US Food Aid and Rent-Seeking Behavior

The economic term "rent-seeking" is a reference to competition for state-sanctioned monopolies. The "rent" is a state-protected stream of revenue and "seeking" constitutes resources that are spent to secure that revenue. Common examples of rent-seekers are power and water companies that lobby for the right to provide services to a given geographical area. The problem is in the competition for securing these exclusive rights. Not all of the competitors will get the right to the business - the losing companies waste money and time trying to persuade legislators who to pick. 

Recently, the US foreign food aid programs have come under attack for rent-seeking characteristics. In an article in The Guardian, it was revealed that nearly 2/3 of the food bought for the $1 Billion US food aid program was purchased from 3 firms. These three politically powerful firms are ADM, Cargill, and Bunge. Together, these firms dominate the global grain trade. 

Concentration in the food aid market would not be an issue except for the fact that many aid experts have questioned whether or not this is the cheapest aid system that could be used:

"Rob Bailey, fellow of the UK thinktank Chatham House said: 'When you have got a process as concentrated and as uncompetitive as what the Guardian analysis reveals, you would expect taxpayers to be overpaying for the services of agribusinesses. We know only 40% of every taxpayer dollar goes on food itself, the rest goes into the pockets of agribusinesses and freighting.'"

The Guardian revealed that the United States still uses a system for food aid distribution that was created in the 1950's, with the vast majority of the food purchased, processed, and shipped by American companies, even if there are cheaper alternatives. Most other donor countries have abandoned this model because it "raises prices, delays deliveries, damages developing countries' markets, and does little to end dependence on foreign assistance."

In addition to the inefficiencies that the Guardian found present in the general structure of the US food aid system, it also found evidence that food aid programs can be manipulated to help firms offload surplus product. This occurs even though the US government has stated that the food aid program "is no longer a surplus disposal programme [sic]." The majority of the commodities shipped as food are, in fact, major grains, but also on the list are 80 tons of canned salmon that went to Laos and Cambodia. In response to a glut, industry groups sent lobbyists to Washington to get the canned salmon on the list of acceptable foods. 

It is ironic that this discussion is about aid - what is the real aid here, and who are the beneficiaries? Is it the food sent to third world countries or is it the protection that ADM, Cargill, Bunge, and other firms receive from the US government?