COMMITTEE ON COMMODITY PROBLEMS
Rome, Italy, 11-13 April 2005
CONSULTATIVE SUBCOMMITTEE ON SURPLUS DISPOSAL FORTIETH REPORT TO THE CCP
1. The Consultative Subcommittee on Surplus Disposal (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. Reporting on food aid is according to rules and procedures endorsed by the major suppliers of commodity assistance and set out in the handbook Principles of Surplus Disposal and Consultative Obligations of Member Nations1.
2. Meetings of the Subcommittee are held on a quarterly basis, with bilateral consultations between formal meetings. This report covers activities for the period from November 2002 to September 2004 (445th - 453rd meetings).
3. From 1 November 2002 to 1 November 2004, CSSD members reviewed 61 notifications of food aid transactions. As requested by the CCP, the CSSD has attempted to improve data collection and analysis of food aid transactions by attempting to streamline bilateral consultation communication and familiarizing delegations with the notification procedures of the CSSD.
4. Aid-supplying countries which adhere to the Principles report to CSSD on 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. The consultative process involves the establishment by the aid-supplying country of a benchmark import level, the usual marketing requirement (UMR), based on average commercial imports over the most recent five-year period for which statistics are available. 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. . 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.
5. 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.
6. Most suppliers of food aid and commodity assistance that bring their transactions to the attention of CSSD follow the rules and procedures set out in the Principles, with the possible exception of the notification requirements2.
7. There was a slight drop in the volume of food aid transactions notified to the CSSD in 2002 and significant rise in 2003, going from 442 000 metric tonnes in 2001 to 107 100 metric tonnes in 2002 and 6 922 900 metric tonnes in 2003. The underlying decrease in notified transactions is partly due to the fact that the European Commission and the European Union member states have been moving away from food aid in-kind to cash payments. The number of food aid transactions by Japan also decreased in 2002 as compared to 2001. In 2003, most previous major donors were absent from the transactions reported to the CSSD and the largest share of the food aid notifications was by the United States (99.4 percent). This is mainly due to the fact that the 2003 figures reflect the United States food aid notifications for FY 2001 and 2003 reported through the CSSD in the year 2003.
8. In 2003, the CSSD reported significant rise in all commodity categories except sugar which was not notified to the CSSD at all. At the same time, soybeans and soybean oil have increased to 655 900 metric tonnes from zero between 2000 and 2002. Wheat and wheat flour continue to be the major commodity in the notifications, followed by other grains, soybean and soybean oil.
9. Direct government to government transactions remained the most frequent type used, in terms of food aid volume. From 2002 to 2003, except for type5 which is transactions though private charitable organizations, all transactions increased dramatically, mostly notified by the United States. Food aid supplied for free distribution directly to the final consumers in the recipient country (Type 1) rose from 49 500 metric tonnes in 2002 to 729 782 metric tonnes in 2003. Type 2 transactions, which are grants for sale in the open market of the recipient country, also increased to 3 042 043 in 2003 from 18 600 in 2002. Type 2 represented major transactions, which comprised 43.9 percent of the total volume in 2003. Type 6, transactions through the World Food Programme, increased significantly from 35 698 metric tonnes, 33.0 percent of the total volume in 2002, to 2 183 207 metric tonnes, 31.5 percent of the total volume in 2001. No transactions were notified to the CSSD under Type 4, monetary grants, in 2002 and 2003.
10. Several CSSD members indicated that the drop in food aid notifications to the CSSD since 2000 remained a serious matter of considerable concern because it prevented the Subcommittee from fulfilling its mandate to ensure that food aid is not having a negative impact on the flow of commercial transactions of agricultural products. Various CSSD members have expressed concern that non-legitimate food aid is being used as a form of a marketing tool or export assistance program for surplus commodities in donor countries, and as disguised export subsidies, in circumvention of commitments under the WTO Agreement on Agriculture.
11. Many CSSD members raised concerns over the capacity and function of the CSSD due not only to the failure of some countries to notify transactions but to limited resources. Reorganization of staff duties in the FAO office in Washington in 1998 significantly reduced the scope for Secretariat support to the CSSD. Some CSSD members have also questioned whether there was sufficient technical expertise and information among members to effectively monitor food aid transactions.
