Food for the Hungry: the case for buying locally

Author : Josette Sheeran

Last month, I spoke to a group of British parliamentarians who sit on something called the International Development Committee.  Their role is to scrutinise the work of the Department for International Development. ”DFID” – as it is known - is the arm of the British government concerned with promoting development, supporting the alleviation of poverty across the globe, and funding multilateral organisations like the UN World Food Programme.

Members of the International Development Committee asked me to travel to London to speak to them as part of their inquiry into the work of the World Food Programme (WFP) and the support it receives from DFID.  As part of the inquiry, an open invitation was issued to any organisation or individual with an interest in global food security to contribute written evidence. 

It was an opportunity for organisations like Oxfam, who work with WFP, and others who have an opinion about the way we do our work, to express their opinion, and to influence the line of inquiry.  Reading the input from these organisations and individuals is a bit like discovering the comments of your teachers after the headmaster has asked them to contribute to your end of term report.

What has been really interesting, is that a lot of the inputs are encouraging, recommending and cajoling WFP into doing more of something that is already very much part of the fabric of our work: the local procurement of food for the hungry. 

It is always comforting to hear independent voices recommend something that is so central to WFP’s policy, and in promoting local procurement in developing countries, I think we have been ahead of the curve.  Where I would admit we may have been slower – until more recently – is in promoting the extent of WFP’s involvement in local procurement, the fact that we have been doing it for decades, and explaining the reasons why we think it is so important.

As a major player on global food markets, WFP has been in the business of buying basic food commodities from one source or another for pretty much the past forty years.  One of our guiding principles is to get the best price for the food we buy, so we can stretch the precious money we receive off donor governments and use it in the most efficient way to feed the world’s hungry. 

The experts who run WFP’s food procurement unit realised fairly early on that there were obvious advantages if food could be purchased close to where it is going to be used.  Food that is sold by small farmers in regions like sub-Saharan Africa, might not be as cheap as that which you find in the sophisticated North American and European markets, but if you buy locally, you can cut down dramatically on the costs of transport and storage.

More importantly, these savings are among a number of positive advantages that come with local procurement.  Foremost among these is the opportunity to use WFP’s local procurement policy as a way of investing in the sometimes fragile agricultural economies of the developing world.

With our “purchasing power” we can make a real difference.  In 2007 that meant ploughing US$612 million into developing countries where we purchased more than 1.6 million tonnes of food from small farmers.  To put this in perspective, by virtue of our local procurement policy, WFP put more money into
Africa in 2007 than the World Bank.

The question we are now asking ourselves is how we can use this big “purchasing footprint” - that stretches from Uganda and Ethiopia to Pakistan, Colombia and beyond – to support small farmers in a way that helps their business grow and contributes to the evolving economies of the developing countries where they live.

Our first step has been to set up a “Purchase for Progress” unit at WFP headquarters in Rome, which is launching a set of pilot activities – primarily in Africa – to explore how we can take this exciting concept further.  We want to work with a broad range of partners, including governments, UN agencies, non-governmental organisations, farmers, traders and research institutions to see how we can use WFP’s purchasing power to sustainably develop the agricultural sector.

With the escalation in global food and fuel prices, and the tremendous impact this is having on the hungry in the developing world, this initiative really could not have come at a more vital time.  Now is the moment when we can really benefit from a local procurement policy that cuts down on transportation costs and helps to connect farmers in the most vulnerable communities to markets.

The timing of the International Development Committee’s inquiry into WFP’s work coincided with this extraordinary era of high food commodity prices, and gave us a welcome platform to explain not just the role that local procurement can play in helping us to reach our goals, but also the other factors that are making WFP’s mission yet more challenging.

But for everything that local procurement offers, we have to remain realistic that the capacity among the agricultural economies of the developing world is not yet sufficient to support the needs of an agency like WFP which aims to feed more than 70 million people this year.  We will continue to focus efforts on using our funding wisely to support small farmers wherever we can and to help them improve their crop yields.

For now though, we have to accept that even in the ideal situation where WFP receives its full budget in untied cash, we would still have to purchase some of our food from markets in North America, Europe and the industrialised economies of Asia. 

These are challenging times for the world’s hungry and for the agencies that have been set up to help them.  If we are going to protect them we will need to confront these challenges with a variety of tools.  Local procurement is one powerful tool among the many we need to use.

Microfinance, micro-impacts?

Author : Jean-Michel Severino

poti__re_de_m__re_en_fille_DIERICKX_Philippe_AFD_droits_c__d__s.jpgThese few lines came to my mind after one of our Board of Directors’ meetings devoted, among other things, to a new participation in an important microfinance institution in Morocco - a country famous for its involvement in the sector. I have, for a long time, been an avid supporter of microfinance. And I am particularly proud of the important increase in the amount of investments made in this sector by my organization, AFD, over the past 20 years: through 60 projects and nearly 300 million euros invested, we have helped more than 1.5 million people make their way out of poverty. We now want to go further, encouraged in this by GCAP’s very positive evaluation of our involvement. I see microfinance as a powerful tool against exclusion; it allows people who have been traditionally excluded from the financial systems to have access to credit. Great tribute must be paid to the pioneers of this revolutionary approach.

