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Food_Security
The document discusses key issues around establishing a comprehensive food security policy for countries in the Middle East and North Africa region. It outlines that successful policies must first identify which foods are strategic to include based on consumption habits and nutrition. Policies should then focus on availability, affordability, nutrition/health, and safety of the food supply. Effectively distributing food and involving both public and private sectors across the supply chain are also important.
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Food_Security
- 1. Perspective Food Security Key Issuesfor an Emerging MENA Priority Nabih Maroun George Atalla Saida El Harakany Tarek Nassar
- 2. Booz & Company ContactInformation Beirut Nabih Maroun Partner +961-1-985-655 [email protected] Cairo George Atalla Principal +20-2-2480-1444 [email protected] Tarek Nassar Senior Associate +20-2-2480-1444 [email protected] Dubai Saida El Harakany Senior Associate +971-4-390-0260 [email protected] Ahmed El Oraby, Ibrahim Youssef, and Basma Berti also contributed to this Perspective.
- 3. Booz & Company1 EXECUTIVE SUMMARY In recent years, universal access to affordable food has emerged as a critical issue around the globe. The heightened concern regarding secure, ready access to food supply stems from a confluence of events: soaring commodity prices driven by severe global supply disruptions, a reduction in global stock levels, the increasing cost of agricultural inputs, and competition from alternative energy producers for crops such as corn. The Middle East and North Africa (MENA) region, in particular, is strongly affected by this trend, given limited arable land and irrigation water. In some MENA countries, food shortages have led to civil unrest. Escalating food prices have also forced some MENA governments to step up food subsidies, further straining public finances that are currently under pressure from the global economic crisis. As a result of all these factors, several MENA governments have begun taking steps either to establish or bolster a comprehensive food security policy. With any such program, the first step is to determine which food categories are strategic enough to merit inclusion in any policy, as it is simply not feasible to provide “food security” for all consumable products. Next, countries focus on four critical policy parameters around food: availability, affordability, nutritional and health value, and safety. Governments are also considering the proper balance of public and private industry involvement in the entire supply process. In addition, governments are placing emphasis on distribution—because having the right amount of affordable and healthy food isn’t enough if it can’t systematically reach people’s kitchens.
- 4. Booz & Company2 FOODSECURITY: WHY NOW AND WHAT IS INVOLVED? KEY HIGHLIGHTS • Any successful food security policy needs first to identify which commodities are strategic, because it is not possible to provide an ample supply of all food products consumed by a population. • Governments’ food security policy should focus on four major issues: availability, affordability, nutritional and health value, and safety. • A robust distribution system will facilitate the process of getting food delivered equitably across varying geographies and socioeconomic classes. • To maximize the effectiveness of any food security program, the supply chain must be adaptable to sudden changes in conditions both at home and abroad. • Effective food subsidy programs take into account the form of subsidy that is used, targeting, and effective monitoring. first must determine which foods are strategic enough to be included in that policy (see “Identifying Strategic Commodities”). Once they have done so, they should focus on four major areas: Availability: Policymakers can estab- lish strategies to ensure that food is readily available to the population of their countries. Such strategies must ensure that the nation’s food supply chain is flexible enough to adjust during natural disasters or financial crises. Affordability: Policymakers should ensure that strategic commodities are within reach of all socioeco- nomic classes. Consumers need to be shielded from price inflation caused by monopolistic behavior, illicit price fixing, or hoarding schemes. Governments can enact targeted wel- fare and subsidy programs to guaran- tee the affordability of basic strategic commodities to all consumers. Nutritional and Health Value: Policies can set recommended guidelines for caloric intake (to avoid under- nourishment) and proper diet (to avoid malnourishment). Educational programs can support these policies. Governments can establish subsidies to ensure that people have access to a balanced nutritional basket of goods, and can also use cheaper prices to encourage particular eating habits or provide meals at schools to ensure children meet minimum requirements for daily nourishment. Safety: Policymakers can put in place the necessary regulations, processes, and technology to ensure that food commodities are safe for human con- sumption and compliant with World Trade Organization (WTO) sanitary measures. In addition, policies can make provisions for any food emer- gencies or crises, such as managing incidences of contamination. Throughout the MENA region, concern about food security is grow- ing as food scarcity has become both a threat and a reality. In 2008, as oil prices rose worldwide, alterna- tive energy producers added to the demand for certain crops including corn (which is used to produce etha- nol), driving up food prices. Last year in Egypt, for example, the consumer price index spiked more than 20 percent as some food prices quadru- pled. Those sudden, steep price gains triggered mass domestic protests and unrest and strained the government’s finances as the cost of food subsidies (one of Egypt’s single greatest expen- ditures) soared. In addition, much of the MENA region has limited arable land and water supply. In fact, much of MENA falls below the United Nations stan- dard for water poverty (measured as 1,000 cubic meters of water per person per year). Even Egypt, despite being bisected by the Nile River, falls below the water poverty line. Because certain crops, such as rice, require a relatively large amount of water for cultivation, many MENA countries must import food and are thus vulnerable to a raft of supply and demand issues. Countries are taking a close look at methods to raise domestic production and insure against potential pitfalls in importing food. They are even considering an emerging alternative: entering into contracts to access arable land or resources outside their borders. Governments that are designing a comprehensive food security policy
