead to a right-downward shift of production/supply curve, while income growth and improved equity manifests as a right-upward shift of the aggregate demand function. As a result of these shifts of the supply and demand functions, existing food deficits will be reduced and food security improved.

3.2 Financial assistance

International financial assistance can help to enhance food security in two areas:

i) Trade finance for alleviating transitory food insecurity;

ii) Lending operations to promote economic growth with equity, with special emphasis on approaches to reduce poverty and chronic food insecurity.

i) External finance to alleviate transitory food insecurity

External finance can help to alleviate transitory food insecurity, by ensuring the financial capacity to import food in years when a country experiences poor harvests, faces high international food prices, or suffers a massive reduction in foreign exchange earnings.

In 1981, the IMF established side by side with its Compensatory Financing Facility (CFF) a cereal-import financing scheme with the purpose of providing financial assistance to countries suffering from excess cereal-import cost (see Box 6.6). The purchase of food under the scheme can be combined with other food imports. This offers the possibility of adjusting food imports to changing volumes of food needed for stabilising food supplies. Credit facilities to finance food imports are likely to be a more cost-effective form of stabilising food supplies in comparison to the costs of building up and maintaining a buffer stock for the same purpose. It should, however, be kept in mind that external finance of food imports, although at favourable terms, contributes to increased foreign indebtedness and represents basically a consumption credit that must be serviced with future export earnings. This applies specifically to credits from the IMF that are, according to current practice, not the subject of foreign debt release. This may be different if credits are obtained from bilateral official donors.

Under the Lom� Convention, the European Union has established a system for stabilisation of export earnings (STABEX), providing financial aid on a grant basis to the ACP countries (African, Caribbean and Pacific member countries of the Lom� Convention). If an ACP member country suffers dramatic losses in export earnings, the STABEX facility can help to maintain the capacity to pay for commercial food imports.

ii) External finances to reduce chronic food insecurity

By providing the means for productive investments and for implementing appropriate institutional and policy changes, external finances can make a substantial contribution to alleviating chronic food insecurity. Financial assistance can help mitigate food deficits from both sides: by increasing food production as well as the effective demand of poor and vulnerable groups.

On the production side, financial assistance plays a highly important role in all cases where financial constraints inhibit a more effective and efficient use of existing production potentials. This refers, in principle, to almost all measures listed in Table 5.1 of Chapter 5: technology, manpower, land utilisation, infrastructure, input supply and marketing. Financial assistance provides the financial basis to implement policy measures in these various fields, possibly side by side with complementary technical assistance (see section 2.1 above). The effects of such approaches are discussed in relation to Figures 5.2 and 5.3 in Chapter 5: food supplies increase and food prices are reduced, hence food deficits are reduced from the supply as well as the demand side.

Financial assistance can also contribute to directly diminishing demand deficits, if used to finance investments that raise incomes of poor and vulnerable groups. Priority fields are measures aiming to raise the productivity and incomes of small-scale farmers as well as to create and enhance employment and income opportunities in urban and rural areas. External finance can also be used to support cost-effective measures of targeted assistance, such as subsidies or distribution of production inputs, health and education services, or food and nutrition programmes (e.g. FFW projects, social security nets, feeding programmes, see section 3 of Chapter 5). Meanwhile such approaches constitute essential elements of adjustment programmes.

To the extent that financial assistance is provided not as grant but as credit, the provisos mentioned above still hold; although external credits may be on favourable terms, they contribute to increased indebtedness and have to be paid from future export earnings.

