Tag Archives: procurement

US food aid revolution: rumour or reality?

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On 27 February, 11 humanitarian organisations released a joint statement welcoming the Obama administration’s proposal for US food aid reform, which recommends a shift to local and regional procurement of US food assistance.

According to the Center for Global Development, the “proposal would restructure funding for PL480 – more commonly known as food for peace – and shift some or all of the food aid budget to cash that could be used flexibly to provide assistance in ways that reduce costs and speed the delivery of food aid”.

The joint statement focuses on two aspects of the US food aid programme:

  • reliance on ‘in-kind’ food and shipments from US suppliers, where food is directly delivered to developing countries;
  • monetisation, where aid agencies are forced to sell off US food in developing country markets to finance development projects.

The statement stresses the importance of using local and regional procurement as part of the food aid toolbox, as well as the inefficiency of the monetisation procedure. This position is in line with Eurodad research, which assesses the boomerang effect of aid – that sees the majority of money coming back to donors rather than reaching developing countries. Purchasing from firms from donor countries is the least effective form of procurement. It deprives developing countries of receiving the full potential of aid as a driver for long-term development projects and undermines the recipient countries’ ownership of the development process.

The independent evaluation report of the US Department of Agriculture’s local and regional food aid procurement pilot project highlights the fact that “local and regional procurement is a triple win: providing considerable cost savings, faster humanitarian response, and support for the local farmers and agricultural markets that are the key to providing long-term global food security”. In line with this, recent Eurodad research notes that, when procurement is locally sourced through country procurement systems, aid can have a double dividend – contributing to the development of smallholder farms and to the eradication of poverty. Smart procurement can improve access to markets, increase cooperation among farmers, diversify and improve the quality of crops, protect producers from external and unpredictable shocks, help farmers to access finance and invest in their land. Moreover, it can contribute to increasing people’s purchasing power, for instance by creating jobs and improving living standards.

This research also points out that the US is one of the world’s largest providers of global food aid, accounting for 60%, together with Japan. US food aid is still tied aid, relying on ‘in kind’ food and shipments from US suppliers. The US uses its programme as ‘corporate welfare’ for its agribusiness companies, undermining local farmers in developing countries and reducing food aid effectiveness. Eurodad has highlighted that less than 2% of US aid to Haiti supports local firms and pointed out how aid can have a double dividend if locally sourced.

The US is not the only black sheep. Despite international commitments, donors continue to tie their aid formally or informally. Eurodad research shows that two thirds of contracts awarded by bilateral donors still go to firms from Organisation for Economic Co-operation Development (OECD) countries and donors continue to have a strong influence on designing procurement reforms, undermining the opportunities for local firms to win contracts.

Changes in the international mindset are already underway. The World Bank and the EU are currently reviewing their procurement policies and civil society groups are pushing forward the issues of domestic preferences and the use of developing countries’ procurement systems. These changes are critical to achieving concrete reforms that promote aid effectiveness and local economic development. 

World Bank must decide if it stands for development or business as usual.

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World Bank must decide if it stands for development or business as usual.

The first round of consultations for the World Banks review of its procurement policy has been completed and an analysis of the inputs provided has been posted. The consultation featured a wide array of stakeholders including civil society. Clear areas of contention between donor countries, developing countries, and their private sector have arisen in the process on issues of domestic preferences and the use of developing countries’ procurement systems. The Bank has to decide whether it stands on the side of development and developing countries, or whether it stands for market orthodoxy and “business as usual.”

Domestic preferences or market liberalisation?

As Eurodad has pointed out through its public engagements and through its ongoing research and analysis, procurement is of critical importance in determining both the quality of aid and its potential development impact. Eurodad, and others, have argued that developing countries need the space to use procurement as a strategic tool in implementing development strategies and industrial policy, as well as boosting the local economy through the double dividend offered by smart procurement.