- 5. 3Booz & Company IdentifyingStrategic Commodities Booz & Company defined an approach to assist one country’s senior policymakers in developing a policy to secure an ample supply of essential—or strategic—foods. The approach was based on eating habits, consumer quantities, and nutritional significance, and accounted for the effect of potential income disparity. Our process determined which food items should be considered strategic commodities by: • Starting with a complete list of all the produced and imported food items (whether processed or in raw format) consumed by the country • Filtering the list to focus on the most consumed foodstuffs, such as grains and oils. These items should represent about 75 percent of locally produced food items and 75 percent of the value of imported items. • Winnowing further by identifying products that have nutritional value or those that contribute to a particular preferred diet, and discarding items that contribute a low share of daily caloric intake • Selecting food items that constitute 75 percent of the caloric intakes of the poorest consumers. 3 Exhibit A One Country’s Strategic Approach to Product Selection * Income quintiles divide the population into five groups based on income; Quintile 1 represents the poorest 20% and Quintile 5 the richest 20%. Source: Booz & Company All Produced Food (Examples) - Sugar cane - Wheat - Tomatoes - Rice - Sugar beet - Potatoes - Oranges - Watermelons 75% of Domestic Production in Quantity All Food Imports (Examples) - Wheat - Boneless cattle meat 75% of Food Imports in Value - Fava beans - Sunflower oil - Soybean oil - Palm oil - Lentils - Milk Cereals Sweeteners Fruits & Vegetables Oils Dairy & EggsPulses Meat Intermediary List 1 Eliminated Food Categories Providing >3% of Daily Caloric Intake - Wheat/Bread - Rice - Sugar - Wheat/Bread - Rice - Sugar - Oils- Potatoes - Fava beans - Lentils - Potatoes - Tomatoes - Oranges - Watermelon - Soybean oil - Sunflower oil - Palm oil - Fava beans - Lentils - Boneless cattle meat - Dairy & Eggs - Dairy & Eggs Intermediary List 2 - Wheat/Bread - Rice - Sugar - Potatoes - Tomatoes - Oranges - Watermelon - Soybean oil - Sunflower oil - Palm oil - Fava beans - Lentils Strategic Commodities - Boneless cattle meat Food Items Providing 75% of Calories for Quintiles 1 & 2.* Eliminated - Palm oil (used in ghee for high-income quintiles) - Tomatoes (low in calories) - Oranges (low in calories) - Watermelon (low in calories)
- 6. Defining Food Security Variousnations and organizations have defined food security according to their social and economic perspectives, resulting in an array of definitions. In broad terms, food security refers to the availability of affordable food stores to all segments of the population. The United States Department of Agriculture (USDA) and the Food and Agricultural Organization (FAO) of the United Nations expand the definition to include the nutritional value and the safety of food items. The USDA’s definition also goes a step further, focusing on the component of distributing the available food in a socially acceptable manner. The following internationally recognized examples present an illustration of the more recent trends in the definition of food security: Food security for a household means access by all members at all times to enough food for an active, healthy life. Food security includes at a minimum (1) the ready availability of nutritionally adequate and safe foods, and (2) an assured ability to acquire acceptable foods in socially acceptable ways (that is, without resorting to emergency food supplies, scavenging, stealing, or other coping strategies) —USDA Food security exists when all people, at all times, have physical, social, and economic access to sufficient, safe, and nutritious food which meets their dietary needs and food preferences for an active and healthy life —FAO, World Food Summit This term refers to the availability of food—in other words, whether it is physically available and if so at what price —European Union, Common Agricultural Policy FOOD AVAILABILITY: THE INTERSECTION OF QUANTITY, TIMING, AND REACH Booz & Company4 Three variables—quantity, timing, and reach—play a critical role in designing and implementing any effective national strategy to ensure the availability of strategic food commodities. In terms of quantity, some countries are constrained by limited domes- tic arable land and hence cannot locally produce an ample supply of food, leading them to rely heavily on imported commodities. Recently, countries have been turning to offshore contract farming—in which they enter into agreements to grow large amounts of specific commodities outside of the country—to ensure an ample food supply. Timing is also crucial. Countries occasionally increase domestic pro- duction, exports, or imports to meet demand. In times of crises, though, countries may institute a disincen- tive to export the commodity or ban export altogether, as Egypt, Vietnam, and India did with rice in 2008—trig- gering worldwide shortages and steep price increases. Through an effective program of stockpiling and minimiz- ing the time it takes to procure and distribute food, countries can ensure that their citizens can get food with- out delay when they need it.
