SOURCE: Milken Institute

Milken Institute

October 21, 2009 09:00 ET

Delivery of Food Assistance to World's Hungry Could Improve Through the Innovative Use of Financial Tools, Says New Report From Milken Institute

LOS ANGELES, CA--(Marketwire - October 21, 2009) - Global food assistance saves millions of lives every year, but millions more could be saved through innovation in funding, supply and delivery systems.

Getting food to the most people with the fewest resources is a constant challenge for food-assistance agencies, but one that financial tools can help address, says a new report from the Milken Institute, "Feeding the World's Hungry: Fostering an Efficient and Responsive Food Access Pipeline."

"High prices and worldwide recession have left more people than ever before without enough to eat, and the basic tools we're using to meet food assistance needs can't keep pace," said Betsy Zeidman, research fellow at the Milken Institute and lead author of the report. "The financial tools suggested aren't unusual in themselves, but they would present an extraordinary shift toward making food assistance more efficient and responsive."

The finance tools examined in the report have been used effectively in other sectors -- for example, to provide vaccines to developing countries -- but they have not been used in food assistance delivery. The report recommends using such instruments as call options, guaranteed bonds and tax credits to help improve assistance groups' ability to deliver desperately needed food on time and at lower cost.

According to the report, the main challenges facing global food assistance organizations fall into three categories: funding, price and supply.

Funding, which primarily comes from donations, is unpredictable. This unpredictability, combined with some donors' restrictions on the type of aid they can provide (i.e., in-kind or cash) and where their donations may be used, severely constrains organizations' planning and budgeting. The uncertainty also prevents them from taking advantage of economies of scale or stocking up on supplies when prices are low.

Volatile prices and long and difficult transportation routes, trade barriers and security concerns also make it difficult for food assistance to reach those in need.

To help break through these barriers, the report recommends a number of finance tools, including:

--  Issue food assistance bonds backed by donor commitments. These are
    legally binding donor pledges that could be securitized in capital markets,
    allowing organizations to access the funding when needed instead of waiting
    for the next donation to arrive.
--  Make purchases in advance. Unpredictable funding, among other factors,
    often forces groups to make spot purchases of supplies. But forward
    purchases, completed before the supplies are needed, allow organizations to
    lock in lower prices and offer them more flexibility on volume and delivery
    locations.
--  Use call option contracts. These would give assistance groups the
    right, but not the obligation, to buy supplies at a certain price for a
    certain period of time, allowing the organizations to optimize their donor
    dollars.
--  Explore the increased use of public-sector grain reserves. Greater use
    of locally held grain reserves would dramatically improve response times
    but must be planned and coordinated carefully to avoid disrupting local
    markets or discouraging private-sector reserves.
--  Arrange tax credits for private-sector companies so that humanitarian
    organizations can tap their food stocks at the tax-free price. Private-
    sector tax credits could increase available food supplies and enhance
    flexibility in sourcing and distribution.
    

The report notes the critical need and timeliness for addressing this issue now: "Ultimately, the solutions recommended in the report would allow humanitarian organizations to deliver food to developing countries on time and at a lower cost. Making operations more efficient will increase the number of people who receive food assistance and will limit hunger's long-term negative impact on developing countries' economic development."

The report is the result of a Financial Innovations Lab, hosted by the Milken Institute with support from the Bill & Melinda Gates Foundation, which took place in Washington, D.C., in July. The participants included humanitarian and government agencies and experts from international development finance institutions, commodity exchanges, banks, foundations and research organizations.

Financial Innovations Labs are part of the Milken Institute's continuing leadership in promoting financial innovations to help solve ongoing social, economic and environmental challenges.

The full report is available at www.milkeninstitute.org.

About the Milken Institute: The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. It is based in Santa Monica, Calif. (www.milkeninstitute.org)

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