Chapter 2 The International Fund for Agricultural Development and the Bill

The International Fund for Agricultural Development

2.1                   IFAD is a specialised agency of the UN which was established in 1974 following food crises in Africa in the 1970s and a subsequent 1974 World Food Conference. The Conference concluded that:

… the causes of food insecurity and famine were not so much failures in food production, but structural problems relating to poverty and to the fact that the majority of the developing world’s poor populations are concentrated in rural areas.[1]

2.2                   Consequently IFAD’s mission, as currently stated on its website, is ‘to enable poor rural people to overcome poverty’:

Working with poor rural people, governments, donors, non-governmental organizations and many other partners, IFAD focuses on country-specific solutions, which can involve increasing poor rural peoples’ access to financial services, markets, technology, land and other natural resources.[2]

2.3                   Specifically, developing countries receive ‘highly concessional loans and grants’.[3]

2.4                   IFAD has a total of 168 member states, including 133 developing countries. These comprise:

• 50 from Africa;
  
  
• 51 from Europe, Asia and the Pacific; and
  
  
• 32 from Latin America.[4]

2.5                   A list of IFAD members is provided in Appendix C.

2.6                   Australia was a founding member of IFAD in 1997 and had provided A$50.3 million before it withdrew in 2004. Between 1997 and 2004 IFAD had provided ‘US$10 billion to finance projects with a total cost of approximately US$25 billion.’[5] In 2011, IFAD ‘provided US$998 million in grants and low interest loans to support poverty reduction projects.’[6]

2.7                   AusAID advised that:

IFAD works in over 26 countries in the Asia-Pacific region. At the end of 2011, IFAD had 240 ongoing programs and projects in 93 countries and 1 territory across the globe. This included: 42 projects in Near East, North Africa and Europe, 61 projects in Asia and the Pacific, 31 projects in Latin America and the Caribbean, 54 projects in West and Central Africa and 52 projects in East and Southern Africa.[7]

Reasons for withdrawal in 2004

2.8                   Concerns about IFAD arose in the early 2000s and culminated in 2004 with a Parliamentary inquiry by the Joint Standing Committee on Treaties into whether Australia should withdraw from the fund. During evidence to that inquiry, witnesses from AusAID provided a list of criticisms of IFAD. The Treaties Committee recommended withdrawal, although a dissenting report disagreed.[8]

2.9                   The submission from the Foreign Affairs and Trade Portfolio agencies (FATP) advised that the subsequent decision for Australia’s withdrawal from IFAD in 2004 was because, at that time:

• IFAD was not delivering cost effective and tangible returns;
  
  
• only a small percentage of IFAD programs were located within Australia’s priority countries of Southeast Asia and the Pacific (only 7 per cent to Southeast Asia and there were no active projects in the Pacific); and
  
  
• IFAD did not have a clear mandate or role—it delivered most of its assistance through other multilateral agencies and did not focus its activities into rural development activities.[9]

2.10               Australia has been the only country to withdraw from IFAD.[10] New Zealand is a member of IFAD but is not a fund contributor—it stopped contributing in 2003 because of budget constraints.[11]

2.11               The effective date of withdrawal was July 2007 when Australia made its final payment to IFAD under its treaty obligation.[12]

The Amendment Bill

2.12               AusAID told the Committee that in 2008 it ‘seriously started contemplating why we withdrew and what that meant to us in terms of our investments in food security’;

In 2007–08, … there was a global food crisis that unhappily coincided with an energy crisis—a fuel crisis—as well as the global financial crisis. … [It] caused us to reassess quite significantly our rural development and agriculture portfolio. As a consequence of that occurrence in 2007–08 we have significantly increased expenditure on food security activities …

… we started to look at the comparative advantage of the range of institutions that we work with in the food security space. So we were happily engaged in the UN’s global food price crisis response fund. … We are a substantial member of the World Food Programme … We are a core funder of the UN Food and Agriculture Organisation. So we have a strong portfolio of multilateral investment in food security. But it came to our attention at around that time that IFAD was a significant gap in our portfolio. It does do what those organisations cannot do. It has a specific mandate to focus on small-holder farmers and on rural poverty, which is different to the other organisations that I have mentioned.[13]