- 7. 5Booz & Company5 Finally, in considering reach, policy- makers need to look at supply chain factors. A nation may have enough wheat, for example, yet be unable to transport it to the areas where it is needed or unable to process it into flour and subsequently bread because of a lack of milling and baking facilities. Booz & Company’s approach to developing an appropriate food secu- rity strategy relies on maximizing the efficiency of all three levers—quantity, timing, and reach—to ensure the availability of strategic food com- modities and processed food items. Countries have achieved food avail- ability when the quantity demanded is sourced and made available on time, and within full reach of the popula- tion. Following is a more detailed analysis of the components that con- stitute a successful approach to food availability. Quantity: Increasing Readily Available Food The first element of food availabil- ity that policymakers must consider is ensuring that there is an ample amount of food within the country. Governments have two main sourc- ing options to supply enough food to their population: domestic pro- duction and imports. A third, small but emerging alternative is contract or offshore farming, which involves growing strategic reserves in another country and then importing the output. Domestic food production: Policymakers have three ways to maximize their domestic food produc- tion: increasing cultivated land area, enhancing land productivity and yields, and introducing biotechnologi- cal advancements. The amount of food that any country can produce domestically is directly related to the amount of cultivated land it has available, provided that crop yield remains constant. Countries cannot simply increase the amount of arable land without taking into consideration other important factors, including the availability of water, fertilizer, and labor. For example, efforts to enlarge rice- growing areas in regions that have limited water will eventually fail, due to the unavailability of water or the extremely high cost of water desalina- tion. Governments can use incentive policies to increase the cultivation of strategic crops or provide cheap land for reclamation. Increasing the yield—or produc- tion per unit of area—of a strategic commodity will directly increase the quantity of domestic production. This can be achieved through the introduc-
- 8. tion of higher-yieldingstrains, which requires significant investment in agri- cultural research and development. A wide range of advances in seed technology, from conventional plant breeding to genetically modified organisms (GMOs), has been able to reduce production costs and waste, mainly by increasing pest and drought resistance. It remains to be seen whether their use will significantly increase yields. Although GMOs are still controversial and have yet to be accepted worldwide for prod- ucts directly consumed by humans, research and legislation over the next decade will likely dictate their long- term viability. Governments now, though, can consider amendments to laws regulating their use within their country. If produce is exported, it is also important to ensure that major export markets accept GMO produce or produce grown next to GMO fields. Besides changes to legislation, a nation has two primary means to enable the introduction of GMOs: develop GMO technology in national research institutes (as China is currently doing with wheat) or collaborate with international GMO research. Food imports: Imports help meet consumption needs when gaps exist between domestic demand and supply, or when domestic production of a strategic commodity is not possible. Liberalized economies typically rely on the private sector and set incen- tives for trade with strategic partners (such as import incentives and direct subsidies). A reliance on imports will require governments to consider a logistical setup with adequate offload- ing capabilities at ports, sufficient storage capacity, and so forth. Public- and private-sector food suppliers typically import strategic commodities through two types of agreements—long-standing or oppor- tunistic partnerships. Long-standing partnerships are strategic in nature; they do not necessarily produce the most cost-effective solution, but are effective in providing governments with a reliable supply of food. In times of supply shortages or other crises, policymakers can call on a sup- plier that has been a steady provider of food for years. Opportunistic partnerships can be forged with non- strategic suppliers to take advantage of favorable terms (e.g., commod- ity price, shipping cost, or shipping time) and offset the costs of long-term agreements. These terms fluctuate on a periodic basis depending on conditions related to the supplier, Booz & Company6 Long-standing partnerships do not necessarily produce the most cost-effective solution, but they provide governments with a reliable supply of food.
