13 Food prices: the EU and developing
countries
| (29865) 11983/08 COM(08) 450
| Draft Regulation: Facility for rapid response to soaring food prices in developing countries
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| Legal base | Art 179 and 251 EC; QMV; co-decision
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| Deposited in Parliament | 23 July 2008
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| Department | International Development
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| Basis of consideration | Minister's letter of 28 November 2008
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| Previous Committee Report | HC 16-xxix (2007-08), chapter 4 (10 September 2008) and HC 16-xxxiv (2007-08), chapter 5 (5 November 2008)
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| To be discussed in Council | 16 December 2008 Economic and Financial Council
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| Committee's assessment | Politically important
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| Committee's decision | Cleared; further information requested
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Background
13.1 Encouraged by the European Council and the European Parliament,
and fearful of the impact not only on the developing countries
themselves but also on the prospects of achieving the UN Millennium
Development Goals, in July, the Commission proposed a two-year
facility to help those countries combat soaring food prices. The
Commission noted that high food prices would contribute to a €1
billion (£0.789 billion) CAP under-spend in 2008 and 2009.
Using UN figures, the Commission estimated that the financing
need for 2008-9 will be €18 billion (£14.2 billion);
given the Community average of financing 10 per cent of worldwide
development cooperation, the Community would finance €1.8
billion (£1.42 billion). With €800 million currently
available from other instruments, it was envisaged that the remaining
€1 billion would come from the CAP under-spend.
13.2 In his covering Explanatory Memorandum of 28
August 2008, the Secretary of State (Mr Douglas Alexander) supported
the principle of collective EU action to address the situation
but not the proposal in its current form. He welcomed the objective
of encouraging a positive supply response from farmers in developing
countries in the short to medium term. But, as well as acting
to prevent loss of life of the most vulnerable, the Secretary
of State also believed that investing in agriculture and rural
development was essential.
13.3 Moreover, the Government also objected to the
proposed use of under-spend for this purpose on Budget discipline
grounds. Noting that under-spend was normally returned to Member
States, and argued that the budget margins should be kept for
unforeseen needs or programmes in-year and not used for new proposals
that are not programmed into the Financial Framework, the Secretary
of State said that several other Member States, including Germany,
the Netherlands and Sweden, shared UK concerns; he would work
with other Member states to ensure that alternative proposals
and financing mechanisms were fully explored to allow for a collective
EU response that would grant additional resources as part of an
overall increased effort to ensure the MDGs are met; the government
would also continue to argue — "as asserted by the
Chancellor and a number of Finance Ministers at ECOFIN in July"
— that financial aspects of any new proposals with important
cost implications for Member States should be fully discussed
and agreed by Finance Ministers in ECOFIN before a final decision
on proposals as a whole could be taken.
13.4 Recalling the Government commitment to UK aid
reaching 0.7% of Gross National Income by 2013, with part of this
to be spent on food and agriculture, the Secretary of State also
noted that any UK share of a Commission or similar proposal would
come from DFID's existing, enhanced, budget allocation. If an
alternative proposal for a food facility were to be developed
which would be effective in leveraging additional resources from
others as part of an overall increased effort to ensure the MDGs
were met, without compromising the principle that EC Budget under-spend
should normally be returned to Member States, he said that he
might support it; but he would need to be convinced that using
existing aid programme funds for this purpose would deliver better
development outcomes than alternative uses of these resources.
The Secretary of State further noted that the proposed use of
budget under-spend would represent a cost to Member States, the
UK share of which would be around 15% or about £120 million
(spent over three years, from DFID's existing budget allocation).
13.5 Finally, on the timetable, the Secretary of
State said that in order to use the unspent funds, the Commission
required the regulation to come into force by end of 2008; and
that co-decision would require agreement at first reading by November
2008.
13.6 The Secretary of State clearly outlined his
objections to the proposal in its current form, and noting that
deliberations on the Regulation would begin on 25 August in the
EP Development Committee and among Member States on 4 September.
The Committee said that it would not expect him to agree any
revised proposal without further scrutiny, asked that he keep
the Committee informed of the progress of these discussions, and
in the meantime retained the document under scrutiny.[41]
13.7 In his letter of 31 October 2008, the Secretary
of State said that it now seemed unlikely that the original plan
to use CAP surpluses would be approved, given Member States' opposition,
and that "Council committees continue to look for ways to
find the necessary funds including through contingencies reserves
and reprioritisation of existing budgets." Meanwhile, he
says:
"… discussions continue around the best
way to programme the resources to meet needs. HMG believes that
to ensure sustainability, the €1 billion (£0.79 billion)
should be used on a mix of immediate measures (e.g. seeds &
fertilisers) and other complementary measures which support medium
and long-term sustainability."