2.13               A proposal to rejoin IFAD was subsequently made to AusAID senior management at the end of 2010—this progressed to a review of IFAD in 2011.[14]

2.14               In April 2011, AusAID released its report reviewing Australia’s engagement with IFAD. The report included the conclusion that there was ‘a strong business case for Australia to rejoin IFAD’ for a number of reasons, including:

• IFAD’s work contributed to directly to MDG1 (reduction of poverty), MDG3 (improving gender equity), and MDG7 (environmental protection);
  
  
• IFAD was widely seen as effective, results focused and providing value for money in the increasingly important rural development sector;
  
  
• there was ‘close alignment between IFAD and Australia’s priorities for food security and rural development’;
  
  
• IFAD offered ‘partnerships in regions and sectors where Australia wishes to expand but lacks deep technical or country knowledge and presence’;
  
  
• IFAD offered the ‘opportunity for strong Australian influence and profile.’[15]

2.15               AusAID in evidence stated that the decision to rejoin IFAD was, to its knowledge, not influenced by Australia’s bid for a non-permanent seat on the UN Security Council.[16]

2.16               It provided further information in a supplementary submission:

AusAID has consulted the United Nations Security Council Task Force within [DFAT]. The Task Force has advised that there was no relationship between the UNSC campaign and the decision to rejoin IFAD at any point.[17]

2.17               In February 2012, the Government announced at the 35th session of IFAD Governing Council that Australia intended to rejoin IFAD. This would take effect in February 2014.[18]

2.18               For this to occur, legislation must be in place for Australia to legally accede to the Agreement Establishing IFAD. The original domestic legislation—the International Fund for Agricultural Development Act 1977—had not been repealed despite Australia’s decision to withdraw from IFAD. The Bill therefore is intended to amend the 1977 Act and allow Australia to legally accede to the Agreement Establishing IFAD.

2.19               The amendments in the Bill are:

• amending the definition of ‘Agreement’ (Section 3) to ensure the legislation refers to the most recent version of the Agreement;
  
  
• repealing a section (Section 4) stating that membership of IFAD is approved; and
  
  
• removing the Schedule to the IFAD Act 1977 (as it refers to the original IFAD Agreement) and replacing it with a web link to the most recent IFAD Agreement, which is updated as the Agreement is amended.[19]

Have the 2004 concerns been addressed?

Delivery of cost-effective and tangible returns

2.20               The FATP advised that IFAD was improving its cost effectiveness by:

• increasing in-country presence and direct supervision;
  
  
• increased project efficiency; and
  
  
• increased focus on results.

Increased in-country presence and direct supervision

2.21               AusAID told the Committee that ‘at the end of 2011 IFAD had more than doubled the number of projects it supervised directly compared with 2008.’[20] FATP advised that ‘delegating to officers and staff in country can increase the cost effectiveness, by ensuring closer follow-up on project implementation.’[21]

Increased project efficiency

2.22               FATP advised that the size of IFAD projects was increasing and that while the majority of projects cost between US$10–US$15 million, there was an increasing proportion of larger projects.[22] AusAID told the Committee that:

… with larger projects you have economies of scale and that is certainly something that we are encouraging, to avoid what we call ‘fragmentation of aid, too many small inefficient projects.[23]

2.23               The value of IFAD’s loans and grants had also increased from 2008 to 2011 by ‘almost 70 per cent’ while administrative costs had only gradually increased. The ratio of IFAD’s administrative budget compared to total loans and grants:

… has decreased from 15.9 per cent in 2008 to 11.7 per cent in 2011. This is significantly better than the target of 13.5 per cent. When external resources directly managed by IFAD are also taken into account, the efficiency ratio is 9.5 per cent, in line with figures for other multilateral development banks.[24]