- 9. 7Booz & Company7 Offshore contract farming: When imports or domestic production are not possible or economical, contract farming has emerged as an alter- native. Under this arrangement, a country enters into a contractual agreement with another country for access to its agricultural land, water, expertise, and labor. Countries’ interest in contract farming is grow- ing, due to the recent tightening of commodity markets and the increased volatility caused by speculators. Traditionally, private corporations have entered into contract farming arrangements with individual farm- ers or agricultural cooperatives. In such as bumper crops due to good weather, excess stocks, or shipping line changes. Policymakers can look at the historical relationships between world production and consumption of various commodities to determine whether it is likely that imported products will experience interruptions in supply (see Exhibit 1). Source: UN Food & Agricultural Organization (FAO); USDA - Foreign Agricultural Service, Production, Supply, and Distribution (PSD) database Exhibit 1 Different Commodities Show Various Levels of Supply Stability Wheat, Global Production & Consumption (in millions of metric tons, 1994–2007) Potatoes, Global Production & Consumption (in millions of metric tons, 1994–2007) 400 420 440 460 480 500 520 540 560 580 600 620 640 06/0705/0604/0503/0402/0301/0200/0199/0098/9997/9896/9795/9694/95 Production Consumption World production is unstable, resulting in shortages and wild price fluctuations 06/0705/0604/0503/0402/0301/0200/0199/0098/9997/9896/9795/9694/95 Production Consumption World production is consistently greater than consumption, resulting in few issues with prices and sourcing 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0
- 10. Booz & Company8 Egypt,for instance, the U.S.-based food company H. J. Heinz has agree- ments with local farmers to produce tomatoes. Recently, Gulf Cooperation Council (GCC)1 governments seeking to ensure food security have been seri- ously considering contract farming: • Saudi Arabia has created a com- pany to support private-sector investments in agriculture abroad. Saudi private firms have pledged to invest US$1.3 billion in a variety of agricultural projects in Indonesia to secure access to rice. Saudi compa- nies are also considering contract- farming investments in Ukraine, Sudan, and Kazakhstan. • Qatar reportedly is seeking to lease 40,000 hectares of land in Kenya for crop production and has been in talks with Cambodia to invest $200 million in agriculture projects. Sudan and Qatar also announced the formation of a joint holding company to develop wheat, corn, and oil seeds in Sudan. • The UAE has been in agricultural- related investment discussions with Pakistan, Vietnam, Senegal, and Uzbekistan. Various private UAE firms have invested in 800,000 acres of farmland in Pakistan, though provincial officials have recently moved to block these deals. It is not yet clear whether contract farming will prove successful. In times of tight supply, many countries ban exports or place a cap on the amount that can be exported. Political pres- sure can also hinder the development of contract farming. For instance, in early 2008, South Korea invested in Madagascar (through Daewoo Logistics) by negotiating a 99-year lease for 3.2 million acres—nearly half of the country’s arable land— with the objective of ensuring South Korea’s food security. However, in April 2009, after Madagascar’s new president took office, the deal was cancelled on the grounds that leas- ing land to foreign countries was unconstitutional. To ensure crop availability, policymakers should not rely primarily on contract farming agreements with politically unstable countries, but rather continue devel- oping strong trade agreements and
- 11. 9Booz & Company relationshipswith resource-abundant and politically stable countries to mitigate the risk of not being able to access crops. Timing: Ensuring the Availability of Food Although securing sufficient quanti- ties of food is important, providing them at the moment they are needed is equally vital. To ensure the avail- ability of strategic commodities at the right time, policymakers have typi- cally employed a blend of two alter- natives: stockpiling and reducing lead times to speed delivery. In times of crisis, policymakers can rely on these methods to meet any supply gaps. Stockpiling: Stockpiling involves the creation of strategic reserves that will be sufficient for a defined period of domestic consumption. Stockpiles are the inventory that is physically available in storage within the country and can include stocks in transit under contractual agreements. Historically, many governments have maintained significant stocks of what they determine to be the nation’s most strategic commodities. In the last decade, countries have moved away from maintaining such large stocks—chiefly because of the sub- stantial expense involved in managing storage. For example, China, which has been known to maintain large grain stocks, has been significantly reducing its reserves. However, global food issues in early 2008 resulted in lobbying in many countries to revert back to creating strategic grain reserves. Stockpiling also requires sufficient planning to determine the size of the stocks needed, the purchasing method, the methods of physical management and storage, and when to sell stocks in the local market. Policymakers, in deciding the appropriate stockpile size, should consider the average time it takes for contracted shipments to be delivered, as well as the likelihood of supply disruptions. It is important to time stockpile buildup and offload with seasonal fluctuations. Food stocks within a country are typically highest just after harvest and most critical just before—especially for countries that are heavily dependent on domes- tic production. In Egypt, for example, wheat is harvested in April, at which point domestic stocks are high. Stocks are depleted throughout the year. If a crisis affects wheat in Egypt in February, the impact is severe because Egypt’s available domestic supply is diminished. If a crisis hits in May just after harvest, there is mini- mal impact, because domestic stocks are abundant. Lead time reduction: An alternative to stockpiling is lead time reduction, in which a country procures goods from preferred partners that can deliver them quickly on a short-term basis or in times of crisis. To reduce lead time, governments can diver- sify their trade partners, placing a premium on proximity while also considering cost of procurement, stability of supply, and quality of produce. Furthermore, governments can upgrade port facilities with modern bulk offloading equipment capable of handling large shipments in a short time with minimal offload- ing losses or shipping delays. Typical upgrades include supplanting manual labor with automated conveyer belts, cranes, and silos.
