European Food Aid Policy

John Cathie

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9781138310933
• eBook ISBN: 9780429859793
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

Published in 1997, this book traces the development of European Food Aid Policy from its inception in the 1960s through to the 1990s. This covers the change from a surplus disposal programme in the early days to the present policy. The European Food Aid Policy is one of the few areas of development policy that is European rather than national in character. John Cathie therefore also examines the links forged with non-governmental organizations at an international level, for food aid and humanitarian operations.

1 The background to and the establishment of the European food aid programme

1.1 The origins of European food aid and world food aid policy: European involvement with emerging food aid policies 1940-1962

The European experience with food as a form of aid began during the Second World War when the United States of America donated agricultural commodities in support of the allies' war effort, under the lend-lease programme. The US had provided food relief during the first war and the period after, especially to Belgium and France, to the value of $5.2 billion (Surface and Bland, 1932). This agricultural commodity aid was extended under the European Recovery Programme (the Marshall Plan) from 1945 until 1949. In 1941 lend-lease provided over $6 billion in agricultural commodities (mainly cereals) to sixteen European allies (Wallerstein, 1980). From 1945 agricultural commodities to Europe under US government support increased from 56 million bushels and peaked at 505 million bushels in 1949 (Cathie, 1982).

The European Recovery Programme was the largest food aid programme in volume and value terms that the world has yet known and was mainly given in the form of grants. American generosity provided the basis for European-wide economic recovery with the Marshall plan and half of this aid was in the form of food grants (Bairoch, 1975). From 1948 until 1952 saw substantial food aid flows to the United Kingdom, France, Italy, West Germany and Greece who received the lion's share of the aid (Adams, 1968). Other European countries, most notably the Netherlands, who had experienced famine towards the end of the war were beneficiaries of food grants under the Marshall Plan. All European countries had experienced food rationing and food shortages as a consequence of the war.

American food aid had provided the basis for gradual economic recovery and, perhaps more importantly, the prevention of famine in parts of Europe and the alleviation of food shortages. American aid to European recovery lasted until the early 1950s and demonstrated that food surpluses could contribute to reconstruction and could help provide the basis for stability and economic growth. The effects of the Marshall Plan and the food aid component have generally been accepted as having made a major and significant contribution to post war European economic recovery. It was as a receiver rather than a giver that Europe first experienced food aid, in the post war years, and that experience has influenced a number of countries, most notably the Netherlands in its favourable attitude towards food aid and its potential as a resource for economic development (WFP Government of Netherlands Seminar on Food Aid, 1983). The benefits of food aid to Europe were considered as a once and for all one-off programme, of commodity transfers contributing to economic and social stability as well as economic growth.

Europe and Japan both received substantial volumes of food aid from the United States after the second world war as a major part of America's real resource contribution to building a liberal economic order. Food aid to most of these countries was however a relatively short-term affair and was gradually phased out when economic stability and recovery became apparent in the 1950s. However, transfers of food aid under American programmes to countries such as Greece, Spain, Yugoslavia continued throughout the 1960s and 1970s and, in the case of the former Yugoslavia, up until that country's demise in the 1990s.

The period of the early 1950s saw the establishment of a permanent US food aid programme with Public Law 480 in 1954. This programme was to provide food aid as a development contribution for the emerging post colonial less developed countries. It was one of the components of American Foreign Policy, the other components being military and financial aid for economic development. Lend-lease and the Marshall Plan had increased the markets for United States agricultural exports (albeit paid for by the American taxpayer) in the immediate post war period and its agricultural output far exceeded domestic and world effective demand.

Government price supports for agriculture taken together with large holdings of food stocks, particularly cereals and the productivity changes from the application of technology to agriculture resulted in the development of food aid policy and programmes. This policy was designed as much to help the recipients of the aid as it was designed to relieve the surplus overhang of output increases well in excess of the capacity of markets to absorb these products at given world prices. The inconvertibility of currencies was also a major restraint on the purchase of American Farm Products; this situation prevailed throughout the 1950s.

