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Food aid: local purchases more cost efficient
06/2005 |
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[ Food aid ]
Local purchases make aid
much more cost efficient
Critics of food aid consider it to be an inefficient instrument for development purposes. A new study by the OECD Development Assistance Committee (DAC) confirms the most common arguments. Food aid is said to be difficult to control and to often reach the wrong people. Moreover, it is considered too expensive and of little help for the long-term food security in the target countries. Only in acute emergency situations does food aid undoubtedly play an important role. Otherwise, financial aid is more practical in most cases, as the DAC paper states: “A context-specific rationale is always required for relying on food aid in preference to financial aid.”
The team of writers, led by Edward Clay of Britain’s Overseas Development Institute, focuses in particular on the efficiency of “tied” aid compared with “untied” aid. Most international food aid (80 %) is tied to the agricultural production of the donor countries (tied aid). Some donors, the USA in particular, use such aid specifically to promote exports and get rid of surpluses. In the case of “untied” aid, on the other hand, donors purchase the relief supplies in the target country itself (local purchases) or in other countries of the region (triangular purchases).
The DAC authors determined the efficiency of aid by looking at the cost of delivering supplies. The yardstick is how much market competitors would have charged for the equivalent service. The DAC team estimates that donors, had they consistently sourced on the market, could have saved a rough quarter on the aid supplies that were considered in the survey. The price/ benefit ratio turned out to be least favourable for tied aid, which was, on balance, a third more expensive. Regionally purchased supplies, however, normally cost more or less what world market procurement would have. The study generally considers it the best solution for donors to buy food in the target country. When that was done, the actual costs were 12 % lower than they would have been in the case of world market procurement. “ Tied” aid was thus almost 50 % more expensive than locally purchased “untied” aid.
The more donors draw on their own agricultural products for food aid, the more expensive it becomes. Donors which purchase aid supplies in target countries or in neighbouring countries normally have much lower costs.
Difference compared with market procurement (in percent).
Food aid from donors such as the USA, Australia and Canada, which provide more than 90 % of the relief supplies from their domestic farms, is just as inefficient. Their average costs exceed the market rates by 33 to 58%. The second biggest donor after the USA, the EU, also provides overpriced food aid. According to the study, the European Commission purchases three quarters of its food aid from EU farmers and spends 25 % above the market rate.
Donors such as Britain, Germany and the Netherlands, whose bilateral aid is to a large extent “untied”, use their money more efficiently. The DAC study states that donors in general could save considerably if they stopped tying food aid. Besides,“ greater donor flexibility in sourcing would benefit agricultural development in many low-income developing countries.”
However, buying supplies locally is not cheaper in every single case. The conditions in the target country matter. For example, high grain prices in India mean that aid purchased locally is on balance more expensive than aid imported from donor countries. However, for landlocked countries such as Ethiopia or Zambia locally purchased aid is normally the better option because of high transport costs. (ell)
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