- 12. Booz & Company10 Reach:Paving the Way for Food to Get to the Market The third key component in secur- ing food availability is reach—the delivery of food throughout a coun- try. There is no point in maintaining wheat stocks if a country does not have the milling capacity and baker- ies to transform the wheat into flour and the flour into bread. Policy can help ensure that the right distribution infrastructure is in place to deliver food to the population in a market- ready form. Reach involves an assessment of the supporting in-country supply chain logistics associated with each com- modity. Each commodity is unique— some need refrigeration, whereas some can be stored for days and others for months. In order to ensure that food can be delivered smoothly and efficiently across an entire coun- try, several pieces of a logistical value chain—from storage to production capacities to distribution—should be considered: • Storage facility inspection reduces waste by ensuring that com- modities do not spoil but reach the market in good condition. • An understanding of the local capacity for milling production identifies potential bottlenecks. • A local approach to balancing stock levels and distribution of production capacity (as opposed to a centralized approach) reduces the lead time required to deliver food in shortage areas. Commodities that are vulnerable to parasites also should be dispersed at the local level (in silos, warehouses, and factories) to avert widespread contamination risks. There is no single strategy that poli- cymakers can employ to ensure that their citizens have an ample supply of food. Some countries will recognize that domestic production of a strate- gic commodity cannot be increased due to restrictions on the availability of land (due to geography, topology, or climate), water, or labor. In that case, the country will probably benefit from relying on imports as opposed to increasing local production. Countries need to determine a proper, balanced approach to domestic pro- duction and imports to develop their own strategy—based on their unique agricultural realities coupled with an analytical assessment of the econom- ics of supply options.
- 13. 11Booz & Company FOOD AFFORDABILITY: TOOLSTO CUT PRICES After availability, food affordability is the second of the four important considerations in a food security policy. Countries can employ a wide range of tools to help ensure that strategic commodities and food products remain affordable for all segments of society. The application of these tools and their associated costs are dependent on the country’s broader macroeconomic policies. The United States Department of Agriculture (USDA) and the European Union’s Common Agricultural Policy (CAP) are two of the world’s most extensive and most expensive programs aimed at securing food affordability. Each government subsidizes the agricultural sector as a means of providing incentives for the production of strategic food commodities. Indirectly, these programs maintain the supply and demand balance and affordability of these commodities. Such policies are complemented by a wide range of smaller, targeted affordability programs. These include welfare programs, such as food stamps in the U.S. that allow low-income families to buy groceries using electronic cards at select grocery stores. Also in the U.S., school meal programs are designed to offer healthy, affordable meals for school children of all socioeconomic backgrounds. China, alternatively, manages affordability by relying exclusively on extensive price control programs managed by COFCO Corporation, a state trading enterprise that has exclusive rights to the import and local trade of strategic food commodities, and the State Council. Other nations, such as Indonesia, depend on food reserves and buffer stocks as a means of protecting strategic commodities from price shocks. In extreme circumstances, these countries intervene with price stabilization and price-fixing tools to maintain the affordability of strategic food security commodities. In Egypt, the Ministry of Social Solidarity is responsible for ensuring the affordability of basic strategic commodities through two main programs: subsidized bread for the entire population and subsidized rice, sugar, oils, and tea through ration cards for the poorer segments of the population. Countries can employ a wide range of tools to help ensure that strategic commodities remain affordable for all segments of society.