Sources of external finances are international financial institutions such as IMF and World Bank, bilateral public donors, as well as private commercial banks. The credit conditions in terms of interests and amortisation vary significantly, depending on the credit source, the conditions on the international monetary market, the state of the economy of the recipient country, and the purpose of credit financing. IMF and World Bank play a pivotal role, not only as sources of external finance (e.g. through structural adjustment lending operations) but also in their policy advisory function and as facilitators for credits from other sources. Ideally, the conditionalities of adjustment lending should provide the basis for sustainable growth with equity, in turn for the alleviation of chronic food insecurity. Even if fully effective (there are certain reservations as to this point, see section 9 of Chapter 4), this can, however, only be achieved to the extent that the causes of food insecurity have been internal development constraints that can be tackled with internal policy changes and supported with external assistance.

4.1 Unbalanced international trade

International trade can make substantial contributions and has crucial implications for the food security of countries and households. Food supplies can be stabilised and increased by food imports, the import of productive resources can help increase domestic food production and supplies, export production generates employment and income for large segments of the population, and the foreign exchange proceeds from exports provide for the capacity of a country to buy on the world market what it needs. The importance of trade policies for food security was recognized by the World Food Summit and is reflected in Commitment No. 6: "We will strive to ensure that food, agricultural trade and overall trade policies are conducive to fostering food security for all through a fair and market oriented world trade system" (see Chapter 6, section 5).

In principle, according to the theory of comparative advantage that is usually cited to demonstrate the benefits of trade, international trade should increase development opportunities and welfare for all participants. However, some fundamental assumptions of the theory apparently do not apply in practice. International trade is characterised by major imbalances, and the benefits from trade are unequally distributed. Some important features are highlighted below:

• Since the end of the Second World War the volume of international trade (exports) has increased from 207 Billion US-$ (1947) to 3,336 Billion US-$ (1991). The increase has mainly been on the account of industrial countries which hold a share of more than 70 percent of the world exports, while the share in world exports of the developing countries (excluding OPEC) amounts to 15 percent.


• Trade among the industrial countries absorbs more than 50 percent of international trade volume, while trade among developing countries (without OPEC) only accounts for about 3 percent of international trade. The main export markets of the developing countries are the industrial countries which absorb about two thirds of their exports.


• The expansion of international trade volume has been accompanied by a change in composition. While the share of manufactured good has increased continuously and amounts to about 75 percent by now, the share of primary commodities (agricultural products, fuel and minerals) has decreased.


• Primary products account for more than half of the exports of developing countries but less than 20 percent of the exports of the industrial counties. Many developing countries mainly depend on the export of one or two primary commodities.

• The world markets for raw products are largely saturated. Therefore, increased production can only be absorbed at decreasing world market prices. Such tendencies are reinforced by new technologies which are less dependent on raw materials.


• Due to limited alternatives of export diversification, there is strong competition among the exporters of primary commodities, compounding the tendencies of price decreases.


• Exports of primary commodities are, in price and volume, largely dependent on the economic situation in the industrial countries. Highly fluctuating prices and volumes in exports stand against a relatively inflexibly demand for imports of industrial products.


• In the production of primary commodities, the scope to compensate price reductions by increased production efficiency is limited and lower than in the case of industrial production. Exports at low world market prices of primary commodities can only be maintained if wages are kept low. This is possible if a high number of un- and under-employed people (a typical feature of many developing countries) exerts a downward pressure on wage levels. Low export prices go hand in hand with low levels of household incomes.

Declining Terms of Trade and highly fluctuating export prices and volumes have substantial repercussions for the food security situation of the affected countries and their populations. These factors affect the financial capacity of the countries to import the food they need in order to stabilise and to increase internal market supplies, and they contribute to the low levels of household income. This leads to a widening of market supply/import deficit as well as the demand deficit.

Reasons for the worsening position of many developing countries are not only the "invisible hand of the market" that distributes the gains from international trade according to differences in market power, but also protection policies pursued by industrial as well as developing countries. A wide range of tariff- and non-tariff barriers are imposed on external trade transactions. Protection contradicts the ideal and the growth and welfare prospects of a free international trade system. This became a major subject of concern for the international trade negotiations under GATT (General Agreement on Tariffs and Trade).

