European Scrutiny Committee Contents

39 Food prices: the EU and developing countries



COM(10) 81

Commission Staff Working Document: Food Facility: Interim Report on Measures Taken

Legal base
Document originated

Deposited in Parliament

12 March 2010

17 March 2010

DepartmentInternational Development
Basis of considerationEM of 31 March 2010
Previous Committee ReportNone; but see (29865) 11983/08: HC 19-i (2008-09), chapter 13 (10 December 2008); HC 16-xxix (2007-08), chapter 4 (10 September 2008) and HC 16-xxxiv (2007-08), chapter 5 (5 November 2008)
To be discussed in CouncilTo be determined
Committee's assessmentPolitically important
Committee's decisionCleared


39.1 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 2008 the Commission proposed a two-year facility to help those countries combat soaring food prices. The Commission reckoned 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 would 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.

39.2 In his covering Explanatory Memorandum of 28 August 2008, the then Secretary of State for International Development (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, he also believed that investing in agriculture and rural development was essential.

39.3 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 arguing 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 then Secretary of State said that he would work with the several other Member States that shared UK concerns to ensure that alternative proposals and financing mechanisms were fully explored to allow for a collective EU response that would ensure that the MDGs were met; the government would also continue to argue 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.

39.4 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 then 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 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 then 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).

39.5 Finally, on the timetable, the then Secretary of State said that in order to use the unspent funds, the Commission required the Regulation to come into force by end 2008; and that co-decision would require agreement at first reading by November 2008.

39.6 The then Secretary of State having 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 European Parliament Development Committee and among Member States on 4 September, the previous Committee said that it would not expect him to agree any revised proposal without further scrutiny, asked him to keep the Committee informed of the progress of these discussions, and in the meantime retained the document under scrutiny.[155]

39.7 In his letter of 31 October 2008, the then 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 said, discussions continued "around the best way to programme the resources to meet needs"; he believed 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."

39.8 The then 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." He agreed with this amendment, as it would indicate which countries were eligible and add flexibility whereby some countries would graduate from needing support and others could move in when they needed it; 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, he did not see a need to set an arbitrary limit to the number of countries which could be eligible for assistance under the facility. But he 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." But 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."

39.9 For its part, the previous Committee noted that, although the main objection no longer obtained, the Secretary of State had nonetheless made plain his objections to certain aspects of the European Parliaments 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. The previous Committee also 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"; and 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, it continued to retain the document under scrutiny and said that it would not expect the Secretary of State to agree to any revised proposal until he had reported again with the answers to these questions and the outcome of the ongoing discussions about funding and the European Parliament's proposed amendments.[156]

39.10 In his letter of 28 November 2008, the then Secretary of State enclosed a copy of the revised Regulation. Its primary objectives would 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;

—  strengthen the productive capacities and the governance of the agricultural sector to enhance sustainability of interventions.

39.11 A differentiated approach was to 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 should be coordinated with those supported under other instruments, including those concerning humanitarian aid,[157] development cooperation[158] and stability,[159] 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, measures eligible for implementation would be:

—  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;

—  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.

39.12 Implementation should also be "in line with the Paris Declaration on Aid Effectiveness[160] and the Accra Agenda for Action",[161] 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."

39.13 Entities eligible for funding should 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.

39.14 Community financing could 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.

39.15 Agreements would 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 received Community funds. The Commission would monitor and review activities implemented under this Regulation, where appropriate by means of independent external evaluations, in order to ascertain whether the objectives had been met and enable it to formulate recommendations with a view to improving relevant future development cooperation operations. The Commission should associate all relevant stakeholders, including non-State actors and local authorities, in the evaluation phase of the Community assistance provided under this Regulation.

39.16 The Commission was also obliged to 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.

39.17 Both reports should "pay particular attention to the requirements of the Paris Declaration on Aid Effectiveness and the Accra Agenda for Action."

39.18 The then Secretary of State then answered 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."

39.19 On the question of Timing, the then Secretary of State said that the European Parliament would vote on the draft legislation on 3 December, and that the Council would then vote at the 8 December General Affairs and External Relations Council (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 was the final deadline if 2008 resources were to be used. It was subsequently made clear, however, that the Regulation would be voted on at the 16 December 2008 Economic and Financial Council.

The previous Committee's assessment

39.20 Although the main objection to the draft Regulation was removed at an early stage, the then 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 had 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 had also clearly expressed reservations about certain European Parliament amendments. Given all this and the fact that the draft Regulation had been substantially changed since then, the previous Committee felt that he should have done somewhat more than answer its specific questions, in order to explain how the revised draft — which continued not to meet his "leverage" criterion — nonetheless sufficiently met his other objections now to warrant both his general support and the expenditure of just under £120 million from DFID's budget. Instead, it noted, they would have expected a further Explanatory Memorandum, and asked the then Secretary of State to ensure that on any future such occasion this was forthcoming.

39.21 That said, the previous Committee felt that it could reasonably be inferred from the Regulation itself that it was now in line with his overall approach; it now appeared to be properly framed in terms of sustainable developmental objectives, focus and implementation mechanisms; and also appeared now 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 they felt that they lacked clear assurances from the then Secretary of State on these points, the previous Committee had no wish to hold up this response to a pressing problem, and therefore cleared the draft Regulation.

39.22 They also asked that, in a year's time, the then Secretary of State should deposit the interim Report along with an Explanatory Memorandum outlining its findings, his views thereon and his assessment of the Regulation's effectiveness thus far.[162]

The Commission Staff Working Document

39.23 This report from the Commission to the European Parliament and the Council on measures is undertaken under Article 11 of Regulation EC/2008/1337, which calls on the Commission to provide an interim report on the measures undertaken under the Regulation.