- 14. Booz & Company12 Ina recent Food and Agricultural Organization of the United Nations (FAO) survey of international government officials, the vast majority of respondents demonstrated a preference for targeted price controls and subsidies to ensure food security. Reducing import taxes followed, as this lever was seen as easy to implement and politically expedient (see Exhibit 2). Untargeted subsidy programs without clear set objectives have proven to result in the highest levels of waste and leakage to those who are not in need. There are three considerations in designing targeted programs: • Targeting: Determine and define groups to be targeted by subsidies by taking into account poverty levels and which groups are socially vulnerable. • Form: Design the subsidy in a way that achieves the subsidy objectives. In the past, some subsidies have not been properly aligned with the objectives. For example, programs that subsidize the entire supply chain often result in leakage and excessive waste. A better solution would be to subsidize the final product. • Effectiveness: A strong monitoring and control program needs to be established to ensure the effectiveness of the subsidy program. The main objective is to ensure the subsidized product reaches the intended users, minimizing leakage. Regular market dynamics should ideally set prices, while governments liberalize existing laws that have historically distorted these markets. Countries should resort to price controls only in extreme situations, such as crises or food shortages, and then only in a targeted approach. Exhibit 2 Many Countries Employ Targeted Price Controls and Subsidies Source: FAO, “Soaring Food Prices: Perspectives, Impacts, and Actions Required,” High-Level Conference on World Food Security, June 2008; Booz & Company analysis Latin America 55% 49% 25% 49% 55% 100% 80% 65% 65% 50% 37% 60% 80% 78% 37% 45% 45% 20% 40% 45% 37% 19% 19% 60% 80% 58% none none 22% none none 10% none 30% 22% 22% 16% Price Control & Subsidies Import Tax Reduction Export Restrictions Usage of Stocks No Action Affordability Impact Availability Impact MENA E. Asia S. Asia Europe Africa Primary Policy Secondary Policies Policy Actions (Percentage of countries using action, 2008) Policy Actions by Region (Percentage of countries within regions using specific policy, 2008)
- 15. Booz & Company13 Case Study: Wheat Subsidies In Egypt Egypt has had a food subsidy policy since the mid-1940s. Subsidies were distributed through ration cards that provided families with a monthly quota of goods such as rice, sugar, and cooking oil at subsidized prices. However, the larger portion of subsidies was directed to wheat and the production of the Baladi bread (traditional Egyptian bread). The Baladi bread is produced from government-procured wheat (through a state trading agency) and milled in government-owned mills or private-sector mills for a fee. The resulting flour is supplied to bakeries at subsidized prices to produce the bread sold at highly subsidized prices to the public. In this scheme the entire supply chain is subsidized, resulting in a high level of subsidized flour leakage and wastage, as private-sector bakers took advantage of the significant difference between the flour’s subsidized price and the market price by selling flour illegally. • Targeting: Bread subsidies are not targeted in Egypt, where the amount of wheat procured should supply on average three loaves of bread per person per day. Non-targeting has resulted in a dilution of the impact of the subsidy, with those not in need benefiting from highly subsidized bread. • Form: The bread subsidy is one in which the entire supply chain is subsidized in the form of subsidized flour provided to the bakeries. This has resulted in huge losses and leakage into the market as the price differential between subsidized flour and market price flour has reached 3,000 percent at times. • Effectiveness: Although the government has attempted several projects to control the loss of flour and subsidy, the great difference between the subsidized price and the market price has created too strong of an incentive for opportunists.
- 16. Booz & Company14 Withinmany developing nations, citizens are suffering from either undernourishment (they are not con- suming a sufficient number of calo- ries) or malnutrition (their diet is not balanced). Countries can set policy to help educate people on the hazards of not consuming a well-balanced diet or the recommended number of calories according to age and gender. Health and education ministries can work jointly to educate citizens on the implications of poor eating habits. Some countries have established strong, targeted welfare programs aimed at improving nutrition. Finland, for example, has a highly developed school meal program in which schools are obligated to offer meals to all of their students. The meals, intended to develop proper consumption habits, are healthy (according to guidelines set by the government) and cater to religious, cultural, and ethnic preferences. About 90 percent of all children in Finland are recipients of the free meals. Although it is hard to quantify the program’s results, there is some evidence that it induces healthier eating habits: For example, heart disease has decreased by 60 percent in Finland over the past three decades. In the U.S., welfare programs provide food stamps so that low-income families can buy the food they need to live. Beneficiaries apply for the program and must demonstrate their need for assistance, based on a variety of criteria. This program is considered only moderately effective, as it has not proven successful at improving consumption habits. MENA governments can consider implementing such targeted welfare programs. In addition, they can consider establishing subsidies for certain healthy foods to increase the likelihood that their citizens will buy goods that make up a balanced and nutritious diet. NUTRITIONAL AND HEALTH VALUE: TARGETED WELFARE PROGRAMS
- 17. Booz & Company15 Food safety encompasses the han- dling, preparation, and storage of food to ensure that it is healthy and safe to consume. In 1963, a commission established by the FAO and WHO created the Codex Alimentarius—a collection of standards, guidelines, and practices pertaining to food safety. Local, state- run agencies typically administer food safety under those guidelines. In the MENA region, these local agencies include the Saudi Food and Drug Authority (SFDA) in Saudi Arabia and the Abu Dhabi Food Control Authority (ADFCA) in Abu Dhabi. Increasingly, the private sector will play an important role in maintain- ing food safety as it becomes more involved in the entire food supply chain. For example, the private sector is involved in the storage and distribu- tion of food, the production of food products and farming, and import- ing and trading food. Policymakers should establish safety guidelines for the private sector to follow and moni- tor their efforts as it operates under international safety standards. These policies are typically set as part of the national quality control framework governing agriculture and industry. In the case of food emergencies or crises—such as widespread food contamination—the government can intercede to ensure a safe food supply. FOOD SAFETY: COMPLYING WITH INTERNATIONAL STANDARDS Increasingly, the private sector will play an important role in maintaining food safety.
