Explanatory Memorandum to COM(2022)306 - Allocation of funds from European Development Funds for financing actions addressing the food security crisis and economic shock in African, Caribbean and Pacific countries - Main contents

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dossier	COM(2022)306 - Allocation of funds from European Development Funds for financing actions addressing the food security crisis and economic ...
source	COM(2022)306
date	20-06-2022

1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

The food security situation in the world is rapidly deteriorating and many of the countries affected are least developed countries or low-income, food-deficit countries.

Before the exacerbation of global food insecurity by Russia’s war of aggression against Ukraine, close to 193 million people (almost 40 million more than the previous year) across 53 countries/territories were acutely food insecure and in need of urgent assistance. Russia’s war of aggression against Ukraine has resulted in drastic reduction in supply of grains to global markets as Black Sea routes are blocked, and grain silos deliberately attacked. Global food prices are rising rapidly and are at their highest level in three decades. The increase in energy prices drives up prices of agricultural inputs (notably fertilizers), transport and ultimately food. These price hikes are worsening the macro-economic outlook in a context where fiscal space was already reduced by the COVID-19 pandemic. This could lead to a further increase in the number of countries in debt distress and/or with balance-of-payments crises. Conflicts and droughts further exacerbate the situation in vulnerable regions. The most vulnerable countries are the least developed and low-income ones. As seen with uprisings in the past decades, it is often a food price shock that sets off instability and conflict.

The political sense of urgency in support of the most exposed countries has been underlined by the European Council in its Conclusions of 24-25 March ¹ where it invited the Commission to prioritise work on global food security and affordability, in particular by supporting food security and agriculture in Ukraine and the most vulnerable and exposed third countries. Subsequently, in its Conclusions of 30-31 May 2022 ² , the European Council invited the Commission to explore the possibility of mobilising reserves from the European Development Fund to support the most affected partner countries. Funds under the Neighbourhood, Development and International Cooperation Instrument - Global Europe (NDICI-Global Europe) ³ geographic pillar are fully programmed and around EUR 3 billion is already focusing on agriculture, nutrition, water and sanitation programmes. Additionally, approximately EUR 520 million were initially allocated in 2022 to African, Caribbean and Pacific (ACP) countries under the humanitarian aid budget, of which a significant part is addressing food insecurity and related needs. Nevertheless, given the extent of the needs and potential consequences, additional finance to support partner countries should be mobilised. Availabilities under the EU budget are very limited (the NDICI-Global Europe emerging challenges and priorities cushion will be entirely used in 2022 to respond to other urgent priorities and the initial 2022 Humanitarian Aid budget towards food security and related needs in ACP countries identified before the start of Russia’s war of aggression in Ukraine is close to full implementation), and given the impact in various ACP partner countries, the mobilisation of decommitted funds from the 10th and 11th European Development Funds (EDF) could allow the EU and its Member States to step up their support and contribute to the efforts to address the food security crisis exacerbated by Russia’s war of aggression against Ukraine, in a Team Europe approach.

The objective of this proposal for a Council decision is to obtain the authorisation of the Council to use decommitted funds from the 10th and 11th EDFs to finance actions addressing the food crisis and economic shock in ACP countries following Russia’s war of aggression against Ukraine with an amount of up to EUR 600 000 000, of which EUR 488 000 000 under from the 10th EDF and EUR 112 000 000 from the 11th EDF.

Out of these funds, up to EUR 582 000 000 will contribute to the financing of actions and up to EUR 18 000 000 will cover the support expenditure incurred by the Commission.

1. These funds will be used to the benefit of the most affected partner countries, paying particular attention to the most vulnerable and exposed countries, notably to provide:

·macro-economic support (EUR 100 million);

·support to food production and resilience of food systems (EUR 350 million);

·humanitarian assistance (EUR 150 million).

As regards the support to food production and resilience of food systems, the EU will support investments in local production capacities as part of sustainable aquatic and agri-food systems, based on agroecological approaches, including diversification of agricultural value chains and food production. The following criteria could be used to focus the assistance on selected countries:

·The partners’ (increasing) levels of food insecurity and malnutrition;

·The partners’ exposure to the consequences of the Russian aggression against Ukraine, based notably on their share of food imports into their GDP;

·The partners’ macroeconomic vulnerabilities, which could be established on the basis of their debt to GDP ratio, international reserves / months of imports coverage and Debt Sustainability Analysis rating;

·The potential impact of Union funding in partner countries or regions, assessed notably through the scope to scale up relevant production and resilience enhancing interventions.

