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Food aid, distortion, and the WTO

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  1. Introduction
  2. Background of U.S. policy and food aid
    1. Agricultural trade development and assistance act
    2. PL 480
    3. Primary forums for food aid discussion
    4. Food Aid Convention (FAC)
  3. Definitions and terminology
    1. Export subsidy
    2. Indirect subsidy
    3. Export credits
    4. Domestic farm supports
    5. Countervailing duties
  4. Controversial elements to U.S. food aid
    1. Controversial issue within Title I
    2. In-kind transfers
    3. Monetization
  5. Economic impacts from food aid
    1. Distorting price effects
    2. Untargeted, normal good situation
    3. Targeted population, high demand elasticity
    4. Commercial sale displacement (market integration)
  6. Agricultural subsidies and trade
  7. Agricultural export subsidies in a large home country
  8. The World Trade Organization (WTO)
  9. Food aid alternatives
  10. Aid and trade flows
  11. Conclusion
  12. References

The first of the United Nations Millennium Development Goals is to eradicate extreme poverty and hunger. Specifically, this goal aims to ?halve the proportion of people who suffer from hunger. Yet, today 963 million people are hungry. To help fill the apparent void, the international community worked together establishing a forum for participation in food security dilemmas, as well as institutionalized mechanisms in which wealthier countries can assist starving populations around the world. Food aid is one way in which wealthier countries assist poorer nations. The United States is the largest donor of food aid, thus this analysis will focus primarily on U.S. food aid implications. However, Canada and the European Union have their own food programs as well. Food aid encompasses many vying interests and is seen to provoke competing economic thoughts. Though development micro economic concepts encapsulate issues of food aid and food security, this analysis emphasizes the trade related effects of food aid distribution and policy. This analysis recommends food aid remain coupled with trade policy, and that the World Trade Organization (WTO) is the international body that will allow for fairer agricultural practices concerning food aid.

[...] 2003, Canada provided 70 percent of its food aid as project aid flowing through the WFP, and Canadian NGOs percent went as emergency aid, and none as program food aid.?[lxxv] However, Canada's food aid policy is basically as restrictive as the U.S. since 90 percent of the budget must be spent on the purchase and shipment of Canadian commodities.[lxxvi] The European Union has been critical of the U.S. in this matter; they have phased out the practice of monetization in the 1990s. [...]

[...] Food aid transactions must be notified in a timely matter to the FAO and WTO[xcvii] Oxfam also provides recommendations for changes to the Agreement on Agriculture like the elimination of surplus disposal instruments such as export subsidies and subsidized export credits; implement the Marrakesh Decision on Net Food Importing Countries; curb subsidized production on domestic food surpluses; and, increase funding for development assistance to target deeper causes of hunger and food insecurity.[xcviii] Food aid is not a matter easily decoupled from trade, nor should it be. [...]

[...] Recipient governments sell the food at local markets and use the revenue for other activities.[vii] The revenue element characterizes this food aid as monetized?sold on recipient country markets to generate cash.[viii] Title II is project aid where aid is ?donated to support specific activities and projects, related to promoting agricultural or economic development, nutrition, and food security.?[ix] Project aid, the more common of the two, is generally administered by the World Food Program (WFP) or NGOs. Title III primarily concerns emergency aid, but is also distributed by government-to-government grants to support long term economic development. [...]

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