Almost from its inception in 1954 PL 480 ran into difficulties, since this aid programme was seen as a disguised means of export dumping and therefore an unfair means of competition in agricultural trade, particularly from export competitors who were unable to develop their agricultural markets using the financial resources that were available from the American taxpayer to fund the recipients of PL 480. It was recognised from its inception that PL 480 had the potential to do harm to the international agricultural trading system (as much as it might benefit recipients of food), and therefore also do harm to the newly established general trading system under the General Agreement on Tariffs and Trade (GATT). Although agricultural trade was in effect exempt from these GATT rules until the Uruguay Round successfully incorporated agriculture into the rules of its successor, the World Trade Organisation of the 1990s.

The capacity of food aid or surplus disposal of agricultural commodities to disrupt markets for competitor agricultural exporters, was recognised in the attempts to monitor trade by the Committee on Commodity Problems (CCP) of the Food and Agricultural Organisation (FAO) of the United Nations and particularly by a Washington-based sub-committee which was concerned with establishing the "rules of the game" with regard to surplus disposal. The principles of surplus disposal were formulated in 1954 to try to safeguard commercial agricultural transactions against displacement by dumping practices and by concessional sales of food aid. The consultative Sub-Committee on Surplus Disposal (CSD) had as its terms of reference 'that the disposal of surpluses be made without harmful interference with the normal patterns of production and international trade' (FAO, 1954 and 1972). Members of the working party were Argentina, Egypt, France, India, the Netherlands, New Zealand, the UK and the USA. The Committee has met monthly since 1954 to consider the interests of third party exporting countries by discussing in advance the surplus disposal agreements between donors and recipients of food aid.

The deliberations of the CSD over the years have refined these principles into three concepts: additionality, orderly disposal and voluntary consultation. Additionality attempted to determine the conditions of surplus disposal of agricultural commodities, such that they would be additional to normal commercial sales in recipient countries. In practice the precise circumstances of the additionality principle have been difficult to determine and at best it has operated as a partial safeguard for third party interests. Both orderly disposal of agricultural stocks and voluntary consultation amongst members to the agreement of surplus disposal principles did provide some restraint on blatant dumping practices. However the potential for food aid as a source of unfair competition was moderated not eliminated (see Cathie, 1982, Chapter Three).

The principles of surplus disposal were later reformulated and Usual Marketing Requirements (UMRs) were added to give more precision and practical definition to its principles. The CSD recognised in 1968 that additionality was very difficult to define in practical terms because it was almost impossible to determine how much of a particular food commodity a country would have imported in the absence of a transaction on special aid terms (see Cathie 1982 for a further discussion of this concept).

While the European Community of the Customs Union was not to be established until the Treaty of Rome of 1958 and the Common Agricultural policy of 1962, some individual European states' interests were represented on the Committee of Surplus Disposal, namely France, the Netherlands and the United Kingdom, and the 'European Interest' was equal to that of the representation from developing countries. France had made ad hoc food aid contributions in its bilateral food aid programmes in the 1950s, while the United Kingdom and the Netherlands had not established bilateral food aid programmes.

The food aid policy established in the 1950s was largely an American affair and world food aid policy was in effect determined by the United States agricultural trade and aid objectives. Although European countries and European interests were represented in the initial framework, that of the principles of surplus disposal, which sought to moderate what was a potential if not actual interference with international agricultural trade and the competitive process. The principles of surplus disposal pre-date the European Customs Union and the Common Agricultural Policy, nevertheless three future European Union countries were represented on the Committee and no doubt contributed to the arrangements and the establishment of these less than perfect rules of the game that sought to moderate surplus disposals in their most harmful form. From its very inception food aid policy, with the exception of the European Recovery Programme (the Marshall Plan), was to provide a source of contention as a development aid transfer because of its affects on competition in international agricultural trade and because the self-interest of the donor country, the United States was expanding its own international markets and agricultural exports. From 1954 until the late 1970s the US share of world agricultural trade increased from 25 % of that trade to as much as 70% (Cathie, 1985). Concessional sales (Food Aid) of US farm products during the 1950s and 1960s comprised an average of 30% over the period and in the late 1950s as much as 40% of American farm sales (Cathie, 1989).

The effects of concessional sales of food aid on international agricultural competition were the major concern that emerged in the 1960s and produced pressure for the moderation of export sales by attempting to tighten the international voluntary agreement operated by the Sub-Committee on surplus disposals. The mechanism of the CSD was, however, an inadequate instrument to oversee international agricultural competition, and its rules were of the most rudimentary kind which at best provided a forum for complaint with regard to the most blatant forms of export dumping. The CSD principles were not designed to prevent concessional sales of food aid, or the development of American agricultural export markets.

