EC policy endorses local and regional procurement of food aid commodities (LRP), a practice that is believed to assist in the development of local agriculture and livelihoods in supplying countries. The research hypothesis for this study was that such procurement of food aid can make a much larger contribution to the economies of developing countries, and poor people in particular, and that policies can be put in place to increase such benefits.
Available literature was reviewed, and case studies were undertaken in Ethiopia and Uganda where combined LRP started in the 1990s and in recent years has been running at over 300,000 tonnes per annum. Available information permits certain conclusions about the impact of LRP, as follows:
- It provides much greater net benefits for rural and urban populations than equivalent expenditure on tied food aid (provided it is competently managed, and the local/regional supply base allows the activity to be developed without major adverse impacts on consumers – where this is not the case imported in-kind food aid from developed countries may sometimes be more appropriate).
- While no systematic assessment has been made of the overall impact of LRP on price stability, several cases can be cited where it has increased price instability. This does not call into question the value of LRP, but points to the need for more flexible funding arrangements, further developing market analysis capabilities, and untying food aid so that LRP, in-kind food and cash support may be combined in a way which has a benign effect on price movements. WFP’s Advance Financing Facility is a positive step in making funding arrangements more flexible.
- The evidence for impact on market efficiency is mixed. Local procurement has led to investment and improved practices among traders supplying food aid, but has not greatly impacted the conduct of the regular grain trade in source countries, or on the quality of grain in that trade. In Uganda, much of the LRP is logistically inefficient, and it has promoted investments in drying and storage plant that are excessively concentrated in Kampala, and poorly located to cope with a scenario of declining food aid quantities.
- LRP is having some positive impact on the development of Ethiopia’s export trade, but in Uganda, LRP has not been organised so as to equip traders – in terms of investments, financing and quality management – to develop an export market that would cushion them in the event of a major reduction in WFP purchases.
- In both countries, food aid grain sales are highly concentrated among a few suppliers. However there is no conclusive evidence that this market concentration is a source of market inefficiency.
- Notwithstanding the strong performance of certain groups, LRP aimed exclusively at producer organisations has proved an inefficient use of resources.
- Local and regional procurement have led to the development of industries for the manufacture of blended food commodities, and diversification into the production of soybeans, notably in Ethiopia.
Food aid agencies can adjust tendering procedures to mitigate certain problems, but in countries where they are involved for the medium or long term, they should consider more comprehensive approaches to market development which leave behind stronger and more efficient structures that will serve the host countries better. To this end, they should work closely with partners seeking to improve the performance of grain markets in areas such as contracting, warehouse receipt systems and exchange trading.
The findings confirm the research hypothesis and the following specific recommendations are made to those concerned with the distribution of food aid:to devote more resources to assessing impact of local purchase on supplying areas; to improve the information base for decision-making; for those still supplying in-kind food aid to untie a large proportion; to take all steps to facilitate timely and effective decisions by local food aid managers; to investigate the scope for ‘food aid pipelines’ in countries where food reserves still exist and function efficiently; to focus on developing existing marketing systems rather than exclusive relationships with producer organisations, and; where food aid is expected to continue at significant levels for several years, to work proactively with partner organisations to establish new market institutions with a view to improving the performance of local and regional markets.