13.8 The Secretary of State went on to say that the
European Parliament had suggested a number of substantive amendments
to the original proposal, which included "the setting of
firm criteria for the choice of countries to benefit". The
Secretary of State agreed with this amendment, as it would indicate
which countries were eligible and add flexibility whereby some
countries would move out — graduate from needing support
— and others could move in when they needed support; principles
and indicators for setting the criteria should, however, be tight
so "politicised choices" were "easily taken out
of discussion". However, as long as a fixed list of criteria
was agreed, the Secretary of State did not see a need to set an
arbitrary limit to the number of countries which could be eligible
for assistance under the facility, as proposed by the European
Parliament. But the Secretary of State did agree with the European
Parliament's amendment proposing the broadening of the number
of channels and beneficiaries, which he said should include channels
such as the World Bank, international NGOs and "good Direct
Budget Support where the Governments concerned explicitly identify
strategies for addressing high food prices and targeting the vulnerable".
He did not support European Parliament's further amendment of
imposing an arbitrary 40% limit on the level of support channelled
through international organisations, his view being that "the
criteria for choosing the channels for distributing the funds
should be the potential for effective and efficient implementation".
13.9 For our part, we noted that, although the main
objection no longer obtained, the Secretary of State had nonetheless
made plain his objections to certain aspects of the EP amendments.
Moreover, it was also not clear at this stage how, and to what
extent, the revised proposal met his main criterion — that
an alternative proposal for a food facility should leverage additional
resources from others as part of an overall increased effort to
ensure the MDGs are met. We asked if the immediate measures consisted
of expenditure on seeds and fertilisers, or whether some would
be spent on food imports, and how much of the €1 billion
would come from "contingencies reserves and reprioritisation
of existing budgets". We also asked how much would come from
"channels such as the World Bank, international NGOs and
good Direct Budget Support where the Governments concerned explicitly
identify strategies for addressing high food prices and targeting
the vulnerable" and if any would come from DFID's budget.
In the meantime, we continued to retain the document under scrutiny
and said that we would not expect the Secretary of State to agree
to any revised proposal until he had reported to us again with
the answers to these questions and the outcome of the ongoing
discussions about funding and the European Parliament's proposed
amendments.[42]
The Secretary of State's letter of 28 November
2008
13.10 The Secretary of State for International Development
(Mr Douglas Alexander) encloses a copy of the revised Regulation
with his letter of 28 November 2008, the essential elements of
which are summarised below.
THE REVISED DRAFT REGULATION
13.11 The primary objectives of the assistance and
cooperation under this Regulation shall be to:
— encourage
a positive supply response from the agricultural sector in target
countries and regions;
— support activities to respond rapidly
and directly to mitigate the negative effects of volatile food
prices on local populations in line with global food security
objectives, including UN standards for nutritional requirements;
and
— strengthen the productive capacities
and the governance of the agricultural sector to enhance sustainability
of interventions.
13.12 A differentiated approach shall be pursued
"depending on development contexts and impact of volatile
food prices …. so that target countries or regions and their
populations are provided with targeted, tailor-made and well adapted
support, based on their own needs, strategies, priorities and
response capacities." Measures supported under this Regulation
shall be coordinated with those supported under other instruments,
including those concerning humanitarian aid,[43]
development cooperation[44]
and stability,[45] and
the ACP-EU Partnership Agreement "so as to ensure continuity
of cooperation, in particular as regards the transition from emergency
to medium- and long-term response." Taking into account the
specific country-level conditions, supporting measures that shall
be eligible for implementation are:
— measures
to improve access to agricultural inputs and services including
fertilizers and seeds, paying special attention to local facilities
and availability;
— safety net measures aiming at maintaining
or improving the agricultural productive capacity, and at addressing
the basic food needs of the most vulnerable populations, including
children; and
— other small-scale measures aiming at
increasing production based on country needs: microcredit, investment,
equipment, infrastructure and storage; as well as vocational training
and support to professional groups in the agriculture sector.
13.13 Implementation "shall be in line with
the Paris Declaration on Aid Effectiveness[46]
and the Accra Agenda for Action[47]",
and be focused on:
"small and medium-sized farms for family and
food-producing agriculture, particularly those run by women, and
poor populations most affected by the food crisis, avoiding any
kind of distortion of local markets and production; agricultural
inputs and services shall as far as possible be locally purchased."
