Food aid in the context of the WTO negotiations on agriculture[40]

Comments by Mr Wyatt Thompson

1. Concepts and definitions

International food aid is the provision of food commodities by one country to another, free of charge or under highly concessional terms, to assist the country in meeting its food needs. The aid is of three general types:

• relief food aid, which is targeted and freely distributed to victims of natural and man-made disasters;
• project food aid, which is targeted to vulnerable groups to improve their nutritional status and to support specific developmental activities; and
• programme food aid, which is provided directly to a recipient government or its agent for sales on local markets, the proceeds of which are under the control of the recipient government but are subject to some form of agreement with the donor about their management and use.

Where food aid is provided not in fully grant terms but under varying degrees of concessionality confusion can arise between such aid and some commercial transactions that also have a concessional element.

The concern of this paper is with food aid in the context of the WTO Agreement on Agriculture (AoA). It examines the international disciplines on food aid and on other international transactions in food that are not 100 percent commercial in nature and how the latter relate to food aid. It goes on to consider the implications for food aid of possible reforms in the context of the on-going WTO negotiations on agriculture.

2. Origins of food aid: surplus disposal in the 1950s

Food aid as a form of assistance to developing countries has its origins in the early 1950s when structural surpluses of cereal products appeared in the United States. It thus consisted of aid in kind, i.e. food commodities procured in the donor country’s internal market or internationally and shipped free of charge to the recipient countries. There was thus a strong element of additionality in this type of assistance in the sense that it led to an increase in the total aid provided which would not have been forthcoming in the absence of food surpluses.

A large part of food aid continued to be associated with the disposal of surpluses throughout the 1980s and 1990s. However, gradually, as pressures of surplus disposal weakened and as food aid programmes of donor countries became much more responsive to the recipients’ needs, other forms of food aid emerged. These included triangular transactions, whereby food is acquired from another developing country and shipped to the beneficiary country, and local purchases, where the donor acquires the food commodities in the beneficiary country itself (normally to be used for humanitarian or development purposes).

Has there thus been a move away from surplus disposal and if so, what are the implications? To a large extent, food aid is indeed no longer a function of a surplus disposal operation, and for several donors it is now an integral part of the overall development assistance budget; deciding how much food aid to provide is based on the needs for such assistance and on considerations having to do with its effectiveness compared to other forms of assistance, i.e. is a dollar spent on food aid more effective than a dollar spent on other types of assistance? This approach also implies that an increase in the budget line for food aid would be offset by a corresponding decrease in the budget line for another type of assistance. In other words, there is no longer any additionality.

On the other hand, for the donors where some link between food aid and structural surpluses is still maintained, there remains some element of additionality. If their food aid is reduced it does not automatically follow that other development assistance will be increased by the same amount. In other words, the cost of some continuing link with surplus disposal is perhaps compensated by the additionality element of the food aid provided.

How much is the additional element? As a first approximation, one could say that the minimum commitment under the Food Aid Convention (FAC) does not have any relationship to surplus disposal, but food aid provided over and above that level may still be linked to a greater or lesser degree to availability of surpluses in the donor countries. However, as a result of the reform programme in agriculture, government stocks of surplus food have fallen considerably in donor countries and accordingly it can be expected that the links to surplus disposal will henceforth be much weaker.

3. Institutional arrangements for food aid

The FAO Principles of Surplus Disposal. With the emergence of growing food surpluses in the early 1950s, intergovernmental consultations took place on the impact of food aid on commercial trade and on agricultural production in the recipient countries and resulted in the adoption of the FAO Principles of Surplus Disposal and the creation of the Consultative Sub-Committee on Surplus Disposal (CSSD) in 1954.[41] The Principles of Surplus Disposal represent a code of conduct for governments in the provision of food aid. In the main, they seek to ensure that food and other agricultural commodities which are exported on concessional terms result in additional consumption for the recipient country and do not displace normal commercial imports; and similarly, that domestic production is not discouraged or otherwise adversely affected. While the Principles are not a binding instrument, they represent a commitment by signatory countries. They help governments to focus on their responsibilities as parties to transactions on concessional terms and to avoid potential difficulties and disagreements.

The interests of recipient countries are safeguarded by the emphasis placed on the importance of increasing consumption rather than restricting supplies. The interests of exporting countries are protected by the undertaking that such disposals should be made without harmful interference with normal patterns of production and international trade, by assurances against resales or transshipment of commodities supplied on concessional terms, and by the introduction of the concept of "additional consumption" which is defined as consumption which would not have taken place in the absence of the transaction on concessional terms. The mechanism for assuring such additionality is the “usual marketing requirement” (UMR), a concept adopted by FAO in 1970: a commitment by the recipient country to maintain a normal level of commercial imports of the commodity concerned, in addition to the commodity supplied in the concessional transaction. With certain exceptions, and depending upon the type of food assistance provided, this provision has become an essential element of food assistance agreements.