The creation of markets for American farm produce in Europe and the Far East during the 1950s and 1960s attests to the beneficial transition of countries as concessional sales recipients to commercial purchasers of agricultural products. Both Japan and South Korea, for example, made this transition as recipients of food aid to major markets for American commercial agricultural exports. The Argentinean government was a justifiably frequent complainer to the CSD of the effects of concessional sales on their actual and potential markets and the changes in the rules of the CSD game in the 1960s was a recognition of the adverse affects that concessional sales were having on the international competitive process, However, as has been noted, these changes were more cosmetic than real.

While the original major concerns with the emerging world food aid policy, that is to say American food aid policy, were to safeguard international agricultural trade from dumping and unfair competition. Other donors of food aid were emerging in the late 1950s and 1960s, most notably Canada and Australia (Mettrick, 1969). The value of food as a form of aid was beginning to be questioned, particularly in the United States of America where benefits to recipients of food aid were coming under scrutiny as was the costs of PL 480 to the American taxpayer. Professor Schultz (1960) particularly highlighted the value of this highly tied form of commodity aid to both donor and recipient, suggesting that food aid in value terms was not as beneficial as had been asserted by the food aid administration. In his seminal article Schultz argued that far from being a beneficial form of aid, there was a real danger that food aid would undermine the productive capacity of the recipient country and prove detrimental to the agricultural prospects of the recipient. Food aid would displace home production and thus be detrimental and positively harmful to the recipients. Schultz had pointed out in simple and forceful terms, that the dangers to competition that had concerned the international community, were also present within recipient countries.

Price Displacement or the displacement effects of food aid have been a major concern of all food programmes since the 1960s and the debate about these potential and actual effects have been hotly discussed and disputed for thirty-five years (for a recent discussion of these see Maxwell, 1991). The emerging consensus amongst food aid experts on displacement effects is that they are real, but need not necessarily be harmful if they are monitored and the appropriate policy adjustments made within the agricultural and welfare policy of the recipient country, so as to ensure that the net benefits of the aid are realised. The monitoring and prevention of adverse price displacement effects is still, however, subject to many qualifications and is by no means an insignificant problem.

The PL 480 Programme by the end of the 1950s was beginning to show serious signs of major problems. The programme itself was becoming costly and unwieldy; it had grown rapidly during its early years and many recipient countries had become major dependants on US food aid with an increased likelihood that this dependence would continue. The American farm programmes that were supplying PL 480 were becoming more and more costly and these problem multiplying effects suggested that the farm problem (of increasing productivity) could not be solved by price supports and export subsidy programmes. In addition to the problems of international competition being undermined and the spiralling cost of the US farm programme, the administration of PL 480 in recipient countries was proving very problematic.

Recipients of PL 480 concessional sales, sold these commodities on their internal markets and the resulting revenues known as counterpart funds were deposited, usually in the recipient central bank in the name of the PL 480 administration or of the USAID authorities. The US authorities in recipient countries were required to agree the use of these funds with the recipient government. Counterpart funds accumulated into large deposits with many recipient central banks. These funds, by virtue of their size, were becoming an embarrassment to the American aid authorities since they were not, and could not, be spent. The effects of releasing these vast sums of money in a number of recipient countries were likely to increase the money supply, since they were held by the central bank, and cause inflationary pressures and macro-economic instability within the recipient economy. That these counterpart funds had already been used in the economies concerned and were therefore not real resources, was an argument that gained support, as well as the sheer size of counterpart funds, persuading the American authorities that they were not likely to be spent and therefore it was necessary to write them off and abandon their future accumulation.

The early 1960s saw a major reappraisal of American food aid policy as a result of the growing national cost of this policy and the international misgivings with regard to PL 480. A number of countries in the developing world also had misgivings with regard to the benefits of food aid, most notably India, who began to object to the conditions that the US aid authorities were applying to further and future food donations. As part of the reappraisal of PL 480 the United States changed the view it had held since the establishment of the Food and Agricultural Organisation of the United Nations in the late 1940s, and accepted that there was a limited role for multilateral food aid. The United States was opposed to giving powers, authority and resources to the FAO to oversee world agricultural trade and food policy on the grounds that the policies proposed by the FAO would hamper world agricultural trade and growth.