- 18. Booz & Company16 Oncethe four key considerations— availability, affordability, nutritional and health value, and safety—have been accounted for, policymakers should turn their attention to the resilience of the supply chain. The supply chain must be able to adjust to sudden changes, both at home and abroad, for a food security strategy to have maximum efficiency. The most effective supply chains maintain enough flexibility to deliver food in the event of external shocks, such as drought, storms, or war—and to recover quickly in their aftermath. Booz & Company has developed ways to assess the resilience of both the international and domestic supply chains for imported and locally produced strategic commodities, evaluating their robustness by subjecting them to high-risk physical and financial stress scenarios. Overseas Supply Chain For internationally sourced commodities, the framework evaluates the supply chain’s strength along the following parameters: supply base, supplier concentration, source proximity, source stability, and trade corridors. 1. Supply Base: Supply base is a measure of ease of access to strategic commodities; the larger and more geographically diversified the base, the more resilient the supply. Importing a commodity from five countries builds in more resilience than importing it from two because if an event interrupts exports from one of two country suppliers, then 50 percent of all imports would be affected. Illustration: Over the past 10 years, Egypt has been importing soybean oil from five to six major countries, including Argentina, Brazil, France, Germany, and the U.S. This wide and diversified supply base indicates that this component of Egypt’s supply chain is resilient. 2. Supplier Concentration: Supplier concentration is a measure of how dependent countries are on one or a few supply sources. A heavy reliance on few suppliers increases supply risk, especially during emergencies. For instance, if one source controls 70 percent or more of the processing capacity of a strategic commodity, a crisis affecting the processing capacity would jeopardize the bulk of the supply to the country. Illustration: Although Egypt’s supply base SUPPLY CHAIN RESILIENCE
- 19. Booz & Company17 for soybean oil is broad, it is too heavily concentrated among too few suppliers. More than 75 percent of the imports come from just two countries—Argentina and Brazil—with Argentina alone accounting for more than 40 percent. Such a high import concentration reduces Egypt’s supply chain resilience. 3. Source Proximity: Source proximity refers to the distance between a supplier and the destination of its goods, which is important in that it affects the time a supplier requires to respond in a crisis situation; the longer the lead time, the less resilient the supply, as it will take longer to receive shipments in a crisis. A country that depends on nearby supply sources with shorter lead times is more resilient to supply shocks than countries whose suppliers have long lead times due to distance. Illustration: It takes 28 days for soybean oil to ship from Argentina to Egypt, meaning that Argentina is not an especially resilient source—especially in times of emergency, when waiting 28 days would not be an option. 4. Source Stability: Source stability is the geopolitical and economic stability of the source in terms of export risk. A supplier in a geopolitically stable zone has less chance of being disrupted by war or similar events than a country in an unstable zone. Illustration: Jordan relies heavily on Syria for wheat, chickpeas, and lentils. Given the conflict in the region and on the borders of Syria, and given Jordan’s heavy reliance on Syria, the supply of these strategic commodities is at risk of instability. A country that depends on nearby supply sources with shorter lead times is more resilient to supply shocks than countries whose suppliers have long lead times due to distance.
- 20. Booz & Company18 5. TradeCorridors: Trade corridors are the number of ports adequately equipped to handle the entry of strategic commodities into the country or the number of trade routes into the country. An overdependence on a few ports or routes reduces the supply chain’s ability to respond to any physical disruption. Illustration: Jordan is almost entirely landlocked, with one major port (Aqaba). This circumstance significantly reduces the country’s supply chain resilience, due to potential port congestion causing delays—or, in more extreme cases, total land lock if the port is shut down. Domestic Supply Chain For domestically produced commodities, the framework further evaluates the supply chain’s strength using the following parameters: infrastructure capacity and operational buffer. 1. Infrastructure Capacity: Infrastructure capacity is a country’s ability to meet current demand and the demand anticipated in the near future. Countries with greater storage capacity of strategic commodities are more resilient to supply risk than those with lower storage capacity, because they can meet local demand for a longer period if additional supplies are stopped due to any crisis. Illustration: A country operating at 100 percent capacity in rice milling is less resilient to emergencies than a country running at 85 percent capacity. The supply chain capacity needs to include a portion to respond to emergencies and growing demand in the future. 2. Operational Buffer: An operational buffer is the safety net of extra time and quantity for goods progressing through each step in the value chain. Large buffer times provide less probability of disruption, but at a higher cost of operation. Illustration: Flour mills that have a four-day stock of wheat on hand are more resilient than mills that have only a two-day stock of wheat, as they can continue operations for a longer period in emergencies. This naturally comes at the higher cost of maintaining these larger stocks. Policymakers can take several steps to address potential points of failure in their supply chains. For example, they can address supply concentration issues through trade diversification and secure source stability via the selection of historically consistent exporters—i.e., countries that have little variation in their total exports from one year to the next. Lead time can be reduced by selecting proximate sources among import partners and enhancing facilities at ports to reduce the time it takes to offload goods. To assess the resilience of a strategy, a policymaker should envision reasonable crisis scenarios to determine the size and the timing of any possible gaps in supply. Proper planning of strategic reserves, or strategic stockpiling, can also mitigate a supply shortage resulting from even the most severe immediate crisis.