The CSSD, based in Washington D.C., monitors adherence to the Principles by reviewing commodity assistance transactions, normally prior to signature of the assistance agreement and shipment of the commodity. While in practice the Sub-Committee tends to focus on the interests of exporting countries, attention is also given to the interests of recipient countries. The Principles embrace the view that surplus commodities can be utilized for the promotion of economic development, for special welfare distribution and for emergency relief. In general, the CSSD provides a forum for examining any difficulty that may arise in the light of the Principles. Forty-one FAO members have subscribed to these Principles. The CSSD maintains a register of potential food aid transactions for which donors have notification obligations. The register was last revised in 1997, to bring it into line with the AoA (see Annex I).

The World Food Programme. While originally it was mainly the United States that provided food aid, gradually others did so also, especially in the context of official development assistance. This gave birth to the creation of the World Food Programme (WFP) in 1961, designed to broaden the resource base of food aid and to provide a multilateral basis for channelling such assistance. WFP is now the largest multilateral food aid agency.

The Food Aid Convention. The institutional basis of food aid was further strengthened with the signing of the Food Aid Convention (FAC) in 1967 within the context of the International Grains Arrangement (IGA). The FAC has been successively extended or renewed since then, and the current Convention, which came into force in 1999, is scheduled to expire on 30 June 2002. Under the FAC, donors undertake to provide a minimum level of food aid expressed in tonnage terms (wheat equivalent). The current minimum level is set at some 5 million tonnes, compared to about 4.3 million in 1968-1980, about 7.6 million tonnes in 1980-1986, about 7.5 million tonnes in 1986-1995 and about 5.3 million tonnes in 1995-1999.

Key provisions of the FAC 1999 are contained in Articles VII, VIII and IX on Eligible Recipients, Needs, and Forms and Terms of Aid, respectively (see Annex II).

4. Food aid, export subsidies and export credits in the context of WTO

Food aid, together with export subsidies and export credits, are three ways that modify the normal terms on which agricultural trade takes place. The main relevant articles of the WTO Agreement on Agriculture (AoA) are Articles 9 and 10.[42] Article 9, on Export Subsidy Commitments, includes a list of export subsidies that are subject to reduction commitments, specifying the mechanics of the reduction commitment and the exceptions for developing country members. Article 10, on Prevention of Circumvention of Export Subsidy Commitments (i.e. those covered in Article 9), includes the following provisions:

• Export subsidies not listed in Article 9 must not be used to circumvent reduction commitments (para. 1) and exports in excess of reduction commitments must not benefit from subsidies (para. 3);
• Members agree to develop and then comply with international disciplines on export credits (para. 2);
• Members that are donors of international food aid undertake to ensure that the aid is provided in accordance with a number of provisions (set out in paragraph 4), namely:

(a) that the aid is not tied directly or indirectly to commercial exports of agricultural products to recipient countries;

(b) that international food aid transactions, including bilateral food aid which is monetized, is carried out in accordance with the FAO "Principles of Surplus Disposal and Consultative Obligations", including, where appropriate, the system of Usual Marketing Requirements (UMRs); and

(c) that such aid shall be provided to the extent possible in fully grant form or on terms no less concessional than those provided for in Article IV of the Food Aid Convention 1986.

How do these three forms of NFCTs compare?

First, in terms of the budgetary transfers involved (cost to government budgets of the exporting countries), the most important among them is export subsidies, where the WTO ceiling under the Uruguay Round is now around US$14 billion (down from about $21 billion in the base period), although this amount is currently not being used to the full. Next in importance is food aid. The value of food aid, both cereal and non-cereal, is of the order of $2.5 billion. Finally, the subsidy element of export credits was estimated by OECD at about $300 million in 1998 (corresponding to a total value of transactions of some US$7.9 billion) (See Annex III Tables 1 and 2). Clearly these values may vary considerably from year to year because of changes both in the quantities involved and in world market prices. The most variable in terms of value are export subsidies and export credits, which tend to rise when market prices are low and decline when they are high. The value of food aid, on the other hand, changes only marginally nowadays simply because for most donors their food aid commitment is expressed in monetary terms. It follows, however, that volumes of food aid can vary considerably, rising when prices are low and falling when prices are high (see Annex III, Tables 3 and 4). This counter-cyclical nature of food aid runs counter to the needs of the recipient countries for this type of assistance.

