Buying local does not work

For once, it is not me saying it but  Dixon, Rimmer and Waschik in their "Evaluating the effects of local content measures in a CGE model: Eliminating the US Buy America(n) programs" paper:

 "Like many countries, the U.S. implements local content policies. Through these policies, the U.S. government attempts to stimulate employment, especially in the manufacturing sector, by favoring U.S. contractors for public sector projects (Buy American regulations) and by insisting that these contractors themselves favor domestic suppliers of inputs such as steel (Buy America regulations). We refer to these policies collectively as Buy America(n). Enforcement of the policies is via complex legalistic processes and often contractors to the U.S. government adopt a cautious approach by favoring U.S. suppliers even when this may not be strictly legally required. In these circumstances, it is not possible to provide a definitive model-based quantification of the effects of Buy America(n). Nevertheless, as demonstrated in this paper, a detailed CGE analysis can give valuable guidance concerning the efficacy of these policies. In an illustrative simulation we find that scrapping Buy-America(n) would reduce U.S. employment in manufacturing but boost employment in the rest of the economy with a net gain of about 300 thousand jobs. Even in the manufacturing sector, there would be many winning industries including those producing machinery and other high-tech products. Employment would increase in 50 out of 51 states and 430 out of 436 congressional districts." 


I particularly like the final sentence. 

Links I Liked [Public Procurement]

1. European Commission publishes final version of its much awaited Notice on the notion of State aid as referred to in Article 107(1) TFEU. Albert's comments are here.

2. UK Government consults on changes to how councils publish procurement data. Consultation is available here.

3. Doubts over Thames garden bridge as Sadiq Khan probes £175m project. Great writeup. This is a textbook example of legalising the folly of pre-procurement contacts between economic operators and contracting authorities. Only the best connected will benefit from this approach which is in effect not distinguishable from lobbying.

4. Judge forces Spain to change its tender specifications for the new high speed rail rolling stock (Spanish only). And rightly so as the original version of the awarding criteria reserved marks for local train building. For the UK Government to take into consideration next time a tender for rolling stock is put out and that other countries are not playing by EU rules.

5. Uncovering Corruption Is a Risky Endeavor in Spain. Very hard to read and in line with my experience in the country (but that may be availability bias on my part).


Links I Liked [Public Procurement]

1. Swansea will have a tidal lagoon and main contractor is looking for suppliers. I have nothing against "meet the buyer" or networking type of events, but I am never keen on the "local" spin people put on them.

2. How easy will it be for the World Bank to change its procurement paradigm and raise the skills of procurement officers? Not easy, but that is no reason not to do it.

3. "Human Rights not guaranteed by procurement practices." Another reason to listen to this podcast by yours truly with Claire Methven O'Brien.

4. Caribbean Development Bank to establish regional procurement centre. Reasonable idea, as usual devil will be in the details.

5. DG Market creates tool to make contract search easy and painless. Anything is better than TED as I argued before, although data is still coming from there. Oh, and if you like data check SpendNetwork.

Update: 6. The Telegraph "makes a meal" out of EU procurement.  Awesome story about crockery and dinner services procured by the European External Action Service.

Oh, food procurement and supply chains...

If you are based in the UK watch this BBC series about Gareth Wyn Jones, a Welsh farmer trying to understand modern food supply chains. Episodes 1 and 2 are engaging but it the third one is a killer in what comes down to food procurement.

Before I start, let me say this clearly: there is awesome food in Wales, from meat to cheese/dairy, going through potatoes and, yes, even whisky. If you are a foodie check out the restaurants in Abergavenny. In Carmarthenshire you will find a gem or two also. I could go on and on with tips and recommendations.

Local schools, global procurement

Gareth is concerned that school meals in Wales are, well, not what they should be in terms of quality. Plus, he is also concerned  why they are not stocked with "local produce". Food procurement is a perennial punchline for those calling for more "locally" driven procurement measures. In economic terms we would call this attitude "protectionism".

As for the food quality in school meals Gareth has a valid point, but prefers to point the finger to the usual strawman: those damn, damn procurement rules. Gareth, you heard it first here: it is not the rules, but what people do with them instead. If the food is crap, do not blame the rules but the buyer behaviour. The old saying is valid here: you pay peanuts, you get monkeys (food pun intended). Contracting authorities are under huge pressure to lower their budgets so they prioritise price over quality. Only that would justify "meals" like these. Again, not the rules fault as other countries applying the same rules have no problems in providing good meals to students.

