Harvesting Sustainable Development

Stephen DeAngelis

October 15, 2008

My colleague Tom Barnett directed my attention to an interesting article through his Weblog entitled Another example of P2P “UDA.” The article discusses how wheat from America’s heartland helps foster development in impoverished countries [“Teaching Them to Fish,” A Virginia-based NGO hands out free wheat to poor countries, at a price: the businesses have to perform,” by Anita Hamilton, Time, 22 September 2008]. Hamilton’s article begins in Oklahoma.

“Of the 4 million metric tons of wheat that the U.S. donates to struggling countries each year, a few thousand bushels come from Keith and Marlene Kisling’s farm in Burlington, Okla. The Kislings grow more than 3,000 acres (1,200 hectares) of hard red winter wheat, which is typically used in whole-wheat bread, cinnamon rolls and other doughy treats. ‘It’s the best quality wheat in the world,’ says Keith Kisling. The very same wheat is also the main ingredient in instant noodles produced nearly 10,000 miles (16,000 km) away in a factory in Central Java, Indonesia.”

Noodles made from wheat are not the first food item that comes to mind when you think about Asian cuisine, yet they are becoming an important source not only of food but development.

“Noodles aren’t as important as rice in the world’s fourth most populous country, but they can be found in the cupboards of almost every Indonesian household. That wasn’t the case a decade ago, however, when inflation and rioting following the fall of President Suharto’s 32-year military regime prompted food prices to soar, caused factories to fail and led unemployment to double. To help alleviate the crisis, the U.S. shipped some 30,000 metric tons of wheat to the struggling nation in 1999–and continued to do so until 2005. But rather than simply handing over the wheat to produce the low-cost noodles, the U. S. Department of Agriculture (USDA) contracted with a fledgling nongovernmental organization called International Relief & Development (IRD) to create a pioneering food-aid program using a business model that has since become a template for projects in Cambodia, Niger and Sri Lanka.”

In past posts, I’ve noted how traditional food aid, especially in times of crisis, has tended to pull people off their farms and away from their jobs to the feeding stations where food was distributed. This model tended to extend a crisis even as it relieved hunger.

“Providing food aid has traditionally involved doling out portions to long lines of hungry people. And while that still makes sense in emergencies, IRD proposed that the most cost-effective and sustainable approach was to partner with and bolster existing businesses instead. ‘It’s important for people not just to get handouts of food but to work. We showed you could do it,’ says Arthur Keys, 63, a minister in the United Church of Christ and former labor-union organizer who eventually started his own business advising nonprofits on how to obtain grants. He founded IRD in 1998. Despite the agency’s novice status, IRD’s proposal won its first USDA contract, in part because it was the only group willing to go into Indonesia during such an unstable time. ‘IRD was very young, and in some ways we were taking a risk with them,’ notes Pat Sheikh, deputy administrator for the agency’s Foreign Agricultural Service, which currently has contracts with 25 nongovernmental organizations, including Catholic Relief Services and the World Food Program. Says Keys: ‘We had enthusiasm. Even though we were new and small, we had key staff people who had worked in Indonesia and were known to USDA.'”

As anyone who has followed my discussions about Development-in-a-Box™ knows, I am a long-time proponent of this kind of business model approach to development. Any approach that fosters local business and creates jobs has a much better chance of promoting sustainable development than programs that rely on dole. Hamilton goes on to show how the program works in-country.

“Tiga Pilar Sejahtera Food (TPS)–based in Solo, an industrial city about 300 miles (480 km) southeast of Jakarta with some 700,000 inhabitants–is one of the beneficiaries of the program. The noodle factory employs 3,500 and estimates its annual sales at $50 million. One of the country’s largest producers of rice vermicelli, egg noodles and wheat biscuits, TPS saw its production drop about 20% after the fall of Suharto as wheat prices doubled. TPS vice president Budhi Istanto, whose family started the business in 1959, credits IRD with helping the company ‘get back to its optimal capacity. We were not going to close, but we slowed production as the price of wheat rose and people were buying less.’ IRD, based in Arlington, Va., had to run both the logistics of getting wheat to TPS’s central Javanese factory and the program itself. That meant clearing customs in Jakarta, delivering the wheat to the millers and then distributing the flour to the factories charged with producing the noodles.”

Here’s where the IRD program differs from others. It doesn’t throw good money (or wheat) after bad. It provides the wheat if factories produce. Of course IRD has an ulterior motive; it relies on profits to continue its work.

“‘Some factories did a better job than others,’ says Keys. Among the problems: some had no bags to package the noodles, while others simply failed to produce the agreed output. To prevent fraud, IRD avoids paying cash up front for products and services. It also requires its for-profit partners to reinvest any proceeds derived from IRD wheat. Instead, the millers who process the wheat are reimbursed with a portion of the flour they make to sell at market rate. Factories get the flour free of cost but are required to reinvest their proceeds into new production. IRD collects 66% of the profits, which it then uses for other programs in the country, including a water-treatment facility, snacks for school children and health services. IRD keeps 10% of all funding to cover its costs.”

Another thing I really like about the IRD program is its follow up to ensure quality control. As I have noted in discussions about Development-in-a-Box, meeting or exceeding international standards is important to gaining trust. The current milk crisis in China is the result of a lack of quality assurance. IRD places a lot of emphasis on quality control.

“Quality control is its biggest challenge. On occasion, either the millers fail to produce the contracted grade of flour or some of the factories fail to pay IRD its share of profits. IRD tests batches each month and refuses anything that does not pass muster. If factories fail to pay on time, IRD sends bill collectors after them and threatens not to renew their contracts. ‘We put the fear of the Lord in them,’ say Peggy Sheehan, adviser to IRD president Keys. The USDA also sent inspectors to Indonesia to make sure its donations were being used as intended.”

The most important thing about the IRD model is that it works.

“Since 1999, the program has produced more than 78,000 metric tons of fortified noodles for about 4 million low-income Indonesians. It has also produced hundreds of jobs in a country with 9.1% unemployment. ‘It was difficult to provide for my family before I took this job,’ says a TPS worker named Suparti, who uses only one name and has been working there for more than a decade. Although rising wheat prices have forced the company to increase prices 30% and the USDA’s free-wheat program has shifted to nations with more pressing food shortages, for now TPS is back on solid financial ground.”

The goal of any good development model is to establishment a sustainable program and then move on to the next project. The success of the IRD program in Indonesia has also meant the success of IRD.

“It expects to distribute some $600 million in aid in 2008, making it one of the largest NGOs in the world. Contracts with the U.S. Agency for International Development and funds from private donors are enabling it to build roads in Afghanistan and provide grants to small businesses in Iraq, among other projects. Despite a career spent primarily in public service–IRD’s founder’s first job was with the Amalgamated Clothing Workers union–Keys has never stopped thinking like an entrepreneur. ‘You have to have a business plan and invest wisely,’ he says. That’s true whether you’re a family farmer in Oklahoma or a nonprofit serving every corner of the globe.”

As an entrepreneur and businessman, I often interact with other entrepreneurs. It’s always an exhilarating experience. Entrepreneurs are visionaries not dreamers. They are filled with hope about the future because they believe they are going to help make it bright. Get a few entrepreneurs in a room together and that hope becomes infectious. In these dark financial times, taking a moment to consider a brighter future and foster a little hope is a good thing to do.