A second comparison is in terms of the degree of concessionality that the NFCTs represent for the recipient countries (which is not the same as the budgetary cost to the exporting country). Here food aid comes clearly first, with nearly the full value of food aid of some $2.5 billion representing grants. Unfortunately, it is difficult to say a priori much about the benefit to the importers of the other two types of transactions, much depending on how they are carried out in practice. In the case of export subsidies (which account for the highest budgetary cost to the exporting countries, as mentioned above), for some important subsidizing exporters most of the subsidy is captured by the producer/exporter in the exporting countries themselves, to make up the difference between the world market price and the domestic price. But in other cases, depending on how the subsidy is administered, part of the subsidy involved is transferred to the recipient country in the form of lower prices and/or better terms. For example, in the case of cereals, FAO made an attempt to estimate the portion transferred to the recipient countries during the late 1980s and early 1990s when export subsidization was at its peak. It was estimated that the total potential transfer to all recipient countries from the United States Export Enhancement Programme never exceeded $1 billion in any single year and averaged about $590 million per annum during 1985-95. No corresponding estimate has been made for export credits, but in any case their value to the recipient countries cannot be greater than the subsidy element of these transactions, which was estimated by OECD, as noted above, at some $300 million in 1998.[44]

Finally, yet another comparison can be made, in terms of the production and trade-distorting effects of the NFCTs. Two effects may be considered: market displacement and depressing market prices. Some have argued that the greatest trade-distorting effect comes from export subsidies. However, others have argued that export credits also present a major problem, especially because they are not capped as are export subsidies and are not yet subject to any transparent disciplines. Both forms of transaction can have a displacement effect on trade in the sense that the subsidizing countries would not have been able to export such volumes in the absence of government assistance. Thus, they can displace exports of non-subsidizing competitive exporters and can also depress market prices.

In addition, they could also discourage domestic production in the recipient countries if they result in import surges well above the normal level of imports by these countries and at prices at which domestic producers cannot compete.

In contrast to export subsidies and export credits, appropriately used food aid is the least distorting form of NFCT, especially since much of it is used for emergencies (50 percent and rising) and for nutritional intervention projects (some 25 percent). Like emergency food aid, the latter can hardly be considered trade- distorting, as such assistance usually represents additional consumption for people with little or no purchasing power. The remaining 25 percent of food aid, which consists of programme aid, has the potential to discourage domestic production and it is in this area that there is need for vigilance from the consultative process at the CSSD in order to ensure that neither production nor trade is adversely affected.

5. The future

Since the coming into force of the AoA there have been three developments in particular which have a bearing on the future of food aid.

• First, discussions in the WTO Committee on Agriculture on how provisions on export subsidies, export credits and food aid are being implemented in practice have given rise to issues requiring clarification and interpretation. Several aspects of Articles 9 and 10 have posed problems for some WTO Members and these problems have a bearing on how these provisions may be modified in the future.
• Secondly, consultations are continuing at OECD on export credits. An eventual understanding on this subject may provide an input to the development of multilateral disciplines on the subject, as committed under Article 10 of the AoA.
• Finally, and most importantly, negotiations have been under way for some time in the context of Article 20 of the AoA. Disciplines on export competition are high on the agenda of negotiators and this has been given further impetus by the Doha Declaration.

These developments have implications for the future of food aid and other NFCTs. As discussed above, there are several ways in which export subsidies, export credits and food aid are connected and it may be expected that these links would figure in future negotiations.[45] In this context a number of possible issues may arise, including the following:

1. Further export subsidy reduction commitments are likely to be an outcome of future negotiations as well as of the tightening up on export credits. The result can be expected to be greater pressure for more assistance to be provided in the form of food aid;

2. In view of the potentially overlapping nature of some forms of export subsidies and export credits with food aid, it is important that definitions and disciplines on food aid are modified accordingly to ensure that food aid does not circumvent agreed disciplines on export subsidies and export credits. In particular, changes in the disciplines governing export subsidies and export credits could have implications for the FAO Register of Transactions;

3. With tighter disciplines on export subsidies and export credits, food aid would not only become more important in quantitative terms but possibly also subject to more variability, absorbing what was formerly channelled through export subsidies and export credits, when world market prices fluctuated. The counter-cyclical nature of food aid witnessed in recent years could consequently be exacerbated in the future;

4. In order to deal with the potentially damaging effects of more variable food aid, mechanisms would be needed not only to safeguard a minimum level of food aid in years of high prices but also to enforce stringent disciplines ensuring strictly bona fide food aid in years of plentiful supplies and low prices;

5. One way of avoiding the counter-cyclical nature of food aid could be to introduce a mechanism whereby excess food aid availabilities in years of plentiful supplies are carried forward, perhaps in conjunction with national food reserves of donor countries, and made available in subsequent years when food aid supplies are tighter;