2.24               AusAID acknowledged the finding of a review by the UK Department for International Development (DFID) that commented that administration costs were currently too high and project efficiency needed to improve, but added:

It is really a question of progressive reforms that need to be implemented. We believe that tremendous inroads have been made in terms of efficiency. The direction of travel is correct. We would like to be involved in influencing reforms moving forward and the best way of doing that is to be on the inside of this organisation. … we are not saying that we are completely satisfied with IFAD’s performance. … you need to be on the inside to influence those decisions.[25]

2.25               AusAID drew attention to IFAD’s management reforms, such as:

… how they deploy people, how they focus on results—and other management reforms including procurement reforms and other things that come with it.[26]

2.26               Additional value arises from providing funds to IFAD because there is a multiplier effect.

2.27               When introducing the Bill, the Parliamentary Secretary for Foreign Affairs noted that IFAD was able to leverage the contributions it received, commenting that ‘for every $1 contributed, IFAD mobilises another $6 for rural development.’[27]

Increased focus on results

2.28               The FATP noted that IFAD had strengthened its evaluation processes by having an Independent Office of Evaluation which was structurally independent of IFAD’s management. It reported directly to the IFAD Executive Board.[28]

2.29               Assessment of IFAD projects had shown that there had been a consistent improvement against project performance indicators ‘in every indicator between the last two replenishment periods.’[29]

2.30               The indicators were:

• effectiveness;
  
  
• rural poverty impact;
  
  
• gender;
  
  
• innovation, replicate the ability and scaling up;
  
  
• sustainability;
  
  
• relevance; and
  
  
• efficiency.[30]

2.31               Results International Australia (RIA) also provided information on IFAD’s effectiveness. It stated that independent evaluation of projects and programs had found:

• The proportion of projects rated as satisfactory in their impact on rural poverty had increased from 48% in 2002 to 2004 to 86% in 2007 to 2009.
  
  
• The proportion of projects rated as satisfactory in their sustainability (providing continued benefits after closure of the project) increased from 40% in 2002 to 2004 to 65% in 2007 to 2009.[31]

2.32               The FATP added that IFAD was also prepared to communicate information to interested parties:

IFAD now has an active program of knowledge management and dissemination to external audiences. IFAD has commissioned and published policy relevant research, often in partnership with other organisations, on topics such as land grabbing; remittances in rural areas; weather index insurance; indigenous peoples; community participation; and rural youth.[32]

Governance issues

2.33               RIA commented on IFAD’s improved governance arrangements:

Since 2005, IFAD has also implemented an anticorruption strategy, which gives its Office of Audit and Oversight unrestricted ability to investigate complaints and allegations, and also empowers a Sanctions Committee to decide appropriate action where a case of fraud is substantiated. … IFAD also established an Ethics Office in 2011 to investigate and provide guidance on ethical issues for IFAD staff.[33]

2.34               During the public hearing, the Committee drew attention to a 2011 IFAD report on its investigation and anticorruption activities. The report commented that there was a:

 … caseload of 59 active cases in 2001 (compared to 49 active cases in 2010 and 33 active cases in 2009. Seventeen cases were completed in 2011 of which, five were closed as unsubstantiated or underfunded, five were transferred to IFAD Divisions, and one was substantiated.[34]

2.35               The report continued that a backlog of cases had prompted the engagement of several consultants and the secondment of an investigator from the World Bank as well as the creation of an additional investigation officer position. As a result, the backlog was significantly reduced in early 2012 and that IFAD’s Office of Audit and Oversight was ‘seeking additional resources as necessary to ensure a prompt response to allegations in 2012.’[35]

2.36               The report noted that of the 59 active cases, 16 were internal, 40 were external, and three were a combination.[36]

2.37               The Committee also drew attention to the emoluments of IFAD’s incoming president which included a salary on par with the head of the much larger Food and Agriculture Organisation plus allowances and generous housing costs.[37]

2.38               AusAID responded:

Yes, we are aware of those allegations, and we think it was an error of judgement by the incoming president. He has since corrected his behaviour and moved into a less extravagant residence, and he is behaving more appropriately.[38]

Location of IFAD programs

2.39               The Committee questioned whether it was better for Australia to administer its aid projects rather than relying on multilateral agencies. AusAID could than select a project, select the players, badge the project and effectively monitor it with presumably with greater administrative efficiency than that of IFAD.