13.14 Entities eligible for funding shall include:
— partner
countries and regions, and their institutions;
— decentralised bodies in the partner countries,
such as municipalities, provinces, departments and regions;
— joint bodies set up by the partner countries
and regions with the Community;
— international organisations, including
regional organisations, UN bodies, departments and missions, international
and regional financial institutions and development banks;
— appropriate Community institutions and
bodies and EU agencies;
— public or parastatal bodies, local authorities
and consortia or representative associations thereof;
— companies, firms and other private organisations
and businesses;
— financial institutions that grant, promote
and finance private investment in partner countries and regions;
— non-State actors operating on an independent
and accountable basis; and
— natural persons.
13.15 Community financing may take the following
forms:
— projects
and programmes;
— budget support, especially sectoral budget
support, if the partner country's management of public spending
is "sufficiently transparent, reliable and effective, and
if the conditions for budget support set out in the relevant geographical
financing instrument have been met";
— contributions to international or regional
organisations and international funds managed by such organisations;
and
— contributions to national funds set up
by partner countries and regions to attract joint financing from
a number of donors, or contributions to funds set up by one or
more donors for the purpose of the joint implementation of projects.
13.16 Agreements shall expressly entitle the Commission
and the Court of Auditors to perform audits, including document
audits or on-the-spot audits of any contractor or subcontractor
who has received Community funds. The Commission shall monitor
and review activities implemented under this Regulation, where
appropriate by means of independent external evaluations, in order
to ascertain whether the objectives have been met and enable it
to formulate recommendations with a view to improving relevant
future development cooperation operations. The Commission shall
associate all relevant stakeholders, including non-State actors
and local authorities, in the evaluation phase of the Community
assistance provided under this Regulation.
13.17 The Commission shall provide the European Parliament
and the Council with:
— a
report on the implementation of the measures, including, as far
as possible, on the main outcomes and impacts of the assistance
provided under this Regulation, no later than 31 December 2012;
and
— in December 2009, an initial interim
report on the measures undertaken.
13.18 Both reports "shall pay particular attention
to the requirements of the Paris Declaration on Aid Effectiveness
and the Accra Agenda for Action."
13.19 The Secretary of State then answers the questions
we posed as follows:
"a). Possible leveraging of additional resources
from others and whether any would come from DFID's budget and
how much of the €1 billion would come from 'contingencies
reserves and reprioritisation of existing budgets'
"All outstanding budgetary issues were
resolved at the 2009 EU Budget Conciliation discussions between
the Council and the European Parliament on 21 November ….
The full €1 billion (£0.79 billion) will come from EU
contingency reserves and the reprioritisation of existing budgets.
No additional bilateral contributions are therefore required to
be contributed from Member States, though contributions to the
EU budget will increase.
"One of the contingency lines is the Emergency
Aid Reserve (EAR). This exists to respond to sudden, unforeseen
crises. The budgetary rules allow for Member States to increase
the amount available in the Reserve, and it has been duly agreed
that a one-off increase of €240 million (£189 million)
be made to the 2008 allocation as a contribution to the food facility
in addition to €100 million (£79 million) of uncommitted
funds from existing resources within the Reserve.
"In summary, the €1 billion (£0.79
billion) will come from:
- €100 million (£79 million) from the
Emergency Aid Reserve comprising €22 million (£17 million)
from 2008 and €78 million (£61 million) in 2009.
- €240 million (£189 million) from the
one-off increase in the allocation for the Emergency Aid Reserve
for 2008.
- €420 million (£330 million) from the
Flexibility Instrument (a non-oda contingency budget line) in
2009.
- €240 million (£189 million) reprioritisation
from within the External Actions chapter of the EU Budget comprising
€70 million (£55 million) in 2009 and €170 million
(£134 million) in 2010.
"Thus over €760 million (£598 million)
of the €1 billion (£0.79 billion) will represent additional
oda in terms of existing commitments within the EU Budget (it
is not yet clear how much of the reprioritisation of External
Actions will involve existing non-oda commitments).
"The UK share of the cost of the food facility
is just under £120 million which will come from DFID's budget.
This will not be brought to account for at least two years, and
will be manageable within DFID's existing resources.
"Comitology procedures have also been introduced
to ensure Member State supervision of spending decisions,
and indicative criteria have been set to determine where
resources will be spent.
"b). Whether immediate measures consist of
expenditure on seeds and fertilizers, or whether some will be
spent on food imports
"There are no plans to use the facility's funds
for imported food.
"c). Channels
"A wide range of channels for distributing the
funds has been included in the draft legislation. The draft also
specifies that a 'differentiated approach depending on development
contexts and impact of volatile food prices shall be pursued so
that target countries or regions and their populations are provided
with targeted, tailor-made and well adapted support, based on
their own needs, strategies, priorities and response capacities'
".