6. Another issue is the role of food aid in the context of the Marrakesh Decision to assist LDCs and NFIDCs. The mechanisms that may emerge, including the proposal for the creation of a Revolving Fund, as well as any special treatment these countries may enjoy in the context of disciplines on export credits, would have implications for the role of food aid in the context of this Decision;

7. It is imperative that recipient countries have a better idea of the real value to them of different types of transactions and the possible risks they may pose to domestic production. Such a comparison can only be made by the recipient countries themselves (as the effects depend largely on the detail of individual transactions) with the assistance of relevant international organizations and NGOs. With greater awareness of the potential benefits and risks involved in different types of concessional transactions, recipient countries would be in a better position to influence the multilateral negotiations on the desirability of such transactions;

8. Overall, the new disciplines that may emerge as a result of the negotiations on agriculture should aim at striking a balance between the concerns of exporting countries related to market displacement effects and those of the beneficiary countries related to the timing and terms of food assistance to better correspond to their needs and avoid the risk of harmful effects on the domestic market.

Annex I - Register of Transactions to be Notified to the FAO Consultative Subcommittee on Surplus Disposal (CSSD)[46]

1. Donations of domestically produced commodities from a government to a government of an importing country, an intergovernmental organization[47] or a private institution for free distribution directly to the final consumers in the importing country.

2. Donations of domestically-produced commodities from a government to a government of an importing country, or an intergovernmental organization or a private institution for distribution, by means of sale on the open market of the importing country.

3. Monetary grants by the government of an exporting country, for the specific purpose of purchasing a commodity from an exporting country.

4. Monetary grants by a government either to a supplying country (or countries) or to a recipient country for the specific purpose of purchasing a commodity from an exporting country (or countries) or from local suppliers in the recipient country for delivery to/in the specific recipient country.

5. Monetary grants by a government to an intergovernmental organization or to a private institution for the specific purpose of purchasing commodities in the open market (including local purchase) for delivery to/in eligible recipient countries (developing countries).

6. Transfers of commodities under the rules and established procedures of the World Food Programme.

7. Sales for the currency of the importing country which is not transferable and is not convertible into currency or goods and services for use by the contributing country.

8. Sales for the currency of the importing country which is partially convertible into currency or goods and services for use by the contributing country.

9. Government-sponsored loans of agricultural commodities repayable in kind.

10. Sales[48] on credit in which, as a result of government intervention, or of a centralized marketing scheme, the interest rates, period of payment (including periods of grace) or other related terms do not conform to the commercial rates, periods or terms prevailing in the world market. In particular with respect to period of payment, credit transactions are distinguished as follows: (a) 10 years or more; (b) over 3 years and under 10 years.

11. Sales[49] in which the funds for the purchase of commodities are obtained under a loan from the government of an exporting country tied to the purchase of those commodities, distinguished as follows with respect to the period of payment: (a) 10 years or more; (b) over 3 years and under 10 years.

12. Transactions under categories 1 to 4 and 7 to 11 subject to tied Usual Marketing Requirements or to tied Offset Purchasing Requirements.

13. Transactions under categories 1 to 4 and 7 to 11 subject to tied purchase of fixed quantities of the same or another commodity from the exporting country.

14. Government and non-government sponsored barter transactions involving price concessions.

15. Non-government sponsored barter transactions involving price concessions.

16. Sales for non-convertible currency not involving price concessions.

Annex II - Food Aid Convention, 1999
(articles VII, VIII and IX)

ARTICLE VII: Eligible Recipients

(a) Food aid under this Convention may be provided to the developing countries and territories which are listed in Annex B, namely:

(i) least developed countries;
(ii) low-income countries;
(iii) lower middle-income countries, and other countries included in the WTO list of Net Food-Importing Developing Countries at the time of negotiation of this Convention, when experiencing food emergencies or internationally recognised financial crises leading to food shortage emergencies, or when food aid operations are targeted on vulnerable groups.

(c) When allocating their food aid, members shall give priority to least developed countries and low-income countries.

ARTICLE VIII: Needs

(a) Food aid should only be provided when it is the most effective and appropriate means of assistance.

(b) Food aid should be based on an evaluation of needs by the recipient and the members, within their own respective policies, and should be aimed at enhancing food security in recipient countries. In responding to those needs, members shall pay attention to meeting the particular nutritional needs of women and children.

(c) Food aid for free distribution should be targeted on vulnerable groups.

(d) The provision of food aid in emergency situations should take particular account of longer-term rehabilitation and development objectives in the recipient countries and should respect basic humanitarian principles. Members shall aim to ensure that the food aid provided reaches the intended recipients in a timely manner.

