11.     The adoption of a budget by the last FAO Conference well below the zero real growth level created a major challenge for the Organization. In particular, it required that the programme of work be adjusted and refined to meet pressing demands from constituents and evolving issues facing the international community, while at the same time progressively putting in place organizational measures for improved and more efficient services.

12.     Despite the mandated absorption of a substantial amount of anticipated cost increases, the membership acknowledged the need for strengthened decentralization and expected “protection” in relative terms of a number of programme priorities of major interest. The Secretariat has indeed sought to ensure this to the maximum extent possible. In so doing, added impetus was given to a major effort of reformulation of the component programme entities under the new chapter and programme structures, aiming at consolidation and better addressing multidisciplinary dimensions. Section IV below and the accompanying more detailed Annex IV, are devoted to presenting the results of this major effort of reformulation. Even so, not all areas which are of interest to individual, if not all, Members can be funded at a satisfactory level in the circumstances.

13.     As enjoined by the Conference, the Secretariat has put due emphasis on the timely introduction of streamlined administrative and financial processes. This is facilitated by delegation of authority and elimination of some managerial posts. All avenues for efficiency savings are being explored, subject to thorough assessments of the viability and implications of such changes. It is clear, however, that the US$ 38.6 million real reduction in resources at the 2006-07 approved budget level, immediately following a biennium which saw a real reduction of US$ 51.2 million, far exceed the Organization's capacity to absorb the reduction through efficiency savings.

14.     As regards organizational measures, the Secretariat is diligently pursuing implementation of the decisions of the Conference. The Director-General has held consultations with Members through their Permanent Representatives in Rome regarding further discussions of reforms by the governing bodies. It was concluded that modified reform proposals could be submitted to, and considered by, the September 2006 sessions of the Programme and Finance Committees and the November 2006 Council. This will obviate the need for an extraordinary session of the Council in mid-2006. To facilitate the process of consultation with Members, advance indications are provided below of further proposed changes to the structure at headquarters and in decentralized locations which could take effect from 1 January 2007, if approved by the Council.

15.     A recapitulation of the major steps affecting implementation during the biennium 2006-07, including proposals which are still subject to approval by governing bodies is provided below.

Table 2: Implementation over the 2006-07 biennium

16.     In addition, there are two programme-related processes scheduled in the 2006-07 biennium that could have an impact beyond the timeframe of this revised PWB.

Independent External Evaluation of FAO (IEE)
17.     In the Resolution on Reforms in the Organization reproduced in Annex II, the Conference stated that it was: “looking forward to the results of the Independent External Evaluation (IEE) of FAO as a guide to enhancing the effectiveness and efficiency of the Organization; and stressing that the IEE and the reform proposals should be mutually supportive”. The Conference also endorsed the decisions of the Council to proceed as quickly as possible with the IEE, which will address key dimensions of the activities of the Organization: technical work; management and organisation; governance and its role in the multilateral system. The findings and recommendations of the IEE are to be examined by the Council and ultimately the Conference in 2007.

Medium Term Plan (MTP) 2008-13
18.     As specified in FAO’s Strategic Framework 2000-15, an MTP document covering the 2008-13 period would be due in normal circumstances for consideration by the Committees at their September 2006 sessions, and eventual endorsement by the Council in November 2006. The “rolling” plan concept implies that each version is to explain major changes in substance over the previous one, i.e. in the present case the MTP 2006-11 endorsed by the Council in November 2004.

19.     However, this revised PWB document presents an entirely revamped chapter and programme structure compared with the MTP 2006-11, coupled with substantial consolidation and reformulation of programme entities. Full details on the design of the latter entities are available in Annex X placed on FAO's Web site and would form the bulk of information presented in the MTP starting 2008. Furthermore, the next round of programme formulation could benefit from the findings of the IEE in late 2007 and their possible impact on future programmes of work.

