The Economics of Humanitarian Work

How Reliant on USAID is American Agriculture?

Even for those of us familiar with the United States Agency of International Development (USAID) and the many projects they are part of in over 100 countries around the world, there’s no harm in reminding ourselves just how the agency relates to U.S. commodities.

At its core, USAID is focused on strengthening democracy and protecting human rights and human health. Securing safe food and water, or building the means to do so, is crucial to that mission. Some would argue that strengthening democracy and protecting human rights are impossible endeavors if access to food is limited or unreliable. So, while the AID portion of the acronym doesn't exactly stand for aid, it is commonly associated with foreign humanitarian aid initiatives which directly supply impoverished, war-torn, and epidemic riddled regions of the world with food and clean water.

What much of the United States is coming to understand amid agency freezes is that the USAID doesn’t operate independently. In fact, it is very closely tied to universities and the United States Department of Agriculture. The Commodity Credit Corp (CCC), which is overseen by the USDA, encompasses Food for Education and Food for Progress while the USAID directly claims Food for Peace. Together they make up a set of offices working towards common nutritional, knowledge sharing and poverty reduction goals worldwide.

And, to do so, they purchase commodity crops from American farmers. They all have a hand in either the funding of or prioritization of research projects with agricultural objectives at designated universities. Freezing these offices presents immediate obstacles for ag supply chains and research projects in full swing but, as funding evaporates, will it ultimately be a blow to U.S. agriculture?

What is the Immediate Impact of the USAID Freeze?

Through the lens of supply chain logistics, a freeze of any kind is problematic. As we well know, without the workforce or the money to pay for the labor and energy needed to transport commodities across the world, things can back up quickly.  Supply chains depend on constant motion. Currently $489 million worth of food is motionless, taking up warehouse space, sitting in containers and stranded on ships or in railyards; occupying room needed for what was supposed to be transported next. 

Meanwhile, the expenses pile up. Extra storage days for food that potentially relies on temperature and moisture control, extra fuel costs and extra time and money spent on rerouting shipments compounding by the day for the USAID and anyone else who makes use of the same shipping routes. When it comes to supply chains, it’s also the points before and after the disruption that are impacted financially and logistically. Farmers who sell their products to USAID fear their crops will have nowhere to go and they will be forced to secure new storage solutions.

Stranded food is also problematic in that any perishable items risk spoilage. The longer containers sit at shipping ports the more likely they are to become unsafe to consume. Millions of dollars of food aid could become millions of dollars of food waste. At the time this article was written, Food for Peace had been granted permission to resume food aid operations, though reports were unclear about exactly when transport of goods would be in full swing once again. It is a hopeful sign for American farmers that existing contracts will stay in place.

Universities who receive grant funding for agricultural research projects have also had to bring operations to a screeching halt. The immediate setback is that many projects aimed at providing agricultural assistance to both U.S. farmers and emerging nation farmers have been abandoned. Any time sensitive data collecting will be disrupted and universities will have to decide whether to continue on without the guarantee of funding or to begin dismantling operations.

Will a USAID Freeze Have a Long Term Impact on U.S. Agriculture?

USAID spends about $2 billion a year purchasing commodities for food aid. In terms of humanitarian assistance, these purchases make up 90% of food relief in some areas of the world. But in terms of the American economy, it represents money in the pockets of U.S. farmers. These purchases also amount to millions of dollars feeding back into local economies like the Louisiana rice producing towns and the sorghum farmers of Nebraska who sell their harvests to USAID through the Commodity Credit Corp.

The CCC is interconnected with the USDA and filters funding into Food for Peace, Food for Progress and Food for Education. Wheat, rice, lentils, chickpeas, sorghum, corn meal, vegetable oil and several bean varieties produced here in the U.S. are purchased through the CCC. The USDA and the USAID have an agreement to use CCC funds to purchase American grown commodities and use American shipping companies, sometimes even when commodities can be purchased closer to a region in need.

The need for food aid has grown in recent years with a memorable surge in 2022 when the United States spent $15 billion on food assistance. Political unrest and extreme weather disasters have contributed to compromised supply chains as well as food production methods and the CCC continues to turn to domestically sourced commodities to meet food aid demands.  Does it mean that thousands of farmers are dependent on CCC funding for their livelihoods? Maybe not entirely, but potentially losing these contracts is yet another unknown for U.S. farmers who are playing the waiting game when it comes to biofuel production and international trade agreements. If it were a stand alone issue perhaps farmers would see an opportunity to grow into other markets, but as planting season gets underway all over the country, farmers worry multiple market options will disappear and they will be left without buyers for their harvests.

Yet, the need for food aid will not go away. The long term impact could involve other nations scooping up the opportunity to sell commodities to humanitarian agencies or financially incentivize their own agricultural sector to produce necessary crops. The United States may lose out financially with the American farmer taking the brunt of the monetary hit. Even if funding is suspended temporarily some believe it could be enough to tarnish the reputation of American aid offices and increase pressure for the farmers already finding it difficult to generate profit off commodity crops.

Beyond the CCC, USAID has a hand in funding University research projects that support agricultural innovation.  International development relies on establishing, or reestablishing, prosperous agricultural sectors all around the globe. Doing so creates regionally strong food supply chains. But, the same research that benefits emerging nations often also benefits American farmers. There is fear that if hundreds of millions of dollars are lost agricultural research in the U.S. will lag behind and make it increasingly more difficult for American farmers to remain competitive in the global arena. Others see the funding freeze as an opportunity to build back strategically, relying not only on university experts to conduct research, but finding better ways to incorporate expert farmers into research endeavors.

Geopolitics, disasters and conflicts all have an economic impact and we can’t separate humanitarian aid from economic principles. From a supply and demand perspective American farmers could find themselves with an abundant supply of commodity crops and less of a demand for them primarily because our own government is budgeting less for food assistance. From a scarcity perspective, food aid could be scarce which opens the door wide for other agriculturally prosperous nations to secure global economic footing. And from a market building perspective the current situation raises more questions about how much government agencies should be involved in market development.