13.20 On the question of Timing, the Secretary
of State says that the European Parliament will vote on the draft
legislation on 3 December, and that the Council "will then
vote at the 8 December GAERC at which point the Regulation will
be fully agreed", the aim being to publish it in the Official
Journal (the formal end of the legal process) on or before 31
December 2008, as this is the final deadline if 2008 resources
are to be used. It has subsequently been made clear, however,
that the Regulation will now be voted on at the 16 December 2008
Economic and Financial Council.
Conclusion
13.21 Although the main objection to the draft
Regulation was removed at an early stage, the Secretary of State
was plainly sceptical about the proposal unless it was able to
leverage additional resources from others as part of an overall
increased effort to ensure that the UN Millennium Development
Goals were met, and said that he would need to be convinced that
using existing aid programme funds for this purpose would deliver
better development outcomes than alternative uses of these resources.
He also had clearly expressed reservations about certain European
Parliament amendments. Given all this and the fact that the draft
Regulation has been substantially changed since then, we would
have expected him to explain how the revised draft — which
continues not to meet his "leverage" criterion —
nonetheless sufficiently meets his other objections now to warrant
both his general support and the expenditure of just under £120
million from DFID's budget. Indeed, we would have expected a further
Explanatory Memorandum, and ask the Secretary of State to ensure
that on any future such occasion this is forthcoming.
13.22 That said, it can reasonably be inferred
from the Regulation itself that it is now in line with his overall
approach. It would appear now to be properly framed in terms of
sustainable developmental objectives, focus and implementation
mechanisms. It would also appear to contain appropriate provisions
on coordination and to ensure proper control of expenditure, evaluation
and reporting to the Council and the European Parliament. Even
though we lack clear assurances from the Secretary of State on
these points, we have no wish to hold up this response to a pressing
problem, and therefore clear the draft Regulation.
13.23 We are, however, forwarding this chapter
of our Report to the International Development Committee so that
they may be aware of these developments.
13.24 We also ask that, in a year's time, the
Secretary of State deposits the interim Report along with an Explanatory
Memorandum outlining its findings, his views thereon and his assessment
of the Regulation's effectiveness thus far.
41 See headnote: HC 16-xxix (2007-08), chapter 4 (10
September 2008). Back
42
See head note: HC 16-xxxiv (2007-08), chapter 5 (5 November 2008). Back
43
Council Regulation (EC) No 1257/96 of 20 June 1996. Back
44
Regulation (EC) No 1905/2006 of the European Parliament and of
the Council of 18 December 2006 establishing a financing instrument
for development cooperation Back
45
Regulation (EC) No 1717/2006 of the European Parliament and of
the Council of 15 November 2006 establishing an instrument for
stability, Back
46
In February 2005, at the Paris High Level Forum on Aid Effectiveness,
more than 100 signatories - from donor and developing-country
governments, multilateral donor agencies, regional development
banks and international agencies - endorsed the Paris Declaration
on Aid Effectiveness. It contains 56 partnership commitments aimed
at improving the effectiveness of aid; lays out 12 indicators
to provide a measurable and evidence-based way to track progress;
and sets targets for 11 of the indicators to be met by 2010. The
Declaration is focused on five mutually reinforcing principles:
Ownership: Developing countries must lead their own development
policies and strategies, and manage their own development work
on the ground: Alignment: Donors must line up their aid
firmly behind the priorities outlined in developing countries'
national development strategies; Harmonisation: Donors
must coordinate their development work better amongst themselves
to avoid duplication and high transaction costs for poor countries;
Managing for results: All parties in the aid relationship
must place more focus on the end result of aid, the tangible difference
it makes in poor people's lives; and Mutual accountability:
Donors and developing countries must account more transparently
to each other for their use of aid funds, and to their citizens
and parliaments for the impact of their aid. Back
47
The statement issued after the 3rd High Level Forum
on Aid Effectiveness in Accra, Ghana, on 4 September 2008 by Ministers
of developing and donor countries responsible for promoting development
and Heads of multilateral and bilateral development institutions
" to accelerate and deepen implementation of the Paris Declaration
on Aid Effectiveness". The full text of the Accra Agenda
for Action can be found at http://siteresources.worldbank.org/ACCRAEXT/Resources/4700790-1217425866038/AAA-4-SEPTEMBER-FINAL-16h00.pdf.
For further information on the Forum, see http://www.undg.org/docs/9198/UNDG-Report-Accra-HLF-full-version.doc
. Back
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