Friday, December 03, 2010

Cargo preferences cost $140 million that could have helped the hungry

Cargo preferences are the regulations that require a large part of U.S. food aid to be shipped in U.S. ships.  The regulations are more cumbersome and expensive than you might think, leaving even some U.S. businesses out of luck, simply because they use other countries' ships for parts of a cargo's journey.  The losers from these policies are the world's hungry.

We think of a food aid as a way to demonstrate American generosity to the world, but the governments of countries that receive the food aid instead see a tragically mixed message, a sort of gesture toward generosity combined with greed at the expense of some of the poorest people in the world.

Cornell professor Chris Barrett in today's Washington Post explains:
Cargo preference was launched in 1954 alongside modern American food aid programs. By requiring the U.S. government to ship three-quarters of its international food aid on U.S. flag vessels, the policy was intended to maintain essential sealift capacity in wartime, safeguard maritime jobs for American sailors and avoid foreign domination of U.S. ocean commerce. But in a comprehensive - and, to date, the only peer-reviewed - analysis of available shipping data and shipping vessel ownership records, we found that cargo preference falls well short of these objectives. Our study of the shipping data and the fiscal 2006 food-aid shipment records - the only full year records were available - from the U.S. Agency for International Development found that by restricting competition, the policy costs U.S. taxpayers a 46 percent markup on the market cost of ocean freight. 
Along with my Friedman School colleague Dan Maxwell, Barrett wrote the authoritative book on U.S. food aid.


Anonymous said...

The Barrett article is based upon a misunderstanding of the applicable maritime laws and government programs surrounding cargo preference. Cargo preference in food aid alone saves US tax payers over $300 million annually. Additionally, all vessels in the cargo preference trades carrying food aid satisfy DoD's "militarily useful" criteria. Cargo preference in food aid sustains 97,000 jobs here at home, and ensures that we have a vialbe US merchant marine for use in times of war and national emergency.

Anonymous said...

Not to mention that the rates shipping companies charge for moving goods are pretty much uniform across the globe. In the end, by shipping on "foreign bottoms," revenue goes overseas. Crew wages spent, domestic taxation, corporate profits, etc, all return here as revenue when domestic goods are exported on domestic ships.

If foreign aid is supported by US tax dollars, it would be idiotic to send the logistical cost of aid overseas. Besides, seeing a US ship off-loading the aid is good foreign policy.