P.L. 480 Title II Programs
TABLE OF CONTENTS
Acronyms and Glossary
Introduction
Purpose
Authority
Related Documents
Policy Framework
Background
Programming Proceeds to Achieve Food Security Objectives
Monetization and Food Security Objectives
Avoiding Disincentive Effects of Monetized Food Aid
Need for Market Analysis
Open and Competitive Sales
Cost Recovery in Context
Review and Evaluation Criteria
Monetization in Emergency Situations
Third-Country Monetization
Implementation Guidelines
Measurement Costs
US Commodity Procurement
Price Indications
Price Quotes
Invoiced Prices
Ocean Freight and Inland Transport for Landlocked Countries
Cost Recovery Benchmark
Development of a Monetization Request
Justification for Monetization
End-Use Justification
Cost Recovery Justification
Supply Justification
Market Development Justification
Preliminary Proposed Mechanics of the Monetization
Monetization Sales Budget
Sales Proceeds Management
Mission Roles and Responsibilities During the Development of a Monetization Request
Ongoing Technical Support
Bellmon Determination
Certification of Cooperating Sponsor Financial Management Systems
Concurrence of Sales Price Analysis
Third Country Monetization
Review and Approval of Monetization Requests
Review and Approval Process
Review and Evaluation Criteria
Procedures for Call Forward and Price Quote Requests
Information Required for Approval of a Monetization Call Forward
Waiver Requests
The Sale
Transfer of Title to Cooperating Sponsor
Performance Bonds
Payment of Duties and Taxes
Markings
Sales Agreement
Reporting Requirements
Sales Price and Revenue Analysis
Financial Reporting
Management and Accountability
Maintenance of Proceeds
Funding Shortfalls and Surpluses Due to Difference Between Revenues
Generated and Approved Monetization Budget Requirements
Surpluses
Losses
Maintenance of Currency Pipeline
Roles and Responsibilities of USAID Missions During Activity Implementation
Roles and Responsibilities of Cooperating Sponsors During Activity
Implementation
Roles and Responsibilities of BHR/FFP During Activity Implementation
Umbrella Monetization
Role of Umbrella Sales Agent
Joint Monetization Agreement
Monetization Committee
Coordination with Other Donor and Donor Subsidiary Programs
Third-Country Monetization
Title II Activity Close-out
Appendix A - Market Analysis Overview
Appendix B - Market Analysis Procedures
Appendix C - Monetization Profile
ACRONYMS AND GLOSSARY
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AER
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Annual Estimate of Requirements. A table submitted with a DAP or
PAA which is signed by the cooperating sponsor and estimates the
quantities of commodities that will be required for the coming year.
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BHR/FFP/POD
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Bureau for Humanitarian Response/Office of Food for Peace/ Program
Operations Division at the U.S. Agency for International Development.
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Bank Guarantee
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A document issued by a bank by which the bank agrees, on behalf of
the buyer, to ensure that all obligations set forth under a contract,
including payment in full, will be met by the buyer, provided the seller
demonstrates full discharge of his obligations through presentation of
specified documents within a predetermined time frame.
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Bellmon Amendment/
Determination
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An analysis in the proposal submitted to the Mission Director by the
Cooperating Sponsor, pursuant to section 403(a) of P.L. 480, showing
that a commodity is suitable for monetization (or distribution) in that
country, adequate storage is available in the recipient country, and
import of the commodity will not result in a substantial disincentive to
or interfere with domestic production or commercial marketing of the
commodity in that country. The Mission makes the determination on
the adequacy of the analysis, subject to final approval of all aspects of
the proposal by FFP.
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C&F
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Commodity and Freight. A price quotation that includes the cost of
merchandise and freight charges to a specific destination.
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CCC
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Commodity Credit Corporation. A corporate agency and
instrumentality of the United States within the U.S. Department of
Agriculture.
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CS
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Cooperating Sponsor. An entity, within or without the United States,
governmental or not, such as the foreign government, the American Red
Cross, the intergovernmental organization, or the private voluntary
organization or cooperative, which enters into an agreement with the
U.S. Government for the use of agricultural commodities or funds.
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Call Forward
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A request initiated by the field office of a CS for the delivery of a
quantity of food commodities to a particular country program for use
over a specified period of time.
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Commodity(ies)
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Food or feed transferred or available for transfer to cooperating
sponsors.
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Commodity
Specifications
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The required attributes of the commodity being requested.
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Cost Recovery
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The concept that the expenses incurred by the U.S. Government in
procuring and transporting a P.L. 480 Title II commodity are offset by
the revenue realized when the commodity is monetized.
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DAP/PAA Guidelines
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A document, updated periodically by BHR/FFP, that provides guidance
to Cooperating Sponsors on the preparation of Development Activity
Proposals and Previously Approved Activity reports, two new
designations for "Operational Plan" as defined in Regulation 11.
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Discharge Survey
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A report that is prepared at the time a commodity is discharged from
the vessel of transport at the destination port and documents the
condition of the cargo.
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FAS
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Free Alongside Ship. Includes all costs of transportation and delivery
of the goods to the dock.
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FEWS
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Famine Early Warning System, funded by USAID. Tracks vulnerability
to famine in food insecure countries.
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FFP/D
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The Director of the Office of Food for Peace.
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Food for Peace
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The general term applied to the food donation program authorized by
the Agricultural Trade Development and Assistance Act of 1954 (P.L.
480), as amended.
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GIEWS
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Global Information and Early Warning System, created under the Food
and Agricultural Organization in Rome. Estimates food production and
food needs in famine-prone countries.
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Hard Currency
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A currency widely used as a means of exchange in international
transactions.
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Indicators
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Measurements used in determining the degree of progress that has been
made toward achieving an objective.
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Letter of Credit
LIFDC
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A commercial instrument issued by the importer's bank to the exporter
that establishes a documentary basis for the exporter getting paid,
provided the exporter complies with the exact terms of the credit.
Low Income, Food-Deficit Countries include all food-deficit (ie. net
importing basic foodstuffs) countries with per capita GNP not exceeding
the level used by the World Bank to determine eligibility for
International Development Association (IDA) (soft loan) assistance.
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Mission
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For purposes of this document, the representative office of USAID in a
country outside the United States.
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MT
Monetization
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Metric Tonnage.
The selling of agricultural commodities to obtain foreign currency for
use in U.S. assistance programs.
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Oligopoly
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A market dominated by only a few parties.
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PAA
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Previously Approved Activity. The report submitted annually by a CS
that requests a fiscal year allocation of commodities and dollars for an
ongoing Title II activity.
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P.L. 480 Title II
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An "Emergency and Private Assistance" program to provide agricultural
commodities to foreign countries on behalf of the people of the United
States to: address famine or other urgent or extraordinary relief
requirements; combat malnutrition, especially in children and mothers;
carry out activities that attempt to alleviate the causes of hunger,
mortality or morbidity; promote economic and community development;
promote sound environmental practices; and carry out feeding programs.
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Parastatal
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A business with some degree of autonomy that is otherwise owned and
controlled by a government.
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Pipeline
Results Report (R2)
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Commodities or funds unused during a financial year or reporting
period that are transferred to the budget or planning levels for the
following financial or reporting year. Also sometimes referred to as
"carryover." A "pipeline analysis" is a report of the "carried forward"
commodities or funds.
Cooperating Sponsor reporting document summarizing progress made
during the year's activities.
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Third-Country
Monetization
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A monetization where commodities are sold in one country and the
foreign currency generated is used in that country and/or another
country in the same region.
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Title III (P.L. 480)
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A "Food for Development" program under which agricultural
commodities are donated typically on a government to government basis
to least developed countries.
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UMR
USAID/W
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Usual Marketing Requirements. Analysis required under P.L. 480 to
ensure that P.L. 480 sales programs do not disrupt world commodity
prices or normal commercial trade patterns betwen the importing
country and other friendly countries.
United States Agency for International Development in Washington,
D.C.
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USDA
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United States Department of Agriculture
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Umbrella Monetization
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Two or more Cooperating Sponsors operating in a specified country or
region monetize their commodities jointly for purposes of: containing
costs related to marketing and market analysis; avoiding duplication of
effort; increasing the volume of commodities to be monetized which
enhances competitiveness; and achieving greater supply impacts.
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WFP
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WFP means the World Food Program, which enters into an agreement
with the U.S. Government for the use of agricultural commodities and
which is directly responsible under the agreement for administration and
implementation of programs involving the use of commodities made
available to meet the requirements of eligible recipients.
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INTRODUCTION
I. PURPOSE
This Monetization Field Manual outlines policy and operational procedures for private
voluntary organizations (PVOs) and cooperatives, acting as Title II Cooperating Sponsors, in
the design, implementation, management and evaluation of P.L. 480 Title II partial and full
monetization transactions in emergency and non-emergency contexts. The roles and
responsibilities of Title II Cooperating Sponsors, USAID Missions, and USAID/W, including
FFP/D, are also clarified.
II. AUTHORITY
This manual is supplemental to the Agricultural Trade Development and Assistance Act of
1954 (P.L. 480), as amended, and USAID Regulation 11 (22 CFR Part 211) dated May 7,
1992. This Monetization Field Manual supersedes the manual dated August, 1988. In the
event of any inconsistency, Regulation 11 takes precedence over the manual.
