INTRODUCTION

1. The CSSD was established by the FAO in 1954 to monitor international shipments of surplus agricultural commodities used as food aid in order to minimize the harmful impact of these shipments on commercial trade and agricultural production. Over the years, members of the CSSD have developed a comprehensive set of rules and procedures designed to assist aid-supplying countries to account for and identify the flow of food aid shipments. These rules, endorsed by the major suppliers of commodity assistance, are embodied in the handbook entitled Principles of Surplus Disposal and Consultative Obligations of Member Nations.¹ This report of the Consultative Subcommittee of Surplus Disposal (CSSD) covers activities for the period from November 1998 to September 2000 (429^th to 435^th meetings).

2. The Principles set out detailed procedures for reporting food aid to the CSSD by aid-supplying countries including notification of the various categories of food aid, prior consultation with other exporters and the establishment of usual marketing requirements (UMRs). The reporting obligations of aid-supplying countries vary according to the type of food aid supplied and whether governments, private charitable organizations or multilateral agencies are the vehicles for distribution. Meetings of the Subcommittee are held on a quarterly basis to keep track of the continual flow of food aid reported to the CSSD, however, much of the work of the Subcommittee is done in bilateral consultations between formal meetings. The CSSD is located in Washington DC and is serviced by the staff of FAO's liaison office.²

3. Officers elected during the review period:

OVERVIEW

4. World production of cereals during the reporting period, late 1998 to September 2000, continued to be below the trend observed for the past two decades, 1 898 million metric tons in 1998 and 1 880 million metric tons in 1999. The latest estimates for 2000 indicate that global cereal output will be below the trend for a third consecutive year at 1 848 million metric tons. International grain prices have gradually increased through 2000, with maize prices gaining only slightly. Rice prices, on the other hand, have fallen to a 10 year record in 2000, with the FAO rice price index averaging 99 points during the January-November period.

5. World cereal utilisation during the 2000/2001 season is expected to be lower than cereal production in 2000, leading to a reduction in the level of cereal reserves, which would make the size of plantings for next season play a more important role in determining the likely market developments next season.

6. From 1 November 1998 to 1 September 2000, CSSD members reviewed 166 notifications of food aid transactions. During CSSD meetings a number of questions were raised about consultation and notification obligations, the level of UMRs and other matters related to the reporting procedures for food aid. Also, as requested by the CCP, the CSSD looked into a trend that indicated an increasing portion of food aid was being distributed through private voluntary organizations (PVOs) and multilateral channels.

ADHERENCE TO THE REPORTING OBLIGATIONS

7. The reporting procedures of the Subcommittee, formulated and revised over the past 46 years, rely on transparency. This is achieved through the notification process whereby aid-supplying countries which adhere to the Principles, report to CSSD with information about their food aid transactions with recipient countries. For some types of transactions, aid suppliers are obliged to consult with other CSSD members in advance. The different types of transactions are listed in a Register of Transactions (Appendix II) and comprise the more common kinds of assistance such as government-to-government grants for free distribution, grants for sale in the open market, concessional assistance and monetary grants. In order to ensure that the commodity supplied does not displace normal commercial trade, the consultative process involves the establishment by the aid-supplying country of a benchmark import level known as the usual marketing requirement (UMR). The UMR is a commitment by the recipient country to maintain its normal intake of commercial imports, in addition to the food supplies as a grant or concessional shipment. The UMR is based on average commercial imports over the most recent five-year period for which statistics are available. In certain circumstances, the UMR can be waived or reduced to take into consideration unusual situations such as severe drought, floods, balance of payments difficulties or the absence of reliable import data.

8. While aid-suppliers are obliged by the CSSD rules to engage in prior consultation, notification and the establishment of UMRs for a broad list of concessional transactions, there are instances where an official notification of transactions is sufficient. When food aid is shipped to meet an emergency situation, for example, or when the shipment is of a relatively small size or is distributed through a private charitable organization or a multilateral body such as the World Food Programme, the supplier need only provide a notification on an ex post facto basis. The CSSD reviews these notifications at its regular meetings, allowing other members, particularly those that are not part of the consultative process, to participate in the review process.

9. Issues discussed in the Subcommittee are generally resolved by consensus. At times questions raised in committee are referred back to capitals. They may be subject to additional bilateral discussion by the parties concerned. Most suppliers of food aid and commodity assistance follow the rules and procedures set out in the Principles. Adherence to the CSSD procedures has proven to be effective in the past and it is believed that the recent overhaul of the reporting procedures can improve the future operations of the Subcommittee.

Monitoring Transactions³

10. CSSD members had noted the rapid decline in food aid donations over the period 1994-1997. In 1999, however for the second year in a row, there was an increase in the total volume of food aid notified to the CSSD, from 4,315,000 MT in 1998 to 7,854,380 in 1999. The United States once again held the biggest share (68 percent) of food aid donations. The EEC returned as a major donor in 1999 providing 24 percent of the total. Italy increased its aid 79 percent from 1998 to 1999.

