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Food Aid, With a Twist
November 3, 2008
This is a joint posting with Rebecca Schutte
Is purchasing food aid locally the answer to higher global food prices and the inefficiencies associated with imported food aid? The World Food Program (WFP), the Bill and Melinda Gates and Howard G. Buffett Foundations seem to think so. While donors and international organizations have been purchasing food aid in recipient countries for years, the idea got a new boost in late September with the “Purchase for Progress (P4P)” initiative. The idea is simple: Rather than import food aid from the U.S. or Europe, WFP will purchase food commodities for distribution within the same country or region. As Josette Sheeran, WFP executive director, explained, “Purchase for Progress is a win-win — we help our beneficiaries who have little or no food and we help local farmers who have little or no access to markets where they can sell their crops.” The program will be piloted in twenty-one countries in 2008/2009, fourteen of which are in sub-Saharan Africa.
But is P4P really a win-win? Very few would argue that purchasing food aid in the U.S. and Europe and transporting it to low-income countries is the most efficient way of reaching the most vulnerable populations (Is Food Aid the Answer? Q&A with Arvind Subramanian.). But while it may not be efficient, local purchases are not without problems. The P4P program appears to be based upon three assumptions:
- that markets don’t work very well;
- that establishing an alternative sales mechanism is an effective means of improving markets and producers’ incomes; and
- that local purchases will improve producers’ prices, but with a minimal impact on consumers’ prices.
I was recently in Mali, a landlocked country located in the Sahelian region of West Africa and one of the pilot countries for the P4P Initiative. One of the poorest countries in the world, approximately 80 percent of the population is employed by subsistence agriculture, and national grain production in Mali is highly variable due to frequent floods, drought and pest attacks. Despite these constraints, Mali is considered to be the “breadbasket” of the Sahel, with higher relative grain production as compared to its Sahelian counterparts — namely, Burkina Faso, Chad, Niger and Senegal.
On the surface, Mali appears to be a perfect pilot country for the P4P Initiative: relatively low yields and unstable production; low and variable producer prices and hence incomes; and extremely vulnerable populations, some of which require food aid. But is the P4P right for Mali? Despite poor quality roads and high transport costs, grain markets are fairly well-integrated and competitive in Mali. The P4P could potentially improve farmers’ incomes and encourage greater trade within Mali. But at the same time:
- Higher prices paid to farmers via the P4P could undercut traders if they are unable to meet WFP’s prices, displace smaller traders and potentially break traditional relationships between traders and villages, or keep such relationships from developing.
- Depending upon annual production and the location, amount and prices of the local purchase, such purchases could reduce supply and increase consumer prices locally and in other markets.
This doesn’t mean that the P4P should be a no-go for Mali. It just means that P4P isn’t necessarily a “win-win” — it’s a “win-maybe.” WFP, Gates and Buffett are planning to pilot the project in 21 countries in 2008/2009, which is a wonderful first step. In order to determine whether the P4P is having its stated impact without “doing harm,” WFP, Gates and Buffett should do the following during this pilot phase:
- Analyze food (particularly grain) market performance in each potential P4P country.
Local purchases are often based upon the assumption that markets don’t work — or that they don’t work well. This assumption must be tested in all of the pilot countries by first understanding local production, supply and demand, how markets work over time and space and constraints to marketing. - Engage in rigorous impact evaluation of all P4P programs on prices, market structure and market actors’ behavior.
Little evidence exists on the impact of local purchases on market performance. In order to ensure that the P4P leads to its intended outcomes, WFP intends to evaluate the program. Nevertheless, going beyond pre- and post-evaluation is crucial in order to accurately attribute the impact of the program to the P4P. The evaluation should not only assess the impact of the P4P on farmers’ prices, but consumers’ prices, market structure (entry and exit) and market actors’ (farmers, traders) behavior. - Develop guidelines for local and regional purchases.
Despite increasing interest in and use of local and triangular purchases for food aid in recent years, guidelines on whether and how to do such purchases are practically non-existent. Guidelines that do exist are generally vague, stating that such purchases should “minimize market disruption.” But what does that actually mean? A goal of the P4P pilot phase should include “how to” guide, both for P4P and traditional local purchase programs. Guidelines should address if local purchases are appropriate, in what quantities, where to purchase, at what price and during which period. - If the local market isn”t working well, work with it — not around it.
