Over 75 percent of all WFP food is purchased in developing countries, with a positive impact on the quality of local markets. The impact on prices are minimal, only indicating negligible distortions to normal market activities. This is revealed in a new study conducted by experts from the Michigan State University.
During 2012, WFP purchased over 1.8 million metric tons (mt) of food from developing countries, adding revenues of more than US$ 800 million to local economies. Around one third of the procured value was purchased in Africa. In order to find out how this local and regional procurement (LRP) actually impacts the local markets, food prices and quality standards, WFP’s Procurement division and P4P contracted a research team at Michigan State University (MSU). Extensive case studies were conducted in Ethiopia, Malawi, Mozambique and Uganda in 2012. The study also included economic analysis of market data research dating back to 2001. The preliminary research findings were presented to WFP and FAO staff on 27 June in Rome.
Limited market distortion
The premise behind this study is that WFP’s local and regional procurement adds to market demand, which in turn, may put upward pressure on local market prices. According to the preliminary findings, a key conclusion from the four African countries is that both the price and welfare effects have been very moderate, with an exception of Uganda where market prices have been slightly higher. Further details related to the unique context of Uganda will be presented in the final report.
COUNTRIES AND COMMODITIES
The validity of the study’s result is limited to the following commodities and countries:
While the validity of the results is limited to specific commodities in the four African countries in this study, WFP is gaining great insights from the findings.
“As part of our preparations to evaluate the P4P pilot, it is crucial for us to understand how WFP’s overall local and regional procurement affects the markets. The findings from this study will help to guide our future engagement in local and regional markets”, said Ken Davies, P4P Global Coordinator.
One of the positive impacts revealed in the report is improved quality of food products, attributed to WFP’s high procurement standards. It has been noted that many traders have made investments in quality assurance equipment, such as drying and cleaning equipment, in order to meet WFP standards, hence opening up additional export opportunities. One of the traders interviewed by MSU stated that “Practices and products are changing in the food industry due to WFP”.
One example is Malawi, where traders actively compete and have won contracts for specialized nutrition products for WFP operations also outside Malawi. WFP’s local purchase also had a positive impact on the Ethiopian bean market. The Ethiopian high quality beans are being purchased in large quantities through competitive tendering, both locally in Ethiopia and by neighbouring countries.
At the moment, the majority of all vegetable oil procured for WFP food operations originates from Asia. Looking ahead, the report encourages WFP to explore possibilities to enable African traders and food processors to supply vegetable oil for WFP’s African operations. However it was acknowledged that it will be difficult for traders to compete with the established Asian suppliers.
Echoing WFP’s evolving strategic focus, the report emphasized the added value of buying food immediately after the harvest, when the prices are lower. On-going P4P and WFP efforts such as long-term contracts and the Forward Purchasing Facility (FPF) will increase the scope for this.
The report also recommended that WFP improve vendor management and procurement processes in order to promote high standards and transparency in communications regarding tendering requirements, processes and awarding of contracts.
The final report will be released in September. A link will be provided as soon as the study is published.