Trade Unions, developing countries and their firms have for the most part echoed this argument throughout the consultation, calling for “more support for the local industry, including domestic preferences.” Key areas of concern for them were the ability of small and medium sized enterprises (SMEs) to effectively compete for contracts which often were not even written in the local language, and the inability to compete for large scale infrastructure projects where the capacity did not yet exist.  Building and Woodworkers International (BWI) noted:

“The Bank is an agent of market orthodoxy and trade liberalisation, and there are some who regard domestic preferencing as pernicious. It is the view of the BWI that it is a legitimate policy of governments to help local industry and to boost employment. Provided these are declared policy goals of government, and there is transparency on the percentage weighting in favour of local firms/ SMEs when adjudicating contracts, then domestic preferencing is a good mechanism.”

This call ran counter to that of donors and multinational corporations which argued for an end to domestic preferences, for continued liberalisation of government procurement and international competitive bidding.  

Using country or donor systems?

Use of country procurement systems has proven to be one of the more contentious items discussed during the consultation. For the most part developing countries and their domestic private sector encouraged the use of country procurement systems as the default option. They argued that managing multiple donor procurement systems with already limited capacity could be overwhelming. They further argued that “The insistence to use Bank procurement procedures hinders growth of country systems.” CSOs pointed out that use of country systems as the default is in line with international commitments on aid effectiveness and should be reflected in World Bank procurement policy.

On the other side of the discussion were donors and the private sector representatives from donor countries who argued that increased use of country systems exposed the World Bank to greater risk from fraud and corruption. Multinational companies also argued that dealing with fewer systems was easier than going through each countries procurement systems. These concerns were also echoed by a small group of participants from partner countries.  

What both camps could agree on is that if use of country systems is to be mainstreamed within World Bank procurement policy it should be accompanied with sufficient support to ensure that these country systems are accountable, functional, and effective for development.

Expectations from the World Bank’s management

Management’s response should attempt to reconcile these key areas of contention and must explicitly determine whether the World Bank represents the interests of donors and multinational companies, or of developing countries and their domestic private sector.

As noted by Civil Society, if the Bank wishes to demonstrate its commitment to development management should:

  • Support the use of domestic preferences.
  • Live up to the Banks international commitments and use country procurement systems as the default option.
  • Support developing countries in building transparent end effective country procurement systems.
  • Not undermine the policy space that developing countries need to implement their development strategies and industrial policies.
  • Support calls from civil society organisations to initiate an independent review assessing barriers and how to effectively support SMEs. 

Smart procurement for food security

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Eurodad  has produced a new briefing on smart procurement and food security.

Procurement is an important share of economic activity in any country. In most developing countries, public procurement is either the main or second area of government expenditure, often with considerable finance from Official Development Assistance (ODA).

Smart procurement can make a major contribution to the eradication of hunger and poverty in several ways. Local and regional procurement can support the development of the domestic economy, such as in the agricultural sector. Smallholder farmers, mainly women, can benefit from new opportunities by creating new markets and raising incomes. Moreover, the use of country procurement systems increases ownership and domestic accountability in recipient countries. Open and efficient public procurement practices can contribute towards the sound management of public expenditure and poverty reduction through delivery of public services in health, education and infrastructure.

In the last decade, the international community has committed to ensuring aid effectiveness, by untying aid and using recipient countries’ procurement systems as the first option. Despite this, donors keep tying their aid and influencing developing countries’ government policies. Eurodad research shows that two thirds of contracts awarded by bilateral donors still go to firms from Organisation for Economic Co-operation Development (OECD) countries.

Some initiatives have already arisen in support of local procurement, such as the World Food Programme’s Purchase for Progress. Brazil and India have also launched their own national food purchase programmes and are sharing the expertise and lessons learned.

Food advocates and campaigners have an opportunity to put smart procurement at the top of the international agenda. Donors should stop thinking of aid, especially food aid, as another channel to export agricultural surpluses and consider its purpose in helping developing countries to be independent and to provide for their own people.

Read the full briefing: Smart procurement for food security

Committee on World Food Security takes step towards pro-poor procurement

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by Francesca Giubilo

The 39th session of the Committee on World Food Security (CFS) drew to a close on 20 October. Its final report endorsed some interesting recommendations, including a clear message to support local purchases. Recognising the relevance of local procurement for food security may hint at a positive change in mindset for the years ahead.

