39 Food prices: the EU and developing
countries
| (31420)
7517/10
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 |
| Department | International Development
|
| Basis of consideration | EM of 31 March 2010
|
| Previous Committee Report | None; 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 Council | To be determined
|
| Committee's assessment | Politically important
|
| Committee's decision | Cleared
|
Background
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."
Conclusion
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 resources.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
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
| 