39.24 In his Explanatory Memorandum of 31 March 2010, the then Parliamentary Under Secretary at the Department for International Development (Mr Michael Foster), notes that the "Food Facility "Regulation constitutes the main European Commission response to the crisis in developing countries brought about by soaring food prices, and "aims to bridge the gap between emergency response and long-term development." He also notes that the initiative:

¾  will expire on 31 December 2010, with activities ending by the end of December 2011. He regards "this very tight timeframe" as having "made the planning, programming and implementation of the activities particularly challenging, both for the EC and for the implementing partners";

¾  includes a list of 50 target countries and indicative allocations to each of these countries;

¾  has four mechanisms for implementation.

  • International Organisations (IO) including: the Food and Agriculture Organisation (FAO); the World Food Programme (WFP); the World Bank (WB); and the International Fund for Agricultural Development (IFAD) — €510 million (£455 million);
  • Non-governmental organisations, private sector and Member States' agencies through a Call for Proposals — €200 million (£179 million);
  • National governments through budget support — €210 million (£188 million);
  • Regional level interventions in Africa — €60 million (£54 million);

—  the final €20 million (18 million) was retained for the administrative and management costs; and

—  the three areas of eligible action under the Food Facility are: Measures to improve access to agricultural inputs and services, 40%; safety net measures, 36%; and other small-scale measures aimed at increasing production (including micro-credit, infrastructure, storage, vocational training), 23%.

39.25 The then Minister then says that:

"Most projects implemented by IOs are at an early stage of implementation. The earliest projects began implementation in the spring of 2009 and are starting to show results. Seeds, fertilizers and agricultural tools have been distributed; safety net mechanisms are in operation, vulnerability assessments undertaken, national capacity building training delivered and coordinating mechanisms strengthened."

The Government's view

39.26 The then Minister comments as follows on the Report:

"The adoption of the Food Facility Regulation demonstrated the EC's ability to react rapidly and substantially to the food security problems in developing countries caused by the food price volatility of 2007/08. Thus far, the Facility is the most significant global response to stimulate agricultural development and fight hunger. After the entry into force of the Food Facility Regulation on 1 January 2009, the European Commission has organised its implementation with speed and efficiency.

"Thus far the measures taken show that the implementation of the Food Facility is advancing well. Nevertheless challenges exist that may impact their future effectiveness. These include difficulties of a political and/or security nature in a number of target countries, as well as the very tight implementation period for the projects and programmes. In line with the Regulation, a final report will be presented by the Commission before the end of 2012."

39.27 He assesses the Facility's strengths thus:

"The Facility has provided significant additional funds to an EU response to high food prices. There has been improved co-ordination between EC departments to programme the funds quickly. The preparation of the IO country fiches has resulted in better coordination and linking at country level, for example, in Bangladesh between EC office, DFID, WFP and FAO. The process has proved the EC can work quickly when needed. The facility has been improved through Member State engagement by: increasing the timescale of the facility from 2 to 3 years; broadening the implementers beyond IOs by including a Call for Proposals, the regional bodies and budget support. Care has been taken that the Facility adds value to ongoing initiatives and avoids duplication. Regarding the Call for Proposals, UK and other Member States were successful in lobbying for an open, non-ring fenced Call for Proposals to give an even playing field for NGOs."

39.28  And its weaknesses as follows:

"A perception that in some cases programme quality may have been compromised by the urgency to spend quickly. This has resulted, in our view, to an over-emphasis on the IOs, particularly FAO. However, the EC maintain there were quality controls in place and only the best proposals got through. A large number, 50 countries, have been selected and this could mean a dilution of impact. Gambia, Cuba, Guatemala, Honduras, Jamaica, Nicaragua and Bolivia would not be DFID priorities.

"At the early stages of the Facility there were opportunities to improve performance by addressing the overall principles of the Facility. However, once approved there was less opportunity, particularly regarding the first tranche of €320 million (£286 million) to the IOs."

39.29 The then Minister concludes by saying that, to address these weaknesses, the UK and other Member States have "called for an evaluation and lesson learning exercise at the completion of the Facility [which] would measure results and performance of the different implementing organisations and recommend improvements to the process should there be another Facility."


39.30 Given its interim nature, no questions arise at this juncture. But the then Minister has clearly indicated the areas of weakness thus far, and what is expected of the final evaluation. We look forward to receiving it and the new Minister's views and assessment in due course, particularly as the circumstances that brought about the Facility will almost certainly occur again — as suggested by the attention being devoted by the Commission to the food supply question in the two Commission Communications that we consider elsewhere in this Report.[163]

In the meantime, we are reporting the picture so far, given the widespread interest in the House in development issues, and clear the document.

155   See headnote: HC 16-xxix (2007-08), chapter 4 (10 September 2008). Back

156   See headnote: HC 16-xxxiv (2007-08), chapter 5 (5 November 2008) Back

157   Council Regulation (EC) No 1257/96 of 20 June 1996. Back

158   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

159   Regulation (EC) No 1717/2006 of the European Parliament and of the Council of 15 November 2006 establishing an instrument for stability, Back

160   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

161   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://site For further information on the Forum, see . Back

162   See headnote: (29865) 11983/08: HC 19-i (2008-09), chapter 13 (11 December 2008). Back

163   (31470) 8246/10, (31471) 8250/10; See chapter 45 of this Report. Back

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