2.40               AusAID responded that with countries which were ‘most important to us and the closest to us geographically, [the Committee’s] statement is probably correct.’

But, the further we get away from Australia and the fewer people we have on the ground, it is not necessarily effective for us to deliver the assistance bilaterally in all circumstances. … as we get into the regions that are furthest away from us, we are better off working with our most trusted partners, particularly the multilateral organisations such as the financial institutions and the UN agencies.[39]

2.41               The FATP noted that IFAD had increased its focus on East Asia and the Pacific—the region was now receiving some 31 per cent of IFAD allocations.[40]

2.42               RIA supported the view that IFAD was increasing its involvement in the Asia-Pacific region and provided more detail:

… at the end of 2011 IFAD was implementing 61 projects and programs in the Asia-Pacific region, with total investment by IFAD in these projects of US $1.45 billion, or approximately one third of the value of all projects. New projects in the Asia-Pacific region approved in 2011 included an investment by IFAD of US$340 million, or 34 percent of new loans and grants.[41]

2.43               AusAID advised that there were two small active projects in the Pacific—in Papua New Guinea and in the Solomon Islands, with a further program to commence in Tonga, in 2012–17.[42] AusAID acknowledged, however, that the bulk of the projects were in the Asia part of the Asia-Pacific. Nevertheless, IFAD was developing a strategy for engagement with the Pacific and AusAID was having technical discussions with IFAD.[43] AusAID added:

Australia will encourage IFAD to liaise closely with regional bodies and other donors in designing and implementing activities to ensure effective coordination and harmonisation of aid, increasing aid impact and reducing the transaction costs for Pacific island countries. This is consistent with the objectives of the Cairns Compact on Strengthening Development Coordination in the Pacific to which Australia will seek IFAD’s commitment. IFAD Joining IFAD would enable Australia to offer its knowledge and technical expertise in the Pacific to ensure IFAD projects are implemented effectively.[44]

2.44               The Committee notes that the total cost of these three projects
(US$80.6 million) is modest in proportion to the total cost of IFAD projects (US$998 million).[45]

IFAD’s mandate and role

2.45               The FATP drew attention to the 2011 AusAID review of Australia’s engagement with IFAD and the review’s conclusion that IFAD had a clear mandate. This was to:

… reduce rural poverty and hunger through working with smallholder farmers, who are disproportionately represented among the poor, vulnerable and food insecure.[46]

2.46               IFAD’s mandate, the FATP noted, was well aligned with the Australian Government’s policy statement, An Effective Aid Program for Australia: Making a real difference—Delivering real results. Further, IFAD also worked with governments to develop and finance programs and projects which enabled the rural poor to themselves overcome poverty.[47]

Other assessments of IFAD’s performance

2.47               Besides the AusAID 2011 review of IFAD, the FATP noted three other independent reviews which had also drawn favourable conclusions. These reviews were conducted by:

• the Multilateral Organisation Performance Assessment Network (MOPAN), in 2010;
  
  
• the UK Department for International Development (DFID) Multilateral Aid Review, in 2011; and
  
  
• the Australian Multilateral Assessment (AMA) in 2012.[48]

Multilateral Organisation Performance Assessment Network

2.48               MOPAN is a network of 16 donor countries which assesses the effectiveness of the multilateral organisations they fund. The MOPAN review had assessed IFAD ‘at an institutional level and across 10 developing countries’.[49]^,[50]

2.49               The FATP advised that the review had found:

[IFAD’s] key strengths included a clear link between its mandate and its result focused strategy; a good results measurement framework; transparency in its aid allocation decisions; and independence of the evaluation unit. …