Microfinance has crucial objectives: it allows people to escape from the vicious circle of excessive interest rates, promotes equal rights for women, helps to overcome some of the failings in the traditional banking system and provides a financial safety net for those wishing to invest. Thus, for its 130 million beneficiaries throughout the world, it responds to a real need. Besides, it is the archetype of a large-scale and equally promising concept, that of “the bottom of the pyramid”, the issue of the “market of the poorest”.  
Above all, it challenges conventional wisdom, demonstrating to even the most skeptical that the poor are able to repay their loans, sometimes more effectively than the rich. It also shows that a financial system based on social networks can work, particularly if it is based on the principle of joint surety.

This positive assessment of microfinance goals should, however, not dispense us of a critical analysis of their impact. And I believe it is time to engage in such an evaluation. This is crucial for AFD, considering our long involvement in the sector, which makes us ones of the biggest actors in that field. What lessons can we learn from our many years of experience?

There have been various development assistance trends in the past, which have created the illusion of magical formulas. When the trend disappears, the tendency is commonly to throw the baby out with the bath water. Today, microfinance is clearly trendy. Will it suffer the same fate, i.e. a phase of infatuation, before it is thrown out to the dustbins of development assistance history? Since the 1990s, microfinance has not stopped to capture large public interest. The number of stakeholders involved and tools proposed have multiplied, the number of loans granted increasing on average by 25% each year. Smart young financiers launch their careers in the microfinance sector and investment banks in the developed world rush to finance it. We hear that microfinance is the solution to urban poverty and rural isolation; it is meant to reveal every poor person’s entrepreneurial spirit. The decision to grant the Nobel Peace Prize to M. Yunus, who put the sector into the spotlight, seems to indicate that microfinance could even contribute to international peace.

Can all these benefits be attributed to microfinance? It is important to see microfinance for what it is: a tool that has proven its remarkable efficiency in reducing financial vulnerability but that cannot, on its own, eradicate poverty - and that is often used with a more social than purely productive end. It efficiently supports the sense of creativity and initiative of the poorest, women in particular, but cannot generate the conditions for this sense of initiative, offer opportunities for investments when those do not exist, nor overcome by its own the huge physical, political and cultural obstacles that development countries are facing in their quest for economic wealth. As Pr. Yunus advocates, microfinance can contribute to change the structures of capitalism. But it cannot be a substitute for investment in sectors such as education or health. It should therefore be used as part of a global public policy to develop finance, services, infrastructure and more broadly bring new opportunities for the poorest.

Our concern is to prevent microfinance from becoming a victim of its own success. Overestimating the impact of microfinance could lead to a situation where its real benefits are overlooked. Accurate assessment of the results produced by microfinance is therefore essential, and this is why my agency is currently evaluating the economic and social impact of the programs that we support in the isolated rural regions of Morocco.

The future development of microfinance requires such a balanced approach. Although it has been very successful, the sector is not yet fully developed, and still faces two major challenges.
The first is to improve the sustainability and quality of the financial services offered, in order to increase their social impact. This would require the institutionalization and professionalization of microfinance institutions. There is no ideal system of governance in this sector that is more complex and varied than is often thought; it should rather be tailored to fit the various contexts and cultures of the countries involved. The qualitative development of the sector would also require development of the local banking systems, and a suitable legislative and regulatory environment.
The second challenge involves extending these services to the poorest people and to the most isolated regions, particularly the rural areas. This goal is made all the more crucial by the food crisis that developing nations are encountering today. If we compare the 130 million people who benefit from microfinance to the 3 billion people living below the poverty line in the world, it is clear that the emphasis should be put on improved access to financial services, i.e., making them more “inclusive”.

Promising new projects are being developed, such as the “mobile banking” project in Kenya and South Africa, or micro-insurance systems (protection against climate risk for farmers, health coverage for the poorest groups). Any further growth should, however, imply better structuring and regulation of the sector, including the introduction of monitoring systems and effective guarantees against risks. Donors should steer microfinance institutions in this direction. Safeguarding and promoting the sustainability of microfinance structures ought to be a priority: it is our responsibility towards all those who have put their trust in this new service.

So does microfinance only have micro-impacts? Not only, since the long process of development is precisely made up of a series of micro-changes at the family and community level. But such would be the risk, if our vision of development came to be limited to the promotion of a tool that, as remarkable as it is, cannot, as any other, be a magic wand for development.
JMS