Historical and Policy Context

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1 Food assistance is one way for humanitarian and development actors to support vulnerable populations and respond to crises around the world. This brief explains the importance for understanding different types and aspects of international food assistance as a way to maximize impact for beneficiaries and support local economies. Food assistance is the transfer of something to a food-insecure individual or household to improve their food security status. That something could be food aid, cash transfer, or food vouchers. 1 Food assistance programs must not harm the same situations they intend to improve. When poorly designed, a food assistance program incorporating food, cash, and/or voucher-based transfers can disrupt markets or disincentivize production. When well designed, a food assistance program can assist vulnerable populations and support local markets. Food assistance programs fall into one of two categories: 1) assistance to those in need after an emergency when livelihoods are disrupted, and 2) assistance to those in a social safety net development program to boost household food security, nutrition, or livelihoods. The expanded options for food assistance programs must be well understood to avoid harming local agricultural markets. The main variables to consider when planning a food assistance program include program objectives, restrictions on donor funding, beneficiary preferences, local government preferences, market functionality, emergency versus development response, existing programs/interventions, staff and organizational knowledge and experience with implementation of different modalities, domestic security conditions, program timeframe, and other factors relevant to each programmatic context. Finding the most suitable modality or form of assistance to respond to food crises is an ongoing dilemma that sparks much debate in the international development community. Recent approaches and policy changes have resulted in a wide range of tools and programmatic options. One food assistance modality is not inherently better than the other it is the context and implementation that matter! Historical and Policy Context Food Assistance vs. Food Aid Food assistance is a broad term that includes all possible modalities: in-kind food aid and cash transfers and food vouchers (the latter two allow beneficiaries to procure food themselves). In-kind food aid refers to the transfer of food (dry, uncooked food like grains, flours, pulses, and cooking oils) directly to a beneficiary. Policies in donor countries and food availability at the market level in recipient countries generally dictate if beneficiaries receive food aid directly or an alternate food assistance modality. The Food for Peace (FFP) program was signed into law in 1954, at which point US government was sending surplus commodities and government food stocks to countries facing shortages. Over time, market conditions and US policies on the use and objectives of international food aid changed, and the US government now purchases food 1 In the US domestic policy context, food vouchers are referred to as food stamps. Fintrac Food Analytics 1

2 aid on the commercial market instead of drawing from surplus food stocks. According to USAID, from , USAID FFP procurements accounted for less than 1 percent of total food exported from the US. 2 While other governments and donors have shifted away from in-kind food assistance, the US government continues to lead the world in transoceanic food aid donations as a component of their humanitarian response. However, in recent years, policy changes in US Farm Bill legislation allowed for new initiatives that permit cashbased assistance (in the form of cash transfers, food vouchers, and local and regional food procurement (LRP)), which were already common with other donors. Distribution Modalities for Food Assistance Donors, nongovernmental organizations, and governments can use a number of food assistance modalities to improve food security for vulnerable populations. The table below details direct distribution, cash transfers, and vouchers. A Snapshot of Food Assistance Distribution Modalities Direct Distribution* Cash Transfers Vouchers Transoceanic food aid: Sourced in the donor country, shipped to the recipient country, and provided to beneficiaries. Local procurement: Donors, NGOs, or governments purchase food in recipient country to provide food aid to beneficiaries. Regional procurement: Donors, NGOs, or governments purchase food in a proximately located third country for distribution to beneficiaries in the recipient country. *Distributed food aid is commonly classified by its origin of purchase (local, regional, or transoceanic). All distributed food aid is an inkind transfer. Conditional cash transfer: Beneficiaries receive cash to purchase items themselves, but on a conditional basis. The conditionality associated with the transfer requires the beneficiary to carry out a certain livelihood activity or engage in some behavior, such as visiting a health center or attending a training. Unconditional cash transfer: Beneficiaries receive cash to purchase items themselves, without any restrictions or conditions on behavior. Food voucher (or closed voucher): Beneficiaries receive a voucher tied to a quantity and/or type of food. The food voucher can be redeemed at preidentified shops, traders, and/or markets. The food voucher can be exchanged for a range of foods up to a fixed value or quantity predetermined by the project. Cash voucher (or open voucher): Beneficiaries receive a voucher that has a cash value. The cash voucher can be exchanged for a range of commodities up to the specific cash value at pre-identified shops, traders, and/or markets. End purchases are not restricted. Note: Monetized food aid is an additional type of food assistance. However, monetized food is not directly distributed or provided to beneficiaries so it is not included in this table. Direct distribution refers to the distribution of food (dry, uncooked food; usually grains, flours, pulses, and cooking oils) to improve the food security of an individual and/or household. Food rations are