III. RELATED DOCUMENTS
The following references, which further articulate USAID monetization policy and operational
procedures, should be used in conjunction with these guidelines:
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USAID Regulation 11 dated
May 7, 1992;
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Automated Directive Systems (ADS) with supplemental reference Handbook 9;
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USAID "Background
Paper and Guide to Addressing Bellmon Amendment Concerns on Potential Food Aid
Disincentives and Storage," dated July 1985;
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State Cable 086836 -
Bellmon Certification Requirements for P.L. 480 Title II Activities,
dated May 14, 1998;
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OMB Circular A-122;
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Annual USAID DAP/PAA
guidance for the preparation of Title II development proposals
and reporting documentation;
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Title II Monetization
Evaluation Report dated, March 29, 1996;
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Title II Close-out Plan
Guidance, dated September, 1996;
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PVO Guidelines for Title II Emergency Food Proposals and Reporting (Draft), dated
January 26, 1998.
TITLE II MONETIZATION
POLICY FRAMEWORK
I. BACKGROUND
Since the beginning of Title II monetization in 1986, the use of monetization proceeds has
grown dramatically to become a critical resource for Cooperating Sponsors (CSs). The 1996
reauthorization of P.L. 480 increases to 15 percent the minimum percentage of the aggregate
value of non-emergency Title II commodities to be made available annually for monetization
by PVOs and cooperatives. In addition, the use of third-country monetizations, where
commodities are sold in one country and the foreign currency generated is used in another
country in the same region, is now permitted in both emergency and development
programs.
A 1995 U.S. Department of Agriculture (USDA) study entitled Food Aid Needs and
Availabilities - Projections for 2005 states that "food aid needs will nearly double over
the
next decade, even with reasonably optimistic assumptions about recipient countries' ability to
produce their own food or have the financial capacity to import food commercially."
Coupled
with growing needs for food aid, especially in sub-Saharan Africa and South Asia, is the
reduction in real terms of USAID's development budget--both food and non-food resources.
Scarcity of U.S. Government surplus food stocks, requiring that virtually all food aid be
purchased in commercial U.S. markets, also contributes to the current context of rising
demand and declining supply. Other challenges involve the increased pressure on USAID
and
CSs to demonstrate concrete progress toward food security goals and the continuing debate
over whether the distribution or the monetization of commodities is the most efficient and
effective use of the food aid resource.
In February of 1995, USAID issued its Food Aid and Food Security Policy paper, which
promotes the integration of food aid with other USAID assistance resources and the use of
monetization proceeds to complement activities aimed at enhancing agricultural productivity
and improving household nutrition. The policy also emphasizes the need to strengthen
performance monitoring and evaluation systems to demonstrate more quantitatively and
qualitatively the food security impact of food aid programs. The purpose of this manual is to
clearly define a new set of policy guidelines and operational procedures to ensure that Title II
monetization directly contributes to the food security objectives defined in the Agency's
Food
Aid and Food Security Policy paper and to improve the management of monetization
activities
and resources.
II. PROGRAMMING PROCEEDS TO ACHIEVE FOOD
SECURITY OBJECTIVES
USAID's Food Aid and Food Security Policy paper is the foundation of any review of
Title II
activities, including those supported by Title II foreign currency. Priority will be given to
proposals in which the use of the foreign currency generated has the greatest potential for
achieving food security results for vulnerable people. Specifically, it is USAID's policy that
foreign currency generated from monetization must be programmed to support the objectives
of increased agricultural productivity and improved household nutrition.
If a USAID Mission wishes to exercise program direction or management control, or both,
over a given activity, then the appropriate implementation mechanism is a contract and not a
grant and donation. (See USAID's Automated Directives System Section 304.5.) P.L. 480 is
a grant and donation program, and if the Mission wishes to directly program monetized food
aid or to use monetized food aid in support of host government-sponsored programs, then the
appropriate implementation mechanism is Title III, not monetized Title II. As with all other
grants, both food and non-food, provided by USAID, Title II grants and donations are
provided to support the program activity identified, designed and managed by the grantee or a
Title II CS.
III. MONETIZATION AND FOOD SECURITY OBJECTIVES
Title II food aid monetization is typically built around two objectives. First, Title II food aid
monetization is programmed to enhance food security. Second, Title II food aid is used by a
CS to generate foreign currency to support development activities.
Monetization offers the potential to improve the marketing of food to permit greater access to
those who are food insecure. Indeed, there is an important direct link between food security
and how food aid is monetized. The process of monetizing can be used to promote low-cost,
competitive food markets by encouraging investment in transportation, infrastructure and
human capital (traders, entrepreneurs). In essence, food aid monetization can enhance
long-term food security by encouraging the development of competitive food marketing
systems
that have built-in incentives to provide the poor with affordable staple foods.
Thus, Title II monetization must address three objectives:
1. to generate the maximum feasible amount of foreign currency
funds for Title II food
security activities;
2. to enhance household access to food, at least in the short run;
and
3. to encourage, where appropriate, the development of
competitive food marketing systems.
These objectives rest upon the underlying precept that, above all, food aid monetization
efforts must strive to "do no harm" to producers' incentives, fragile local food
markets, and
low-income consumers. They also stem from the belief that food aid is a unique resource that
does have enormous potential to contribute to long-term sustainable development. Above and
beyond the generation of funds for food security activities, monetization is one more tool
among the set of programming options available to enhance the food security of vulnerable
households through the use of U.S. food commodities.
IV. AVOIDING DISINCENTIVE EFFECTS OF MONETIZED
FOOD AID
Food aid practitioners have long recognized the potential for food aid, whether through direct
distribution or monetization, to create disincentives for domestic food production. This
recognition, however, does not always translate into food aid programming that "does
noharm." Legislation and regulations require that, before P.L. 480 food aid can be
provided for
direct distribution or monetization, a CS must prepare a Bellmon Amendment determination
in accordance with Section 403(a) of P.L. 480, to establish that: a) adequate storage facilities
are available in the recipient country, and b) "the distribution of the commodities in the
recipient country will not result in a substantial disincentive to or interference with domestic
production or marketing in that country." Too often Bellmon analyses and
determinations
reflect serious shortcomings in demonstrating a clear understanding of the market in which a
monetization is to take place. They also frequently do not cover the requirement of Section
403(b) of P.L 480, that the Administrator "shall ensure that the importation of United States
agricultural commodities and the use of foreign currency for development purposes will not
have a disruptive impact on the farmers or the local economy of the recipient country."
Current policy requires that if a Mission is present in the country where commodities are
being monetized, the Mission must make a determination from the CS's Bellmon analysis that
the statutory requirements are met.
When food is appropriately targeted and distributed to those without adequate cash income to
purchase in the market, disincentive effects are often, although not always, minimized. For
example, feeding programs often target poor consumers that have calorie deficits due to an
inability to secure food either through production or through the market. In such cases, direct
distribution of food aid can be a net addition to total food availability with minimal effect on
agricultural production incentives and domestic food prices.
Monetized food aid, however, does not have these advantages because in most cases it is
eventually purchased by consumers through normal marketing channels. As a result, it can
have serious negative and positive impacts on food prices, marketing, and production
incentives. In addition, since any food system is composed of numerous participants (farmers,
traders, processors, retailers and consumers), the impact upon different participants can vary
greatly. More affordable retail food prices can benefit urban consumers but translate to lower
produce prices for farmers. Similarly, sales of food aid in the "hungry season" right
before
harvest may stabilize prices and benefit consumers. However, such sales may also destroy
incentives for food traders to engage in intra-seasonal storage and to create local capacity to
deal with seasonal food insecurity. The timing of a monetization, not just the volume of
commodity, must be considered in the overall context of food flows.
The effects of monetizing must be carefully scrutinized. The key issue is not so much
whether monetization will have an effect on the market but rather the magnitude of the effect.
Is it tolerable or desirable? Is it "substantial?" More attention must be devoted by the CS
and USAID Mission to understanding and minimizing potential disincentives while
maximizing the potentially positive effects of monetized food aid. In response to increased
attention to preparing thorough Bellmon analyses, the key elements that must be considered
during the preparation of a Bellmon determination are outlined in Appendix A.
V. NEED FOR MARKET ANALYSIS
Because the rationale for monetizing, or the decision not to monetize, flows primarily from
market factors, the analysis of food market structure, conduct, and performance must be a
central component of all food aid monetization efforts. For this reason, the Title II CS
andUSAID Mission must increasingly demonstrate throughout proposal submissions, activity
implementation, and results reporting a clear understanding of the markets in which they
operate. Approval of proposals utilizing funding from monetizations will be contingent upon
demonstration of an understanding of the likely effects of the monetization on the local
market.
There are several well-developed frameworks that can be used to analyze food markets. One
of the most common, developed by economists and refined by business school practitioners,
involves recognizing the links between the structure of a market (the number of buyers and
sellers, the nature of the commodity, etc.), the conduct of participants (how prices are set,
what rules are followed, etc.) and the eventual performance of the market. Performance is
simply judged by the degree to which the market meets a diverse set of goals; some of the
goals of a food marketing system might be technical efficiency or affordable retail food
prices.
Although market analysis is often thought of as a highly quantitative exercise, much can be
gained from a descriptive analysis of the structure, conduct and performance of a food market.
Such analysis can be well suited to low-cost rapid appraisal techniques. At its most basic,
food market analysis boils down to viewing the food system as a step-by-step series of
inter-linked transactions and transformations. An understanding of "how the system
works" can be
gained by an initial inventory of all participants, followed by open-ended conversations and
interviews with participants. In response to this increased emphasis on understanding
markets, suggested procedures for conducting a market analysis are provided in Appendix B.