(e) To the maximum extent possible, non-emergency food aid shall be provided by members on a forward planning basis, so that recipient countries may be able to take account, in their development programmes, of the likely flow of food aid they will receive during each year of this Convention.

(f) If it appears that, because of a substantial production shortfall or other circumstances, a particular country, region or regions is faced with exceptional food needs, the matter shall be considered by the Committee. The Committee may recommend that members should respond to the situation by increasing the amount of food aid provided.

(g) At the time of the identification of food aid needs, members or their partners shall endeavour to consult with each other at the regional and recipient country level, with a view to developing a common approach to needs analysis.

(h) Members agree, where appropriate, to identify priority countries and regions under their food aid programmes. Members will ensure transparency as to their priorities, policies and programmes, by providing information for other donors.

(i) Members will consult with each other, directly or through their relevant partners, on the possibilities for the establishment of common action plans for priority countries, if possible on a multi-annual basis.

ARTICLE IX: Forms and Terms of Aid

(a) Food aid under this Convention may be supplied as:

(i) grants of food or of cash to be used to purchase food for or by the recipient country;

(ii) sales of food for the currency of the recipient country, which is not transferable and is not convertible into currency or goods and services for use by the donor members;

(iii) sales of food on credit, with payment to be made in reasonable annual amounts over periods of 20 years or more and with interest at rates which are below commercial rates prevailing in world markets.

(c) Food aid under this Convention provided in the form of grants shall represent not less than 80 per cent of a member’s contribution and, to the extent possible, members will seek progressively to exceed this percentage.

(d) Members shall undertake to conduct all food aid transactions under this Convention in such a way as to avoid harmful interference with normal patterns of production and international commercial trade.

(e) Members shall ensure that:

(i) the provision of food aid is not tied directly or indirectly, formally or informally, explicitly or implicitly, to commercial exports of agricultural products or other goods and services to recipient countries;

(ii) food aid transactions, including bilateral food aid which is monetised, are carried out in a manner consistent with the FAO "Principles of Surplus Disposal and Consultative Obligations”.

Annex III - Statistics relating to food aid and other non-fully-commercial agricultural transactions

Table 1.	Official credit extended by OECD countries for agricultural exports, 1995-1998
Table 2.	Estimates of the subsidy element of agricultural export credits in OECD countries in 1998
Table 3.	Shipments of food aid in cereals, 1995/96-2000/01
Table 4.	Non-cereal food aid 1995-2000, by commodity
Table 5.	Number of Notifications to the FAO Consultative Subcommittee on Surplus Disposal (CSSD), 1990-2000

Table 1. Official credit extended by OECD countries for agricultural exports, 1995-1998

	1995	1996	1997	1998	Total
Value of export credits	(million US$)
Australia	1 106	2 014	2 130	1 553	6 803
Canada	570	697	1 239	1 108	3 613
European Union[50]	985	989	1 151	1 254	4 379
Austria	10	9	11	11	40
Belgium	83	121	133	153	491
Finland	6	5	11	11	32
France	0	153	293	330	776
Germany	21	2	1	0	25
Greece	1	1	3	4	8
Netherlands	392	341	361	411	1 506
Portugal	6	4	0	0	10
Spain	467	353	338	334	1 491
Hungary	0	38	12	19	68
Korea, Rep of.	0	33	46	46	126
Norway	0	0	0	0	0
United States	2 843	3 188	2 845	3 929	12 806
Total	5 504	6 959	7 423	7 910	27 796
Total agricultural exports	(million US$)
Australia	10 526	11 325	12 583	10 501	44 936
Canada	14 866	16 664	18 153	17 555	67 237
European Union[51]	57 272	58 348	59 934	57 028	23 582
Hungary	2 922	2 768	2 881	2 788	11 359
Korea, Rep. Of	3 198	3 268	3 179	2 875	12 519
Norway	3 544	3 875	3 857	4 086	15 361
United States	60 996	65 531	61 413	57 395	245 334
Total	153 323	161 778	161 999	152 228	629 329
	1995	1996	1997	1998	Total
Share of credits in total export values	(percent)
Australia	10.5	17.8	16.9	14.8	15.1
Canada	3.8	4.2	6.8	6.3	5.4
European Union[52]	1.7	1.7	1.9	2.2	1.9
Hungary	0.0	1.4	0.4	0.7	0.6
Korea, Rep.of	0.0	1.0	1.5	1.6	1.0
Norway	0.0	0.0	0.0	0.0	0.0
United States	4.7	4.9	4.6	6.8	5.2
Total	3.6	4.3	4.6	5.2	4.4

Note: Export credit data are from confidential surveys by the participants to the Export Credit Arrangement of OECD. Total export values are from foreign trade statistics.

