Very few images are more disturbing than the wide-eyed child, covered with flies and belly swollen from malnutrition. This is as it should be. The United Nations estimates that a child dies every three seconds from hunger and related diseases. Reducing hunger, along with poverty, is first on the list of the United Nation’s Millennium Development Goals. How effective are we in reaching that goal? In their 2010 report the United Nations acknowledged that we are falling further behind. Some would argue this is not due to the world’s inability to produce enough food, but rather the systems and policies related to food aid. In particular, monetization, which is the selling of donated food to generate revenue, is highly criticized. Monetization is an inefficient and expensive aid delivery system which, often, negatively impacts the intended beneficiaries.
In 1954 Public Law 480(PL480) became U.S. policy. One goal of the multifaceted legislation known as PL480 or the Food For Peace Act  is to provide humanitarian assistance in the form of food aid to developing countries. While the majority of Americans may be familiar with why food aid is provided, it is unlikely that many understand how we go about it. Food aid delivery is a complex process and, though relevant to the topic of this discussion, it will not be examined in any detail. Rather, it is one aspect of this process, monetization, that will be the focus of this paper.
Monetization is, simply stated, selling donated food for cash. Although monetization may be used by governments or other entities, it is primarily utilized by private voluntary organizations (PVOs). The practice of monetization was introduced in 1985 as a means to help PVOs bear operating costs related to distribution of food aid. Since that time, however, acceptable uses have broadened in scope to include other forms of developmental assistance.
To better understand the role of monetization it is helpful to make a distinction between two methods by which this process takes place. As the name suggests, open market monetization is the indiscriminate sale of large quantities of food on a recipient country’s open market. Conversely, targeted monetization limits the number of purchasers and designates a specific use for the funds. While both forms are practiced, the majority of sales by PVOs are conducted as open market monetization. For the remainder of this discussion, all references to monetization will be understood to mean open market monetization. It should also be understood that only non-emergency food aid is being considered.
As noted, when first introduced, the use of monetized funds was restricted to certain administrative and logistical expenses connected to food aid distribution. Today, however, revenue generated from monetization may be used to address a number of food security and development objectives. According to a report by the Government Accountability Office (GAO), uses may range from providing food in exchange for labor to development of agricultural infrastructure. Other uses noted include educating a populace regarding nutrition or providing basic health services. This greater flexibility, along with decreased funding for other forms of development, has resulted in increased use of monetization by PVOs.
While there has been a general increase in the number of PVOs which practice monetization, others have revised their policy to prohibit open-market monetization. A 2006 White Paper issued by CARE called monetization, “economically inefficient.” In other words, monetization is expensive. It seems intuitively obvious that, mainly due to transport costs, food purchased from a distant country is typically going to cost more than it would to buy it locally or regionally. This is especially true of food donated by the U.S. To begin with, the “donated” food is actually purchased by the U.S. taxpayers. Due to various policies and contracts, by some estimates we are spending” more than two dollars to generate one dollar of …food aid.”
The expense of monetization can be largely attributed to the numerous steps involved. Procurement, processing, transport, storage, marketing, sales — each add to overall cost. Transportation adds probably the greatest individual expense. A report by the GAO cites that, “approximately 65 percent of expenditures are for transportation.” To translate the impact of cost in human terms; they add that, “every $10 per metric ton reduction in freight rates could feed almost 850,000 more people.”
In addition to financial outlay related to monetization, there is often financial loss involved as well. The USAID Monetization Field Manual acknowledges that open market food sales in recipient countries are often done so at a loss. Authors Chris Barrett and Erin Lentz also point out that there are significant losses associated with monetized food aid. They assert that monetized funds have “typical returns of 50 to 70 cents on the dollar.” Part of the reason for this may be that PVOs often engage in large, non-competitive sales. This allows them to eliminate many of the steps associated with more numerous, small sales. However, in the absence of competition the buyer will likely offer a much lower purchase price for the commodities than would have otherwise been possible.
