Foreign Aid & Civil Society

Revisiting WFP’s Purchase for Progress

By Dweep Chanana ⋅ November 12, 2008 ⋅  Email this post ⋅  Print This Post ⋅ Post a comment

When the Purchase 4 Progress program was announced, I was excited. Yet, a recent post on CGDev forces me to temper my enthusiasm.

My premise is that P4P promises to bypass traditionally inefficient and government controlled food markets, providing farmers the right incentives to improve productivity – with benefits to both consumers and producers. So far so good.

CGDev too agrees, highlighting the three assumptions underlying the program:

that markets don’t work very well;

that establishing an alternative sales mechanism is an effective means of improving markets and producers’ incomes; and

that local purchases will improve producers’ prices, but with a minimal impact on consumers’ prices.

As this illustrates, enthusiasm for P4P is based on a very producer-centric view, and overlooks the very real possiblity – particularly in small African countries where P4P purchases would be a substantial portion of total trade – that P4P’s impact on local consumer prices might not be negligible. In their article on CGDev, Jenny Aker and Rebecca Schutte highlight with the example of Mali:

On the surface, Mali appears to be a perfect pilot country for the P4P Initiative: relatively low yields and unstable production; low and variable producer prices and hence incomes; and extremely vulnerable populations, some of which require food aid. But is the P4P right for Mali? Despite poor quality roads and high transport costs, grain markets are fairly well-integrated and competitive in Mali. The P4P could potentially improve farmers’ incomes and encourage greater trade within Mali. But at the same time:

1. Higher prices paid to farmers via the P4P could undercut traders if they are unable to meet WFP’s prices, displace smaller traders and potentially break traditional relationships between traders and villages, or keep such relationships from developing.
2. Depending upon annual production and the location, amount and prices of the local purchase, such purchases could reduce supply and increase consumer prices locally and in other markets.

The impact of P4P on local consumption is an unintended consequence that I have overlooked. It is what makes the program a “win-maybe” rather than a “win-win” according to the authors.

Yet, I feel this potential obstacle can be overcome if, as I argued previously, the program is not focused on the farmers or the producers – but on the market. Its goal should be the eventual emergence of an efficient market.

There is a parallel between P4P and the emergence of direct purchase contracts between rural farmers and large retailers in India. Those contracts, like P4P, are driven by the inefficiency of markets and the need (on both sides) for long-term stability in prices. In the short term, these contracts benefit producers and enhance their productivity.

However, to turn those into lasting benefits and provide ALL consumers and producers the same benefits, these contracts need to be merged into a single marketplace. This is where P4P should go. Rather than trying to benefit a certain subset of farmers, the program should become a clearing house for ALL purchases in a given country. By making long-term purchases the norm, it would lead to a “race to the top” – buyers would be forced to match WFP’s terms of long-term prices, and producers would be forced to improve productivity. All consumers would benefit.

Of course, it remains to be decided if the short term negative impact on consumers is outweighed by the long term benefits of a better marketplace. And is an efficient agricultural marketplace really good? When the global price for coffee fell dramatically in the last century, it turned thousands of farmers into poverty. Is such a marketplace possible? And is it desirable?

Read the full post on CGDev for recommended guidelines P4P could use to avoid the pitfalls.

Tags: agriculture, markets, WFP