20.     In this context, the Committees may wish to consider whether the preparation of an MTP this year for the period 2008-13 would serve a useful purpose at intergovernmental level. The Secretariat stands ready to respond to the guidance from the Committees on the proper course of action at the present stage.

Efforts to maximise efficiency savings and productivity gains

21.     As stated in Annex II, the 33rd Conference gave its support to the “streamlining of administrative and financial processes aimed at achieving further efficiency gains and enhanced human resources policy and management; and authorised the establishment of the Shared Services Centre.” In the light of the budget shortfall of US$ 38.6 million versus ZRG requirements, the Secretariat is aiming for efficiency savings and productivity improvements of 1 – 1.5% per annum, or around US$ 10 million for the current biennium.

22.     The main PWB 2006-07 document provided details on institutional efficiencies which are driven from the centre due to their cross-sectoral nature, as well as more specific budget-holder driven efficiencies¹. The Supplement to the PWB 2006-07 highlighted streamlining and delegation of authority in the context of improved human resource management, including staffing skills and flexibility². Such flexibility is also served by the increase in non-staff resources as a percentage of the regular budget.

Effective framework to achieve efficiency savings and productivity gains
23.     The Organization is putting in place a robust framework to systematically capture efficiency savings and productivity improvements, rather than relying on an ad hoc and opportunistic approach. The principles can be summarised as follows:

• All-inclusive: no activities should be excluded a priori from the drive for continuous efficiency and productivity improvements.
• An empowering approach and accountability: managers should set their own targets, be provided with the appropriate incentives, and be held accountable for delivering and reporting results.
• Delegation of authority: defining the appropriate levels of delegation and internal control.
• Auto-evaluation: to be performed systematically for all programmes, both technical and non-technical, using a set of common criteria and procedures.
• Cost allocation: including an effective internal pricing strategy and greater interdisciplinary collaboration, also ensuring that indirect variable costs incurred by extrabudgetary projects are properly recovered.

24.     An Interdepartmental Working Group (IDWG) is using these key principles in guiding ongoing efforts to simplify administrative processes. It has prepared 57 proposals for streamlining administrative procedures, each of which has been assigned to a programme manager for implementation. These can be grouped into four categories:

25.     A) The elimination of manual processing steps through improved system support. For example, a Web-based database has been created for the preparation, approval and finalisation of Letters of Agreement. Similarly, the Organization will move to advance processing of travel expense claims based on electronic documents, with checking of supporting documentation performed on a post factum or sample basis.

26.     B) The clarification of rules. For example, the rationalisation of procedures and policies surrounding recruitment and travel expense claims.

27.     C) The delegation of administrative and financial authority. The Director-General has recently approved 33 delegations to lower levels of administrative authorities previously residing in his office. Delegations to officers located in the decentralized structures are being progressively implemented.

28.     D) Changes to cost allocation rules and internal pricing strategy for staff. A new internal secondment rate based on replacement cost, being about 35% lower than standard cost, has been established along with simplification of procedures for internal transfers.

Ongoing budget-holder initiatives
29.     The Organization continues to implement less costly ways of working. For example, in the Shipping and Insurance Unit, since 2003 a more competitive and flexible agreement allows FAO to better manage its shipments and renegotiate prices if needed. In the current biennium, the cost per shipment is 52% lower than it was three years ago.

30.     Document digitisation in support of the Human Resource Management System (HRMS) and decentralization will allow the Organization to take further advantage of a new registry management model. Savings estimates for the current biennium are now around US$ 0.75 million. As part of a longer-term perspective, FAO will examine the steps taken by other UN agencies (e.g. IAEA) to reshape their records management function.

31.     As well as reducing its own expenditures, the Organization is mindful of the need to recover costs incurred in providing support to extrabudgetary projects. In line with the principle that there should be an alignment of project servicing costs to the actual indirect variable costs of providing administrative and operational support, an area under review is the cost recovery rate for projects in support of Regular Programme normative work from its current level of 6%. Eventual proposals for adjustment would require review by the Finance Committee and the endorsement of the Council.