USAID recognizes that this increased attention to market analysis requires that USAID
increase its own technical capacity or refocus existing technical capacity so that a
determination can be made as to whether a CS submitting a proposal has demonstrated an
understanding of the local market and how its monetization will affect that market.
Moreover, USAID recognizes that, although it is the CS's responsibility to conduct a Bellmon
analysis (unless one already exists for the current fiscal year and the relevant commodity and
Metric Tonnage (MT) level), the CS should not carry the burden of expanded market analysis
alone. USAID, primarily through its field Missions but also through its technical offices, is
committed to providing technical assistance to the CS to enhance its capacity to analyze
markets and, ultimately, to design and execute market-friendly monetizations. This is an
integral part of the statutory requirement that the appropriate United States field mission
concur in the CS proposal before it is submitted to USAID/W. At the same time, USAID
strongly encourages the CS executing a monetization to continue its efforts in developing
marketing expertise. Similarly, it is the Mission Director or principal officer in-country who
must make the Bellmon Determination, as under Delegation of Authority 902, no Title II
activity may take place in a country without clearance of the principal USAID officer, who
then will be responsible for monitoring all food aid activities in the country. The CS is
encouraged to tap existing Section 202(e), Institutional Support Assistance (ISA), foreign
currency or other resources for the purpose of increasing technical capacity to carry out
successful monetizations that, at a minimum, "do no harm." Potential collaboration
with
national and international institutions with the technical expertise to conduct market analyses
should also be considered.
VI. OPEN AND COMPETITIVE SALES
A decade ago, many developing countries had tightly controlled marketing systems, and
negotiated pricing arrangements may have been the only option for the CS choosing to
monetize. Today, however, most developing countries have made substantial food policy
reforms and now permit a wide range of private sector marketing activities. Nonetheless, too
often the CS monetizes food aid by selling directly to monopolistic parastatals and
oligopolistic traders and processing firms even when small-scale private buyers exist. The
reason for this is relatively easy to understand: negotiated sales to one buyer or several large
buyers eliminates the complexity and higher costs associated with conducting auctions or
making sales in small lots to numerous buyers.
By neglecting small-scale buyers and overlooking the potential for alternative marketing
channels to meet consumer food needs, sales to parastatals and oligopolies adversely affect
the very people food aid is meant to help. The net effect is often to exclude statutorily
favored small-scale buyers, traders, processors and retailers that usually have much lower
operating costs than large-scale enterprises. Evidence shows that monopolistic parastatals
and
oligopolistic milling firms often have inflated pricing structures that ultimately raise the cost
of food to consumers. In contrast, due to low entry costs and more appropriate, lower-cost
technology, small-scale traders and processors often operate in highly competitive niche
markets and have the ability to supply consumers with staple foods at affordable prices.
As the longer-term positive and negative effects of food aid sales are more fully considered,
USAID and its partners must focus on how food is monetized and to whom the food is sold.
Where appropriate, USAID must support open and competitive sales as opposed to
non-competitive sales. Auctions and tender sales have several advantages over negotiated
sales
and administered prices:
Auctions/tender sales eliminate the inherent difficulties in determining a "market
price" for
monetized food aid;
Auctions/tender sales offer a degree of transparency that, except in the case of extremely
immature markets, can facilitate access to food supplies by small-scale buyers
Auctions/tender sales offer scope for realizing higher sales prices, thereby generating
greater amounts of foreign currency proceeds for CS activities.
It is acknowledged that markets vary and thus auctions and tender sales may not always be
feasible. However, efforts must always be made to maximize the openness of the sale, and
the CS is required to submit a justification to BHR/FFP as part of its DAP/PAA submissions
for monetizations necessitating non-competitive sales.
USAID has considerable experience in working with host countries to monetize Title III food
aid through auctions, with lessons learned from over a half-dozen countries. In cases where
this expertise might prove valuable, the Title II CS is encouraged to seek guidance from
USAID.
VII. COST RECOVERY IN CONTEXT
Cost recovery has been central to the debate surrounding monetization. Revenues
generated
from Title II commodity sales that are less than the costs incurred in purchasing, shipping,
and selling the commodity have drawn the attention of the General Accounting Office,
Congress, and others. USAID policy requires that CSs strive to achieve at least full cost
recovery (using foreign flag carrier rates) with each and every monetization transaction they
conduct. USAID recognizes that full cost recovery is not always achievable and has
established a benchmark sales price, below which commodities may not be sold without a
waiver by FFP/D. This benchmark serves as an important accountability and reporting tool,
but is only one among several criteria for judging the merits of a proposed monetization
activity.
Sales prices for monetized commodities determine the amount of resources that will be
available for activities aimed at achieving food security impacts. Accordingly, the difference
between the costs associated with the purchase and transport of the Title II commodity and
the amount of proceeds generated represents the amount of resources not available for
programming. In this respect, cost recovery benchmarks act as a measure of accountability,
ensuring that monetization resources are used efficiently in terms of U.S. dollars made
available by Congress for food security versus U.S. dollars actually spent on food security
interventions.
Cost recovery benchmarks are also used to prevent sales that are carried out with little regard
for obtaining the "fair market price." To the extent that sales prices are below
"fair market"
prices for similar transactions in the market, a windfall gain is created. In specific
monetizations this may be desirable. In most cases, however, sales below local market prices
result in a windfall gain for a particular trader at the expense of programming funds for
activities targeted to the food insecure. In addition to the short-term consequences, windfalls
for particular traders can lead to an adverse change in the long-term competitive balance in
the market and excessive profit for a few individuals. For this reason, the degree to which a
sales price is different from (less than) the "fair market" value in the markets where
the
product is sold must be considered.
Various benchmarks, such as the fair market, C&F, and Free-Alongside-Ship (FAS)
values of
the commodity to be monetized, have been used for determining sales prices. For example,
the fair market value may be very different from either the C&F price or the FAS price.
Moreover, the fair market price can only be determined by the interaction of supply and
demand forces in open and competitive markets, while Title II commodities are sometimes
sold to monopolistic parastatals and oligopolistic traders and processing firms. Clearly,
simple observation of "prevailing market prices" may not be realistic since the
observation
may be based upon a very thin market. Only if demand is perfectly elastic will an
additionalsupply, i.e., the quantity of food aid to be monetized, not translate into a decline in
market
prices, except in cases where the supply of commodity will be substituting for commercial
imports. In these cases, however, the CS should be concerned about creating significant
disruptions in vulnerable markets as well as safeguarding usual U.S. marketings under
Section
403(h) of P.L. 480. CS are encouraged to work with other donors, traders, partners, U.S.
Trade Representatives and embassy Agricultural Trade Attaches where appropriate.
The difficulties outlined above reaffirm that there are often trade-offs involved in terms of
recovering costs and achieving food security impacts through the process of monetization.
Cost recovery is therefore one of several factors to consider when determining whether or not
to monetize. Sales below the cost recovery benchmark must be justified through the
identification of measurable food security impacts that are unique to the supply and/or sale of
food as opposed to cash. The cost recovery benchmark, which is discussed in detail in the
Implementation Guidelines section of this document, will be:
80% of the C&F value, using the FAS quotation provided by
FFP at the time of the
call forward, the foreign flag rate, plus port clearing and handling costs and duties,
estimated transport costs to move the commodity to the point of sale, and expenses
associated with marketing the commodity, or 100% of FAS, whichever is greater.
VIII. REVIEW AND EVALUATION CRITERIA
Proposal approval containing a monetization request will be based primarily upon the
anticipated measured impacts on food security. The following criteria will provide the basis
for review and evaluation of monetization requests in addition to the criteria in the DAP/PAA
and Emergency Guidelines:
1. Assurance that the monetization proceeds will be used to
support activities that are
expected to achieve demonstrable impacts on food security, as defined by USAID's
Food Aid and Food Security Policy paper and measured using approved indicators;
2. Assurance that the monetization meets all of the requirements of
a Bellmon
Determination;
3 . Certification that the amount of currency generated in the
monetization transaction(s)
will meet or exceed the cost recovery benchmark.
IX. MONETIZATION IN EMERGENCY SITUATIONS
Monetization of food aid in emergency situations is normally supportive of (a) enhancing
access to food by vulnerable groups, and (b) generating funds supportive of emergency food
activities. Monetization of emergency food aid must be guided by the criteria set forth in
Section VIII of this manual. If the criteria cannot be satisfied due to the nature of
theemergency, then the FFP/D must make the determination that the benefits of the specific
monetization merit a waiver of the Section VIII criteria.
In emergency situations, the monetization of food aid should demonstrate that monetization
offers the best option for satisfying the nutritional needs of targeted vulnerable groups.
Situations where monetization may be appropriate include small-scale sales in
drought-affected villages where surrounding farm families cannot grow enough to support the
non-farm community. Other situations may occur wherein small-scale monetization can
facilitate
the re-establishment of a distribution channel closed by war or natural disaster. Finally, the
sale of food aid to cover costs of moving commodities to targeted vulnerable groups may
have a more effective and developmental effect than the direct expenditure of foreign
currency.
X. THIRD-COUNTRY MONETIZATION
BHR/FFP is still in an exploratory period regarding third country monetization. These types
of transactions will be reviewed in the next year to see where they have succeeded and
what lessons can be learned and best practices developed.
Third-country monetization requests have become more frequent as monetization in smaller
markets are not always feasible. CSs are encouraged however to make every effort to
monetize within the country in which they are working. Monetizations in third countries
require additional input from many sectors and are often more difficult to piece together.
Most of the third country monetizations to date have been successful, but the amount of work
necessary to succeed can be more intensive than monetization in an activity country.
