Funding Flow

Funding for the RUTF supply chain in eastern Africa comes from several donor sources: bilateral aid agencies, UNICEF National Committees, multi-donor pooled funds (e.g., the Consolidated Emergency Relief Fund), and Thematic Funds. These funds are used to pay for program implementation, and to make payments to vendors (e.g., RUTF producers and freight forwarders) for goods and services.

The funding process begins with the Country and Regional Offices. These offices work in tandem to raise donor monies for the nutrition program, including funds for the purchase and delivery of RUTF. Depending on the financing mechanism, donors may examine proposals and assess the needs on the ground, and then decide what they will fund and in what amount. Funds are disbursed to COs throughout the year, depending on donors’ annual cycle, the availability of funds, and the state of emergency in that country. Once COs know they have funds lined up, they can submit purchase requisitions for RUTF. When a producer receives an order and when a freight forwarder picks up an order for shipment, invoices are submitted to Supply Division. UNICEF pays for global transportation costs, and in most cases, in-country transportation is paid by Ministries of Health and implementing partners (although this is sometimes supplemented by monies from UNICEF).
Availability of funds should be scheduled to coincide with supply chain needs: Mismatches exist in the amount and timing of donor funding and the need for RUTF. Donors have difficulty predicting how much money will be available and where the need will be greatest over a 12-month cycle, and therefore can’t promise all of their funds at the start of the fiscal cycle. CO staff noted that they routinely base programs and priorities, as well as order quantities, on available funds rather than anticipated need. Tight resources and funding restrictions decrease flexibility and hinder COs’ ability to serve the needs of the local populations. The impressions of staff about the deleterious effects of unreliable funding is corroborated by the analysis of ordering behaviors, which indicated a dramatic increase in orders for RUTF toward the end of each calendar year (see figure above). The staggered distribution of funds leads to uneven ordering, causing unwanted variability throughout the supply chain. Additionally the availability of funds for RUTF programming and supplies varies each year, and can be very unpredictable.

Flexibility of Funding: In line with good donor practices, UNICEF encourages donors to give un-earmarked funds. Most of UNICEF’s donors have acknowledged the importance of providing timely and flexible funding, demonstrated by their signing on to the Good Humanitarian Donorship (GHD) principles and to the Paris Declaration. However, implementing these guiding principles can be very difficult for donors given the restrictions they face, either due to government regulations or through requirements imposed by contributors. For example, UNICEF reported receiving a substantial private donation in 2008 that was earmarked exclusively for the purchase of commodity goods. This donation purchased 600 MT of RUTF, but included no funds to support programmatic delivery.

Coordination among donors and partner organizations: A lack of consistent, integrated planning among all major donors and partner organizations limits UNICEF’s and its partners’ ability to execute programs efficiently. Implementing partners have the most pertinent information on the type and schedule of funding that would allow them to execute programs more efficiently and effectively, and give donors greater value for their contributions. Under the current system, these partners have little leverage to align donor funding practices with program needs. Their dependence on good relationships with donors encourages acceptance of donor terms that are not always conducive to successful operations. In the Horn of Africa, bilateral donors such as USAID and ECHO have regional representatives in Nairobi. These agents are usually in regular communication with UN organizations and NGOs, and some informal coordination occurs among bilateral agencies in the field. However, there is no official system for doing so, and no consolidated database that tracks which organization has funded which proposal, and at what level.

Increased input costs: Due to increases in input costs, RUTF prices could continue to remain stable despite increased in demand. Changes in component costs directly affect the landed cost of production. According to data from VALID and the Clinton Foundation in Malawi, RUTF ingredients account for 68% of the cost of RUTF production. Noteworthy is the fact that milk powder currently accounts for 42% of the ingredient cost and 29% of the total cost of RUTF. As the demand for milk products has grown globally, the price of milk has risen accordingly: between 2006 and 2008, milk prices in the United States rose by nearly 50%.Where RUTF is locally produced in Africa, milk powder and vitamin and mineral packets are generally sourced from overseas and imported. It is possible that individual producers in Africa may pay a higher price for these inputs if their production volume is not large enough to create economies of scale, significantly affecting the landed cost of the product. These inputs are also subject to import taxes (17-50%), exacerbating the problem. This could cause the cost of locally produced RUTF to increase disproportionately to that of other large global producers.

Currency risk: Currency fluctuations impact how much RUTF can be purchased with donor monies. When COs submit proposals to donors, funding needs are calculated in U.S. dollars. RUTF procured from Nutriset is billed in Euros. As currencies fluctuate, a funded dollar can realize more or less purchasing power. If currencies fluctuate significantly over a funding period, this currency exchange risk to UNICEF could be significant. It is possible that funds designated for the purchase of RUTF would no longer be adequate to buy a sufficient quantity of RUTF to address the need of the local population at the planned scale. This unforeseeable obstacle to program delivery can pose risks to the RUTF supply chain.
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