directly distributed to beneficiaries, often in emergency situations when domestic markets cease to function and market-based programs face considerable barriers, or in situations when donor budgets are limited to food only. Direct distribution of food rations is also used to prevent malnutrition in vulnerable populations and as in-kind compensation for labor projects. The policy in donor countries and food availability in recipient countries largely determine the source of this food. Cash transfers to beneficiaries are often used when markets are functioning with a variety of available food. In certain cases, beneficiaries have limited economic access and a lack of cash constrains their purchase of food to improve their food security. This modality can stimulate and support local markets and allow beneficiaries to spend the money according to their own perceived needs, which may include food purchases and/or non-food items. In this way, beneficiaries control the decision making. Food vouchers are most commonly employed when a program wants more control over the use of the transfer as compared to cash. For example, a nutrition program may choose to provide a voucher for protein-rich products 2 USAID, Accessed in 2015, USAID Food Aid Reform website page: Fintrac Food Analytics 2

3 aimed at population with low dietary diversity. In turn, tying the voucher to certain food can also stimulate the markets for those goods. Sourcing Options for Food Assistance Traditionally, donor countries source most food aid from their own market (transoceanic). For example, with the USAID funded five-year food assistance program in Bangladesh, the agency purchased wheat grain on the commercial market in the US and shipped it across the world for distribution directly to Bangladeshi mothers and children. On many occasions, transoceanic food aid is the only food available option due to donor funding constraints or inhospitable market conditions in recipient countries. However, in recent years, with policy shifts in donor country governments permitting cash-based donations, it has become more feasible to purchase food outside donor countries and in areas closer to the destination (LRP). Purchasing food in local and regional markets can occur by three main processes: Large donor procurement for direct distribution to the beneficiary, typically through the purchase of sizeable food tonnages from relatively large market actors. For example in 2013, World Food Programme (WFP) in Malawi purchased large volumes of maize on the commercial market for distribution to food-insecure beneficiaries. Cash transfers for beneficiaries to purchase small amounts of food and non-food from local markets. For example in 2013, WFP in Nepal implemented cash-for-asset activities in select areas. On average, each beneficiary received $2.50 per day for eight hours worked over a 60-day period in the lean season. The daily rate varied by district and year but it was theoretically based on 80 percent of the government-established daily rate for unskilled labor in that district. In this case, the cash transfer compensated the beneficiaries labor. Food vouchers for beneficiaries to purchase small amounts of food from supermarkets or vendors in local markets. In Zimbabwe, WFP provided monthly food vouchers and a fortified corn soy blend to individuals living with HIV/AIDS. The food voucher could be used for 1.5 kilograms of pulses, 750 milliliters of vegetable oil, and 5 kilograms of maize meal at pre-selected market retailers, and though these quantities are fixed, beneficiaries had the flexibility to choose which brands to purchase. Beneficiaries received $5 in cash as well from the same market retailer (paid by the program) to use for anything. The voucher allowed beneficiaries to purchase their preferred brands on the days most convenient for them while also avoiding any stigma that may be associated with being a food aid recipient. Donor procurement, cash transfers, and food vouchers aim to support local markets by stimulating local or regional production and/or marketing, in addition to improving the beneficiaries purchasing power and food security. These approaches incorporate local market actors into the development program, and in the case of cash transfers/food vouchers specifically, they empower beneficiaries to interact directly with the market and stimulate that behavior. However, a LRP program that purchases sizable volumes of food aid during a lean season could further exacerbate a food shortage by raising prices and decreasing availability. Therefore, it is essential to understand market dynamics, production trends, and food consumption patterns before designing and while implementing any type of food assistance program. US International Food Assistance Programs Photo by Fintrac Inc. USAID FFP and the Office of Foreign Disaster Assistance (OFDA) are funding a two-year MercyCorps project in Asonga, Gao, Mali. This project provides food vouchers to 3,580 vulnerable households in exchange for rehabilitation of land, irrigation schemes, and agricultural infrastructure; the most vulnerable also receive an unconditional transfer of animal fodder and seed vouchers. OFDA funds cover the animal fodder and seed vouchers while FFP finances the food vouchers. Currently, the US government provides food assistance through two agencies: United States Agency for International Development (USAID) and the US Department of Agriculture (USDA). Fintrac Food Analytics 3

