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Food aid and local procurement: a good idea or market distortion
16 January 2007
The World Food Programme (WFP), amongst others, has actively pursued greater levels of local procurement in recent years, made easier with the provision of cash grants rather than in-kind donations, to minimize trade-reducing and market-distorting effects of food aid. Local procurement has been proudly touted as a way to support markets in food aid recipient countries. The last draft of the abandoned WTO Agriculture Negotiations encouraged the procurement of food aid from local (or regional) sources to the extent possible. But is local procurement as good as has been suggested?
There is no doubt that purchasing food aid locally is more market friendly than donors dumping surpluses on developing countries with little thought of the impact it has on local producers and markets. But local procurement can also have negative impacts on the availability and prices of foodstuffs.
Rightly so, WFP is regarded as a "blue chip" procurer in a domestic grain market that is often otherwise unsophisticated and thin. The mere sniff of a large tender launch can be sufficient for domestic producers and traders to take notice. In Zambia, for example, producers and traders prefer to sell to the WFP than other buyers. What this is based on is not clear ? perhaps a view that the WFP has access to foreign currency and is therefore a more reliable payer, or a preference for making bulk transactions with the WFP who also has the logistical capacity to deal with large orders. Thus, where local procurement takes place, WFP becomes a competitor for available supplies and stocks. In these circumstances, tenders can drive up the price of maize, making it more difficult for local traders and consumers - especially in times of lower levels of supply in the local market. Stock may be held back in anticipation of bulk purchases from WFP, resulting in a rise in local market food prices, causing instability for both traders and consumers.
In some instances the original amount of food sought by aid agencies is not purchased due to a lack of funding or a change in needs assessment. If producers and traders have made decisions based on the original estimates of agency needs, then changes can have an impact both on profits and on the market as a whole as excess stock is released causing further price fluctuations.
Local producers are not asking for the WFP to stop buying food aid locally. But local procurement needs to be managed carefully if it is not to have serious consequences for those it is designed to protect ? small farmers and traders in developing countries. Is this possible given the lack of influence that beneficiary countries have over WFP policies and practices? And should southern African countries be supporting the inclusion of a preference for local and regional procurement in the new WTO disciplines on food aid?
Image Credit: Storehouse by Tristan Clements
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