Staff costs in the relief and development sector

Staff costs are important ... and especially the huge difference between the remuneration paid to local staff and remuneration paid to international staff. This subject has not been much discussed though it is very important in the design and cost effectiveness of almost every development intervention.
Frankly ... this subject has been kept off the table for at least the last three decades because it is key to most development experts' career planning ... and many who aspire to this group. But it is too important a matter not to get it addressed.

Powdered milk – impact of subsidy

I tried to organize the supply of powdered milk for a West African importer ... and what I expected to be relatively easy was a nightmare. The cost of milk is very variable depending on how much subsidy the farmer has negotiated and where the cows are located. Both the European Union and the United States have highly subsidized cows. Of course the ex-farm price of milk becomes a component of the cost of powdered milk ... but then there are programs that encourage export of agricultural products including powdered milk, and these programs are further subsidies. With the maximum of subsidy the price of powdered milk turned out to be about $1,050 per MT in Europe and $1,100 per MT in the United States ... and by the time shipping and insurance were factored in the cif cost was going to be somewhat lower from Europe than the United States.
But then it appeared that there were quantity questions ... and if the quota was exceeded and all the subsidy used, then the prices would not be $1,050 and $1,100 respectively but more like $2,050 and $2,100. At the lower price, the price being paid by our West African importer would have generated a modest trading profit ... at the higher price, a considerable loss. And then it started to appear that the problem of the missing subsidy on the supply side would go away if we ordered immediately with some premium to be negotiated. In other words everything had a price.
Meanwhile, our customer in Africa was relatively new to this business ... and the established importers did not want new competition. Suddenly his bank needed all sorts of additional information, and it became pretty clear that there was what amounted to an import cartel that also had influence in the bank.
Lesson ... while the market may be powerful as a theoretical construct, it is puny relative to the many different centers of economic power that control and profit from the status quo. The incentives that really matter ... the profits in the value chain are complex and usually driven by some important private relationships.

Tea auction – Malawi

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Cashew – farmgate prices in Kerala

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Controlled prices for everything – Guinea Bissau

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Coffee auction - Burundi

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Exchange control distortion – Nigeria

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Price projections – World Bank getting it wrong

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Nixon's Price Controls in the USA

I was VP Manufacturing and Controller of an electical equipment manufacturer in Georgia (USA) in the early 1970s. The OPEC oil shock had upturned the global economy and cost-push inflation was increasing the price of everything. Our company had a contract to purchase 50,000 lbs. of bronze weekly at a price that was linked to the market price of copper, and this had worked without interpuption for years. The Nixon administrtation tried to stop the inflation with a series of price controls, each more draconiam than the one before. In the third iteration the administration announced that the price of the product we were buying would now be fixed at some 33% below the prevailing market price, and claimed victory. In other words according to the administation the bronze which had been costing us 50 cents/pound would now only be just 33 cents a pound. I learned almost immediately that our supplier would not be able to ship our weekly bronze requirement because of the new price controls even though we had a legally enforceable contract. YES ... but the law moves slowly and I needed the product to keep our foundry and the rest of the factory operating in just a couple of days! It turned out that our supplier had sold all the available bronze on the world market in Europe at the prevailing market price. Of course, I could also buy bronze in Europe at the prevailing world price ... which I did. But then I had to get the material from Europe to our factory in Georgia in less than two days. This we did ... but the delivered cost including air freight to our foundry was actually around $1.50 a pound rather than the Washington PR price of 33 cents a pound. The moral of this story is that the free market is a whole lot more powerful than anything a government administration can do!