Source: OECD, (2001), An Analysis of Officially Supported Export Credits in Agriculture, Paris.

Table 2. Estimates of the subsidy element of agricultural export credits in OECD countries in 1998

	Subsidy Element Estimates
	Beginning of year		End of year		1998 Average
	Amount	Rate	Amount	Rate	Amount	Rate
	(mil US$)	(percent)	(mil US$)	(percent)	(mil US$)	(percent)
Australia	1.6	0.1	8.7	0.6	5.1	0.3
Austria	0.0	0.0	0.1	1.2	0.1	0.6
Belgium	0.2	0.1	1.5	1.0	0.9	0.6
Canada	8.3	0.7	19.0	1.7	13.6	1.2
Finland * †	0.1	0.3	0.2	0.9	0.2	0.6
France	8.2	2.5	16.7	5.1	12.4	3.8
Germany *	0.0	0.7	0.0	1.3	0.0	1.0
Greece *	0.0	-0.4	0.0	0.4	0.0	0.0
Korea, Rep. of	0.1	0.1	0.2	0.3	0.1	0.2
Netherlands	2.2	0.5	4.8	1.2	3.5	0.8
Norway †	0.0	2.8	0.0	4.7	0.0	3.8
Spain*	4.6	0.6	8.8	1.1	6.7	0.8
United States	119.2	4.9	324.9	8.3	258.0	6.6
Total	216.3	2.6	384.8	4.6	300.5	3.6

Note: For the method of estimate see the source. Calculations could not be made for Hungary in the absence of sufficient information.

* To prevent a likely upward bias, calculations include intra-EU export credits.

† Fee data missing. Thus, the estimates should be interpreted as a maximum, before subtracting the fees.

Source: OECD (2001), An Analysis of Officially Supported Export Credits in Agriculture, Paris.

Table 3. Shipments of food aid in cereals, 1995/96-2000/01

Donor		1995/96	1996/97	1997/98	1998/99	1999/00	2000/01 (estimate)
		(thousand tonnes, grain equivalent[53])
Australia		181	170	296	267	264		240
Canada		436	373	384	332	421		192
China		1	171	122	170	215		416
EC		2 488	1 948	1 756	2 573	2 297		1 528
of which:
At the Community level		1 731	1 099	890	1 557	1 387		707
Bilateral		757	849	865	1 016	910		820
	Austria	13	12	9	1	9		7
	Belgium	25	46	31	58	23		24
	Denmark	25	73	61	82	85		79
	Finland	2	4	1	6	10		6
	France	188	207	209	93	180		184
	Germany	202	211	220	199	187		162
	Greece	25	25	15	4	12		0
	Ireland	5	6	10	4	9		12
	Italy	86	84	75	134	160		77
	Luxembourg	2	2	8	4	4		2
	Netherlands	90	92	92	70	95		105
	Spain	4	0	3	38	21		10
	Sweden	76	42	71	110	50		61
	United Kingdom	105	103	141	214	66		91
India		8	7	11	25	4		0
Japan		821	292	356	1149	331		720
Norway		14	32	45	65	63		58
Switzerland		35	43	42	37	47		25
United States		3 037	2 273	2 787	6 403	7 247		4 697
WFP purchases		0	17	11	3	38		65
Other donors		285	212	286	179	232		75
Total shipments		7 397	5 605	6 241	11 250	11 168		8 464
By type of cereal:
Wheat		4 847	3 621	4 102	7 624	7 874		5 239
Rice		1 135	649	723	1 697	991		1 326
Coarse grains		1 414	1 335	1 416	1 929	2 303		1 899
By region:
Africa		2 526	2 061	2 281	2 581	2 955		3 051
Asia		3 911	2 526	3 132	5 365	4 227		4 357
Latin America and the Caribbean		602	611	553	984	827		690
Others		358	407	275	2320	3159		367
By special country groupings[54]:
LIFDCs (82 countries)		6 400	4 691	5 480	8 404	7 561		7 399
LDCs (49 countries)		3 313	2 699	2 863	4 006	4 139		3 568
NFIDCs (21 countries)		645	503	631	780	773		1 149
Channelled multilaterally[55]
		2 317	2 325	2 214	3 373	3 233		3 268
		(31)	(41)	(35)	(30)	(29)		(39)

Source: World Food Programme. Data relate to crop years ending in June.