12. Several CSSD delegates referred to the discussions currently taking place between the WTO members in the context of the agricultural negotiations to explore ways to improve disciplines applicable to food aid transactions, so as to ensure that international food aid transactions will be based on humanitarian considerations and the needs of recipients, without distorting normal trade patterns. Some CSSD delegates mentioned that it is expected that there will need to be a timely notification mechanism of food aid transactions to the WTO, which would constitute the basis for the enforcement of any disciplines to be agreed between WTO members in that forum. Some CSSD members also feel the need for a clear legal and organizational framework for assessing notifications made and the application of sanctions in the case of non compliance to timely and completely notifying and/or carrying out transactions, not in accordance with the principles laid down for food aid.
13. At the 445th meeting in November, the European Commission raised its concern over the United States’ announcement, published in the Federal Register of October 31st, that the Commodity Credit Corporation would make available under Section 416b Surplus Disposal, 200 000 tonnes of non-fat dry milk for FY 2003. This amounted to 20 percent of the quantity traded on the world market. The European Union asked why the United States announced the quantity available at the beginning of the fiscal year and only responded to requests by recipient countries afterwards. The United States explained that it had first to make a legal determination about how much the United States could make available. In the 2002 farm bill the United States Congress asked USDA to notify what commodities would be available under the 416b donation program by October 31st each year. The United States also said that its Government was making available 200 000 metric tonnes. How much would actually be donated was still to be decided, and would take account of CSSD principles.
14. At the 449th meeting in September 2003, Australia objected to two United States proposed surplus disposal transactions to Yemen under Food for Progress of 82 000 metric tonnes of wheat with a declared value of US$10.6 million and 15 000 metric tonnes of wheat flour with a declared value of US$4.1 million. Australia claimed that Yemen was a viable commercial market for wheat and wheat flour.
15. In February 2004, at the 450th meeting, the United States responded to the statement from Australia by providing a written statement, which mentioned that the allocation decision for food aid was based on a request contained in a letter from the Embassy of the Republic of Yemen in May 2003. Moreover, the Yemeni government had indicated that the donation would not interfere with regular commercial imports because the demand for both products was growing.
16. At the 451st meeting in March 2004: several countries raised concerns over certain transactions by the United States. New Zealand raised concerns in respect of several United States transactions including the donation to Yemen raised by Australia at the previous meeting, a donation of 2 500 metric tonnes of non-fat milk to Uzbekistan and food-aid donations of non-fat dry milk to Guatemala and El Salvador. The latter concerns were based on a fear that there would be displacement of product. These were specific examples of New Zealand commercial contracts being cancelled as a direct result of food-aid donations being monetized. The Netherlands raised concerns about four type 2 Wheat transactions from the United States to Honduras, Jordan, Yemen and Ethiopia. For all of these transactions, there was no information about the imports of this commodity in the past five years or about the UMR level of commercial imports. Canada asked the United States for an explanation as to why there was no prior notification or consultation on the United States food-aid transactions of non-fat dry milk to Indonesia and Vietnam. The European Commission also had concerns about six different United States notifications:
Australia expressed concerned about:
17. At the 452nd meeting in June 2004, a statement of the United States responding to the concerns raised by several countries at the 451st meeting was distributed. The European Commission enquired about the criteria the United States administration used for donating 10 000 MT of NDM to Yemen as the donation of 10 000 MT represented almost 50 percent of Yemen’s annual commercial imports.
18. At the 453rd meeting in September 2004, Australia and the European Union raised their concern that over the last several years, the United States had made a high volume of its donations of food aid towards the end of the fiscal year. It appeared that the food-aid transactions were a means of getting rid of surplus commodities rather than humanitarian aid.
19. At the 448th meeting of the CSSD it was suggested that information about the economic situation of the recipient country be included in the Pro Forma for Prior Notification and Bilateral Consultation. At the 449th meeting of the CSSD the Committee agreed to the revised version of the bilateral consultation form subject to the inclusion of the words “...or international organization” at point 3 of the form. The CSSD encouraged all delegates to consult their capitals to confirm whether any objections to food aid transactions could be copied (by the aid supplying country) to the recipient country in question or alternatively whether they would confirm their objections to the recipient country direct. From January to June 2004, the Secretariat received only one food aid notification. The CSSD delegates were requested to reconfirm with their capitals whether or not there were other transactions and they were strongly urged to report those transactions through the Secretariat.
1 This handbook, issued in 1992, is available in English, Spanish and French. It was supplemented in 2000 by an annex that reflects changes in the multilateral trade environment since 1992, and spccifically those related to WTO. This updating exercise was endorsed by the FAO Conference in 1997.
2 Based on data notified to the CSSD for calendar year 2003.