CS's should note that third country monetizations are subject to the same review and
evaluation criteria as identified in Section VIII above. Prior to developing a proposal
involving third-country monetization, the CS should confirm with FFP those LIFDC countries
within the region that would be eligible recipients of the monetized commodities. CSs should
consult the Monetization Field Manual's Implementation Guidelines, Section XI, Third-
Country Monetization for additional information.
TITLE II MONETIZATION
IMPLEMENTATION GUIDELINES
I. MEASUREMENTS COSTS
USAID requires that CSs strive to achieve full cost recovery with each and every
monetization transaction they conduct. The following costs must be included when
determining the cost recovery of a Title II monetization: the cost of purchasing the
commodities in the U.S.; commercial ocean freight for foreign flag vessels; inland transport
for landlocked countries; port clearing and duty; inland transportation to the point of sale; and
marketing. Guidelines for measuring these costs are provided below.
A. U.S. Commodity Procurement
Two features of U.S. commodity markets have implications on the
procurement costs
of Title II commodities. First, in general, the specific commodities procured for Title
II food assistance do not have one defined price in port position for a specific delivery
period unless a transaction is completed. However, public information is available that
provides an indication of where these markets would trade if orders were placed.
Second, markets for specific commodities vary over time and will depend on the
month that the commodity is to be delivered. In this context, there are three distinct
types of price information that CSs are required to obtain at different stages of a
monetization process.
1. Price Indications
Price indications are approximate
prices of commodities in U.S. port position.
They may be provided without reference to commodity specification and grade and
must be used as the name implies--as indications. These numbers are useful in
determining how local prices compare in a general sense with U.S. prices and in
tracking changes in these relative prices.
Price indications must be obtained
periodically during the preparation of a market
analysis and monetization budget proposal. Indications are therefore important
during the early stages of the monetization design to determine if a monetization is
possible. They must not be used to determine whether or not to proceed with a
monetization call forward request.
The Internet is a recommended
resource for obtaining price indications. Some
useful web sites include:
ftp://ftp.fsa.usda.gov/public/export/default.htm
ftp://ftp.fsa.usda.gov/public/grain/default.htm
http://www.fas.usda.gov
(and links to related sites)
Hard Red Winter Wheat (HRW) prices
from Kansas City Board of Trade:
http://www.kcbt.com/dgpsum.htm
http://www.ams.usda.gov/mncs/mn_reports/sj_gr710.txt
Hard Red Spring Wheat (HRS) and
Soft White Wheat (SWW) from the Minneapolis Grain Exchange:
http://quotewatch.com/exchanges/mgex.html
http://www.mgex.com/wheat/shtfut.htm
http://www.ams.usda.gov/mncs/mn_reports/ws_gr710.txt
Soft Red Winter Wheat (SRW) from
the Chicago Board of Trade:
http://quotewatch.com/exchanges/cbot.html
http://www.ams.usda.gov/mncs/mn_reports/ws_gr710.txt
Soybean, Soybean oil, Soybean Meal
from the Chicago Board of Trade:
http://quotewatch.com/exchanges/cbot.html
http://www.ams.usda.gov/mncs/mn_reports/ws_gr711.txt
Corn/Maize (Yellow) from the Chicago
Board of Trade
http://quotewatch.com/exchanges/cbot.html
http://www.ams.usda.gov/mncs/mn_reports/ws_gr711.txt
Sunflower Oil from USDA Market
News
gopher://shelley.ca.uky.edu//00.agwx/usr/markets/usda/MSGR851
Corn, Soybeans, SRW, HRW, DNS,
SWW:
USDA Market News (for FAS export U.S. port prices):
gopher://shelley.ca.uky.edu:70/00/.agwx/usr/markets/usda/jogr850
USDA
Market News (Missouri Department of Agriculture News) for spot and
short-term futures prices:
gopher://shelley.ca.uky.edu:70/00/.agwx/usr/markets/usda/sjgr850
On U.S. commodity exhanges, grains are traded in bushels (Bu.), vegetable oil is traded in
pounds (L.b.) and some commodities are traded in hundredweight (Cwt.) The measurements
below are from the USDA, Economics Statistics, and Cooperative Service Statistical Bulletin
titled "Conversion Factors and Weights and Measures," and can be used to
compute the MT
value for the information provided by the above Internet sites:
Bushel (Bu.)
Weights: 1 Bushel (Wheat/Soybeans) = 60 Lbs.
1 Bushel
(Corn/Sorghum) = 56 Lbs.
Bushel to Metric
Tons: 36.743 Bushels (Wheat/Soybeans) = 1 Metric Ton (MT)
39.368 Bushels
(Corn/Sorghum) = 1 Metric Ton (MT)
Hundredweight
(Cwt.) 1 Cwt. = 100 Lbs.
1 MT = 22.0462
Cwt.
2. Price Quotes
Price quotes are approximate values
for a specific commodity for delivery in a
specific time frame. As such, they require more time to be developed and must be
developed for each individual monetization. A price quote must be obtained at the
time of the call forward from BHR/FFP/POD.
BHR/FFP/POD will provide a written
price quote within three working days after
receipt from a CS of a request for such a price quote. The CS's request must be in
writing and include the commodity specifications and delivery time frame. This
FAS price quote must replace the price indications obtained during the market
analysis and proposal development stages and must be used in determining cost
recovery.
3. Invoiced Prices
Invoiced prices are the actual prices
identified on shipping documents of
commodities at the time that the purchase was made in the U.S. Except in unusual
circumstances, this price will be different from price quotes received at the time of
the call forward. CS must still use the FAS price quotation in determining cost
recovery.
B. Ocean Freight and Inland Transport for Landlocked
Countries
The Merchant Marine Act of 1936, as amended, requires that 75
percent of Title II
food assistance be shipped on U.S. flag vessels. These U.S. shipping costs usually
exceed the costs of non-U.S.-flag shipments. In recognition that this requirement is a
deviation from standard commercial practices and would make cost recovery more
difficult to achieve, estimated shipment costs of ocean freight on a foreign flag carrier,
as opposed to the higher U.S. flag rates, will be used for both budgeting and reporting
purposes.
Estimated non-U.S.-flag rates must be obtained from the CS's
freight forwarding agent
during proposal preparation and at the time of the call forward. At the time of the call
forward, the CS must provide BHR/FFP/POD with the certification of sales price
along with the freight indication in support of the call forward.
C. Cost Recovery Benchmark
Realizing that full cost recovery may not be attainable in all
situations, FFP has, for
the time being, established a more accommodative cost recovery benchmark. The
benchmark is set at 80 percent of the C&F value, using the FAS quotation provided
by FFP at the time of the call forward, the foreign flag rate, plus port clearing and
handling costs and duties, estimated transport costs to move the commodity to the
point of sale, and expenses associated with marketing the commodity, or 100 percent
of FAS, whichever is greater.
II. DEVELOPMENT OF A MONETIZATION REQUEST
Full and partial monetization requests are considered integral parts of Title II emergency
and
non-emergency activities. Accordingly, when monetization is requested, the requests must
always be included as part of the submission. In addition to this field manual, the CS must
refer to Regulation 11 as well as the guidelines for the preparation of Title II development or
emergency proposals, which are published annually by BHR/FFP, for instructions regardingthe
submission of monetization requests.
Monetization requires an ongoing understanding of the local market. The following are the
key elements, in addition to the market analysis section of the Bellmon Determination, which
must be included in the monetization component of a Title II proposal.
A. Justification for Monetization
Justify the appropriateness of monetization by examining, as
appropriate, the
anticipated impacts of the end-use of the funds, the amount of funds to be generated,
the supply of food or sale itself, and the potential for development of local markets.
1. End-Use Justification
Explain in detail the specific uses of
the foreign currency resources by Title II
intervention. State which interventions supported by foreign currency proceeds
involve direct distribution of Title II commodities and which do not. Provide a
percentage breakdown of the amount of foreign currency proceeds that support
each activity intervention.
Note: Title II monetization must be
included as a funding source in the
comprehensive budget. The specific foreign currency uses described above must
be clearly linked to specific monetization budget line items. The total amount of
foreign currency budgeted must be used to determine the amount of tonnage
needed. In other words, there should be a direct correlation between the budget
requirements and the amount specified for monetization on the AER.
2. Cost Recovery Justification
Justify the monetization on the basis of
the amount of funding to be made
available for programming as compared to the costs incurred in carrying out the
monetization. In the case where the monetization does not have objectives beyond
raising cash to support Title II activities, this must be stated explicitly. If the
revenues generated by the sale are expected to be less than the cost recovery
benchmark, the difference must be justified on the basis of food security impacts.
See Section V.B.
3. Supply Justification
If the monetization is justified on the
basis of the proposed food security impact ofthe sale, identify the potential supply effects from
the monetization, including the
impact of the additional supply of food in the market, as well as the effects
anticipated from the sales process. Identify all features of the monetization that
have value but are not captured in the cost recovery equation.
4. Market Development Justification
Monetization can be an effective tool
for contributing to the development of local
markets by broadening the participation in commodity sales to include small- to
medium-sized traders and/or those traders who may not have traditionally had
access to commercial opportunities. Strategies for strengthening local market
capacity include reducing barriers to entry for smaller traders, developing
appropriate payment plans, and facilitating the movement of commodities into rural
areas.
Justification on the basis of market
development must include a profile of the
commercial environment and strategies to be used to increase participation, as well
as targets for measuring success.
Using a chart or table form, identify the
specific objectives of the monetization
sale and the benchmarks and indicators that will be used to measure progress
against these objectives.