While PVOs are affected by loss of revenue these types of sales have consequences for the consumer as well. Non-competitive sales typically favor large operators over small. To maintain profitability, larger business with higher operating costs pass these on to the purchaser in the form of pricing. In essence, this means that the PVOs are inadvertently hurting those they are there to help.
In addition to being an expensive means of delivering aid, monetization is an inefficient mechanism as well. The process begins with transporting the food to be monetized from the donor country to the recipient country. This may take, on average, four to six months, often arriving after it is most needed. Once the food is in-country the PVOs take on the role of “ food brokers”, one with which they typically have little expertise. The additional expense in time and money related to marketing and sales also detracts from their core missions. As a consequence, they become less effective overall. This additional burden was a major factor contributing to CARE’s decision to discontinue the practice of monetization.
Another aspect which demonstrates the inefficiency of monetized food aid is that the donated food, which is eventually sold, is first purchased in the donor country and then re-sold. Additionally, in the case of U.S. commodities, much of this food is purchased at “above-market price.” U.S. farmers continue to produce more than we need because it is lucrative. An example of this is featured in a Wall Street Journal article by journalists Roger Thurow and Scot Kilman. A farmer is quoted as saying, “we need food aid to get rid of our excess commodities”. These “excess” commodities while providing tremendous benefit to farmers in the donor country frequently have the opposite effect for those in the recipient country.
USAID mandates that before food aid is monetized by PVOs or other entities it must meet “Bellmon Determination” criteria. This analysis is meant to safeguard against disruption to local markets. By their own admission, this goal is frequently not met. Barrett and Lentz identify several ways monetization negatively impacts recipient countries — among them “discouraging food production by local farmers, thus undermining agricultural development and food security goals.” Thurow and Kilman’s article provides an excellent illustration of this point. They relate the story of an Ethiopian farmer who is struck by the sight of a convoy bringing a shipment of U.S. grain to his warehouse that is already filled with surplus Ethiopian grain. He comments that the Ethiopian farmers were “sad and discouraged” to think that the U.S. was buying and shipping American surplus grain without first buying Ethiopian grain.
Farmers, alone, are not the only ones affected by monetized food aid. Already mentioned was the fact that consumers often pay higher prices as a result of monetization. However, it is the poor, with no ability to purchase food, that suffer most directly. Concerning monetization, Barrett and Lentz write that it “diverts food away from the poor because of open market sales that do not reach food insecure populations.” One way to prevent this from happening is to “target”  the monetized aid. This was done in Zimbabwe by designating the aid for those living in particular neighborhoods.
Targeted monetization is one recommendation for policy improvement offered by Barrett and Lentz. Murphy and McAfee suggest others which includes ending the practice of monetization altogether. Although, Barrett and Lentz agree that monetization has little if any value they do not see its elimination as “an immediately practical solution.”
If or when we choose to discontinue monetization, are there other policies and mechanisms in place to ensure that we are not abandoning the hungry along with the practice? The fact is there are existing food aid delivery systems that are more cost-effective and efficient. One of the most logical is utilized by many other donor countries  — providing cash directly to the PVOs for a significant portion of the food aid. In fact, the EU has proposed that all food aid contributions to the World Trade Organization be made in the form of cash. Another possible change would be to increase direct distribution of food to affected populations and individuals. The U.S. Office of Management and Budget made this recommendation in 2002 according to Barrett and Lentz. Either or both of these changes would be a vast improvement to current U.S. food aid policy.
The reality is, in the time it has taken to read this essay hundreds will have died from malnutrition and associated illnesses. In our efforts to address this human tragedy we are guilty of working harder, not smarter. Current U.S. food aid policies, especially that of monetization, need to be revisited. Research has shown monetization of food aid to be logistically and practically inefficient as well as more expensive than other alternatives. Paradoxically, this policy can also undermine developmental goals and, in some cases, cause actual harm to those already threatened by food insecurity. In recent years, many donor countries and some private voluntary organizations have limited the use or discontinued the practice of monetization altogether. This should cause us to at least question our current approach. If we are disturbed by the image of a starving child, we should be more troubled still to think that ineffective policies are in some way contributing to this horror.