Based on the High Level Panel of Experts’ report on social protection and food security, the CFS – the most inclusive international and intergovernmental platform for all stakeholders working on food security and nutrition – recommends that Member States and international organisations should launch programmes aimed at supporting “agricultural livelihoods and productivity for the poor”. In an exhaustive list that includes “production input support” and “agricultural livelihood packages and extension services”, there is a strong message on procurement, supporting “home-grown school feeding that purchases food from local smallholder farmers”. In line with recent Eurodad research, buying locally is recognised as an important way of developing domestic resources and eradicating hunger.

Over the years, pro-poor procurement has come back onto the international agenda, including at the High Level Forum on Aid Effectiveness and the recent Rio+20 meeting. Research conducted by Eurodad highlights how sustainable and public procurement can generate income, reduce costs and support the transfer of skills and technology. Local procurement allows aid monies to have a double dividend and to support domestic enterprises. It helps smallholder farmers to access markets, as well as strengthening farmers’ organisations. Moreover, through the use of country procurement systems, developing countries’ governments can increase their accountability and ownership, which allows them to launch social programmes efficiently and to provide for their own people.

However, the CFS also includes another element in the list above: the “in-kind transfers”, which is problematic. At present, some countries abuse this food delivery system to raise the incomes of their own agribusiness companies, instead of boosting domestic resources. Strong positions must be taken against this form of food assistance. Eurodad has been fighting for smart procurement and untying aid for a long time. For instance, with the support of partner organisations, we are currently calling on the World Bank to review its procurement policies and to promote pro-poor procurement guidelines.

The CFS recommendations are a small step forward in this struggle. Nothing will happen overnight, but now is the time to make faster progress and to convert this positive change in the international mindset towards something concrete.

European Parliament: procurement policies and illicit flows vital to policy coherence for development

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On 25 October the European Parliament voted through a resolution calling for better alignment of all EU policites to development objectives. The resolution, led by MEP Birgit Schnieber-Jastram (EPP, DE) was passed with the overwhelming support of 561 votes in favour and only 47 against and 51 abstentions. The European Parliament explicitly supports key demands of Eurodad and our members on tax and sustainable procurement, building pressure on EU institutions and governments to improve EU development cooperation and to increase developing countries’ policy space to promote nationally owned development policies.

In a blow to the Commissions controversial Agenda for change policy paper, the parliament explicitly states that “the European Consensus on Development … remains the doctrinal framework for the EU’s development policy, and that any attempt to revise or replace it in the context of the ‘Agenda for Change’ should involve the institutions that permitted its creation.” It adds that the whole concept “is not merely a technical issue, but primarily a political responsibility, and that Parliament …. has a key responsibility for translating the commitment into concrete policies.” 

Sustainable procurement

As public procurement accounts for 19% of world GDP, the resolution recognises the huge potential that public procurement has “to be a tool of implementing sustainable government policies both in the EU and in its ODA recipient countries.”

Procurement ranks highly thoughout the document, which includes some of the key asks of Eurodad and allies, including fair trade groups, regarding the revision of the public procurement directive. According to the resolution, “public procurement should be effectively used to achieve the overall EU objectives of sustainable development and, therefore, that the future of public procurement directives should enable sustainability criteria to be integrated throughout the process.”

Also in line with Eurodad demands, the resolution calls for giving “contracting authorities the policy space to make informed pro-development procurement choices.” This reference is timely, given the current discussion surrounding the reciprocity regulation put forward by the European Commission that promotes the liberalisation of  procurement markets in developing countries.

Tax and development

The resolution explicitly mentions the negative impact of illicit financial flows in mobilising domestic resources in developing countries and consequently in promoting sustainable development policies. At the same time, the resolution supports Eurodad’s call for greater financial transparency, arguing that “it is essential for supporting revenue mobilisation and combating tax evasion.”