4.2 Implications of the GATT Uruguay Round Agreement

After seven years of negotiations, the last Uruguay Round Agreement under GATT was successfully concluded in December 1993. Although earlier GATT Agreements had already brought about a substantial reduction of tariff barriers on a world-wide level, certain sectors, such as agriculture and textiles (which are specifically interesting for the economies of developing countries) and the issue of non-tariff barriers had hardly been addressed before. These issues have been included in the last Uruguay Round Agreement, in addition to agreement on further tariff cuts. Another important element in the Agreement is the differential treatment of developed and developing countries, giving the latter certain preferences as to the reduction of import duties and a longer period of transition for implementing the policies (see Box 6.8).

A first visible step of putting the Uruguay Round Agreement into practice was the establishment of the World Trade Organization (WTO) in 1995, in replacement of the former GATT Secretariat, with the mandate to further promote international trade and to supervise implementation of the GATT Agreements and the trade conduct of the member states.

The Final Act of the Uruguay Round covers a wide variety of subjects which will be highly important for the world economy and the economies of the developing countries. From a food security perspective, the Agreement on Agriculture is most significant. The major provisions made in the Agreement refer to the following issues:

• Market access: As an initial step, non-tariff barriers (e.g. import quotas, variable levies, minimum import prices, etc.) must be abolished and replaced by tariffs. Then, within six years starting in 1995, tariffs should be reduced by 36 percent on average by the developed countries, and 24 percent by the developing countries. In addition, provisions are made to ensure minimum access opportunities.


• Domestic support: The members of GATT are committed to reduce domestic support of agriculture, by 20 percent in the case of developed countries over the period 1995-2000 and by 13.3 percent in the case of developing countries during the period 1995-2004. There are, however, many exemptions from this commitment, for example expenditures for research, training , extension, marketing and promotion, infrastructure, investment support, regional assistance. (Comment: If a country wishes to continue with its domestic support policies it can probably find one or more justifications in the exemption list.).


• Export subsidies are to be reduced by 21 percent in terms of the volume of exports benefiting from such subsidies, and by 36 percent of the expenditures on export subsidies over the period 1995-2000. This regulation largely concerns the export subsidies applied by developed countries, in order to dispose of surpluses.

What are the implications of the provisions of the Uruguay Round Negotiations for development and food security? Only some tentative observations can be made.

All measures, specifically the tariffication of non-tariff barriers and the further reduction of the tariffs, contributes to greater transparency on international markets and closer linkages between domestic and world market prices. This can enhance economic efficiency and growth on a world-wide scale, with positive implications for food security in the long-run.

Although the group of developing countries as a whole will probably gain from the liberalisation of agricultural trade, the gains will be relatively small as far as tropical products are concerned and, furthermore, unequally distributed. The poor countries will gain less than the middle income countries. A number of countries that enjoyed preferential treatment in the past (e.g. under the Lom� Convention), and this refers largely to poor and least developed countries in Africa, may even experience losses, due to the decline in their preferential margins.

Another important issue for food security, is the implications of the Agreement for world market prices and the future trade volume in food, specifically in grain. The most likely scenario appears to be a reduction of (surplus) production in a number of developed countries, resulting in a decline in export volumes and increase in world market prices. Internationally available food aid supplies are also likely to decline. This will negatively affect the food security situation of food importing countries, of countries and people depending on food aid supplies, and the stability of grain supplies on a general world-wide scale. On the other hand, it will have a stimulating effect on food production in a number of countries with potential to increase food production and exports.

The most significant gains in export earning of developing countries will probably not come from agricultural trade liberalisation but from a reduction of the restraints on textiles under the Multi-Fibre Arrangement.

In summary, too much should not be expected from the Uruguay Round Agreement for developing countries. The developed countries will gain most from international trade liberalisation. This means, in essence, that the inequities in international trade may be compounded rather than diminished.