B. Preliminary Proposed Mechanics of the Monetization
1. Describe the rationale for the
commodity or commodities chosen for monetization.
What is the end-use of the commodity chosen? What are possible alternatives to
the commodity chosen?
2. Identify and justify the proposed
time frame for the sale. Provide seasonal prices
and harvest schedules where relevant and available and identify other key price
determining factors.
3. Identify and justify the proposed
location of the monetization. In doing so,
identify regional prices for the commodity and describe the market structure.
4. Describe and justify the sales
methodology, particularly in relation to the proposed
objectives of the monetization and to the existing market structure. Describe the
proposed terms of payment. Identify roles, where applicable, of agents and other
participants in the sale.
5. Verify that the commodities to be
monetized are in demand and not in competition
with similar or substitute commodities. State the current sources and approximate
amounts of supply of the proposed monetization commodity and its close
substitutes, taking into consideration other donor imports and subsidy programs,
such as USDA's Export Enhancement Program (EEP). Discuss the volume of
commodities proposed for monetization in relation to the size of the market inwhich the
monetization will take place.
6. Describe the storage facilities both
at port and inland that will be available in the
recipient country when the commodities arrive.
C. Monetization Sales Budget
For proposals that have a monetization component, the CS shall
provide a separate
monetization sales budget for the purpose of analyzing estimated sales costs versus
revenues. Refer to the section of this manual on measuring costs for relevant
definitions. For each commodity to be monetized, the budget must include:
1. U.S. Commodity Price Indication
($/MT x amount requested);
2. Estimated Ocean Freight and Inland
Transport for Landlocked Countries ($/MT x
amount requested);
3. Estimated Internal Transport to the
Point of Sale, Duty, Handling, Port Clearing,
and Marketing Costs. Break out these costs by line item;
4. Base Costs (sum of 1-3, above);
5. Estimated Sales Revenue plus
Projected Interest to be Earned ($/MT x amount
requested) + interest;
Use the estimated sales price ($/MT)
of the commodity or a similar commodity in
the sales position considered for the monetization. The total amount should
correspond to the amount of Title II foreign currency budgeted for in the
comprehensive budget; and
6. Preliminary Cost Recovery Estimate
- Express item 5 as a percentage of item 4.
D. Sales Proceeds Management
1
.
Identify the means for mitigating the effects that inflation and currency devaluation
might have on the monetization proceeds. Two possible methods include
depositing the funds in an interest-bearing account and converting the proceeds to a
hard currency.
2. Identify the financial institution in
which the sales proceeds are to be deposited
and verify that the proceeds will be deposited in a separate interest-bearing
account.
3 Describe the monitoring or
accounting system that exists to track the receipt,
disbursement and expenditure of the foreign currency proceeds. Describe the
monitoring role of the Mission in terms of reporting requirements, frequency of
reporting, etc.
4. In the case of umbrella
monetizations, describe the legal relationship between the
lead agent and each participating CS. Attach as an appendix the inter-agency
monetization agreement. The agreement should describe the organizational and
management framework, including the allocation and disbursement processes and
the fee payment schedule, if appropriate.
III. MISSION ROLES AND RESPONSIBILITIES DURING THE
DEVELOPMENT
OF A MONETIZATION REQUEST
A. Ongoing Technical Support
To the extent possible, Mission technical staff, e.g., agricultural
economists, must
provide CSs with technical assistance during all stages of the market analysis, fine-tuning, and
sales preparations.
B. Bellmon Determination
For the commodities to be monetized, the Mission must provide
explicit determination
regarding the CS's Bellmon analysis. The USAID Mission must describe its role in
analyzing the market in which the monetization will occur. If the CS's Bellmon
analysis is rejected, the Mission should explain why. It is not necessary for the CS to
provide a disincentive analysis if the Mission or USDA has completed such an
analysis for another program that is relevant to the program proposed by the CS.
C. Certification of Cooperating Sponsor Financial and
Management Systems
Missions must certify the adequacy of the CS's financial and
management systems for
carrying out the monetization activity. If there are shortcomings in the CS's financial
and management systems, determine whether corrective action can be taken or whether
the deficiencies are significant enough to warrant rejection of the activity.
D. Concurrence of Sales Price Analysis
Missions must provide explicit concurrence (or rejection) of the
sales price analysis
undertaken by the CS. If the analysis is rejected, the Mission must provide reasons for
the rejection.
E. Third Country Monetizations
Benefiting Missions are responsible for assisting CSs in their third
country
monetization requests. This may include, but not be limited to: 1). Providing
technical assistance in carrying out a Bellmon review in the third country; 2). Assisting the
CS with third country clearance (ie. Bellmon Determination andproceed expatriation); 3).
Assisting CSs in UMR process; 4). FFP encourages CSs and benefiting Missions to
communicate with the monetization country Mission or
Embassy to alert them of pending third country monetization requests. In instances
where the benefiting mission is unable to perform these functions they may requestFFP/W to
assist. FFP assistance will be based on management capacity and funding
availability to provide the necessary technical assistance.
IV. REVIEW AND APPROVAL OF MONETIZATION
REQUESTS
A. Review and Approval Process
In general, review and approval of monetization requests will be
subject to the
guidance provided by BHR/FFP for the review and approval of all Title II proposal
submissions.
In the case of multi-year approvals for development activities, as
long as the objectives
unique to the monetization, the commodity choice, and the mechanics of the
monetization remain the same, annual approval of commodities for monetization is
subject to submission of the following:
monetization sales budget, as described in Section II.C. above;
Bellmon Update, as described in Section II.B.5.-6. above; and
comprehensive budget, with foreign currency pipeline analysis, as described in
annual Title II guidelines and referenced in Section II.A.1. above.
If the objectives unique to the
monetization, commodity choice, or the mechanics
of the monetization have changed, a comprehensive monetization request, as
outlined in Section II., must be submitted for Mission (if applicable) and BHR/FFP
review and approval.
Approval of monetization requests
equates to recognition that the monetization is
conceptually possible. Between the time of the approval and the time of the call
forward request for monetization, actions must be taken by the CS to refine the
proposed mechanics of the monetization and verify whether the anticipated sales
price will meet the cost recovery benchmark.
B. Review and Evaluation Criteria
As noted in the Policy Framework section of this document, the
merits of all
monetization requests will be judged against the following criteria, in addition to those
stated in the DAP/PAA or emergency proposal guidance:
1. Assurance that the monetization
proceeds will be used to support activities that are
expected to achieve demonstrable effects on food security, as defined by USAID's
Food Aid and Food Security Policy paper and measured using generic or
otherwiseapproved indicators.
2. Assurance that the monetization will
not create disincentives to local production or
marketing of the commodity to be monetized or its substitutes..
3. Certification that the amount of
currency to be generated in the monetization
transaction(s) will meet or exceed the cost recovery benchmark.
V. PROCEDURES FOR CALL FORWARD AND PRICE
QUOTE REQUESTS
Approval of calls forward for monetization will be contingent upon the provision of updated
market information and confirmation that the sales price is expected to be at or above the
required benchmark. Monetization calls forward for sales anticipated to be below the cost
recovery benchmark will not be processed unless a waiver is signed by FFP/D.
A. Information Required for Approval of a Monetization Call
Forward
At the time of the call forward request, the following information
must be submitted to
BHR/FFP/POD:
clear commodity specifications;
for negotiated sales:
-- written
verification that a signed contract is in place and confirmation of
the negotiated sales price, or
-- CS
certification of the expected sales price, which must meet or exceed
the cost recovery benchmark;
for tender sales/auctions:
-- adequate
evidence that the market is competitive or can be made so;
-- CS
certification of the estimated sales price, which must meet or exceed
the cost recovery benchmark;
Mission concurrence on the call forward request.
B. Waiver Requests
Where a CS does not expect a monetization to meet or exceed
the cost recovery
benchmark, but rather proposes to conduct the monetization because of its anticipated
food security impact, the CS must submit a written waiver request to the FFP/D for
approval of the monetization call forward for a sale price below the cost recovery
benchmark. CS headquarters and USAID Missions will be notified of decisions on
waivers within 15 days after receipt of the written request.
VI. THE SALE
A. Transfer of Title to Cooperating Sponsor (Per Reg.
211.4(b)(i))
Title to commodities for monetization passes to the CS at the time
and place of
delivery FAS at U.S. ports. The CS is responsible for all arrangements in connection
with the receipt, storage and maintenance of the commodities for monetization from
the time of delivery at the U.S. port to the time of delivery to the purchaser. This
includes transportation of the commodities overland to landlocked countries. Unless
the CS has requested USDA to perform the discharge surveys, the CS must arrange to
have an independent surveyor attend the discharge of the commodities and may, at its
option, engage an independent surveyor to supervise clearance and delivery of the
cargo from customs or port areas to the purchaser and to issue appropriate delivery
survey reports. The CS's commodity monitoring responsibilities cease once the full
amount of the agreed purchase price has been deposited into the CS's account and title
to the commodities has passed to the purchasers or other third parties.
B. Performance Bonds
The CS should obtain a performance bond prior to submitting a
call forward to
BHR/FFP/POD. The performance bond should equal at least 10 percent of the
expected sales price and be denominated in the currency in which the sale will take
place. The bond should take the form of an irrevocable letter of credit (or similar
instrument, in accordance with local practices) and guarantee payment to the CS of the
amount of the bond in the event that the buyer of the Title II commodities fails to
perform inaccordance with the sales agreement.
Any proceeds generated from the payment of a performance bond
shall be treated as
program income and must be applied to the approved budget for Title II activities.