MOPAN also rated IFAD well with respect to anti-corruption, through its increasing use of direct supervision, and in-country presence, which will further reduce risks of corruption and increase its cost effectiveness.[51]

UK Department for International Development Multilateral Aid Review

2.50               DFID’s review commented that:

IFAD is the only international organisation to focus exclusively on rural poverty to make progress on MDG1 [Millennium Development Goal 1]. It also places emphasis on empowering women, contributing to MDG3. …

IFAD is one of the largest sources of development financing for agriculture and rural development.[52]

2.51               The FATP commented that DFID’s review had:

… commended IFAD on its unique mandate, focus on poor countries and its comprehensive results framework with clear targets. The [review] also noted IFAD specialised knowledge, its pro-poor approach, its focus on women and improved project delivery.[53]

Australian Multilateral Assessment

2.52               The FATP advised that the AMA had ranked IFAD strongly in six categories and satisfactory in one. The strongly ranked categories were:

• Delivering results on poverty and sustainable development in line with mandate;
  
  
• Alignment with Australia’s aid priorities and national interests;
  
  
• Contribution to the wider multilateral development system;
  
  
• Strategic management and performance;
  
  
• Transparency and accountability.

2.53               The category ranked satisfactory was, ‘Partnership behaviour’.[54] Within this category, IFAD was ranked as weak in relation to ‘Plac[ing] value on alignment with the partner countries’ priorities and systems.’[55]

2.54               The FATP commented that the report advised that ‘the Australian Government can have a reasonably high degree of confidence that IFAD will deliver tangible benefits in line with Australia’s development objectives, and will represent good value for money.’[56]

Other suggested benefits of rejoining IFAD

2.55               AusAID advised that a significant benefit of rejoining IFAD was the ability to influence IFAD decisions:

Given that we would be a significant member and donor to IFAD, we would have good chances of contesting a position on the Executive Council of IFAD, which essentially is the equivalent of a board of directors of a private institution or a bank, for example. That is a body that is vested with the power to make policy for IFAD, including approval of major projects—that is, direction in policy, the areas that they focus on and specific projects. So, subject to us being able to secure a seat on the Executive Council of IFAD, we would be in a position to exert a high degree of influence on its lending decisions.[57]

2.56               If Australia rejoined IFAD, AusAID commented, every three years there was the opportunity to further influence IFAD when Australia contributed money to replenishing the IFAD fund:

… there is a separate question of how much money we contribute to each replacement of the IFAD funds. We have the flexibility of dispersing whatever the government allocates as the amount to disperse but also to calibrate that amount to exert pressure and, if … reforms perhaps are not as robust and not moving as fast as possible, we have the option of not dispersing that money. …

… every three years we will have an opportunity to negotiate with IFAD what their priorities are and what we want as part of a group of donors negotiating the replenishments. We will have an ability to influence their priorities and push for certain changes.[58]

2.57               While IFAD projects were not badged to identify donor countries, AusAID would use its ‘communication strategies to ensure that people are aware of the contribution we make.’[59]

2.58               Submissions to the Inquiry have identified other benefits arising from Australia joining IFAD. These included:

• providing another way to implement Australia’s commitment to the UN Convention to Combat Desertification (UNCCD)—IFAD hosts the Global Mechanism which is a subsidiary body of the UNCCD;
  
  
• providing ongoing support to Afghanistan after Australia’s withdrawal from that country—IFAD has a presence in Afghanistan with its Rural Micro-Finance and Livestock Support Program;[60]
  
  
• IFAD ‘also works to address large poverty concentrations in rural areas of emerging and middle income countries, all of which are members of the G20’;[61]
  
  
• Australia’s investment in the UN Food and Agriculture Organisation governance would be enhanced by involvement with fellow Rome-based IFAD;
  
  
• providing an opportunity to advocate Australia’s position on food security, agricultural trade and development, and provide ‘targeted advice and assistance on issues directly related to Australia’s agricultural interests’;[62]
  
