How a Faltering Dollar Starves Food Aid

The devastating drought and spreading famine in the Horn of Africa exposes the increasing difficulties faced by the foreign aid community worldwide. CFR Senior Fellow for Global Health Laurie Garrett says the declining dollar means most donor pledges are worth less than they used to be. Additionally, there are fewer donors, as European and other countries deal with their own struggling economies. Garrett calls the current situation - with the troubled dollar, the beleaguered global economy, and a diminishing number of donors at time of rising food prices - a "perfect storm." She says even if the dollar had not gone down in value, the rising cost of food means less can be bought today with the same money. "We literally can feed fewer people in the Horn of Africa in this massive famine, which could well break records in its scale, than we could even a few months ago, much less [a few] years ago," she says.

Many international donors have yet to fulfill their promise on foreign aid, particularly to Africa, as several critics pointed out prior to the May G8 meeting (Guardian). What happens when donors don’t fulfill their pledges, and what will happen to foreign aid given recent financial market turmoil, particularly since the downgrading of the U.S. credit rating?

Donors are way off on their commitments for most aspects of development, food aid, and global health. The latest estimates are that the declared commitments are off by more than $16.7 billion. One estimate puts it much higher, that only 61 percent of pledged support, particularly for Africa, has actually come through.

What does that mean on the ground? Even if we were to assume a healthy global economy, a strong U.S. dollar, and no economic difficulties [globally], the lack of [donor] fulfillment in a timely manner means you can’t plan anything on the ground because you cannot assume that anything will be supported or paid through. You can’t assume that if you put people on antiretroviral therapy today to treat their HIV disease, you’ll still be able to buy them pills tomorrow, and the next day, and next day; or if you give farmers seed, the next week you’ll be able to give them fertilizer. So it’s already a terrible situation.

The UN recently called for an addition $300 million in food aid (Star) to address the crisis in the Horn of Africa, but as you say, these donor dollars are buying less food per ton than they were in previous years. How do you make food aid effective if the ability to provide it is declining even as the need increases?

You have no choice. You either acknowledge that you can feed fewer people every day, or you have to increase the aid. But let’s look at the picture, because it’s really a perfect storm. First of all, the U.S. dollar is now trading at an all-time low (Reuters) against the Swiss franc. It has fallen in value against the Swiss franc by 50 percent since 2002. Any commitment that is expressed in dollars, which is almost all commitments, if it was made in 2002, [is] worth 50 percent less today.

Then, you have to look at what has been going on with the price of food in the same time period. If you look at 2002 and then you look at today: rice- 204 percent more expensive today; wheat- 164 percent more expensive today; corn- 260 percent more expensive today. So even if the dollar had not gone down in value, just because of the rising cost of food, you can buy less today with the same dollar than you could before. If you add to that your transport cost because of rising petroleum inflation, you are looking at a disastrous situation. If you look now at the Horn of Africa, we literally can feed fewer people in the Horn of Africa in this massive famine, which could well break records in its scale, than we could even a few months ago, much less [a few] years ago.

What other major food aid issues are you concerned about?

The real problem now in the context of the Horn of Africa, which may be a signal of what we are facing down the road, is twofold. First, we have [militant] forces on the ground sabotaging (Guardian) the ability of the international community to safely move about and deliver food aid to the people who need it. The second factor, perhaps in the long-run more concerning, is the tremendous difficulty aid organizations are having in rallying food supplies. Whether they are looking in the region or outside the region, it just seems extraordinarily difficult to identify food supplies and get them where they need to go. We are hearing from all the aid organizations that they are experiencing unprecedented problems.

Is not being able to access food for donation a structural problem within the countries or is that an aid problem?

It is [partly] a constantly shifting pricing problem, so that would-be [food] dealers are quoting the different rate almost every day. So, if you can’t lock in your resources because your donors are not coming through rapidly with cash into your bank account, you cannot commit to purchase. The other issue is that the scale of the drought in East Africa is far larger than is generally recognized and spans farming regions across not only the Horn of Africa, but down into [southeast] Africa, with food crises being experienced all the way down into Swaziland. That’s really saying that half the continent is experiencing various levels of food insecurity. So you can’t regionally purchase with any ease and in any large supply.

Why aren’t donors getting money into these accounts? Is this a problem with the financial crisis? Is it just the bureaucracy? Is it the scope of the crisis?

Several things are going on simultaneously. One is that a number of donors have ceased being donors: Italy, Spain, Portugal, Greece, [and] Ireland. [These countries] used to be significant donors, particularly in humanitarian crises, and have dropped out of the game altogether because they are trying to keep their own countries from going bankrupt.

The second part of the problem is you had a situation where on July 20 the United Nations officially declared a famine in the Horn of Africa, that then meant some $1.5 billion needed to be corralled practically overnight. On July 25 the World Bank (VOA) said, "All right, we will commit to $500 million." Now the World Bank, at least in theory, has cash in a bank account that could be shifted to appropriate bank accounts to begin the purchasing process. But just in the time since they made that commitment the value of the $500 million has fallen.  Five-hundred million today is not what it was on July 25. And if the dollar keeps falling in value, $500 million is not really going to be a heck of a lot of money down the road. So you have a combination of issues. A country may say: Well, we put $20 million in a bank account. But is the $20 million in July 1^st value, or August 1^st value, or August 8^th value?

What should donors be doing given the fluctuating financial markets, the food prices we’ve been seeing, and increases in need?

Unfortunately, [President Nicolas] Sarkozy and the French government tried to get a number of issues related to stability and transparency of food markets on the agenda for the G20 and largely failed. It was perceived by some of the emerging market countries as an attempt to stifle their own productive development and force them to play by rules that would prove odious for China, India, Brazil, etc. So they basically only agreed to sort of try to agree someday to something.

We’re in a situation now where a country can actually be hoarding pretty significant supplies of basic food grains and the rest of the world might not really know it, and might have great difficulty in compelling them in any way to put the supplies in the global marketplace in order to stabilize, or even bring down, global pricing. And we don’t really have any mechanism in place whereby the world has any right to tell Russia to let its wheat out in the global market or to tell Vietnam not to hoard rice. So we’ve not succeeded in breaking through any of the trade issues that have fundamentally stymied any attempts to control pricing and increase supply.

On top of it all, we just have a lot more hungry people and very stressed climates in a lot of areas. If you look at projections made by Oxfam, the British humanitarian organization, they are looking out all the way to 2050 (PDF) on the combination of population pressure, water scarcity, and climate change. And they are projecting spectacular increases in food prices, hand-in-hand [with] spectacular increases in famine, in food insecurity and starvation around the world. I think we’re just looking now at a glimmer of what’s ahead if we cannot begin to seriously address all aspects of this—not just a little piece of the trade problem or a little piece of the humanitarian aid problem or the value of the dollar, but a much bigger picture about how we’re all living on this planet together. If we can’t get to that space and that level of discussion, I’m afraid that is the kind of dismal situation we’re all watching unfold today. We’re all watching this happen in slow motion before our eyes, and there’s a sense of global helplessness in trying to address it.