Key Points
- Cargo Preference for Food Aid (CPFA), which requires at least 50 percent of all food aid to be sourced and shipped on US-flagged vessels, resulted in an additional $140 million to $200 million in wasted spending on shipping costs from January 2012 to May 2015.
- Although the main political rationale for preserving CPFA has been the need to maintain a viable oceangoing fleet of trained mariners for military preparedness, the most militarily useful ships in the US-flagged commercial mercantile fleet carried only 18 percent of all food aid shipments between 2011 and 2013. Food aid shipments accounted for less than 5 percent of those vessels’ total shipping capacity over that same period.
- By terminating the CPFA, the practice of monetization, and requirements that almost all food aid be sourced in the United States and maintaining current levels of federal funding, US emergency food aid programs could serve an additional 4–10 million people in dire need every year.
Executive Summary
All three US international food aid programs—Food for Peace, Food for Progress, and McGovern-Dole International Food for Education—face a similar set of rules that constrain their efficiency in meeting their primary objective. That objective is to aid desperately hungry children and adults in extremely poor countries around the world that are faced with genuine and severe food crises. The three restrictions are:
- All food utilized in the programs must be sourced and shipped from the United States;
- At least 50 percent of all food aid shipped must be carried on US-flagged vessels, a requirement called Cargo Preference for Food Aid (CPFA); and
- Until recently, organizations implementing development food aid programs in developing countries had to convert commodities to cash in those countries’ markets to be able to cover most nonfood expenses, a process known as monetization.
These statutory requirements limit competitive sourcing of the food and services. As a result, all three programs provide opportunities for some market participants—in particular, US mercantile shipping companies and some nongovernmental organizations (NGOs)—to obtain economic rents (excess payments) from the advantages that the restrictions create for them.
In 1957, shortly after the Food for Peace program was established, food aid accounted for more than 30 percent of the value of total US agricultural exports, and most farm organizations viewed it as an important vehicle for enhancing their members’ revenues. That is no longer the case. In recent years, however, for most US agricultural commodities, shipments of food aid have accounted for negligible shares of total exports and have had no measurable effects on the prices US farmers receive for their products.
The main political rationale for preserving CPFA has been, and continues to be, the assertion that maintaining a viable civilian US-flagged, oceangoing fleet is essential to the US government’s ability to undertake military engagements overseas, especially if supplies and manpower need to be transported to multiple destinations. In the last five years, several economic studies have rigorously evaluated this assertion and have all concluded that the evidence does not support the claim that CPFA is essential to maintaining US government capacity to undertake military engagements overseas. The analyses conducted for this paper lead to similar conclusions.
This study evaluates the additional costs to US food aid programs associated with fulfilling the CPFA requirement and examines the role that food aid shipments that must comply with CPFA may play in supporting the continued availability of US-flagged vessels or mariners needed to sustain military sealift capacity.
Modest reforms to US food aid programs were included in each of the three most recent US farm bills. The main thrust of these changes was to streamline the operation of the programs and expedite delivery of assistance, although fundamental constraints on the programs were not relaxed.
As of March 2015, 167 US-flagged oceangoing self-propelled vessels were eligible to carry shipments of all types of food aid cargo under the cargo preference mandate. However, between 2011 and 2014, only 74 (less than half) of those ships carried any food aid under CPFA. According to a 2015 George Mason University study, only 18 percent of the total tonnage of all food aid preference shipments carried by US-flagged ships between 2011 and 2013 was carried by vessels currently on the registry of the Maritime Security Program (MSP), which receives an annual stipend of $3.1 million per ship from the federal government to stay in business. Several recent studies indicate that the only US-flagged vessels at any risk of going out of business under a significant food aid reform scenario are those in the fourth tier of ships available to the Department of Defense for extended deployment of troops overseas, which are deemed to be less militarily useful than the MSP vessels.
Using a new data set of the freight rates charged for nearly every food aid program shipment commissioned and executed between January 1, 2012, and May 31, 2015, this study arrived at the following key findings:
- Based on weighted means, the average gaps between US-flagged and foreign-flagged freight rates for bulk and packaged shipments were $61 per tonne and $33 per tonne, respectively, in 2012 through mid-2015.
- Statistical analysis of the data indicates that, using a very conservative approach, having to meet CPFA requirements costs US food aid programs more than $130 million in additional shipping costs over that period, at an average of $39 million a year.
- In the econometric analysis, the key determinants of freight rates were the national flag of the vessel (US or foreign), whether it was a bulk or packaged shipment, the NGO or other entity awarding the freight contract, and the shipping line of the vessel carrying the shipment. The results of the econometric analysis, which carefully accounts for differences in shipping costs along different routes (between different US origins and different recipient countries), also indicate that for packaged shipments, the average difference between freight costs on US-flagged ships and foreign-flagged ships is even higher, on the order of $50 to $60 per tonne. These estimates imply that CPFA increased the total cost of shipping food aid by more than $200 million between January 2012 and May 2015 at an average of more than $50 million a year.
- The most militarily useful ships in the US-flagged fleet, vessels that appear on the registry of the Maritime Security Program, carried only 18 percent of all food aid shipments under the cargo preference requirement between 2011 and 2013, and food aid shipments accounted for less than 5 percent of those vessels’ total shipping capacity over that same period.
- An ample supply of trained mariners is available to man a surge fleet if a military emergency occurs, and CPFA is perhaps the least cost-effective option for ensuring that those mariners remain available.
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