COMMITTEE ON COMMODITY PROBLEMS
Rome, Italy, 11-13 April 2005
COMMODITY PROJECT FORMULATION, PREPARATION AND SUPERVISION
1. This document examines the evolution of the cooperative relationship between the FAO Commodities and Trade Division and the Common Fund for Commodities (CFC) since the Committee’s last session and outlines a number of issues arising from such collaboration.
2. As the only financing institution with a strict commodity focus, the CFC supports product-specific development projects on production, processing and marketing. The CFC works through International Commodity Bodies (ICBs), including the FAO Intergovernmental Group (IGG) system, to generate and develop project proposals and, once approved by the CFC Executive Board, to supervise their implementation. Overall, 57 regular projects and 22 smaller fast track projects submitted by FAO IGGs have been approved for financing by the CFC since ``the first approval in 1993. There are currently 15 outstanding project proposals (some yet to be endorsed by FAO IGGs) before the CFC for consideration.
3. In the 2003-2004 biennium, the CFC approved twelve fully fledged projects sponsored by FAO IGGs, for a total investment of US$30.8 million. CFC provided US$16.4 million, with other donors and counterpart contributions making up the balance. While all but one of the projects approved in 2003 are either under implementation or already completed, none of the projects approved in 2004 has started.
4. In addition, six fast track projects addressing specific or urgent commodity-related issues were approved, for a total value of US$0.52 million. All but two of these fast-track projects have been completed or are under execution.
5. The number, size, geographical distribution and type of projects approved in the past two years were comparable to those endorsed in previous years. Although the CFC placed increased emphasis on loan funding, support continued to be given mostly in grant form and only one of the projects approved in 2003-2004 includes a loan funded portion.
6. FAO staff worked closely with IGG member countries and other organizations in the formulation and submission of proposals to the CFC, and assisted the CFC in project appraisal. Before projects were submitted to CFC for final approval endorsement by concerned IGGs was obtained. As in previous years, few proposals forwarded in 2003-2004 were endorsed by the CFC on their first submission. Two or more sessions of the Consultative Committee are generally required for approval, implying a review process typically lasting one year or more. Projects that have received final approval by the CFC Executive Board can take one year or more before actual implementation begins. This delay is needed for the CFC and project executing agencies (PEAs) to prepare complex legal documents and agreements. Issues that contribute to delays relate to the commitment of co-financing and counterpart funding, access by partners to intellectual property rights, and difficulties of project partners in meeting CFC’s strict pre-disbursement conditions. The time elapsing between first submission of a project to the Fund and the signature of all project documents remains two to three years. FAO needs to allocate considerable staff time to project development work in order to keep projects moving through the pipeline.
7. Project implementation is the responsibility of the Project Executing Agencies (PEAs) and is ruled by strict guidelines issued by the CFC. During implementation, the IGG secretaries exercise supervisory responsibility on behalf of their Groups, including periodic progress reports to the CFC, recommendations for improvements in implementation and identification of areas likely to cause future problems. Given the projects’ regional and interdisciplinary character and their technical and administrative complexity, supervision is a time-consuming and demanding task. The ICBs’ supervisory function is the only one which attracts limited compensation from the CFC, up to a maximum of US$15000 per year per project. However, these funds are only used to cover cash expenditures in staff travel and consultancy services of technical experts, not to reimburse staff time dedicated to project supervision.
8. The secretariats of FAO and CFC meet regularly to review their cooperation experience and address specific problems. These consultations identified the following outstanding problems:
9. The regular exchange of views between secretariats contributed to the following positive changes in the cooperation with CFC:
10. While the Secretariat welcomes these changes, the actual implementation of some measures has proven difficult and a number of problems remain to be solved.
11. For the Secretariat, the allocation of scarce human resources to CFC project work remains a major challenge On average the Secretariat is responsible for supervising about 25 active projects (excluding fast track projects), in addition to overseeing the preparation of between 25 and 30 project proposals. Devoting the necessary staff time to such a large number of projects is increasingly difficult given other regular programme commitments and diminishing resources With regard to project supervision, IGG secretariats are increasingly using CFC funds allocated to them for outsourcing specific supervisory activities. However, the funds made available are insufficient to do this on a regular basis.
12. The Organization’s partnership with CFC continues to produce concrete benefits in the form of projects that help improving the conditions faced by small producers of agricultural commodities. The Secretariat is ready to continue responding to member countries’ calls for assistance in the area of commodity development. However, there are three issues of particular concern to FAO ICBs: (i) the amount of staff resources currently absorbed by CFC work, (ii) external compensation of divisional staff time, and (iii) increased competition for divisional staff resources from work programmes other than CFC. Mobilization of additional donor support and further gains in the efficiency and effectiveness of operations are necessary if the Secretariat is to maintain its current ability to contribute to the development and implementation of CFC commodity projects for the benefit of those commodity industries represented by the IGGs.
13. There are a number of possibilities for releasing additional resources. These include compensation for staff time spent on project preparation, use of supervisory funds to compensate divisional staff time, an increase in the level of supervisory allocations and greater flexibility in the disbursement of supervisory funds. There are also a number of possibilities for making the workload of the Secretariat more manageable. Provided additional funds were available to cover the costs, project formulation and appraisal might be outsourced to other FAO technical divisions, especially where the technical nature of the project falls outside the main areas of expertise of the Commodities and Trade Division that acts as secretary of all FAO IGGs. Ceilings might be introduced on the number of projects (under implementation and in the pipeline) that can be handled by each IGG at any point in time, or the burden associated with project development and supervision spread more widely through the designation of additional organizations as ICBs.
14. The possibilities need to be addressed in the continuing consultations with the CFC. The views of the Committee will assist the Secretariat in making necessary internal adjustments and in its discussions with the Fund on modalities of cooperation between the two organizations and related resourcing issues.
1 A table providing the latest available information on projects approved during 2003-2004 is appended to this report.