4 USAID provides food assistance through the Office of FFP, which funds global emergency and development food assistance programs. 3 FFP is involved in all food assistance modalities including direct distribution from transoceanic shipments, LRP, cash transfers, food vouchers, and monetization. This office has a close working relationship with WFP (the branch of the United Nations responsible for distributing food aid). WFP is one of the prime recipients of FFP funding because WFP operates, frequently as the only actor, in all emergency contexts and has trusted systems for distribution of food aid, even in harsh settings. WFP does not engage in monetization. USDA provides food assistance internationally through the McGovern Dole International Food for Education and Child Nutrition Program, which donates transoceanic food aid to NGOs for school feeding programs across the globe. Its other food assistance program, Food for Progress, provides commodities for monetization to NGOs and governments. Presently, the US represents the main donor country actively involved in food aid monetization. 4 USAID and USDA engage in monetization but the frequency of monetization in USAID programs has decreased in recent years because of policy changes and may continue to evolve in coming years. Food aid monetization refers to the commercial sale of donated commodities, in part to generate cash resources for program implementation. When the US government monetizes food aid, it purchases commodities from US producers and processors and donates the commodities to an NGO. The NGO sells the commodity outside of the US, typically in the same country where it plans to distribute food aid. NGOs use the proceeds from the sale to fund its development program. Monetization can occur as large-volume sales and small-lot sales; the majority of monetized US international food assistance is conducted through large-volume sales. Monetized food aid differs from direct distribution because beneficiaries do not receive this food directly. Even though monetized food aid is not a direct transfer to beneficiaries, compared to the other food assistance modalities, it has been an important modality from a donor policy perspective and from a market impact perspective because of the substantial volumes of food aid provided under this mechanism over the years and the concern that it is a potential inefficient transfer of resources. Food Assistance and Markets Photo by Fintrac Inc. USAID FFP food assistance programs in Bangladesh utilize transoceanic food aid. In this program, beneficiaries receive wheat grain, yellow split peas, and vegetable oil from the US. The community member pictured here divides the food aid rations at a central food distribution site. Billions of people rely on agricultural markets for food security. Agricultural markets are the physical and nonphysical spaces for buying and selling food as well as the social arrangements that allow buyers and sellers to obtain information and exchange commodities. Farmers, traders, buyers, processors, transporters, sellers, importers, exporters, and consumers comprise the actors in the agricultural markets. Each of the pillars of food security (availability, access, utilization, and stability) consider the relationship and interaction between the individual or community and the market. Further, food assistance can positively or negatively affect markets, so those interested in improving food security must also understand how development programs influence markets directly and indirectly, intentionally and unintentionally. Food assistance can benefit markets because as households increase their means to purchase greater quantities, traders and retailers get more 3 FFP works to reduce hunger and malnutrition and ensure that all people at all times have access to sufficient food for a healthy and productive life. FFP provides emergency food assistance to those affected by conflict and natural disasters and provides development food assistance to address the underlying causes of hunger. FFP was originally known as Public Law (PL) 480 and is also referred to as Title II. 4 Japan is also involved in the monetization of rice in developing countries. Fintrac Food Analytics 4

5 business. On the contrary, when a development program provides a transfer to beneficiaries, traders/retailers could raise prices as a result of increased cash flow, which could edge non-beneficiaries out of the market. Food assistance can increase household income and local food supply by interacting with markets through the following mechanisms: Household purchasing power. Generally among the most positive effects, food assistance can improve purchasing power and free up resources for the household by acting as an in-kind income transfer. However, food assistance could also discourage one s normal market purchases. For example, if a household used to purchase cooking oil on a regular basis from the market but now receive oil in their food aid ration they probably would not continue to buy the same amount of cooking oil; but, the household does have resources freed up to purchase other goods. Prices. Food assistance can decrease or stabilize high food prices, especially during lean seasons. However, if poorly planned, cash transfers and vouchers could fuel price inflation, which negatively affects nonbeneficiaries. In an emergency context, a food assistance program can help to bring down high prices that come about when traders/retailers increase prices as a response to interrupted supply chains, disrupted market centers, and limited staple crops in the lean season. Across these situations, a food assistance program would reassure traders that bringing food to markets is worthwhile as it ensures ongoing demand from customers who possess the means to buy goods. Labor. LRP programs provide employment for transporters and others along the domestic value chains, and can increase demand for the food supply, thereby guaranteeing markets for farmers. Food assistance can also hurt labor markets by increasing leisure and reducing labor if it reaches the wrong beneficiaries and at the wrong time of year. Food assistance is most useful when it reaches the appropriate beneficiaries, generally the poorest of the poor, when they are in most need, which could be during a lean season or a climatic devastation, such as a drought. Labor programs that provide food assistance as compensation should be timed to avoid on-farm planting or harvest obligations so as to not deter regular agricultural production. Effective Targeting to Maximize Impact and Minimize Market Disruptions Food assistance must reach the neediest people in the appropriate form and quantity at the right time. Food assistance will likely have minimal negative market impact when effectively targeted. Targeting refers to the right timing, type of transfer, size of transfer (proportion to household incomes and wage rates), and which beneficiaries receive the