The FAO from its very inception had its potential role as an organisation to address issues of food and agriculture of a global nature constrained and narrowed, largely because of the objection of the United States (see Boyd-Orr, 1966). Its role in world agriculture was largely confined to data gathering and co-ordination of technical functions and has never had the degree of influence on shaping policies that has been accorded to the International Monetary Fund, the World Bank or the General Agreement on Tariffs and Trade who were established in the same era as the FAO. The policies advocated by the FAO with regard to agricultural production and trade involved intervention in markets, for a variety of objectives including price stabilisation, stockholding policies and general interventions in markets for social and welfare policies and objectives. The FAO was also concerned with the estimation of the extent of hunger and malnutrition in the world. The FAO's role in formulating world policies with regard to hunger and malnutrition was largely thwarted during the 1950s and its inability to establish itself in subsequent decades has made its influence on the shaping of agricultural and food policies in the world economy a pale shadow of what its role was hoped to be when it was established at Hot Springs in 1943 (for a further discussion of the FAO see Talbot, 1990 and Hancock, 1990).

The FAO did sponsor a seminal study, under its Freedom from Hunger Campaign of the 1960s which persuaded the US to accept a UN agency to distribute food aid for development purposes. The report of the Committee, chaired by H.W. Singer, Development through Food (Rome, 1962) proposed amongst other things that food aid could provide valuable resources for social and economic development in developing countries. In reviewing the role of food as aid, Development through Food argued a role for the United Nations as a multilateral provider of food aid as a development resource. The report sought to identify categories of countries that would potentially benefit from surplus food from rich countries and the report also identified a policy framework in which food aid could operate on a multilateral level. The report argued in effect for an alternative policy framework to the predominant American food aid policy that would specialise on project lending funded by food donations from the international community, not just the United States. Although the US was the major contributor of food surpluses to the programme.

The WFP was established with voluntary pledges of food, cash and shipping services. The target which was not reached was $100 million. Three quarters of the Programme resources were food and the remaining balance was made up of cash and services. The US gave 50% of the total with Western Europe contributing 30% (of which EFTA [European Free Trade Area] gave 16% and the EEC 14%). The EEC in its contribution pledge was in fact less generous than EFTA, where Denmark, Sweden and Norway were more enthusiastic supporters of the WFP. The United Kingdom, together with the EFTA members, increased their pledges (see Wightman, 1968). In addition the report identified areas of national economic development where food aid had a role to play such as National Food Reserves (previously proposed by the FAO in 1958).

Development through Food argued the case for a multilateral role in the United Nations for a niche UN provision of food aid. The report was accepted by the UN system and the proposal to establish a multilateral agency, the World Food Programme was agreed (WFP). The WFP came into being in 1963 on a three-year experimental basis which was subsequently renewed. The World Food Programme has maintained a separate multilateral identify and has operated separately from the Food and Agricultural Organisation of the UN, specialising in identifying projects for social and economic development and resisting pressure to focus its entire activities on providing food aid as emergency and relief aid (for a discussion of the food aid policies and programme of the World Food Programme see Shaw and Clay, 1993). The US accepted a role for a multilateral food aid agency as indeed did the European Economic Community who were signatories to the establishment of the World Food Programme, other European countries (such as the United Kingdom) who would be future members of the European Union were also signatories to the establishment of the World Food Programme.

The establishment of the WFP was the first occasion that the European Community as an entity began to formulate a view on food aid as a development resource albeit as part of an international UN focused initiative. Many of the policy concerns of the WFP, and pa...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Figures and Tables
• Preface
• Abbreviations and Acronyms
• Introduction
• Chapter One: The background to and the establishment of the European food aid programme
• Chapter Two: The development of a European food aid policy since 1968
• Chapter Three: Agricultural trade policy, European food aid and surplus disposal
• Chapter Four: The formulation and management of European Union food aid policies and programmes 1968-1994
• Chapter Five: Multilateral food aid policy, non-governmental aid organisations and the food aid policy of the European Union
• Chapter Six: Recipients of European food aid and its effectiveness as a development resource
• Conclusions
• Bibliography