5. Summary of the Major Results of the World Food Summit

In November, 1996, the Food and Agriculture Organization of the United Nations organized in Rome a meeting of world leaders, the World Food Summit, with the aim of providing a historic opportunity for governments, international organizations and all sectors of the civil society to join forces in a concerted campaign to ensure food security for all the world's people. The World Food Summit adopted the Rome Declaration on World Food Security and the World Food Summit Plan of Action, that have been extensively discussed and approved by the Committee on World Food Security, prior to the Summit.

The Rome Declaration and the World Food Summit Plan of Action establish the ground for the achievement of a common objective: food security. More than 800 million people throughout the world, and particularly in developing countries, do not meet their basic nutritional needs. The Heads of State and Government that gathered at the World Food Summit, pledged to reduce the number of undernourished people to half their present level, by the year 2015. A mid-term review to ascertain whether this target can be achieved will take place by the year 2010.

Seven strategic steps were developed to tackle the problem of food security. The first commitment states that: "We will ensure an enabling political, social, and economic environment designed to create the best conditions for the eradication of poverty and for durable peace, based on full and equal participation of women and men, which is most conducive to achieving sustainable food security for all". This commitment recognizes as a necessary pre-condition for the achievement of food security and the eradication of poverty the establishment of a peaceful and stable political, social and economic environment. This can be achieved through joint efforts by the State itself and the international community, when appropriate, to develop conflict prevention mechanisms and to promote tolerance, non-violence and respect for diversity. Particular emphasis should be placed on the development of well-functioning legal and juridical systems, essential to establish legal mechanisms that will ensure, on the one hand, stable economic conditions and, on the other, the implementation of development strategies, through: land reform, protection of property, water and user rights, and protection of vulnerable and disadvantaged groups, including women and indigenous groups. For this particular purpose, states should introduce a legislation fighting discrimination, protecting indigenous groups' identity and traditions, and supporting the pursuit of economic and social development that allows equal access to resources for all, including credit, land and water, and education.

The next step to achieve food security is highlighted in the second commitment: "We will implement policies aimed at eradicating poverty and inequality and improving physical and economic access by all, at all times, to sufficient, nutritionally adequate and safe food and its effective utilization". Here, the need is emphasized to implement policies to eradicate poverty through the promotion of economic, agriculture, fishery, forestry and land reform policies which will secure economic access to food. A factor that needs strong special consideration, when formulating poverty eradication actions, is that 70% of the poor are women. Securing economic access to food is referred to the urban as well as the rural areas. In urban areas the idea is to provide sufficient income sources, such as employment opportunities and access to credit so as to improve the income of the poor. Instead, in rural areas access to productive resources such as land and water should be provided. Overall, these objectives will allow food insecure households, and members of vulnerable and disadvantaged groups in urban and rural areas to meet their food, nutritional and health needs and to endeavor in supporting those who are not capable of doing so. Furthermore, to ensure quality and accessibility of food supplies, governments are requested to use proceedings in compliance with international agreements such as the Agreement on the Application of Sanitary and Phyto-Sanitary Measures.

Commitment number three requires that governments: "Pursue participatory and sustainable food, agriculture, fisheries, forestry and rural development policies and practices in high and low potential areas, which are essential to adequate and reliable food supplies at the household, national, regional and global levels, and combat pests, drought and desertification, considering the multifunctional character of agriculture". Food production can be improved by fighting environmental threats to food security, such as desertification, drought and erosion; monitoring and conserving natural resources in food producing areas, in forest lands, and non-arable lands; developing appropriate policies and plans for water management techniques; improving irrigation systems; increasing cropping intensities and reducing the deforestation rate. Governments are invited to formulate and implement policies and programmes, in partnership with all actors of the civil society, that will strengthen the agricultural, fishery and forestry sectors through training and extension systems, always ensuring equal gender opportunities. This will require cooperation between the public and the private sectors to promote a stronger research system leading to the use of appropriate technologies in all sectors.