11. Unusually large transactions to Russia in 1999 caused a dramatic rise in donations of dairy products (1877 percent), other commodities (1556 percent), grains/other cereals (319.6 percent), soybean/soybean meal (443.4 percent) and wheat/wheat flour (175.5 percent) donations. A significant decline in rice (52.2 percent) was evident. Wheat/wheat flour continue to be the major commodity in the notifications, followed by other grains and rice (Table 1).

12. The CSSD Register of Transactions, as revised and approved at the 113^th Session of the FAO Council, now includes 16 types of food aid transactions. Direct government to government transactions remained the most frequent type used, in terms of food aid volume. Food aid supplied for free distribution directly to the final consumers in the recipient country (Type 1) rose radically from 167 thousand metric tons in 1998 to 2,075 thousand metric tons in 1999. Type 2 transactions, which are grants for sale in the open market of the recipient country, again increased this year, nearly doubling in size and comprising nearly 30 percent of the total volume. These two increases combined with notifications labelled Types 1 and 2 comprise almost 70 percent of the total volume versus only 44 percent last year. Long term concessional purchases (Type 10a) maintained its previous years totals, increasing slightly, but dropping dramatically in its proportion to total aid. Type 6 transactions through the World Food Programme, maintained levels seen in 1998 from 295 to 316 thousand metric tons, 4 percent of the total volume.

Issues Arising from Specific Transactions

13. During the seven CSSD meetings held in the reporting period, there was very little debate about specific food aid transactions and CSSD notifications. Throughout the reporting period, recurring concern with large scale US food aid transactions culminated in the presentation and support of statements by various countries that the motive for particular concern was persistent remarks by the US Administration that an aggressive food aid program was, in effect, a better facility for assisting farmers and reducing surpluses than other export assistance programs. Examples of concern in this regard have included the size of some US food aid transactions with Russia, Yemen and Indonesia. In general, disparate views were not reconciled during sessions of the Subcommittee nor during bilateral or in-camera discussions; however, the Secretariat currently does not track the issues raised in the consultations, or their outcome, except as reflected in the notifications themselves. Some delegations continue to be concerned about trade-distorting and trade-disrupting effects resulting from the provision of food aid, primarily by the United States.

UMR Calculations

14. At the 433^rd meeting, the US delegation announced that after consultations with Australia and Canada it would lower the UMR of 1.7 MT on a planned donation of 200,000 MT of wheat to Indonesia.

Prior Consultation

15. Australia asked during the 430^th meeting that documentation be amended concerning two US transactions with Indonesia stating they had been consulted, but in fact they were not. At the 433^rd meeting Brazil also requested a correction be made to reflect that Brazil, though stated to have been, was not consulted by the United States on three transactions to the Philippines, Guyana, and C�te d'Ivoire.

Ocean Freight Costs

16. During the 433^rd meeting, Indonesia noted that the year 2000 US food aid allocation for Indonesia was half as large as in 1999 and did not include financing for ocean freight costs. Indonesia was seeking the possibility of the US to provide ocean freight costs.

IMPROVING NOTIFICATION, CONSULTATION AND REPORTING PROCEDURES

Review of the Role of Private Voluntary Organizations (PVO)

17. At the 62^nd Session of the CCP, the CSSD was asked to review the trend that indicated an increase in the use of Private Voluntary Organizations for the distribution of food aid. It is noted that while this task is addressed below, certain delegations made it clear that they considered such issues to be "policy" concerns, outside the purview of CSSD.

18. Traditionally, direct bilateral government to government transactions accounted for the large majority of the volume of food aid reported through CSSD. However, the use of PVOs for food aid delivery rapidly increased in the early nineties to a height of 32 percent in 1997. However, this rising proportional trend coincided with a rapid decline in the overall volume of reported food aid, a trend that reached its nadir in 1997. The CSSD has noted, however, that the trend has levelled off considerably with the total going from 32 percent to 23 percent in 1998 and from 23 percent to 14 percent in 1999. Indeed, during the subsequent period (1998 to present), which witnessed a resurgence of overall food aid volumes, the volume of reported food aid channelled through PVOs actually declined (though only moderately). As overall volumes regained their stature, the PVO portion returned to traditional levels. Indeed, from the current perspective, the previously identified trend (1992-97) seems more to have been an anomaly. The CSSD will continue to review and monitor this activity.