C. Payment of Duties and Taxes
Title II commodities for monetization may be taxed by the host
government, even
though taxation is clearly prohibited for commodities imported for direct distribution.
The CS may negotiate agreements with host governments which permit the tax-free
import of commodities for monetization. USAID only agrees to the payment of such
taxes if the monetization price is sufficiently high to recover all costs, including
commodity value and freight plus the tax itself.
USAID Missions and CSs must carefully consider the effects of
payment or non-payment of taxes in terms of limiting the proceeds available for programming,
in the
case of the former, and disrupting the local market, in the case of the latter. Any
waiver of duties or taxes should result in a higher sales price rather than a windfall to
the buyer. In countries where tax practices are deemed problematic, the USAID
Mission and CS are encouraged to negotiate with the host country to establish an
agreement whereby taxes and duties would be charged, as in a commercial transaction,
but the Title II CS would be allowed to retain those taxes and duties as a host
countrycontribution to the program.
D. Markings
Commodities for monetization will arrive in country with the
following "abbreviated
markings": description of contents, net weight, and USAID contract number. The
phrase "not to be sold or exchanged" will not appear. The buyer may
subsequently
repackage or label, at its own cost, without restriction by USAID or the Cooperating
Sponsor.
If a CS has special marking requirements, the requirements must
be specified in the
proposal, if possible, as well as at the time of the call forward.
E. Sales Agreement
The CS is responsible for ensuring that a comprehensive and
legally acceptable sales
contract is in place. Although sales agreements will vary according to country
circumstances, the following essential provisions must be included:
1. Full commodity specifications and
tonnage;
2. Agreed total sales price. A discount
range should be included in the agreement
in order to prevent failure of performance on the part of the buyer in the event
that the commodities do not meet the exact specifications as stated in the call
forward;
3. How and when payment(s) will be
made, amount(s) of payment(s), terms of
payment(s) (including a description of the terms), if applicable, exchange rate
used (including whether it is a market-based rate) and when used (e.g., at the
time of payment, at the time of signing the agreement), and a guarantee that
payment will take place. In no case should title to or possession of the
commodities pass to the buyer until payment in full has been received by the CS;
4. Statement of purchaser's capability
to take delivery, properly store and
successfully market the commodities in-country;
5. Stipulation that the purchaser will not
export commodities or products thereof;
6. Agreement by purchaser, having
accepted the commodities when discharged at
the port of entry, not to raise claims, thereafter, about the "wholesomeness" or
"fitness" of the commodities; and
7. Date of sale.
VII. REPORTING REQUIREMENTS
A. Sales Price and Revenue Analysis
Within 30 days after the sale, CS field offices are required to
report in writing to the
USAID Mission the actual sales price in comparison to the cost recovery benchmark.
Where there is no USAID or REDSO presence, CS shall provide a report to
BHR/FFP/POD. Appendix C contains a standardized format for reporting this
information. In the event that CS fails to achieve cost recovery, USAID Mission shall
report back to FFP/D the circumstances regarding the loss. The CS is also required to
report actual revenues generated in comparison to approved budget requirements, in
their PAA and CS's Annual Results Report (R2).
In the case of numerous sales throughout the year, reporting of
sales prices may be
done on a less frequent basis, when approved by USAID.
B. Financial Reporting
Consistent with Regulation 11, Section 211.5(l), the CS must
provide a written report
of all Title II monetization activities to USAID/W on an annual basis. This report
must include information on the receipt and disbursement of both monetized proceeds
and program income by the CS and any sub-recipients. The report must also show the
source of funds, by country, and how the funds were used. The report must be
submitted as part of the CS's Annual Results Report (R2).
VIII. MANAGEMENT AND ACCOUNTABILITY
A. Maintenance of Proceeds
See Section II.D. of this document.
B. Funding Shortfalls and Surpluses Due to Difference
Between Revenues Generated
and Approved Monetization Budget Requirements
1. Surpluses
In the event a CS generates a larger
amount of monetized proceeds than expected
during any activity year, the CS must include such surpluses in the annual report
submitted to USAID/W. Any surplus funds may not be utilized without written
approval of FFP/W. The CS is encouraged to discuss the surplus in the annual
report indicating how the surplus funds could be incorporated in the overall
activity plan. Possibilities include a reduction in out-year commodity
requirements, proposed modification (expansion) of activities, or, consistent with
Regulation 11, Section 211.11(b), at expiration of the program, transfer of surplus
monetized proceeds to another approved activity. In any event, monetized
proceeds above the level approved in the DAP/PAA budget, may not be utilizedby the CS
without the written approval of FFP/W.
2. Losses
Commodity losses that occur during
transport of the commodities are governed
by Section 211.9 of Regulation 11. For losses resulting from an unexpected drop
in commodity prices or from any loss due to currency fluctuation that are
expected to have a negative programmatic impact, the CS must submit a written
report detailing the circumstances of the loss. The CS may request additional
commodities to compensate for the shortfall of monetization proceeds resulting
from the loss. Provision of commodities is not automatic and consideration will
be given only after written justification from CS is provided. Limitation of funds
and CS responsibility for the loss may be a factor in BHR/FFP's consideration of
any replacement.
C. Maintenance of Currency Pipeline
The guidelines for preparing new DAPs specify that up to a
five month pipeline is
allowed to be carried over from one fiscal year to the next. However, funding carry-over
necessary for program implementation depends on the activity being
implemented. If five months of pipeline is insufficient, then the CS will be required to
justify additional carry-over. A pipeline analysis will be required with the submission
of the PAA and, if deemed necessary by FFP, at the time of a call forward.
D. Roles and Responsibilities of USAID Missions During
Activity Implementation
Due to the complex nature of monetization transactions,
Missions may be required to
take on responsibilities that are in addition to those spelled out in Regulation 11.
Missions are responsible for receiving and reviewing CS
reports regarding
monetization. The following reports shall be used in reporting on monetization:
Appendix C; CS's Results Report (R2); and resource requests (PAA).
Missions must report back to FFP/D circumstances regarding
CSs not achieving at
least benchmark recovery on their monetization of Title II commodities.
E. Roles and Responsibilities of Cooperating Sponsors During
Activity
Implementation
The CS is required to notify BHR/FFP of shifts of 10 percent or more between
line items in its approved budgets.
Within 30 days of the completion of the sale, the CS is required to report to
USAID Mission or BHR/FFP/POD where there is no US government presence, at
a minimum, the information listed below. (See Appendix C format for reporting
the details of a monetization activity.)
1
.
the actual price at which the commodity was sold;
2
.
total sales revenue, which must be reported in U.S. dollars; and
3
.
the quantity sold, reported in metric tons.
In the case of numerous sales
throughout the year, arrangements can be made to
report this information on a less frequent basis.
F. Roles and Responsibilities of BHR/FFP During Activity
Implementation
For price quotation requests which are received in writing and indicate
commodity specifications and delivery time frame, provide price quotes within
three working days;
Respond to all regulatory requirements such as non-U.S. vehicle purchase
waivers;
Review Bellmon updates;
IX. UMBRELLA MONETIZATION
CSs are strongly encouraged to monetize jointly. Umbrella monetization can keep marketing
costs and expenses related to analyzing markets contained, avoid duplication of effort,
strengthen the ability of CS to negotiate more competitively in the market, and increase the
potential for achieving supply impacts stemming from the expertise gained by the lead agent
and the additional time and money that can be devoted to this objective. However, in cases
where a CS can identify the benefits of conducting an individual monetization rather than an
umbrella monetization, USAID will not deny the request of the CS to monetize individually.
A. Role of Umbrella Sales Agent
The role of the Sales Agent is generally limited to preparing for
and conducting the
sale of commodities. The Agent's responsibility terminates when the proceeds of the
sale have been deposited into the individual CS's bank accounts.
B
.
Joint Monetization Agreement
A Joint Monetization Agreement detailing the terms and conditions
of the umbrella
monetization must be executed by each of the participating CSs and submitted to FFP,
where possible, with each of the CS's DAPs but otherwise prior to the first call
forward.
C
.
Monetization Committee
It is recommended that a Monetization Committee be established
in all countries where
two or more CSs intend to conduct a monetization, whether jointly or on an individual
basis. The committee must be comprised of representatives from the CSs and the
Mission, preferably the FFP Officer, as well as other individuals with monetization or
market expertise. Mission representatives will participate only in a non-voting
capacity.
X. COORDINATION WITH OTHER DONOR AND DONOR
SUBSIDY
PROGRAMS
In countries where more than one donor or CS is importing food aid, Missions must facilitate
regular coordination of activities and exchanges of information, especially with regard to
market information. The CS should actively participate in coordination efforts.
XI. THIRD-COUNTRY MONETIZATION
Third country monetizations are subject to the same review and evaluation criteria as
identified in Section VIII of the Policy Framework section of this manual. In addtion the
following are required prior to FFP/W approval:
1. CS's must address the following order of precedence of
countries in their monetization
request:
A. CS's Activity Country
B. All LIFDCs in the region.
C. All non-LIFDCs in the region.
The CS must first demonstrate that commodity sales, in the country in which they have their
activity, are impracticable.
Once the above is determined then the CS may consider sales in other LIFDCs in the region.
Special consideration will be given to a CSs who determine that the benefits from the sale of
commodities in a third country, LIFDC, will be greater than the benefits that would accrue to
the CS's Activity Country.
Only after all LIFDCs in the region have been considered, may the CS propose
monetizations in non-LIFDCs. For a current list of LIFDCs, contact FFP/W.