Commitment number four states that: "We will strive to ensure that food, agricultural trade and overall trade policies are conducive to fostering food security for all through a fair and market oriented world trade system". This objective approaches the issue of food security in terms of trade, a key element for the effective utilization of resources and for the stimulation of the economic growth. Governments need to establish reliable internal marketing and transportation systems to ease connections within and among domestic, regional and world markets. Through the implementation of the Uruguay Round Agreement, that established a new international trade framework, developing countries will have the opportunity of expanding trade and economic growth.

Commitment number five: "We will endeavor to prevent and be prepared for natural disasters and man-made emergencies and to meet transitory and emergency food requirements in ways that encourage recovery, rehabilitation, development and a capacity to satisfy future trends". The idea is to establish prevention strategies for countries vulnerable to emergencies. This can be achieved first through the development of vulnerability information and mapping, with an analysis of their major causes and consequences, and then through the improvement and development of efficient emergency response mechanisms at international, regional, national and local levels. However, it is fundamental that governments, with the support of civil societies, and of international organizations, ensure that emergency procedures be capable of sustaining the transition from relief to recovery and, finally, to development. This can be achieved through the preparation of "planned post-emergency rehabilitation and development programmes" that, in the long run will permit to individual households to comply with their primary requirements and will allow the state itself to re-establish national production potential, recovering the path to economic development and social progress.

Commitment number six consists in: "Promoting optimal allocation and use of public and private investments to foster human resources, sustainable food, agriculture, fisheries and forestry systems, and rural development, in high and low potential areas". The idea is to reverse the neglect that agriculture and rural development have experienced lately, through the development of a policy framework that will encourage public and private investments. In fostering food security, the international community has a main role to play in supporting the adoption of appropriate national policies and in providing technical and financial assistance to developing countries and countries with economies in transition in fostering food security.

Commitment number seven states that: "We will implement, monitor, and follow-up this Plan of Action at all levels in cooperation with the international community". The objective of this commitment is to ensure the actual implementation of the World Food Summit Plan of Action. According to the latter, sub-regional, regional, and international cooperation efforts, will be improved. With the assistance of the international agencies of the United Nations, as well as of the international finance and trade institutions, poverty eradication strategies will be formulated and enforced, and individual national plans of action including targets, goals and timetables for achieving food security will be developed. The monitoring of the actual implementation of the World Food Summit Plan of Action, will be conducted through the FAO Committee on World Food Security (CFS), that will review the performance reports of the individual governments, the "reports on UN agency follow-up and inter-agency coordination and any other relevant information from other international institutions". Also, it is requested that by the year 2006, a progress evaluation take place and in the year 2015, "a mid-term review of achieving the target of reducing the number of undernourished people to half their present level" be conducted. "This progress evaluation and review should be in the context of a special forum of a regular session of the CFS and should involve active participation from governments, relevant international organizations and actors of civil society".

The Food and Agriculture Organization of the United Nations (FAO), has been advocating food security as the main component to achieve development and it is upon this principle that the agenda of the World Food Summit was based. Food security depends on the implementation and performance of actions that are far beyond the agricultural sector. Due to its political, social and economic implications, ensuring food security engages heads of state and government and entails commitments and activities on the part of the whole spectrum of government ministries, international institutions and civil societies. Clearly, the main objective of the seven commitments of the World Food Summit is to set the targets and the conditions necessary to achieve food security, by investing in agricultural infrastructure, research and training, supporting sustainable agricultural and rural development and improving access to food, especially among the disadvantaged groups.

Appendix to Chapter 6

Use of the Conceptual Framework for the Analysis of Food Policy Issues: Two Country Examples

To illustrate the concepts presented in the latter parts of the manual (Chapters 4 to 6 and Annex 1), the methodology is applied to analyse the food situation and the role of food aid in the two country examples Ethiopia and Cape Verde.