  
• supporting IFAD’s micro-level interventions which complement the macro-level assistance provided by the World Bank and African Development Bank;
  
  
• enabling assistance to flow to areas of hostile or incompetent governments;
  
  
• IFAD implements the Global Environment Facility (GEF) and its grants—South Pacific countries have been unable to access GEF funds and Australia’s influence may facilitate such access;
  
  
• enabling identification of trade opportunities through involvement with IFAD projects;
  
  
• IFAD’s reliance on external consultants provides opportunity for Australians—withdrawal has resulted in a loss of $5.96 million annually because only citizens of member countries can tender for IFAD projects;[63]
  
  
• rejoining IFAD is consistent with Australia’s objectives regarding the MDGs;[64] and
  
  
• influencing China’s aid and assistance program—’IFAD is very effective in working with the Chinese Government to change its behaviours with respect to its delivery of its own development assistance and in the delivery of assistance to its own rural communities.[65]

AusAID staffing implications

2.59               The FATP advised that the Government had appropriated $126.4 million for IFAD in the 2012–13 Budget to cover commitments to 2015–16. This included:

• a maximum amount of $120 million in 2013–14 to be contributed as part of IFAD’s Ninth Replenishment; and
  
  
• ongoing administrative costs of $1.4 million per annum to support a counsellor position in Rome, one locally engaged staff, and two Australia-based staff (the counsellor would also work with the other two Rome-based UN agencies—the Food and Agriculture Organisation and the World Food Programme).[66]

2.60               RIA noted that the impact on Australia‘s aid budget would be small:

Taking account of the expected growth in the Australian aid program in the coming years set out in the Budget document on the overseas aid program for 2012–13, the annual costs of IFAD contributions would be less than 0.4 per cent of Australia’s total aid in the period 2014–15 to 2017–18.[67]

2.61               The Committee asked AusAID whether joining IFAD would result in ‘the defunding of other programs to afford this priority’.[68]

2.62               AusAID responded that the funding of its broad portfolio of investments was ‘constantly changing’ and it was ‘already shifting [AusAID’s] resources around to suit the circumstances of the day’. Suspension of funding was one option, ‘but reducing the amount of expenditure on each item of the portfolio is another way to handle it.’[69]

Committee comment

2.63               The announcement of Australia’s intention to withdraw from the fund in 2004 has in part led to significant reforms. Since that time, not only has IFAD changed, but Australia’s aid strategy has altered.

2.64               The Committee considers that IFAD’s annual report on its investigation and anticorruption activities is a significant piece of evidence.

2.65               It shows that IFAD operates in an imperfect world, and that it is serious about combating corruption, and is transparent in recognising corruption and being accountable for its response to this issue.

2.66               By becoming a significant contributor to IFAD, Australia places itself in a prime position to influence the direction of the organisation and maintain its program of reform. Such influence is twofold: first through rejoining; and thereafter every three years when the IFAD funds are replenished.

Conclusion

2.67               The Committee considers that the various reforms introduced by IFAD, in part as a response to Australia’s withdrawal, have addressed Australia’s concerns.

2.68               Specifically:

• IFAD’s cost effectiveness has significantly increased;
  
  
• its programs have become more aligned with Australia’s aid program; and
  
  
• IFAD now has a clear mandate and role.

2.69               The Committee notes that there are other benefits arising from rejoining IFAD and these should not be ignored.

2.70               The burden on Australia’s projected aid budget imposed by rejoining IFAD is small, and the additional staff employed, in particular the Rome-based counsellor will be able to promote Australia’s interests with the other Rome-based UN agencies.

2.71               The Committee concludes that there is significant benefit in Australia rejoining IFAD.

 

Recommendation 1
2.72	The Committee recommends that the International Fund for Agricultural Development Amendment Bill 2012 be passed.

Mr Nick Champion MP Chair Foreign Affairs Sub-Committee October 2012

Mr Michael Danby MP Chair Joint Standing Committee on Foreign Affairs, Defence and Trade October 2012