19. The means of consultation was subject to discussion at several meetings, most notably the 435^th. Members were urged to consider whether "inefficiencies" in reporting and consultative methods might be improved through the adoption of more modern methods. At this meeting there was some discussion of the CSSD rules of procedure, and the Secretariat was requested to draft a questionnaire that might lead to better communication and participation among delegations, an element seen as particularly important as the volumes of food aid flows had re-increased and the mix of commodities being included in food aid packages was becoming more diverse.

CSSD Reporting Levels

20. The second CSSD issue identified during the 62^nd CCP was the reduced level of CSSD-reported food aid in respect of overall food aid flows as reported by the World Food Programme. This issue was highlighted because in 1997 the CSSD-reported aid dipped below 50 percent of total aid for the first time in recent decades. CSSD was requested to continue to monitor this situation. According to data available for 1998 and 1999, the reporting record has improved somewhat, with levels of 53 percent and 59 percent being reported respectively. Focusing on this issue during the 433^rd Meeting of the CSSD, the Australian delegation noted that it is quite possible that reporting performance wanes as regards to ex-post facto reporting, which generally refers to food aid provided in emergency situations. Because of ex-post-facto data received from Australia, Germany and Japan for 1999, reporting levels were bumped from 52 percent to 59 percent of the total volume of global food aid shipments reported by the World Food Programme (13.2 million metric tons). The CSSD will continue to monitor this issue and will include relevant information in future reports to CCP.

21. The delegate from Peru has been concerned about three issues throughout the reporting period: UMRs, the CSSD Rules of Procedure and the budgetary limitations imposed on the CSSD. Peru considers that the implementation of UMRs impinges on the potential for cooperation between nations. He noted that reports have shown that recipient countries comply with the commitments imposed on them even when they are confronting extreme economic situations. Second, Peru suggested a revision in the Rules of Procedure to bring them up to date to include modern forms of communication. This was in response to discussions, particularly between the United States and Canada, which revealed a lack of efficiency in communication on transactions. Finally, the delegate from Peru hoped that the CSSD could play a more active role in the preparation and formation of the Subcommittee's budget.

Table 1. Commodity Transactions reported to the CSSD, by commodity group, 1990 to September 2000
(000 metric tons)

Table 2 - CSSD Notifications as compared to Global Food Aid Deliveries (000 MT)

Table 3 - CSSD Notification, by supplier, recipient and by transaction type for each commodity, 1990-September 2000

3. Based on data notified to the CSSD for calendar year 1999.

 APPENDIX I
MEMBERS, OBSERVERS AND OBSERVER ORGANIZATIONS
(As of 1 September, 2000)

Observers (16)

International Organizations (7)

APPENDIX II
REGISTER OF TRANSACTIONS

1. Donations of domestically produced commodities from a government to a government of an importing country, an intergovernmental organization or a private institution for free distribution directly to the final consumers in the importing country.
2. Donations of domestically produced commodities from a government to a government of an importing country, or an intergovernmental organization or a private institution for distribution, by means of sale on the open market of the importing country.
3. Monetary grants by the government of an exporting country to an importing country, for the specific purpose of purchasing a commodity from the exporting country.
4. Monetary grants by a government either to a supplying country (or countries) or to a recipient country for the specific purpose of purchasing a commodity from an exporting country (or countries) or from local suppliers in the recipient country for delivery to/in the specific recipient country.
5. Monetary grants by a government to an intergovernmental organization or to a private institution for the specific purpose of purchasing commodities in the open market (including local purchase) for delivery to/in eligible recipient countries (developing countries).
6. Transfers of commodities under the rules and established procedures of the World Food Programme.
7. Sales from the currency of the importing country which is not transferable and is not convertible into currency of the importing country which is not transferable and is not convertible into currency or goods and services for use by the contributing country.
8. Sales for the currency of the importing country which is partially convertible into currency or goods and services for use by the contributing country.
9. Government-sponsored loans of agricultural commodities repayable in kind.
10. Sales on credit in which, as a result of government intervention, or of a centralized marketing scheme, the interest rates, period of repayment (including periods of grace) or other related terms do not conform to the commercial rates, periods or terms prevailing in the world market. In particular with respect to period of repayment, credit transactions are distinguished as follows: (a) 10 years or more; (b) over 3 years and under 10 years.
11. Sales in which the funds for the purchase of commodities are obtained under a loan from the government of an exporting country tied to the purchase of those commodities, distinguished as follows with respect to period of repayment: (a) 10 years or more; (b) over 3 years and under 10 years.
12. Transactions under categories 1 to 4 and 7 to 11 subject to tied Usual Marketing Requirements or to tied Offset Purchasing Requirements.
13. Transactions under categories 1 to 4 and 7 to 11 subject to tied purchase of fixed quantities of the same or another commodity from the exporting country.
14. Government and non-government sponsored barter transactions not involving price concessions.
15. Non-government sponsored barter transactions involving price concessions
16. Sales for non-convertible currency non involving price concessions.