The resolution also demands that “the current reform of the EU Accounting and Transparency Directives should include a requirement for extractive and timber companies to disclose payments made governments on a project-by-project basis, with reporting thresholds that reflect the size of the payments from the perspective of poorer communities.” Although this not as ambitious as hoped for, and does not include the crucial need for the framework to be expanded to country by country reporting, it is important that the parliament explicitly recognises the relevance of fighting against capital flight in the light of policy coherence for development. 

EC Reciprocity proposal: a sinking ship

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By Jeroen Kwakkenbos 

Any discussion of trade, whether over general principles or of technical issues, brings to my mind images of fleets of ocean greyhounds following the trade winds to greener pastures and more exotic locales. This is particularly true concerning the current discussion surrounding the reciprocity regulation put forward by the European Commission (EC), to be exact it makes me think of the expedition of Commodore Mathew C. Perry into Uraga in 1853. But more on that later.

Reciprocity, though it sounds like a legal thriller purchased in an airport bookstore, is an attempt by the European Commission to force non-EU countries to open their public procurement markets. The target countries of this regulation would appear to be China, Japan, and other major trading partners, but encompasses all non-Least Developed Countries (LDCs) that do business with the EU, including lower middle income countries (LMICs) and countries that recently graduated from LDC status. The principle is quite straightforward: If a country does not have an open public procurement market, then firms from that country cannot do business with the EU public procurement market, self-described as the world’s most open procurement market.   

There are several major flaws with this approach to procurement liberalisation. From a development perspective there is a concern that in an attempt to force China to open its market, innocent bystanders such as the tens of millions of Chinese still living in poverty, the populations of LMICs, as well as lower income countries (LICs) will have to pay the price. Cambridge University academic, Ha Joon Chang, as well as others have pointed out that no country has successful developed without a certain degree of protectionist measures to protect infant industry, until they were in a position where they could compete internationally. Forcing developing countries to open their markets prematurely could have devastating impacts on the domestic private sector.

Furthermore, as pointed out by Patrick A Messerlin and Sébastien Miroudot, of Sciences Po and the OECD respectively, the premise with which the EC is approaching the issue is deeply flawed in the first place. European markets are not as open as they appear to be. Also the leverage that the EC thinks it could gain by wielding European procurement markets as both a carrot and a stick is not as great as the EC imagines. They point out specifically:

  • “First is the higher openness of the EU… evidence refutes such claims, in particular when coming from the EU member states the most vocal about reciprocity. “
  • “The threat of closing EU markets assumes a rapport de force. The credibility of such a threat is already gone: the combined French and German public demand, which was almost eight times larger than China’s public demand in 1995 and three times in 2000, was only 1.3 times larger in 2009.”

They further demonstrate that Chinese markets are in fact more open than the US and Europe, as illustrated in the graph below.

Openness ratios, China, EU and US, 1995-2008

The diminished appeal of European procurement markets needs to be put in context of the austerity policies that are currently being enacted by many member states. The likelihood of increased European demand in a period of economic contraction and wage stagnation in combination with austerity policies limiting public expenditure is remarkably poor.

Now back to Commodore Perry. In 1853 commodore Perry sailed to Japan in order to foster trade negotiations with the Japanese government. Japan at the time was a closed economy that would only trade with my own ancestors the Dutch. In order to encourage discussion he parked his battleships off the coast of Uraga, near the town of Edo, and threatened to begin shelling the town until someone would talk to him. An auspicious start to US-Japan relations. The EC is trying to use reciprocity as a battleship. Like commodore Perry before it, the EC wants to sail into the ports of Nanjing and shell the shore until they open their markets. Unfortunately European austerity measures mean shrinking wages which mean shrinking taxes, which means shrinking public procurement. So unlike Perry, the harbor the EU wants to bombard is already open for business, and the battleship, impressive as it might seem, is aging, has a leak in it and is slowly sinking. All the Chinese have to do is stall for time before EU municipalities and member states are begging for cheap labour and products to meet the needs and demands that a European populace is either unwilling or unable to provide. Ultimately this leaves any leverage that the EC thinks it might gain in bargaining with other countries dead in the water. 

US food aid contracts: what lies beyond aid?