When a contracting authority goes for price only usually quality suffers unless a clear indication of minimum quality standards is provided *and* the contract is properly managed. Again, two things well inside those pesky procurement rules. Furthermore, going for lowest price also tends to price out smaller suppliers which by default defines Welsh food suppliers. I suppose the Welsh Government could double the price so that smaller suppliers would be able to compete but in the end that would mean higher taxes. Would you like to pay higher income tax, Gareth? Or, in alternative, how would you feel if your excellent lamb was taxed at 25% VAT?

Buying local and disaggregating demand (ie, getting each school to procurer its own food separately) might lead to more being bought locally but would certainly lead to a higher cost overall once overheads costs were factored in. Someone inside the school would have to manage all those local suppliers (procurement planning, process and contract management, even if value was below EU thresholds), be up to date with legislation (procurement, but not only) and be prepared to have backup plans in case there was say a harvest failure. Gareth complained about the long supply chain used in the schools but for all its downsides it brings resilience and security of supplies (we cannot get potatoes for Ireland this year? Ok, here are these Dutch ones instead).

However, I suspect that the real grater for Gareth is actually that at least some of the food comes "across the Severn" (meaning, it is English or foreigner). In other words, damn EU single market rules that allow suppliers every free access to buyers in other Member States. I suspect however that Gareth has no objections in selling his excellent lamb in France though. In a previous show, however Gareth was surprised that Chinese buyers would pay top dollar for the excellent crab that can be fished (crabbed?) in Wales. I can attest that it goes down a treat in Portugal and Spain as well. Oh and my mother loves Welsh mussels.

Gareth complains about the amount of money being "lost" in the transaction. This is a common complaint with procurement in Wales that money is being "leaked" across the border to other areas of the United Kingdom and one I have heard often over the last five years. Bearing in mind that there is plenty of tax money originated elsewhere ending up in the Welsh Government budget or that Wales still receives plenty of EU funds (including Common Agricultural Policy monies which benefit farmers), it seems a little bit rich to just want the flow of money to go in one direction. We cannot have our cake and eat it.

Gareth talks about these issues an academic from the University of Cardiff, Dr. Roberta Sonnino, who also advocates for a short food supply chain for schools and rails against the "obsession with cost effectiveness". I wonder if Dr. Sonnino wants to pay higher taxes to compensate for the obsession with cost effectiveness". She has a point, however that the more a buyer squeezes a supplier on price the more tempting it is to flout the rules or lower the quality. But again, that is not an issue with the rules or the length of the supply chain as we saw with the horsemeat scandal which involved a Welsh abattoir. I would guess that Dr Sonnino, like myself, is a net beneficiary of that pesky, pesky EU principle called "freedom of movement". As before, let's be careful with what we wish for...

Although it is true that the Welsh Government refused an interview, it is a shame the BBC did not reach out to any procurement law expert, academic or otherwise.

Food and procurement rules

Yes, it is true that procurement rules and general EU principles forbid discrimination based on the origin of the goods or the suppliers and rightly so. These and other rules flow both ways. I am sure Gareth would be incensed if he was banned from exporting his lamb to say Ireland because they also raise cattle there.

But let's not hide political or budgetary decisions behind legal scapegoats (food pun intended).

PS: In one of the programmes Gareth washes praise on a particular local supplier for the supposed produce quality. The irony is that I have seen said supplier multiple times at a Aldi car park loading boxes of produce at 8am. Yes, loading boxes. I guess that counts as local sourcing.

PS2: I once had an amazing conversation with a cheese lady at a farmers market. She was complaining about the quality of cheese sold in supermarkets and rightly so. I agreed and said I loved pairing her excellent and expensive cheese with some nice wine sold in the shop around the corner. Foolishly, I suggested she should try it. "Oh no, that is a very expensive place! I buy all my wine from Tesco's half price offers!", was the answer. Well, there are some expensive wines in there for sure, but virtually all I buy are in the £5-10 price bracket which is essentially the same price range large supermarkets target.

Her cheese is absolutely divine though.

PS3: I will not even address the madness of strawberries grown in fossil fuel heated greenhouses (but hey low food miles!) or how unpopular wind and solar power energy projects are in the UK.

PS4: The list of countries which in modern times tried to go it alone on food supply is short for a reason. We all know what happened in China in the 1970s and what is happening in North Korea these days. And what about the effects of exporting the sales of specific cereals, like rice?