Table 4. Non-cereal food aid 1995-2000, by commodity

Product	1995	1996	1997	1998	1999	2000
	(thousand tonnes)
Bulgur, wholemeal	226.1	153.6	121.5	226.7	212.3	145.7
Blended foods	326.5	417.4	393.4	486.9	505.7	318.7
Skim milk, evaporated	54.6	25.9	17.3	24.9	55.2	41.5
Pulses	729.5	508.2	405.5	433.8	1 178.0	586.3
Dry fruit	1.9	6.7	2.6	0.2	2.4	1.9
Meat & products	6.6	8.0	8.6	4.2	234.5	25.0
Vegetable oils	315.5	285.4	286.3	355.0	319.3	376.8
Fish & products	19.0	15.9	14.5	10.2	16.0	7.6
Edible fats	3.5	9.0	4.3	6.9	1.0	1.8
Sugar	83.1	49.3	49.2	26.7	32.0	48.7
Butter oil	1.8	1.1	0.4	0.2	0.2	0.2
Total	1 260.8	987.1	894.8	914.7	1 904.5	1 182.6

Source: World Food Programme.

Table 5. Number of Notifications to the FAO Consultative Subcommittee on Surplus Disposal
(CSSD), 1990-2000

	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999		2000[56]
By aid-supplying country	177	188	189	173	137	134	234	168	428	518		76
By WFP	38	41	26	12	15	13	39	18	0	0		0
Recipient countries involved in:
Bilateral notifications	63	70	74	78	67	58	62	68	58	137		58
Type of transaction (all commodities):[57]
Type 1	103	147	167	160	101	72	145	95	71	179		56
Type 1&2	55	17	4	36	9	6	9	8	199	207		1
Type 2	103	140	90	128	77	48	37	23	53	25		16
Type 3	-	-	-	-	-	-	-	-	-	-		-
Type 4	13	35	24	43	24	23	31	15	14	17		-
Type 3&4	-	-	-	-	-	-	-	-	-	-		-
Type 5	-	20	19	5	4	5	7	3	11	2		-
Type 1&6	-	-	-	-	-	-	-	-	-	-
Type 6	26	78	69	56	76	44	35	18	40	66		-
Type 9	-	-	-	-	-	-	-	-	1	-		-
Type 10	51	23	43	46	38	33	19	22	39	22		3
Type 13	-	-	2	-	-	-	-	-	-	-		-
Total transactions	351	460	418	474	329	231	283	184	428	518	76
Number of aid-supplying countries	10	11	9	11	11	10	11	10	11	8	6

Source: CSSD.

Comments by Mr Wyatt Thompson

Administrator, Division of Agricultural Trade and Markets
Organisation for Economic Co-operation and Development (OECD)
Paris

I was asked to introduce some of our work on export subsidies, and export credits in particular, and how it relates to food aid. We have four studies on export subsidies that analyse their effects on world markets in a forward-looking context. And there is also work on officially supported export credits; that is, export credits that receive government support of some kind, not those arranged in the private market. At the OECD we try to identify the role of export credits in markets and to estimate the degree to which they reduce importers’ costs.

Turning to export subsidies as defined in article 9 of the Agreement on Agriculture, I should first point out that according to notification data such subsidies are overwhelmingly provided by OECD countries, predominantly (some 90 percent) members of the European Union. The effects of export subsidies on the market will depend very much on their relative size. For example, if you look at the EU internal markets, where the subsidies are very large, they have an important effect but in world markets export subsidies are actually fairly small relative to the amounts traded overall, apart from some exceptions, such as the market for dairy produce. But in the context of this report we looked at the medium-term future. In that context we did not see the potential for very large effects, again with certain exceptions such as dairy produce, because of the assumption that world prices will rise and also because of the unilateral suspension of export subsidies by many countries which has already occurred. Although we do not make any explicit comparison to food aid we could draw certain implications for third countries. The short-term impact may be positive for a country if it’s a food importer, of course, or negative if it’s a food exporter that has to compete with other countries’ subsidized exports. I should also point out that long-term effects, as you might expect, may be very negative in terms of discouraging investment, for example, or impeding development.