If markets aren’t performing optimally in a particular country, it is important to determine why — and whether local purchases can resolve the issue. In the long run, farmers’ and consumers’ welfare in low-income countries is better served by encouraging dynamic, competitive trade links with other villages, regions and countries, not by creating parallel structures. Access to markets for both farmers and traders should be encouraged by focusing on interventions that reduce costs — such as power, roads and access to information.
The P4P Initiative is an innovative idea that seeks to address real problems for poor farmers in low-income countries. But before WFP, donors and other international organizations adopt the model on a larger scale, we need to identify the conditions under which it will work, and ensure that it is promoting incomes in both the short- and long-term. The pilot phase of this project provides a unique opportunity to do this.
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3 Responses to “Food Aid, With a Twist”
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November 3rd, 2008 at 3:25 pm
Although it might seem surprising to some readers, I agree completely with Jenny. One of the reasons that I have urged caution about addressing food shortages by shipping in massive amounts of food from the United States and Europe is that the food tends to arrive and get dumped into local markets well after the crisis, often disrupting those markets by driving down prices, hurting local producers and undermining efforts to raise agricultural productivity that could avert future crises. Jenny points out the risk of local market disruption in the opposite direction—driving up prices through a sudden surge in local purchases using outside funds. We are both worried about displacing local market participants. The key should be to build local market capacity and pass through prices from broader markets to local farmers and consumers, i.e. to have better market integration.
The long-run guiding principle for WFP should be to provide its food-aid supplies from the cheapest sources (to get best value for its budget). If there are market inefficiencies in the local economies requiring the food aid, and their purchases can help reduce those efficiencies over time, that’s great. But as Jenny points out, the only way to know if that is happening is to have the baseline information and to track results.
November 4th, 2008 at 3:07 pm
Hi Jenny & Peter,
Thanks for this useful discussion. While I generally agree with the comments here, I’m not sure you’re totally getting the intention of the P4P initiative. In particular, your comment, “Local purchases are often based upon the assumption that markets don’t work…” doesn’t strike me as right.
In fact, quite the opposite, local purchases assume the market is working, which is why a donor can come in and buy food for food aid. WFP is already doing a LOT of local and triangular procurement. I think the figure is about $700m globally and something like $250m in Africa alone (2005). And the efficiencies seem to be pretty good and the negative impacts pretty manageable. See: http://econpapers.repec.org/pa.....rf/079.htm.
The innovation in the p4p is to try to make this procurement more pro-development. Currently, WFP is buying from large traders and the value the their procurement activity isn’t necessarily transferred past intermediaries to SMEs, smaller traders, and the producers themselves. Too assure benefits up the value chain requires resources and effort – which WFP hasn’t had.
Since WFP is (or could be) a relatively large and consistent buyer, there’s a real opportunity to leverage their procurement into a deeper relationship – with deeper investments – in producers.
That’s the hope of p4p.
All the cautions you state are true – but I think you’re missing the point.
A better question is whether WFP is well-suited for this kind of a project – or whether they should focus on their core mission: procuring the cheapest, most nutritious foods and delivering them as efficiently and effectively to target beneficiaries.
Another question is whether procurement can be a vehicle – platform – for development.
November 7th, 2008 at 1:34 am
I think this is a move in the right direction for WFP. Emergency aid is one thing and fast response, cheap and nutritious are important factors – the globally increased cost of food has meant however that WFP’s buying power has been reduced without increased funding. Ongoing local development is seen by donor agencies as the way forward. Donor countries are becoming reluctant to fund pure food aid except in emergencies, as development is seen as the priority. This is a great opportunity for WFP to operate as a “platform” for development.
Gawain, in your response to the quote “Local purchases are often based upon the assumption that markets don’t work…” I think this reflects concern over tampering with local markets. Even small price variations have a devastating effect on the local population. People who were not poor, become poor. The price of rice in India immediately affects surrounding countries negatively. Even with these increased prices, small farmers are not benefiting.
I think alternative trade arrangements to protect the local markets stability and at the same time provide development support for smaller farmers is fantastic. One of the biggest challenges for small farmers is access to markets without being fleeced by middle-men. I am yet to see a positive strategy to overcome this on a large scale, but this is a great opportunity for the WFP to move a long way beyond food aid.
p.s. the fact that US aid is all manufactured in the US doesn’t help. thus Bush’s propasal to give 25% as cash aid instead of grain – but it was shot down by Congress. Canada gives 50% as cash. Overall wfp only gets about 25% of it’s food aid as cash…
In this economic climate it seems unlikely the US is going to give up on it’s food aid “in-kind” strategy, especially as Biden reneged on the promise to double aid.