WASHINGTON, Nov. 29, 2012 – Contrary to recent arguments, food monetization may an effective foreign aid strategy, according to a report released yesterday by the Alliance for Global Food Security. “Monetization can lead to benefits beyond those that would be created via direct program funding…thereby creating business opportunities and increasing the availability of the commodity in the recipient country,” the report’s authors wrote.
Monetization is less complicated than it sounds: the food aid strategy involves giving commodities to developing countries rather than cash. The goods are then sold on the market or to governments, generating capital for other uses. Funds procured through food monetization are often used for agricultural, education, and food security development in areas where infusions of cash are sorely needed.
Under current programs, 85% of food aid commodities are distributed, while the remaining 15% are monetized.
Though monetization programs will probably be included in the upcoming farm bill, the strategy has fallen out favor with aid groups. A 2011 Government Accountability Office report found the United States had lost $219 million of $722 million dedicated to food monetization over the previous three years, mostly due to inefficiencies in the process. Critics also accuse monetization of disrupting developing countries’ fragile economies and of giving an unneeded boost to American agribusiness.
But this report hopes to change that perception. By zeroing in on five cases of monetization – in the Gambia, Guatemala, Liberia, Mozambique, and Uganda – it demonstrated that food monetization can be more efficient. All but one of the cases studied had a cost recovery of higher than 80 percent.
Furthermore, the study demonstrated that the success of the strategy “is not just about cost recovery,” according to John Somers, the director of Washington Consulting at Informa Economics, who oversaw the research. Communities that experienced food monetization also received higher quality commodities, and benefitted from those commodities’ increased availability. In fact, the report demonstrates that the injection of commodities into local economies actually reinvigorated them – the opposite of critics’ fears.
“Hopefully, this study will dispel the notion that food aid is somehow ‘inferior’ to providing cash directly to conduct programs,” Ellen Levinson, executive director of the Alliance for Global Food Security, said in a press release. The group hopes that intelligently designed monetization programs – ones that account for the specific market constraints of developing economies – can be part of successful aid packages.