- 21. Booz & Company19 The importance of defining or strengthening a food security strat- egy has become increasingly clear to MENA governments; in implementing their strategies, they can opt for the ideal balance of public- and private- sector involvement. Implementation of food security strategies is best served when the role of government is focused on the regulatory arena— setting the rules to ensure available, affordable, nutritious, and safe food—and the private sector assumes the role of operator—importing, stor- ing, processing, and distributing food in a timely fashion. Most countries rely on joint public- and private-sec- tor efforts to maintain availability of strategic food commodities. However, the balance of public- and private- sector involvement varies from one country to another. • The U.S., for example, relies chiefly on private-sector stockpiling and imports to maintain food security. The government intercedes by pro- viding agricultural incentives and subsidies to promote the cultivation of certain strategic commodities. • In Indonesia, the National Food Logistics Agency and various private-sector entities that partici- pate in the trading and processing stages of the supply chain are jointly responsible for maintaining the availability of strategic food commodities. • In Egypt, the Ministry of Trade & Industry is responsible for ensur- ing an adequate food supply and oversees the state trading agency (the General Authority for Supply Commodities, or GASC) which sources strategic commodities. • In Saudi Arabia, the government is increasingly relying on the private sector. Recently the government engaged the private sector in a series of public–private partner- ships for the storage and milling of wheat. • In China, the availability of stra- tegic commodities is maintained solely through government institu- tions such as COFCO, a state trading enterprise, and the Grain Bureau, which monitors and man- ages national stockpiles of strategic grains. Although a country may adopt a food security strategy that is heavily skewed toward the private sector, the government is still ultimately respon- sible for ensuring that its citizens have the food they need. As such, it must still be involved in all strategic deci- sions regarding stockpiled reserves, and in setting incentives or policies to enable the private sector to grow or import an ample supply of healthy food. Public- and Private-Sector Roles
- 22. Booz & Company20 Securingready access to the food supply despite potentially disrup- tive global events is a major concern for governments. MENA govern- ments can implement food security policies to mitigate that threat. Such policies should ensure that strategic commodities are available, afford- able, healthy and nutritious, and safe for consumption; these aims can be achieved through measures such as food subsidies, reliable imports, and a resilient supply chain. Finally, orches- trating the right mix of public and private involvement can help ensure that a nation has a steady, safe supply of food for its citizens, in good times and in bad. Countries that are able to stabilize their food supply in this way are performing a vital service for their citizens. CONCLUSION
- 23. 21Booz & Company Aboutthe Authors Nabih Maroun is a partner with Booz & Company in Beirut. He specializes in public admin- istration development, public policy strategy, large-scale infrastructure development, organizational redesign, change management, turn- around and restructuring, and utilities privatization. George Atalla is a principal with Booz & Company in Cairo. He specializes in economic policy setting and public-sector modernization. Saida El Harakany is a senior associate with Booz & Company in Dubai. She specializes in socioeconomic reform and restructuring proj- ects for the public sector. Tarek Nassar is a senior asso- ciate with Booz & Company in Cairo. He specializes in orga- nizational transformation and public-sector modernization. Endnotes 1 The GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
- 24. ©2009 Booz &Company Inc. Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations. Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914. Today, with more than 3,300 people in 59 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage. For our management magazine strategy+business, visit www.strategy-business.com. Visit www.booz.com to learn more about Booz & Company. The most recent list of our office addresses and telephone numbers can be found on our website, www.booz.com Worldwide Offices Asia Beijing Delhi Hong Kong Mumbai Seoul Shanghai Taipei Tokyo Australia, New Zealand & Southeast Asia Adelaide Auckland Bangkok Brisbane Canberra Jakarta Kuala Lumpur Melbourne Sydney Europe Amsterdam Berlin Copenhagen Dublin Düsseldorf Frankfurt Helsinki London Madrid Milan Moscow Munich Oslo Paris Rome Stockholm Stuttgart Vienna Warsaw Zurich Middle East Abu Dhabi Beirut Cairo Dubai Riyadh North America Atlanta Chicago Cleveland Dallas Detroit Florham Park Houston Los Angeles McLean Mexico City New York City Parsippany San Francisco South America Buenos Aires Rio de Janeiro Santiago São Paulo