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By Francesca Giubilo,

Is the real purpose of aid to eradicate poverty or is it just another excuse to allow rich firms to raise their own incomes and boost the economy of developed countries? Recent research conducted by the Guardian has assessed that two-third of the US food aid contracts are awarded to three of the biggest agribusiness companies. (Louis) Dreyfus; ADM, Bunge and Cargill, also known as the ABCD group, account for between 75% and 90% of the global grain trade, yet receive the majority of US food aid contracts.

So, what lies beyond aid? Food aid refers to a specific category of ODA aimed at reducing hunger and starvation either in the short term, through emergency operations, or in the long term. However, an Oxfam study which assesses the inefficiency of US food aid, points out that in 2010 it reached roughly 65 million people despite spending more than $2 billion. According to this research, US food aid would have been able to reach between 4.8 million and 7.3 million more hungry people if food was purchased locally.

Although the US is the largest provider of food aid, accounting for 56% of all food aid, it still uses its food aid programme as ‘corporate welfare’ for its own companies. US food aid is problematic as it relies on “in-kind” food and shipments from US suppliers, spending most of the aid on transportation and non-food items. A more productive and less costly alternative would be to procure directly from local and regional markets in the affected areas as that would not only provide food, but also boost the incomes of local farmers and suppliers.

Studies show that multiple benefits can be achieved through local and regional procurement in terms of timeliness and cost-effectiveness as well as boosting domestic resources, accountability and country ownership, which are the core issues of Eurodad proposals on aid effectiveness.

How much longer do we have to wait before donors change their mindset towards food aid and developing countries? Food aid should not be another channel to export agricultural surpluses and to pay back political favours at home, rather it should be a tool, whose main aim should be to help developing countries to be independent and to provide for their own people.

Despite some steps towards the reform, US efforts must decouple aid from narrowly defined national or sectoral interests if developing countries are to truly benefit from these financial flows. Time for change has come! No more excuses!

Smart spending to support sustainable development: time for a positive G20 agenda on procurement

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Eurodad in conjunction with Latindadd have produced a briefing on G20 agenda on procurement.

Mexico has set out five priorities for this year’s G20 summit. They pick up existing themes of past summits, including food security, strengthening financial systems and improving the economic architecture, but add an additional cross-cutting priority:

“Mexico is convinced that the aforementioned priorities have to be enclosed by a renewed political commitment to sustainable development and green growth.”

This emphasis is no surprise, as June’s G20 will directly precede the UN Conference on Sustainable Development in Rio De Janeiro. One key way both summits can help developing countries to create poverty-reducing sustainable economic development is through supporting improved public spending, both by developing countries themselves, and by donors. In particular, the way governments and donors procure goods and services from the private sector can help drive development.

Read the full briefing: Smart spending to support sustainable development: time for a positive G20 agenda on procurement.

For the Spanish version, please click here: Gasto inteligente para apoyar el desarrollo sustentable: es el momento de una agenda positiva del G20 sobre contratación

World Bank’s procurement policy: CSOs must engage

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By Carlos Villota,

The World Bank is reviewing its operational procurement policy, a process with deep and significant consequences for developing countries. Eurodad will participate in the consultation and we encourage others to do the same.

Smarter procurement practices by aid agencies and developing country governments could become a key driver of development and poverty reduction. Eurodad calculations suggest that USD 69 billion annually, more than 50% of total official development assistance, is spent on procuring goods and services from external providers. Procurement practices determine which private firms from which countries are awarded aid funded contracts. In turn, this defines who reaps the benefits in terms of decent jobs created, income opportunities and increased productive capacities. It is clear procurement policies are a useful tool to maximize the impact of aid and other flows.  

The World Bank is reviewing its operational procurement policy and procedures to ensure their approach supports positive development results and remains suitable for today’s world . From May 2012 through September 2013, the World Bank is undergoing a consultation with stakeholders worldwide to seek input to help shape a framework of guiding principles for the revision of its procurement policy. An Initiating discussion paper has been prepared as a basis for the discussion and to provide an overview of the rationale for reviewing the policy.

Due to the key importance of procurement for development Eurodad will actively engage in the consultation and we encourage others to do the same.