What will happen to Food for Peace cargo preference?

by Michael Hansen, Hawaii Shippers Council, April 18, 2017

The Associated Press (AP) in a news article, “US senators say food aid constraints delay help amid famine,” published on April 15, 2017, reports there is new criticism of the Food for Peace program and the requirement that much of the food aid be grown in the U.S. and transported on U.S. flag ships.

AP notes the Trump Administration proposes to cut the State Department’s budget by 28% and the Republican chairman and Democratic ranking member of the Senate Foreign Relations Committee introduced legislation last year to significantly lessen the U.S. grow and U.S. ship requirements of the Food for Peace program.

This approach is known as “flexibility,” and has already been implemented to a degree. Further flexibility would make the U.S. taxpayer’s dollars go further in supplying food to starving people in the world and presumably help meet the president’s budget goals. However, it would reduce economic opportunities for U.S. agricultural and maritime interests.

This has been a long standing disagreement between the U.S. State Department and the aid community on the one hand, and U.S. Departments of Agriculture and Transportation and agricultural and maritime interests on the other.

The AP quoted U.S. Senator. Bob Corker (R-TN), Chairman of the Senate Foreign Relations Committee, who “blamed a ‘cartel in Washington’ of maritime companies and ‘a small group of people in Washington’ who cause less people to eat.”

What is at stake for the U.S. maritime industry are preference cargo set asides in the form of food aid under the Food for Peace programs also known as the “P.L. 480 programs.” These programs were originally enacted as Agricultural Trade Development and Assistance Act of 1954.

P.L. 480 cargoes are transported by the U.S. flag foreign trade fleet numbering at present some 81 self-propelled seagoing ships over 1,000 gross tons. Sixty of these ship are eligible to receive Maritime Security Payments (MSP) of U.S. $5 million per ship per year as an operating subsidy. The P.L. 480 programs have a three year rule whereby a foreign-built vessel cannot trade in that program unless it has been under the U.S. Flag for three years.

The subsidies and the preference cargoes (which cause the U.S. flag freight rates to be significantly higher than international rates) are vital to keeping the U.S. flag foreign trade fleet in operation and a major source of employment for U.S,. seafarers (estimated about 3,000 jobs).

It will be interesting to see how this issue plays out in the current 115th Congress of the U.S. which ends January 3, 2019.

U.S. Flag Foreign (or, International) Trade Fleet

The U.S. flag foreign trade fleet is comprised of foreign-built U.S. flag self-propelled seagoing ships over 1,000 gross tons, which are not Jones Act qualified and not eligible for coastwise trading. The U.S. flag foreign trade fleet stands at 81 ships as of April 1, 2017. Approximately half of the fleet is foreign-owned through specialized trusts. These ships are required to be manned with a full U.S. crew (all officers and 75% of unlicensed crew must be U.S. citizens and the balance of the unlicensed crew must be resident aliens, also known as green card holders). The U.S. flag requirements makes these ships more expensive to operate than their international competition which are largely operating flag of convenience (FOC).

Maritime Security Program (MSP)

The Maritime Security Act of 1996 established the Maritime Security Program (MSP), which provides an annual subsidy to sixty 60 U.S. flag ships operating in the foreign trade, i.e., 60 of the 81 ships in the U.S. flag foreign (international) trade fleet (as of 04/01/2017). The MSP is administered by the U.S. Maritime Administration (MARAD). The U.S. government grants the MSP subsidy to the ship owner in exchange for agreeing to make the ship available for military sealift in the event of an overseas contingency. The Bipartisan Budget Act of 2015 (H.R. 1314; P.L. 114-74) raised the annual MARAD MSP payment from 3.1 to 5.0 million per ship per annum beginning in the federal Fiscal Year 2016 (October 1, 2015 – September 30, 2016).

U.S. Preference Cargo

Federal laws have established preference for the carriage of U.S. government-owned and government-sponsored cargoes (collectively known as “government-impelled cargoes”) by U.S. Flag vessels in the foreign trade. These laws cover many different kinds of cargoes from U.S. military supplies, material and equipment, i.e., matériel, to humanitarian agricultural food aid and commercial export cargoes financed by the Export-Import Bank of the United States (Ex-Im Bank). Also covered are foreign source components for ships constructed in the U.S. and financed by Title XI Ship Financing Program administered by the U.S. Maritime Administration (MARAD). Preference cargoes are important in support, and integral to the operation of the U.S. Flag foreign (international) trade fleet.

Key excerpts:

As President Donald Trump seeks to cut foreign aid under the slogan of "America First," two U.S. senators are proposing making American food assistance more efficient after meeting with victims of South Sudan's famine and civil war.

Following a visit to the world's largest refugee settlement in northern Uganda with the Republican chairman of the Senate Foreign Relations Committee, Democratic Sen. Chris Coons of Delaware told The Associated Press on Saturday that the U.S. "can deliver more food aid at less cost" through foreign food aid reform.

The United States spent roughly $2.8 billion in foreign food aid last year and is the world's largest provider of humanitarian assistance. But current regulations require most food aid to be grown in the U.S. and shipped under an American flag.

In March, Trump proposed a budget that would cut 28 percent of funding for diplomacy and foreign aid, singling out the Food for Peace program that funds a majority of U.S. foreign food assistance.

The budget plan still requires approval by Congress.

Both Coons and Corker defended humanitarian aid, and argued that lifting restrictions on where foreign food aid is grown and how it is shipped would feed more people.

Corker blamed a "cartel in Washington" of maritime companies and "a small group of people in Washington" who cause less people to eat.

Last year, Coons and Corker co-sponsored a law which allows flexibility in how a portion of foreign food aid is grown and delivered. About $900 million of food aid now can be grown near the site of a crisis overseas and shipped under any flag.

Roughly $1.2 billion of the U.S. food assistance still carries the restrictions of being grown in the U.S. and being shipped under a U.S. flag. The U.S. Agency for International Development has estimated that the Coons-Corker plan to lift those restrictions would reach 2 to 4 million more people with equivalent funding.