2. The USAID Mission operating in the country where the
monetization sale takes place
has the responsibility of reviewing and either concurring with or disapproving the CS's
market and storage analysis, i.e, making the Bellmon Determination. If there is no Mission,
the determination will be made by FFP/W.
3. CS shall work with the USAID Mission, in the country in which
the monetization of
commodities occurs, to ensure that the third country government does not object to proceeds
generated under the sale, being transferred out of the country to fund activities in the CS's
proposal.
4. Third country monetizations are subject to Usual Marketing
Requirements. CS's
monetization request(s) for third country monetization will be evaluated by FFP/W in
coordination with USDA to determine if further UMR analysis is required. Potential
UMRlimitations will be reviewed by USAID, USDA and the Department of State. FFP/W will
notify CSs regarding the determination.
5. Benefiting Missions shall play a role in assisting the third country
Mission in
providing all clearances. (See Implementation Section, III, E.)
6. CS should be aware that monetization proceeds generated in a
third country can be
converted to a hard currency for transfer to the country of program activity.
XII. TITLE II ACTIVITY CLOSE-OUT
Refer to Title II
Close-out Plan Guidance.
Appendix A - Market Analysis Overview
Appendix A and B are supplemental to the 1985 Background Paper and Guide to
Addressing
Bellmon Amendment Concerns on Potential Food Aid Disincentives and Storage.
The CS's market analysis, upon which part of the Mission's Bellmon Determination is based,
must attempt to capture potentially significant effects on marketing and production incentives.
A complete market analysis will address the following points.
1. Market analysis must consider
possible effects on marketing agents as well as
producers.
There has been a tendency to focus on the potential disincentive
effects on producers,
while ignoring the potentially damaging effects on private sector marketing agents who
transport, process, distribute and sell a variety of foodstuffs. Even if a given
commodity is not produced domestically, private sector marketing agents may buy and
sell the commodity and be harmed by sudden price falls.
2. Monetized food aid commonly has
an effect on food prices. Market Analysis
must seek to understand the magnitude of the price effect.
Market analysis often rests upon the widely held supposition that
monetized food aid
does not depress domestic prices if it meets a national shortfall. In actuality, whenever
local food prices are largely determined by competitive forces, any sale of Title II food
aid effectively results in an increase in supply, which then can reduce prices. Whether
the resultant fall in price is negligible or whether it is significant depends upon a host
of factors.
3. In a market analysis, the amount of
food aid to be monetized during a particular
time period must be contrasted to the amount of food in local food markets
during that time period, not simply to "total domestic consumption or
production."
Past market analyses have measured the possible disincentive
effects of food aid by
comparing the amount of monetized food aid to "total domestic consumption." For
example, it has been suggested that disincentive effects may exist only when the
amount of food aid exceeds five percent of total domestic consumption for the
upcoming year. Such comparisons are very misleading since, in many countries,
marketed surplus is a very small proportion of total production and consumption. That
is, compared to total consumption, relatively small amounts of a given commodity are
marketed. As a result, food markets in developing countries are often "thin" and
volatile. This means that small changes in quantities supplied during specific time
periods can have a large impact on prices. By extension, monetization of relatively
small amounts of food aid can have enormous effects on thin and fragile domestic
food markets.
4. Market analysis must consider the
timing of flows of food through local markets
in determining the potential for any disincentive effect.
Market analysis often ignores the concentrated time frame within
which a given CS
monetizes food aid. Food markets in developing countries exhibit a predictable pattern
in the timing of food flows into the market. A comparison of the amount of food aid
that is monetized by a CS during a two- or three-week period to a nation's total annual
food consumption may present a deceptive picture of the likely impact of the infusion
of monetized food.
5. Market analysis must demonstrate
that monetized food aid will have little impact
on incentives for traders to engage in intra-annual storage or on farmers' planting
decisions. Above all, monetized food aid should not be viewed as a tool to
prevent normal price fluctuations.
Market analysis often contributes to the assumption that food aid
monetization can
play a valuable price fluctuation "mitigation" role during periods of high food prices
that may have a negative effect on the household food security of targeted groups.
Often food aid is monetized during the "hungry season"--right before harvest when
prices are highest--based upon the assumption that food aid can "stabilize"
markets.
The hungry season seems to be an appropriate time to monetize food aid. Such
monetizations may lead to lower food prices, benefiting consumers. However,
monetizing food aid may impair the development of food systems that assure year-round
indigenous, locally produced or imported food supplies. Commodity flows may
be greatest immediately after harvest, but in most years, sales by producers and
middlemen to others in the food system occur throughout the year. However, by
monetizing food aid, incentives to private traders to perform valuable storage functions
may be severely damaged.
6. Market analysis must consider the
possible cross-price effects on substitute
commodities.
Market analysis also often ignores potentially high cross-price
elasticities of demand
when analyzing the effects of the monetization of a particular commodity. In other
words, simply because a commodity is not produced domestically does not imply that
the monetization of this commodity will have little or no effect on local food markets.
Consumers often have an array of food consumption choices and choose among
potential substitutes based upon relative prices. Even if wheat is not grown in a
particular country, monetization of wheat may have effects on rice prices by inducing
people to shift from rice to wheat.
7. Market analysis must consider the
aggregate effects of multiple monetizations in
a particular country.
Market analysis, when undertaken by a particular Cooperating
Sponsor, fails to
consider the aggregate effect of monetized or distributed food aid supplied by multiple
CSs and other donors. For example, if six CSs are each monetizing 10,000 tons of
wheat per year, each CS may independently make the determination that a 10,000-ton
monetization has few effects on local incentives, failing to consider the aggregate
effects of all six monetizations. To the extent possible, it is recommended that CSs
prepare a joint market analysis.
Appendix B - Market Analysis Procedures
A. Introduction
Markets are defined by specialization, trade and usually a medium of exchange. Primary
markets, as opposed to secondary or resale markets, represent a delicate balance between
producers and consumers. Consumers procure required foodstuffs and producers receive
currency (money) representing a promise of future goods or labor. Markets may be
controlled by State regulation and intervention or dominated by private trading. In markets
dominated by private trade, competition brings products to consumers in a cost effective
manner.
Maintaining competition over time requires a balance among competitors in terms
of access to capital and products.
Monetization potentially has an impact both on the balance between producers and
consumers,
as measured through market prices, and on the balance among traders, as measured by the
participation and degree of competition in the market. In order to understand the impact of
monetization on each of these balances, a thorough and ongoing understanding of local
markets is required.
The intent of this appendix is to suggest a number of analytical considerations that will help
the CS narrow the range of information required to monetize their commodities effectively.
For most CSs, it will not be cost effective to understand the entire food market. Therefore,
the key will be to understand the broad market setting well enough to recognize possible
opportunities, and then to understand individual commodity markets in enough detail to be
able to anticipate the effects of intervening.
The steps outlined in this appendix represent one approach to market analysis. It is
recommended that the CS consider this material particularly with reference to understanding
the food security impacts of monetization. The appendix is not designed to repeat or replace
the work of other guides to monetization.
B. Purpose
In broad terms the purpose of market analysis is to determine if there is a niche for
monetizing P.L. 480 commodities in a particular country. A niche for monetization will
depend on the expected returns from the sale and on the food security impacts of adding food
to the market. These effects of monetizing food aid should be considered apart from the
anticipated use of the proceeds for developmental purposes. USAID will look favorably upon
those proposals that demonstrate a clear understanding of markets. However, it is hoped that
the driving motivation in studying markets will be a recognition by the CS that market
systems have profound implications for vulnerable people and that good food programming
depends on an understanding of local markets.
In addition to the generation of proceeds for developmental activities (returns from the sale),
monetizations may save foreign exchange for the host country. This can have the effect of
supporting the value of the currency and enhance government revenues, depending on the
use
of the proceeds. Exchange savings may come at the expense of usual commercial imports
or,
in the case of a crop short-fall, replace one-time purchases. This section will not focus on
these aspects of monetization, i.e., exchange savings and usual commercial imports, which
are
treated in more detail in Appendix A - Market Analysis Overview. Rather, we will consider
here the more narrow issue of how monetized food aid can be used to develop markets.
Monetized food aid can be used to further the development of agricultural and food markets
when the sales methodology directly affects the structure of the market. Although perhaps
difficult to target in terms of market structural effects, large quantities of food aid have the
potential to affect markets in dramatic ways, especially if a program continues over several
years. Demonstration of potential food security impacts of a monetization typically requires
the identification of a market inefficiency. There are several types of market inefficiencies
that one frequently encounters in a developing country, which usually translate into higher
costs for the marketed product. Marketing costs may be high due to: insufficient investment,
a small number of traders, quasi-monopolistic or oligopolistic practices, the irregular or
seasonal functioning of the market, a paucity of supply or limited demand. These, among
other conditions, are common characteristics of developing country markets which food aid
monetizations may seek to address. Food aid monetizations may induce traders to come into
the market and invest; they may supply needed commodity on a regular basis; they may
broaden the extent of the market and assure better means of payment and settlement of
accounts. The CS will need to understand how the market has failed and how a monetization
will have an impact on redressing this situation. In short, in order to have a food security
impact, the CS must identify a problem and identify how U.S. resources will have a positive
impact on the solution via the monetization.
In addition to determining opportunities, market analysis will provide the CS with guidance
on how to execute the monetization. Market analysis will identify suggested methods of
determining the price, specific requirements of the commodity, timing considerations, and
potential risks. The data in the market analysis will provide some of the information required
to do a Bellmon Determination
properly. Ultimately, most management decisions taken
during the successful execution will be based on information obtained in the market
analysis.