32.     A number of other budget-holder driven efficiency measures will be pursued by the Organization, expected to deliver over US$ 2 million in savings. The monitoring and measurement of productivity gains will be enhanced through benchmarking and target setting using key performance indicators.

Incentive mechanisms
33.     Two types of incentive mechanisms are also being considered for possible implementation in 2007:

• an “innovation fund” – channelling a small percentage of the budget into a centrally managed fund to permit investments in process changes that improve FAO’s ways of working; and,
• an “efficiency savings tax” – withholding a percentage of every department’s budget and allowing departments the opportunity to earn back the funds on the basis of substantiated sustainable efficiencies.

Additional measures to reduce costs

34.     Subject to further guidance from the governing bodies, the Organization is contemplating two additional and progressive measures to reduce costs so as to contain the programme of work within the approved budget level.

Shared Services Centre (SSC) and abolition of regional Management Support Units (MSU)
35.     The SSC has already been established at headquarters and consolidates functions previously undertaken in two headquarters units. However, the constraints of a near-ZNG budget will require deeper savings which are contingent upon the completion of other activities. Using a model similar to the one adopted when the departmental MSUs were abolished at headquarters in the 2000-01 budget, the financial functions in the decentralized offices could be delegated to the budget holders themselves.

36.     A successful and timely implementation of the Human Resource Management Model (HRMM) and the HRMS by the end of 2006 will provide the pre-requisite systems functionality for the SSC. Cost estimates and resources for completing these systems are included under Chapter 8: Capital Expenditure. Consideration could be given to the consolidation of the regional office MSUs into the SSC in 2007, after the implementation of the HRMS. Savings should be realised in future biennia and the staffing implications are not quantified in this document.

Opportunities for further reductions in costs of providing selected administrative services
37.     While a SSC would effectively centralise the HR-related transaction processing work of the Organization and bring about economies of scale, additional changes could realise further savings in operating costs. Complementary actions regarding the processing of procurement and financial transactions will also be considered. These functions could be transferred to less expensive locations, as is currently the case for HRMS systems development work at the FAO Regional Office for Asia and the Pacific in Bangkok. This approach, which could generate additional savings, requires further feasibility study and a full cost-benefit analysis.

38.     Such an approach would also allow FAO to review in a comprehensive manner further possibilities for streamlining and modernising the design and flow of various legacy processes. The capital expenditure budget in Chapter 8 illustrates how the Organization is moving in this direction by investing in document imaging and workflow management systems.

Organizational measures approved by the Conference

39.     Following the decisions of the last Conference, organigrammes reflecting the changes in structure in all locations are reproduced in Annex III and are described below.

Summary of changes to the organizational structure at headquarters (effective January 2006)
40.     In line with the changes authorised in the Annex to the Resolution on Reforms, various advocacy activities, including TeleFood, Goodwill Ambassadors, and the International Alliance Against Hunger (IAAH) have been regrouped under a single unit, the Office of WFS Follow-up and Alliances (OFA) placed in the Office of the Director-General lato sensu.

41.     The Nutrition and Consumer Protection Division (previously named Food and Nutrition Division) has been shifted to the Agriculture Department, while the latter is being renamed Agriculture, Biosecurity, Nutrition and Consumer Protection Department.

42.     Security functions have been regrouped in a unit placed directly under the authority of the Assistant Director-General of the Administration and Finance Department (AF), as has the main nucleus of the newly established SSC, comprising the Management Support Service (MSS) and the personnel servicing function hitherto carried out in OCD.

43.     However, the Director-General did not consider it appropriate to introduce at this stage other changes to the headquarters structure mentioned in the Resolution, specifically the integration of the country policy assistance function in the Economic and Social Department (ES) (tantamount to the transfer of the TCA division to ES) and the transfer of the Investment Centre (TCI) to the same ES Department. Hence, the structure of the TC Department has been left virtually unchanged, with only the removal of the Resources and Strategic Partnership Unit (TCDS) and distribution of its functions to the office of the ADG, TC and OFA.

