Does tying matter?

Most of the food aid channelled through the World Food Programme (WFP) and non-governmental organisations (NGOs) come 'in kind', sourced in the donor country. This is also known as 'tied aid'.

The WFP and NGOs would prefer to receive cash (untied aid), which enables them to buy food locally or in neighbouring countries when this provides more appropriate and timely food. This is more likely to benefit local economies.

Untied aid is also usually cheaper. A Development Assistance Committee study by the Organisation for Economic Co-operation and Development estimated that in 2002:

• tied aid cost at least 50 percent more than food aid acquired locally
• tied aid cost 33 percent more than imports from other developing countries
• if donors untied their food aid completely, approximately US$750 million could be released for further aid.

Over 70 percent of all aid, excluding technical cooperation, was untied in 2002, whilst around 90 percent of global food aid was tied. The proportion of tied food aid fell to 74 percent in 2004, but remains at over 99 percent for the USA who favour tied food aid because it supports their own farmers, food processors and USA-registered shipping. In contrast, European donors buy most of their food aid in developing countries.

During 2004 to 2005 Australia, Canada, Denmark and France, all important food exporters, moved to further untie their food aid. USA aid administrators are trying to change the law so that the United States Federal Government can finance some developing country food purchases for distribution in crisis situations. However, the Congress has so far rejected such proposals. As the biggest contributor of food aid to the WFP and NGOs it is vital that the USA achieves this policy change.

The wide differences in donor practices, combined with inefficiency costs and the risks of trade distortion, help explain the intense negotiations over food aid within the Doha Development trade talks. But the negotiators in Hong Kong in December 2005 at least committed themselves to finding a formula for assuring genuine emergency aid, whilst preventing food aid being used as a loop-hole to subsidise donor exports.

Edward Clay
Overseas Development Institute, 111 Westminster Bridge Road, London SE1 7JD, UK
T +44 (0)207 922 0300
e.clay@odi.org.uk
www.odi.org.uk

Tony Worthington
Former Member of the UK Parliament International Development Select Committee, now an independent consultant
24 Cleddans Crescent, Hardgate, Clydebank,
G81 5NW, UK
T +44 (0)1389 873195
F +44 (0)1389 873195
tony@tonyworthington.com
www.tonyworthington.com

See also

Factsheet: How Does Food Aid Work?, AlertNet: Reuters, September 2005
www.alertnet.org/thefacts/reliefresources/11268811061.htm

The Development Effectiveness of Food Aid: Does Tying Matter? Organisation for Economic Co-operation and Development: Paris, by Edward J. Clay, Barry Riley and Ian Urey, 2005

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