transfer. Design of the food security program will determine how food assistance will interact with markets and if the targeting is effectively reaching the neediest beneficiaries. Timing. If the transfer is distributed during peak hunger periods when supplies are short, food aid may be effective in capping what might otherwise be a sharp spike in prices. On the other hand, if the food assistance is delivered during harvest seasons, prices may already be falling sharply, and the food assistance can plunge prices below what it costs farmers and traders to produce and distribute, thereby discouraging future production. Type of food aid. The appropriate selection of commodities for a food aid ration that fits easily into the household diet will be based off analysis of food consumption norms. The wrong type of food aid (a food commodity unfamiliar to the diet) could lead to self-monetization in which the recipient resells that food on the market or uses it in a non-intended manner (e.g. for animal feed). Size and scale. Too much food aid distributed in a small geographic area could hinder trade or production. At the household level, a transfer that is too large may increase the likelihood that a beneficiary would sell the commodity, known as Photo by Fintrac Inc. In Ethiopia, given that the existing national safety net program (Productive Safety Net Program (PSNP)) has a large food assistance component, USAID FFP directly donates transoceanic food aid to the PSNP for distribution in select months of the year. Featured here are public works beneficiaries proudly showing how they store their food aid at home. Fintrac Food Analytics 5

6 self-monetization, while a transfer that is too small may not be enough to improve diets or a household s ability to increase purchases. Additionally, a transfer different from local wage rates could attract non-intended beneficiaries. Calculating the appropriate size of the transfer is an area of study in itself as it depends on the country, existing norms by development stakeholders, local government policies and established wage rates, and the objective of the transfers is it intended to provide the household enough for a full food basket or is it supposed to equate a certain proportion of household income. Bellmon Analysis The Bellmon Amendment was passed in 1977 as an amendment to the Food for Peace Act, and requires that before US food aid can be supplied in the receiving country, the Secretary of Agriculture or the USAID Administrator, as appropriate, must determine that: Adequate storage facilities will be available in the recipient country at the time of the arrival of the commodity to prevent spoilage or waste. The distribution of the commodity in the recipient country will not result in a substantial disincentive to or interference with domestic production or marketing in that country. Research on markets and food consumption patterns is essential to ensure food assistance programs do not harm markets. Once a program is operational, a regular monitoring system must be put in place that captures price information and the ability and willingness of market actors to respond to the potential increase in demand from the beneficiaries. Market analysis and monitoring can optimize the response modalities on household food security and market development. Conclusion Fintrac, through USAID-BEST, produced 44 analytical reports across 27 countries examining market dynamics and food consumption patterns to determine appropriate transfer modalities and inform USAID food security programming. Food assistance helps individuals suffering from poverty, hunger, malnutrition, or compromised livelihoods by boosting their household purchasing power. As discussed, this support has multiple forms from in-kind food aid grown in the US to food vouchers for locally produced grains. Designing these programs requires understanding the operating context and beneficiary needs. One food assistance modality is not inherently better than the other it is the context and implementation that matter. That being said, when not in an emergency context and market conditions are favorable, market-based food assistance tools that promote local procurement can be an effective means to improve household food security. With the evolving landscape for international food aid that includes an array of assistance tools, all stakeholders must understand market conditions and food preferences to ensure a food assistance program supports agricultural markets. Additionally, programs that effectively target the right beneficiaries at the right time with the right transfer will minimize any potential market distortions and maximize impact on household food security. Resources AGree, 2012, US Agricultural Development Assistance and Food Aid: Programs and Issues. Barrett, C, and Lentz, E., 2009, US Monetization Policy: Recommendations for Improvement. CaLP, 2012, Cash Transfer Programming. Congressional Research Service, 2015, U.S. International Food Aid Programs: Background and Issues. Cornell University, 2010, LRP Market Monitoring Training, Introduction to LRP. FAO, No Date, Markets Assessment and Analysis. USAID-BEST project at Fintrac Inc., August 2008-February 2015, Various Publications and Materials. USAID, Accessed in 2015, USAID Food Aid Reform website. About Fintrac Food Analytics Department In addition to our extensive on-the-ground presence and our robust home office support system, Fintrac has an in-house team of market analysts, business strategists, food security experts, dedicated researchers, and legal, regulatory, and policy reform specialists that comprise our Food Analytics department. The team has deep experience in implementing short-term assignments for private-sector clients and practical hands-on experience with agribusinesses and farmers in emerging markets. Food Analytics provides adaptable, top-notch analytical resources to external clients and donors and customized analytical tools and methodologies to address specific client needs. Fintrac teams are quickly deployable and the logistics and scheduling are independently managed and do not require significant client involvement. Contact: foodanalytics@fintrac.com. Fintrac Food Analytics 6