Implementation of approved decentralization proposals
44.     In view of the need for adequate consultations before transforming the field office network, implementation of the decentralization proposals approved by the Conference (in one region and one additional subregional office) is foreseen to take full effect from January 2007. This will take place in the Africa region, while the additional subregional office would cover Central Asia. However, the Organization will seek to capitalise on opportunities to advance the timing of this implementation to the maximum extent possible.

45.     It is recalled that the overhaul of the FAO decentralized structure set forth in the reform proposals submitted to the Conference included three main features:

• increased focus, with a larger share of resources directed towards Least Developed Countries (LDCs), Low-income, Food-deficit Countries (LIFDCs), Land-locked Developing Countries (LLDCs) and Small Island Developing States (SIDS) through more equitable cost-sharing arrangements with host countries falling in other categories;
• subregional offices composed of multidisciplinary teams and taking account as far as possible of the membership of Subregional and Regional Economic Integration Organizations (REIOs); and
• regional offices with a different focus, i.e. dealing more with major regional issues and region-wide institutions; contributing substantively to the formulation of regional strategies and policies; taking the lead in the organisation of Regional Conferences; and periodically reporting on FAO performance in the region.

46.     The new decentralized offices in Africa and Central Asia can become fully operational according to the new model only after the finalisation of agreements with the concerned governments. A number of elements have been identified to ensure effective functioning of the subregional offices to be established in new locations, including: availability of sufficient logistical facilities, particularly airline connections; efficient communications; proximity to relevant REIOs; and the commitments from interested host countries to provide adequate facilities and to cover some of the operational costs. These elements are being used for the selection of the best locations, in consultation with all parties involved, based on a draft standard agreement. Furthermore, delegated authorities supported by streamlined procedures and adequate information systems must be in place.

47.     Accordingly, the offices in Africa and Central Asia may be expected to become operational from 1 January 2007. The financial data reflect the post numbers and profiles which will guide the eventual redeployment of staff or the filling of new posts, and appropriate non-staff budgetary allocations to the reconfigured offices. The point of departure for the discipline mix of the multidisciplinary teams in the applicable subregional offices was a standard staffing model of seven professional staff, which was subject to location-specific adjustments, where justified. The technical areas covered are: animal health/production; plant production/protection; fisheries; forestry; land and water; policy; and investment.

Advance indications of further changes to be proposed by the Director-General

48.     The Director-General is consulting governments on the broad lines of an additional set of proposals (outlined below), taking advantage of the cycle of Regional Conferences in the first half of 2006³. The full details and implications of these further reforms will take account of the reactions from Members during the present phase of consultations. These further proposals will be developed for consideration by the Committees and the Council in September and November 2006 for implementation, if approved, in 2007.

Headquarters
49.     Further changes at headquarters would seek to achieve the desired major focus on capacity-building and knowledge management, within the mandated ceiling of eight departments. The changes would also aim for an improved balance among departments, in terms of the technical areas to be addressed and the resources to be managed.

50.     The main measures contemplated can be described as follows.

51.     In the Agriculture, Biosecurity, Nutrition and Consumer Protection Department (AG), the two divisions hitherto dealing with crops and livestock would be more concretely focused on the on-farm aspects of production systems, including aspects of plant nutrition and soil fertility previously housed in the division on land and water. A new division for diseases and pests of plants and animals is to bring together work on plant and animal health issues at national and international levels - policies, standards, prevention measures and transboundary questions - with responsibility for ensuring a coherent response by the Organization to national and international crises. Completing the picture, the AG Department will continue to include: the Nutrition and Consumer Protection Division covering nutrition planning, assessment and evaluation, household food security and nutrition education, the Codex Alimentarius, and food safety assessment and food quality control; and the Joint FAO/IAEA Division in Vienna to foster the application of nuclear techniques in addressing specific food and agricultural development issues.