Actions financed under this proposal will support the EU Global Food Security Response, which was developed following a request by the European Council ⁴ . The Response includes immediate and medium-term actions to demonstrate partners worldwide that the EU is providing integrated, comprehensive and swift support to address the impact the war is having on them. The EU Global Food Security Response operationalises the various strands of action – as foreseen within FARM and the G7 Global Alliance and providing the necessary support to the UN Global Crisis Response Group.

• Consistency with existing policy provisions in the policy area

The EU is committed to achieving the Sustainable Development Goal (SDG) related to “zero hunger” (SDG2) and has been working with partners to collectively step up support to end hunger, achieve food security and improved nutrition, and promote sustainable agriculture. This is reaffirmed in the European Consensus on Development ⁵ . Agricultural and rural development are key to reducing poverty, boosting food and nutrition security, stimulating economic growth, and protecting the environment, all within the context of climate change. They can also play a major role in promoting gender equality and empowering women and girls. The EU’s approach to reach SDG2 focuses on: acting to enhance the resilience of the most vulnerable to food crises, fighting malnutrition and helping secure nutritional health and well-being for present and future generations and stimulating responsible investments and supporting innovation in agriculture and food systems.

Making progress on SDG2 implies advancing in a cross-sectoral manner on several other SDGs. The adoption of nexus approaches linking land (SDG 15), water (SDG 6), and sustainable energy (SDG7) to food, synergizing natural resources management, agriculture and climate change (SDG13) or connecting ‘humanitarian’, ‘development’ and ‘conflict/peace’ strengthens such holistic approaches.

The EU response to the current food security crisis will be driven by the Green Deal ⁶ and Farm to Fork Strategies ⁷ , and build on the approach of the humanitarian-development-peace nexus. Support will be provided to countries that are facing high food security challenges, are negatively affected by the effects Russia’s war of aggression against Ukraine and are in a vulnerable macro-economic position with little or no buffers to whistand the situation.

These funds will be used in accordance with the rules and procedures applicable to the 11th EDF. They will notably reinforce ongoing or new actions addressing food security issues in ACP countries. Funds decommitted from the actions financed following this Decision will remain a resource of the EDF of origin.

• Consistency with other Union policies

The actions financed under these funds will be used in full consistency and complementarity with other actions in the area of food security, notably humanitarian aid actions as well as on-going 11th EDF actions and actions financed under NDICI-Global Europe. The component on food production and resilience of food systems will notably be implemented by building upon existing actions.

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

Article 1 i and (5) of the 11th EDF Internal Agreement ⁸ .

The EDF is set up by 11th EDF Internal Agreement and foresees the possibility to use decommitted funds, if so unanimously decided by the Council ⁹ .

• Choice of the instrument

The EDF was the main source of funding for the ACP countries until the end of 2020 and a number of ongoing actions addressing food security has been financed with the EDF funds.

Under the 2021-2027 Multiannual Financial Framework, cooperation with ACP countries is financed from the EU budget via the NDICI-Global Europe.

Given the number of urgent geopolitical needs in a context of limited margin of manoeuvre to mobilise additional funding inside the EU budget, the use of decommitted funds from 10th and 11th EDF while using EDF rules and procedures is deemed to be the most effective way to step up the Union’s action in response to the food crisis.

In accordance with Article 1 i and (5) of the 11th EDF Internal Agreement, the Council decides on a proposal of the Commission.

3. BUDGETARY IMPLICATIONS

There are no budgetary implications for the EU budget. The EDF is not part of the EU budget.

4. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

Monitoring, evaluation and reporting arrangements are those applicable to the 11th EDF and those foreseen in the relevant implementing acts.

• Detailed explanation of the specific provisions of the proposal

Article 1(1) of the proposal provides that de-committed funds up to a maximum amount of EUR 600 000 000 from projects under the 10th and 11th EDFs will be allocated for the purpose of financing actions addressing the food security crisis.

Article 1 (2) provides that a maximum of EUR 18 000 000 of the amount under paragraph (1) will be allocated to the Commission for support expenditure to cover the costs foreseen in Article 6 of the 11th EDF Internal Agreement. This is calculated by using a ratio (3%) below the one foreseen for the management of the 11th EDF funds in Article 1(2) (a) of the 11th EDF Internal Agreement (3.45%).

Article 1 (3) provides that the rules of the 11th EDF as set out in the Implementation and Financial Regulations ¹⁰ will be applicable.

Article 2 provides for the date of entry into force of the decision.