Example 1: Analysis of the food situation and food policy issues in Ethiopia

Ethiopia is generally perceived as a country with a large structural food deficit, understood as a shortfall of domestic food production/supplies against total aggregate food requirements, as calculated, for example, on the basis of food balance sheets. For the analysis of the food situation in Ethiopia, the ex-ante estimates of a FAO/WFP Food Supply Assessment Mission for 1994 are used (see Table A6-1) and compared with the actual data on food imports (commercial imports and food aid supplies) in 1994. Figure A6-1 depicts the approximate situation in 1994.

Figure A6-1: Model of a the composite structural deficit in Ethiopia

The discrepancies between the estimated ex-ante food import requirements and the actual supplies are evaluated, and the effects on the cereal market can be traced, by using comparative price data as an indicator of a market surplus/deficit situation. Market prices are the most (and, probably, the only) appropriate indicator of market supply deficits and the effects of food aid monetisation. After the devaluation of the Ethiopian currency in 1992 and market and price liberalisation, market prices of cereals have come close to import parity price levels. This refers specifically to wheat which constitutes a main staple food that is locally produced as well as imported.

During the year 1994 (from January to December), the retail prices for cereals on the Addis Ababa market increased by 31.5 percent, while overall food prices increased by only 18.8 percent and the general retail price index by 14.7 percent . This confirms the conclusions which can be drawn from the data in table6.6, that commercial cereal imports and monetised cereal aid (169,000 MT) were insufficient to cover the prevailing market supply deficit in 1994. The market supply deficit was definitely wider, possibly close to the 284,000 MT estimated by the FAO/WFP mission, or even larger.

Table A6-1: Analysis of the structure of food deficits (in cereals) in Ethiopia, 1994

Programme food aid in 1994 was exclusively provided in wheat, and wheat also constituted the major part of the food aid that was monetised in 1994. It can, therefore, be assumed that the dynamics of the wheat market show distinctive features compared to the other cereal markets. The price series data presented in Table A6-2 confirm this hypothesis: The price index for wheat remained significantly below the steep price increases shown by all other foodgrains.

Table A-6.2: Monthly average wholesale cereal prices in Addis Ababa, 1994

The above analysis allows us to draw several relevant conclusions as to the role, scope and approaches of food aid in Ethiopia:

• The largest part of food aid provided to Ethiopia has been in the form of emergency food aid for free distribution, in order to cover the effective demand deficit resulting from production shortfalls, caused by natural and man-made disasters, and from widespread poverty.
• Monetised food aid in 1994 has effectively contributed to cover an existing market supply deficit in cereals and more or less absorbed the excess market demand for wheat.
• Programme and monetised emergency food aid has contributed to stabilising the market prices of wheat at a level significantly below the steep price increases of all other foodgrains, yet has not depressed the wheat prices below levels of the general retail price index.
• It can, therefore, be assumed that the market deficit in wheat, to be covered by commercial imports and/or programme food aid, has amounted to about 150,000 MT. This figure serves as a reference for the absorption capacity for commercial imports plus programme food aid deliveries and monetisation in wheat.
• There exists substantial scope for additional programme food aid. This should, however, be provided in foodgrains other than wheat (e.g. maize and sorghum), in order to avoid distorting effects on domestic wheat production and marketing.
• An appropriate timing of programme aid deliveries/monetisation according to the seasonal variations in domestic supplies will increase the effectiveness in terms of price and supply stabilisation. (Programme food aid deliveries should preferably arrive in the lean season, from July to October, to prevent price rises as recorded e.g. in August in table A6-2).

Example 2: Analysis of the food situation and food policy issues in Cape Verde

Due to natural constraints (low rainfall) Cape Verde is a country with a large structural food deficit. Figure A6-2 presents a model of the structural deficit which may approximately describe the Cape Verde food (cereal) situation.

Figure A6.2: Model of the composite structural food (cereal) deficit in Cape Verde

The Cape Verde an food situation is characterized by the following main features.

