Department of Agricultural, Food, and Resource Economics Food Security Group

IDWP 103. Cynthia Donovan, Helder Zavale, and David Tschirley. 2010. The Evaluation of the Impacts of Title II Monetization Programs for Wheat and Crude Edible Oils in Mozambique, 1997-2007. 

EXECUTIVE SUMMARY:
From 1997-2007, the United States Agency for International Development (USAID) Title II
monetization programs sold more than US$200 million of food aid wheat and unrefined
vegetable oils in Mozambique. This research has three objectives: 1) to document the lessons
learned from past monetization programs in Mozambique; 2) to identify the intended and
unintended effects of monetization in Mozambique; and 3) to document indirect successes as
a result of using monetization in Mozambique, if any. Monetization programs in
Mozambique prior to 1997 demonstrated positive effects on market development and
contributed to food security in a critical period. During later periods, the monetized food aid
displayed the negative effects of uncoordinated food aid deliveries and arrival of quantities
beyond absorptive capacity, depressing prices for locally produced staples and adding to
market price volatility.

Food aid managers in the recent years learned from that earlier experience. For the 1997-
2007 PL 480 Title II program, design features included using an umbrella marketing scheme,
with a single cooperating sponsor responsible for monetization, providing professional
trading experience and coordinated activities for sales. Wheat grain and unprocessed bulk
edible oils were selected, and sold to buyers using an auction system. There is almost no
domestic wheat production, and the production of oilseeds meets only a small proportion of
local needs, so the threat of directly competing with local production is greatly diminished.

Analysis shows that the monetized wheat arrivals did not cause price shocks on local wheat
flour in Nampula or in Maputo. Analysis of costs and prices indicates that for oil,
monetization sales prices were close to and above commercial import prices and met cost
recovery guidelines. For wheat, prices at which monetized commodities were sold were
between 85-97% of the benchmark, when implicit shipping subsidies are excluded from
costs. Prices approached import parity prices for the hard wheat varieties. Import substitution
for imports from the wider world markets is probable, although we were unable to
empirically assess this effect.

On consumption, we show that the wheat flour price was unaffected by the monetized wheat,
from which it follows that the Title II wheat did not change food consumption habits or
depress the prices for locally produced substitutes. Analysis was unable to determine if the
monetized unrefined oils had price effects due to the small number of arrivals. As found in
the literature, increased consumption of wheat products and oils during the period are likely
driven by income increases especially in urban areas, not by cheap food aid commodities.

Regarding industry structure, the bidding system and relatively easy payment schedules aided
small, new processors especially for wheat, and the decision to distribute to a range of buyers
may have assisted in establishing more competitive markets. While we cannot empirically
test the hypothesis, we believe that decreasing margins between world wheat prices and local
retail wheat flour prices in the early period along with stable margins in the second half of the
period are partially due to increased competitiveness in the milling sector. Regarding imports,
the monetized commodities complemented but also competed with commercial imports from
international markets for both oil and wheat, given the pricing structure.

There are other probable effects for which the empirical evidence is either weak or
unavailable, although there may be anecdotal evidence. Title II wheat shipments may have
facilitated a shift to using higher quality wheat in bread and other flours, increasing demand
for hard wheat varieties, grown in the U.S. and a reduced number of other countries. The
Title II monetization programs in Mozambique likely contributed to sector development for
domestic processing and packaging for edible oils, encouraging growth in domestic oilseeds
sector, an objective of the Mozambican government. The monetization program provided a
platform for discussions between the public and private sectors concerning wheat quality and
demands. In the future, Title II commodities may provide some of the leverage needed to
motivate fortification of wheat flour in the country.

For future work, it will be critical for monetization teams to assess world market prices,
changing domestic processing and production capacity, and government of Mozambique
development objectives to ensure that the programs do not begin to show the types of
negative effects found in other countries, but currently absent or minimized.