C. Suggested Procedures
1. Information sources - Market analysis will inevitably involve many interviews
with
market participants, including importers as well as domestic and off-shore traders. This
process is often less intimidating than it sounds. Off-shore suppliers and traders can be
contacted by phone and requested to give price quotes. The CS often purchases foods in the
region and may have these contacts on file. With regard to local traders, establishing a large
network of contacts will help the CS to ensure that it is provided with fair and accurate price
quotes. In addition to the private traders, WFP, FEWS, GIEWS, and local
governmentagencies often track prices in a systematic way. (Pointer: Know your product -
Suppliers
will respect a caller who knows exactly what product is being priced. For example, wheat
flour has many different specifications. Ask local bakers who may be using the flour what
specs they require and then price on the basis of these specs.)
2. Short list commodities - The first step in looking for a niche is to ask the basic
food
questions: Which foods are eaten? Which foods are eaten by vulnerable people? Of the
commodities consumed, which ones are typically a part of the U.S. P.L. 480 food basket? All
commodities available and consumed locally should be initially placed on the short list.
3. Prioritize the short list - To prioritize the short list, two quick tests should be
applied.
a. Cost Recovery - Create a list of FAS prices for P.L.
480 type commodities.
Suggested web sites for obtaining commodity price indications are listed in the
Implementation Guidelines section of this manual. Add to these price indications the
costs included in the cost recovery benchmark calculation to obtain an estimate of the
costs of each commodity. Obtain current wholesale price estimates in the market in
which a sale would be considered. Compare these prices to those calculated from the
P.L. 480 program.
b. Food Security - Commodities that are eaten primarily
by the poor may be
marketed in a significantly different manner than those purchased by the wealthier
population. Urban and rural markets may also be organized in different manners as
might those for particular commodities. It is importamt to know how the market for
the particular commodity being monetized is organized and how the monetization
might potentially enhance food security through developing that market.
Note that the two tests will often yield opposing results. For example, the cost recovery test
might indicate advantageous pricing for a certain commodity while market structure (demand,
imports, target population and target market) might indicate another.
4. Rationale for more information - Depending on whether the commodity meets the
criteria of the cost recovery test or the food security test, the CS will require different
additional information.
If the commodity is prioritized based on the initial impression that sales will meet or exceed
the cost recovery benchmark, then the fundamental questions are whether or not the initial
impression was correct and whether or not the prices can be expected to remain stable long
enough to execute the sale. Judgments about price stability must rely upon an understanding
of the forces driving current prices.
If a commodity is prioritized because it is eaten by the poor and the CS wants its food to
have a positive impact on food security, similar information is collected, but it is used
differently. For example, market structure information should be able to explain why poor
consumers are charged the prices that they are and suggest ways to intervene that will
reduce
poor consumers' food bills in a sustainable manner. All price data as well as seasonality are
viewed in terms of whether or not there is a problem for vulnerable people and whether or
not a strategic sale has a reasonable probability of addressing the problem.
5. Understand the Traditional Food Market Channel - For imported goods, determine
import parity prices
. To calculate these, it may be possible to find out what is being paid by
importers. Alternatively, it may be necessary to phone suppliers at the point of origin to
obtain quotes. Freight costs are available through USAID, the International Wheat Council,
and many freight forwarders or brokers. Once in port, the goods may incur import duties and
taxes, port handling charges, port clearance fees, and inland transportation costs to the first
market. These fees should all be estimated. The prices at major terminal markets en route
from producer to consumer should be determined. For processed goods, the processing
margin should be estimated. Processing margins usually involve a margin for costs and a
margin to recognize that not all of the raw product is turned into final product. From central
markets, the goods will go to retailers. Retail prices should also be tracked.
For domestically produced goods, the channel is similar except that the import prices are
replaced with farm prices. Farmers will be able to tell if the goods are commonly marketed
at harvest or throughout the year.
6. Compare Price Margins to Costs - Using prices from point of supply to the
consumer,
two simple analyses are possible. First, the difference between prices at consecutive stages
is
referred to as the price margin. Calculate the price margins. Compare these margins to
known costs such as transport, storage, and processing costs. Second, compare these
margins
to the costs that would be incurred in getting the commodity to that stage in the food channel.
This analysis may help to define where to sell and whether to send the raw or a finished
product.
7. Understand Market Structure - Interview traders and processors to determine the
degree
of competition and any government regulations that may be in place at each stage of the
market channel. Particular attention should be paid to those stages where margins appear to
exceed the estimated costs plus a reasonable profit. For monetizations motivated by returns,
the objective is to get a sense of whether the factors causing the price spread are cyclical or
anomalous. For monetizations motivated primarily by a desire to have an impact on food
security, the intent is to understand whether or not it would be possible to improve the
performance of the market. (Pointer: Interview the people who sell to and buy from a
particular segment of the market to get a further sense of the degree to which competition
may be imperfect.)
8. Understand the Foreign Exchange Market - When imported commodities are
considered, review the foreign exchange market. Is there a restriction on foreign exchange?
Is there a parallel or street market for exchange that is different from the official rate? If
there is a margin, what is the spread between official rates and parallel rates? Are most or all
goods available with local currency or is it necessary to use foreign exchange to purchase a
wide cross section of goods? Are there regular devaluations? For monetizations executed
with the intent to maximize returns, restriction on foreign exchange is often one of the factors
that makes monetized goods attractive. For monetizations executed with the intent to improve
food security, a shortage of foreign exchange is often cited as the reason that the
monetization
is important for the food security of the country. In order to make a sound food
securityargument, it will be important to think about whether or not the imports are additional
or if
the ability to purchase in local currency is simply creating a windfall gain for a trader.
9. Learning Lessons from Past Prices - Determine historical prices when possible.
Weekly
or monthly price series in central markets will often be available from FEWS, GIEWS, WFP,
or a local government ministry. This information might also be available from USAID in
countries where the agency sponsors market information projects. Plot weekly or monthly
data for the past year to determine seasonality. For monetizations designed to generate the
maximum amount of foreign currency proceeds, the objective is to determine whether recent
price fluctuations/ stability can be expected to continue in the near future. For monetizations
designed to have an impact on food security, the objective would be to determine
unacceptable price swings and empower more vulnerable groups to become involved in the
market through a monetization which would help to smooth radical price swings in the future.
In this case, the historical prices may form a baseline for reporting.
10. Understand the Size of the Market - Obtain an estimate of the size of the
commercial
market. This information will help predict the degree to which prices will be sensitive to
additional supplies. USDA and FEWS are likely to have the relevant information. For
monetizations taking place outside the capital or port, this information may have to be
estimated for the specific location. Traders can be interviewed and local wholesale markets
observed. This information forms the base for the Usual Market Requirements.
11. Confirm the Reasons for Short Listing - Once market analysis has proceeded to
this
stage, the CS should be in a position to answer the following questions:
a. If prices are above C&F, can they be expected to remain
there, and if so, why
aren't commercial traders already capturing these margins? The CS starts out with a
number of disadvantages relative to commercial players. Food aid is shipped under
more risk averse freight terms resulting in higher costs. Food aid shipments often
have delivery schedules that are less well defined than commercial shipments. Food
aid purchases in the U.S. are done by the CCC, which does not have some of the
origination and blending advantages of the commercial players. For these reasons, if a
food aid sale is to meet the cost recovery benchmark, it must have other unique
advantages. For example, the food aid might be: exempt from commercial duties and
taxes; paid for in local currency, thus preserving precious foreign exchange reserves;
destined for markets in high risk areas; permitted to circumvent formal channels. In
summary, the CS's monetization request should be able to explain the source and
magnitude of its commercial advantages.
b. If the monetization is intended to improve food security, the CS
understands why
the market is failing vulnerable households now. The CS should be able to explain
the reasons that prices or trade flows do not reflect total costs and how a monetization
will improve the functioning of the market. This explanation should include reference
to market structure at stages where the price margins appear out of line and, wherever
possible, some price history to indicate whether or not the current situation is an
anomaly.
12. Ongoing Monitoring - If the market analysis indicates that a monetization will
likely
make sense, the CS should establish a process of regularly monitoring price and other
relevantmarket information. In addition, the CS's efforts to understand specific components of
the
market structure should be ongoing. Impact analysis for a monetization will depend upon
continued monitoring of the market. Interviews with traders will be an important part of the
follow-up as traders will often be able to identify implications for the market that external
monitoring of the data will not reveal.
13. Clarify Commodity Specifications - Prior to the call forward, it will be important
for
the CS to confirm the specifications of commodities to be monetized. Remember that the
buyers of a monetized commodity must choose the product over other alternatives available in
the market. Understand how the commodity will be used. For example, if the commodity to
be monetized is vegetable oil, will U.S. soybean oil be acceptable in terms of taste and flash
points; if it is wheat, will strong flour be preferred to weak flour or vice versa; if it is beans,
will U.S. style pinto beans trade at a premium or discount to the prices observed in local
markets? It is advisable for the CS to have a sample of U.S. product available since verbal
descriptions tend to be inadequate. For refined products, it may be advisable to have a
sample of domestic product analyzed to determine specifications.
14. Preparing for a Negotiation - For markets where the level of competition is
inadequate
to guarantee a fair tender, negotiation will be the vehicle for setting the sales price. In this
case, a firm sales agreement must be drawn up to accompany the call forward request. In
general, selling in this manner will not be advisable for monetizations designed to improve
food security but ma