• According to food balance sheet calculations, total food (cereals) consumption requirements amount to approximately 80,000 MT p.a..
• Domestic cereal production is confined to maize and amounts to about 10,000 MT in an average year. Local grain production is very inelastic to price variations. It is mainly determined by household subsistence needs, the general low production potential and rainfall variations. Nevertheless, the local maize is highly preferred by the Cape Verdean consumers, and the little local maize which finds its way to the market achieves prices (mpl) significantly above (more than double) the market prices of imported maize.
• The overall structural deficit (R-A), amounting to some 70,000 MT of cereals in an average year, is mainly composed of a market supply deficit (B-A) of about 60,000 MT and an effective demand deficit (R-B) of some 10,000 MT.
• The market supply deficit has mainly been covered by programme food aid deliveries in the past (about 80%) and to a lesser extent by commercial food grain imports (about 20%).
• The effective demand deficit, resulting from poverty and insufficient purchasing power to satisfy minimum food requirements, refers to the 5000 poorest and most vulnerable households who depend on targeted food assistance by the WFP.
• In order to make food affordable for the poorer sections of the population, the Government has fixed the local market prices of basic food items (mpi) below the import parity prices (ippi, based on cif. world market prices).

• Programme food aid has enabled the Government to pursue its food security objective, to ensure food supply to the population at stable and relatively low prices.
• A change in the pricing policy and/or a reduction in programme food aid deliveries would lead to a change of the food deficit structure and have substantial implications for the food security situation:

• If the market prices for basic food items were liberalized they would rise to import parity price levels (from mpi to ippl). Due to the inelasticity of the domestic production function, the volume of domestic production and supplies would hardly be affected (remain around A). As a result, the overall structural deficit would remain about the same (R-A).
• There would, however, be a significant change in the composition of the structural deficit. Due to the increased market prices, the volume of effective market demand would diminish, as a significantly higher proportion of the population would fall under the poverty line and not be able to purchase what they need to satisfy minimum food requirements. In our model, the market supply deficit would diminish from B-A to C-A, while the effective demand deficit would increase (from R-B to R-C).
• As to future food aid requirements, this would imply that the volume of programme food aid to be monetised would diminish, but would have to be replaced by emergency food aid. In order to compensate for the diminishing effective demand, there would be a need for more emergency food aid and targeted assistance to an increased number of vulnerable people.

Figure A6-3: Effect of a decline of household income on structure of food deficits

In our model, diminished household income leads to a downward-shift of the effective demand function. Figure A6-3 shows that the consequences would be similar to the effects of increased market prices: the market supply deficit would diminish (from B-A to D-A), but the effective demand deficit would widen (from R-B to R-D), with increased needs for targeted food assistance to maintain a level of food supply where the minimum food requirements are met.

Point E shows the combined effects of the policy measures described above (decline of programme food aid deliveries, price liberalisation, reduction of public works programmes). The negative implications for national and household food security are obvious: Both the supply and the demand deficits would substantially increase.

Activities related to Chapter 6

Introduction

1. The activities proposed below should refer to a specific country case. Depending on available data, this could be the country where the course is held or the country of origin of participants.

Activity 1: Assessment of food aid requirements in preparation for a donors' conference

Based on the analysis of the overall structure of food deficits in the country concerned (see Activity 1 related to Chapter 5) prepare a proposals concerning:

• the types of food aid (programme, relief and project aid) and the approximate volume required to cover existing deficits,
• the possibility of local purchases and appropriate purchase procedures (timing, agencies/organizations involved, management, costs, cost comparison with alternative forms, financial procedures, etc.);
• appropriate marketing and distribution channels and procedures.

Based on an assessment of existing/major food security problems of the country concerned (see activities related to previous Chapters) and existing resource constraints (natural, manpower, financial, etc.), identify what type of external assistance is required, apart from food aid (see activity 1 above) in support of national policies to improve food security.