TECHNICAL ASSISTANCE

II. Assistance in the international procurement of strategic food commodities

Context and Rationale

The difficult agricultural environment in the Palestinian territory has caused a high degree of food insecurity. The limited areas of land and limited water resources available to Palestinians during the interim period, together with the absence of the legislation needed for protecting title deeds, have restricted the agricultural sector's production capacity. According to the Palestinian Central Bureau of Statistics (PCBS), the areas of land under cultivation did not exceed 1,861 dunums in 1998, constituting no more than 30 per cent of total land areas, of which 85 per cent is rain-fed. Fruits and vegetables are the main agricultural exports, comprising mainly olive oil, citrus fruits, tomatoes and squash.

Food consumption averages less than 2,200 calories per day, with wheat flour, sugar, rice and vegetable oil constituting the basic food commodities in the territory, along with meat, poultry and milk. With population growth far outstripping domestic production to reach an estimated 5.4 per cent in 2000, domestic food production covers only one third of domestic demand for basic food commodities(1). Consequently, the PA is heavily reliant on external markets for meeting domestic demand, with food and live animals making up 19 per cent of total value of imports in 1998 and Israel being as the main source of basic food commodities. This has been impacting negatively on economic access to food supply, given the relatively highly priced Israeli products as compared with those available in regional and international markets.

The Paris Protocol allows for improving food security conditions in the Palestinian areas, providing opportunities to seek cheaper sources of supply. Under the terms of the Protocol, the PA has the right to apply its own import and customs policies to certain goods within limited quantities identified in List A 1 and List A 2, including feed grains, rice, sugar, edible oils and wheat flour. These are mainly imported from Jordan and Egypt, though in quantities lower than actual Palestinian needs. Article III-3 of the Protocol provides that the quantities may be updated regularly to reflect real market needs in the future.

Nonetheless, trade diversification entails some risks, including the deteriorating terms of exchange in world markets, uncertainty of supplies, world market price instability and increasing environmental stress. Meanwhile, the geographical discontinuity of the Palestinian areas and the continued delay in the opening of the seaport in Gaza, are undermining the efficiency of marketing channels, signifying the need to establish security stocks of food.

So far, the PA's efforts to improve food security conditions have focused on creating a conducive environment, whereby economic access to basic food supplies is ensured through development policies aimed at increasing the levels of investment and productivity. Meanwhile, trade is seen as the main vehicle for making up the difference between production and consumption needs. However, policies are not backed by mechanisms to ensure physical and economic access during adverse conditions, including the stabilization of food supply, and both producer and consumer prices.

Objectives

To improve food security conditions in the Palestinian territory by assisting the PA in designing and implementing policies for the procurement of strategic food commodities. The project also seeks to enable the private sector to assume an active role in this area by developing its capacities in dealing with volatile international commodity markets.

Main activities

Guided by the findings of advisory missions in 1995 and 1997, the secretariat designed a package of technical assistance activities to be carried out in close coordination with the PA's Ministry of Supply and other related ministries and private organizations. The activities will be implemented in three interlinked phases at a proposed cost of US$ 103,000.

First, field studies will be conducted, bringing together experts from public and private institutions involved in the international procurement of food commodities to assess strategic food commodity procurement conditions in the territory. The studies will define: 

1. a list of food commodities of strategic importance; 

2. the size of the security stocks to be established; 

3. alternative options for financing the establishment of these stocks; 

4. the role of the private sector in the trading and holding of these stocks; and 

5. a possible market-based mechanism for food procurement.

Second, during the period of field research, UNCTAD experts will provide selective advisory and technical assistance services to the PA with regard to 

1. the setting-up of the procurement mechanism, including the development of its organizational structure, and the functions of main departments and of key personnel; 

2. the procurement method, including the design of tender contract terms and tender procedures, and selection of international suppliers; 

3. trade financing; and 

4. training in the field of international trade and food procurement to facilitate the task of operating the new mechanism.

Third, a seminar will be organized to assist Palestinian traders in developing their experience in international trade and the procurement of strategic food commodities. It will take the form of group training, bringing together experts, Palestinian decision makers, and representatives of the private trade promotion organizations and companies involved in food purchases/imports. Drawing on the background papers to be prepared by Palestinian and international experts, the seminar will be facilitated by representatives of relevant organizations such as the World Food Programme (WFP), the Food and Agricultural Organization of the United Nations (FAO) and Société Générale de Surveillance (SGS). The proposed seminar will be divided into ten thematic sessions: 

1. major factors affecting domestic supply of and demand for the specified strategic food commodities;

2. current local trading practices with regard to these commodities; 

3. storage capacity: problems and proposals; 

4. world markets and analysis of principal sources of market information; 

5. formulation/calculation of cost, insurance and freight (CIF) prices; 

6. financing imports: commercial and government credit facilities;

7. quantity and quality controls; 

8. contract terms (GAFTA, FOSFA, local terms); contract execution: litigation and arbitration; 

9. domestic security stocks: domestic sales mechanism, size by commodity, location of storage and storage control; and

10. international procurement mechanism for commodity security stocks: financing, role of government and the private sector, international experience, lessons learned and mistakes to avoid.

The results of the seminar will be reflected in a background document that will provide the basis for formulating appropriate policies and mechanisms for regulating international food procurement. Follow-up activities include consultations with the PA in order to formulate a detailed plan of action for establishing the stipulated commodity procurement mechanism.

It is envisaged that this pilot project will reveal a number of areas for follow-up assistance to the PA in the field of commodity trade, at both import and export levels, as well as related physical infrastructure requirements. Technical assistance needs in the latter area will be of relevance to such organizations invited to participate in the seminar as the FAO, WFP and SGS.

Status

New consultations were initiated with the PA's Ministry of Supply in 2000-2001. The PA re-examined the draft project proposal in the light of current circumstances and needs, and has made a number of suggestions to enhance its design and impact. Consultations with possible funding sources are underway.

The issue of food insecurity has become more pertinent since September 2000 as shortages of major consumer commodities began to appear and price instability of imported food began to worsen. The ongoing political crisis has severely impacted on the Palestinian economy, where economic access to food supply is likely to constitute a major problem in the coming few years. Already, at the end of March 2001, the number of Palestinians living below the poverty line was estimated to have exceeded two million. The monthly median income for Palestinian households declined by 48 per cent to NIS 1,200, thus leaving 64.2 per cent of Palestinian households below the poverty line of NIS 1,622 per month. There is now a delay in beginning technical assistance projects to improve food security and a continued lack of resources to kick-start these projects. However, with the announcement by the Ministry of Supply of a new project in 2001 to build food-commodity silos in Gaza and the West Bank, it is again possible that the technical assistance projects could contribute to Palestinian food security.