52.     The remainder of the Land and Water Division of AG will be housed in the revamped Natural Resources, Sustainable Development and Technology Department, allowing the latter department to have a comprehensive – and thus more effective – mandate for dealing with the management and conservation of natural resources, on which forestry and fisheries as well as agriculture depend. For the same reason, this department will house three other divisions covering: Sustainable Agriculture, Climate Change and Natural Resources Management; Technology, Research and Extension; and Rural Infrastructure and Agro-Industries (elements of the latter also coming from the AG department). These are areas in which FAO needs to establish or pursue close links with partners in the public and private sectors, with a view to promoting the necessary actions and investments for sustainable development in the agriculture, forestry and fisheries/aquaculture sectors. An important cross-cutting issue to be addressed by this new department will be the economics of natural resources.

53.     The new Organization-wide focus on enhancing knowledge exchange and capacity-building can be more effectively realised by bringing together various core functions (heretofore scattered in various departments) into a new Knowledge and Communication Department, replacing the General Affairs and Information Department (GI). This department will include: the IT Systems, Concept, Development, Management and Maintenance Division (drawing on the Information Systems and Technology Division in AF); and, the Knowledge Exchange and Capacity-Building Division (capitalizing on the WAICENT framework and other tools promoted by the previous GIL division). Two other divisions, dealing respectively with Communication and Conference and Council Affairs, coupled with a Library and Documentation Service under the leadership of the ADG of the department, will largely continue the work of two corresponding divisions in the present GI Department.

54.     Beyond divisions dealing with Trade and Marketing (evolved from the Commodities and Trade Division), Agricultural Development Economics, and Statistics, the Economic and Social Department will be bolstered by the incorporation of two additional divisions addressing: 1) Gender and Equity in Rural Societies, and 2) People’s Participation and Rural Employment. Both will take up work heretofore carried out elsewhere in the Organization, especially in the former Sustainable Development Department. This strengthened ES Department will be responsible for implementation of important complementary programmes under the new Chapter 3, and it will have the capacity to deal in a more integrated fashion with the social and economic aspects of development.

55.     While generally keeping to their present mandates, the structures of the Fisheries and Forestry Departments will undergo some intradepartmental changes. The addition of Aquaculture to the title of the former will ensure due visibility and priority to an area of growing importance for food security and rural livelihoods.

Decentralized offices
56.     As regards decentralized offices, the Director-General intends to propose the extension to other geographical areas of the new operating model, as presently restricted to Africa and Central Asia.

57.     It would be a valid expectation for the requirements in all regions to be addressed more equitably. In particular, the proposed extension would enable FAO to draw on a network of subregional offices and attendant multidisciplinary teams, as contemplated in the original reform proposals submitted to the Conference, to serve the needs of Members more effectively and in better cohesion with the work of the FAORs.

58.     The locations of the present Subregional Offices for Pacific Islands, Caribbean, North Africa and Central and Eastern Europe would remain unaffected. The proposals would seek to establish seven new subregional offices co-located with regional offices or in new locations, and covering East Asia, Southern Asia, Western Asia, Gulf Cooperation Council, Central America, Andean Countries and Mercosur. Similar to what is to be done in Africa in order to minimise disruption and to take advantage of the infrastructure already in place, the existing regional offices would co-locate one of the subregional offices in each of the applicable regions, i.e. in Bangkok, Santiago and Cairo. Hence, in addition to the three new subregional offices to be established in response to the Conference decision on reforms, four offices would be created in new locations. The following table summarises the intended subregional structure, subject to the endorsement of the Council.

Table 3: Establishment of subregional offices

59.     Beyond subregional offices, as recalled above, the new operating model has implications for the regional offices and country offices. Hence, further proposals to be submitted by the Director-General will seek to put arrangements in other regions on a par with Africa and Central Asia, as regards all offices.