Regarding officially supported export credits, and export credits in general, I should point out first that there are, of course, export credit negotiations which are being facilitated by the OECD, but they are not of direct relevance. We did receive a lot of advice in the course of the negotiations and access to confidential data for the present analysis, but that was not an integral part of the negotiations. What we try to do is to analyse how export credits affect markets, how large they are relative to markets and how they affect importers’ decision making. Our analysis was based on this survey data for the period 1995-1998, which had, of course, some unusual elements such as financial crisis. However, based on this data and other sources, we found that export credits were used to facilitate about 5 percent of trade by the countries providing the credits. For some countries, there did result a reduction in importers’ costs relative to imports available on the private market. That is to say, they paid less when they bought from an exporter offering an export credit. The cost reduction associated with export credits averaged about 3 or 4 percent for these countries, ranging from about zero (i.e. no cost reduction) to importers to as much as 6.6 percent. The top end of the range prevailed in the United States. In other words, export credits in that country reduced importers’ costs on average by 6.6 percent. Because of the total size of its export credit programme, the United States was responsible for about 88 percent of the total cost reduction associated with export credits. In terms of who receives the export credits, which was another point we looked at, it turns out that about 60 percent of export credit recipients are in fact OECD countries. Less than 10 percent of the export credits in the period surveyed was received by NFIDCs. The least developed countries received virtually nothing - a fraction of a percent. All this related only to export credit on agricultural products. In the context of additionality, which is a term which Panos Konandreas defined for us already very well, we found very little evidence to support the case that export credits create additionality and I have already given the reasons why. The first is that the average subsidy rates or cost reductions are very low; if the average cost reduction is only 2 or 3 percent it is hard to see how this really helps a country which needs to import food but faces financial constraints. The second reason is that, as I have already noted, almost two thirds of the export credits are extended to OECD countries which we don’t usually think of as being the ones facing financial constraints and dependent upon food imports. On the basis of these two empirical results, we consequently found it difficult to support the claim that there is a great deal of additionality associated with export credits.

Export subsidies do, of course, distort world markets even though they are relatively small compared to the commitment levels and the amounts traded. It should be stressed that perhaps one of the benefits of a multilateral reduction or elimination of export subsidies would be to make the unilateral suspensions permanent. Regarding export credits, we do find that in some countries they do reduce importers’ costs and hence distort trade. However, the total amount of credit appears to be fairly small relative to the markets, and it also should be recognised that at present there are no multilateral disciplines governing their use. Consequently, there is no limit to their potential expansion. In the context of food aid I would say that neither export subsidies nor export credits are designed or intended to address the problems that food aid seeks to overcome. Export credit subsidies are linked to domestic policy concerns rather than to recipients’ needs. Export credits, as the evidence shows, do not typically target the countries most in need of them, namely the NFIDCs and the LDCs; nor do they provide a discount large enough to be an effective substitute for food aid, or an alternative mechanism.

I should like to conclude on this note. There has been talk about the concessionality levels of food aid The percentages I have been discussing are derived from similar formulas, but are viewed from the perspective of the importer, which is a little different. There is a marked difference between a subsidy rate or cost reduction of only a few percent and the concessionality requirements of food aid, which is of the order of 80 percent, even if the two are not entirely comparable.

(i) to review the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention 1986 and to initiate negotiations in the appropriate forum to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme;

(ii) to adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least developed and net food-importing developing countries in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention 1986;

(iii) to give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance to least developed and net food-importing developing countries to improve their agricultural productivity and infrastructure.”

[43] Although many governments consider that implicit subsidies by state trading enterprises should also be considered among circumvention issues, in terms of this paper such transactions would seem to belong to one of the four categories mentioned above rather than constituting a separate category. Comprehensive data on the value of any implicit subsidies involved are not available.
[44] The policy implication of this comparison for the recipient countries is that by considering the potential benefits of each of such NFCTs they have a better basis on which to determine their position in multilateral negotiations on the desirability of such transactions.
[45] To illustrate the complexities involved, consider the definition of food aid under the FAO Principles. Theoretically, some of the transactions covered under the Register of Transactions are by no means grants. For instance, they include sales on credit when the period of repayment may be as low as three years (category 10) or government sponsored loans of agricultural commodities repayable in kind (category 9). Such transactions could have a degree of concessionality which may be even lower than that of some types of export subsidies or export credits.
[46] Donors should note that the categories 3, 11, 12 and 13 are considered tied sales transactions and are subject to Article 10(4)(a) of the WTO Agreement on Agriculture which states: “Member donors of international food aid shall ensure (a) that the provision of international food aid is not tied directly or indirectly to commercial exports of agricultural products to recipient countries.”
[47] Excluding the World Food Programme, which is covered under category 6.
[48] The delegate of India reserved his Government’s position on the inclusion of this item.
[49] The delegate of India reserved his Government’s position on the inclusion of this item.
[50] Excluding trade and related export credit among EU members.
[51] Excluding trade and related export credit among EU members.
[52] Excluding trade and related export credit among EU members.
[53] To express cereal food aid in grain equivalent, wheat, rice and coarse grains are counted on a one-to-one basis; for grain products, appropriate conversion factors are used.
[54] A country may be included in more than one special country grouping.
[55] Figures in parentheses are multilaterally channelled aid as a percentage of total aid shipments.
[56] Jan.-Sept.
[57] For the types (categories) of transaction see Annex I.