_41_ _Appropriate policies to support private sector servlces_ This paper has stressed the negative consequences of expanding subsidized<sup>goods and</sup> services in areas already served by the commercial sector. However,<sup>positive effects of increased</sup> public involvement may also be possible.

a. _Local manufacture of contraceptive comnodities._ By the year 2000,<sup>approximately</sup> 492 million contraceptive users will be found in areas that historically have relied<sup>heavily on donated</sup> commodities. In designing contraceptive procurement plans, donors<sup>should consider the possibility</sup> of local manufacturing; when production is not feasible, local packaging<sup>and quality control may be</sup> possibilities. Ninety percent of current developing country users<sup>reside in only 16 countries, all of</sup> which already have large enough consumption to justify local<sup>production.</sup> Locally produced commodities can be sold to donors, the public sector, and ultimately,<sup>retail distribution chains.</sup> Any assistance effort promoting local production of contraceptives<sup>should assess both</sup> the reliability of the projections of demand for contraceptive commodities<sup>and production capacity,</sup> as well as the incentives and constraints to local manufacturing<sup>within the given country.</sup> b. _Avoid introducing subsidies into areas already served by the_<sup>_private sector._Demand</sup> for contraception appears to be relatively inelastic to small price increases,<sup>but the reverse may not</sup> be true. Experience in Brazil found that introducing free commodities<sup>into areas with a small retail</sup> sector had the undesired effect of driving out the commercial sector without<sup>increasing prevalence</sup> (Rodrigues et al. 1979; Arruda et al. 1982). Baseline commercial<sup>distribution data should be</sup> collected before designing or increasing government subsidies;<sup>if survey data are not available, local</sup> distributors may be able to provide some estimate of commercial sales.<sup>Controls should be instituted</sup> to prevent leakage of donated commodities into the private market; if<sup>donors wish to furnish retail</sup> outlets with donated supplies, it should be done on an organized rather<sup>than informal basis. Donors</sup> should provide technical assistance in logistics and continuously monitor<sup>destinations and outcomes</sup> of donated commodities.

_c. Reduce unnecessary subsidies._ Public family planning programs and donor subsidized NGOs should consider instituting means testing and user fees<sup>to discourage inappropriate</sup> utilization of public sector resources. In addition to generating<sup>income for public facilities and NGOs</sup> (itself a major concern for health care financing efforts), charging<sup>for goods and services may</sup> convince some less-needy users to switch to private outlets. Subsidy reduction<sup>should be attempted</sup> only in higher prevalence areas or in more mature programs; programs<sup>should conduct small OR</sup> projects to test the impact of charging on utilization before setting<sup>system-wide fees.</sup>

# 3. Assess existing public sector coverage before introducing<sup>new</sup> subsidized NGO outlets

If NGOs are to expand geographic coverage of the family planning<sup>program, priority</sup> should be given to areas currently unserved by the public sector.<sup>This will almost necessarily raise</sup> the cost of support services such as logistics and supervision<sup>and therefore increase per-user costs</sup> as well. Many times, NGO outlets duplicate public services, and<sup>more isolated communities continue</sup> without any services at all. For example, a community-level<sup>analysis of the 1987 Ecuador DHS</sup> found that half of the rural CBD promoters were located in communities<sup>already served by a Ministry</sup> of Health subcenter while 71 percent of the rural segments<sup>had neither MOH nor CBD services. The</sup> presence of either an MOH outlet or a CBD promoter raised<sup>contraceptive prevalence, but when the</sup> services were combined, the effects were less than additive<sup>(CEPAR 1989).</sup>