CASH TRANSFERS AND HIGH FOOD PRICES

1

• CASH TRANSFERS AND HIGH FOOD PRICES
• DEV seminar series, UEA
• May 20, 2009

Rachel Sabates-Wheeler
2
Outline

• Social Protection and Social Transfers
• The Great Debate
• Food versus Cash Transfers
• The Ethiopia Productivity Safety Net Programme
• Programme Insights
• Analysis and Results
• Some Implications

3
Social Transfers

• Social Protection
• A policy response to vulnerability
• Social assistance, insurance, regulation,
  graduation
• Social Transfers social assistance
• provide direct, regular, and predictable
  assistance
• in cash or kind to poor individuals or
  households
• aim to reduce deficits in consumption
  strengthen productive capacity via behavioural
  change
• include direct conditional and unconditional
  transfers indirect transfers, such as subsidies
  or fee waivers
• Complementary livelihood package

4
THE GREAT DEBATECash or food?
5
Whats Right with Food Aid?

• Donor food surpluses are available
• Immediately increases food availability
• Directly addresses nutritional deficits
• Can be self-targeting
• Usage favours women, children, older persons
• Lower security risk

6
Whats Wrong with Food Aid?

• High transport and storage costs
• Losses from spoilage and theft
• Less easily exchanged than cash
• Disincentive effects on production/agriculture
• Competes with local markets and trade
• Patronising and can be demeaning
• Denies choice

7
Whats Right with Cash Aid?

• More cost-efficient than food
• More fungible than food - choice
• Encourages production
• Stimulates the market/investment
• Increases education and health spending
• Empowers beneficiaries

8
Cash Transfers Spending Ladders
9
(No Transcript)
10
Whats Wrong with Cash Aid?

• Limited donor resources available
• Losses from price fluctuations
• Can be used for non-food consumption
• More difficult to target
• Usage favours men (and mis-spending)
• Heightened security risk
• Government suspicion
• Donor fatigue

11
Price Fluctuations and Transfer Values

• Given thin and imperfect markets we argue that
  cash transfers are likely to face problems due
  to
• Inflation reduces the purchasing power of
  transfers
• Seasonal variability
• Locational variability
• Demand ? Supply ? inflation

12
Ethiopias Food Security Programme Productive
Safety Net Programme

• to provide predictable transfers for
  predictable needs
• Four conceptual shifts
• Annual emergency appeal ? predictable
  multiyear plan
• Food aid ( dependency) ? cash transfers (
  growth)
• Chronically food insecure separated out from
  transitory
• Breaking the cycle of dependency cash work
  requirement community assets extension
  packages graduation

13
Productive Safety Net Programme

• Gov of Ethiopia and Donors -2005
• One of the largest ST programmes in Africa
• Reaches around 17 of population
• Public works for households with labour
• Direct support for labour constrained
• Cash, food or a mixture final desire is cash
• Complementary programmes

14
Productive Safety Net Programme
15
Data

• A two-round panel survey 2006 and 2008
• Four regions Amhara, Oromiya, SNNPR,Tigray
• 8 districts, 960 households
• Beneficiary status Outcome
• Non beneficiaries 16 change in income (with
  transfer)
• gt70 food payment 30 change in income (no
  transfer)
• Mixed payment 36 change in assets
• gt70 cash payment 18 food gap

16
Changes in Food prices inflation
Food price index, 2005-2008, Ethiopia
17
Programme Insightsvalue of the transfer

• value of cash transfer collapsed to less than
  half of its initial purchasing power within 4
  years.
• mid-2008 the average price of staple grains in
  Ethiopia was almost three times higher than when
  PSNP started, but the PSNP cash transfer level
  had increased by only 33
• Changing value of cash/food affect
  entitlements
• 30 days a year 240 birr
• Cash only received 2/3 rds of their entitlement
• Mixed received 30 more
• Food received 100 more

18
Changes in Food prices seasonality
Value of PSNP cash transfer in staple food by
region, 2005/06 (kg for 6 Birr)
19
What do beneficiaries prefer?
20
Programme insightsReceipts and Preferences
21
Programme Insightsunconditional means
22
Analysis

• A growth model
• where LN - natural logarithm
• Inc08 and Inc06 real income
• BS is a dummy for payment status
• C controls
• The differences in logs can be interpreted as
  percentage differences in the underlying levels.
•  

23
Estimation Results
24
Summary of Results

• Income growth is substantially higher for food
  and mixed payment recipients, relative to
  non-participants and cash only. This is due to
  programme participation
• Evidence of a multiplier effect for food only
  households, over and above a safety net effect
• Growth in livestock for food only households
• Reduction in food gap for food and mixed
• Magnitude of results

25
Implications

• Food price hyperinflation(1) Indexlink the
  transfer (review annually or by season)
• (2) Consider mixing cash, and food (and inputs)
• (3) Relate value to price of basic goods
  (e.g. 1 bag maize)
• Other forms of price variability (seasonality)
  (1) short of indexing cash transfers on a monthly
  basis they become an inferior form of transfer
  compared to food
• (2) what about locational variations (not to
  mention gendered preferences)

26
Design Choices (1)

• At the market level
• Does the capacity exist to handle additional
  volumes of food?
• are food supplies adequate and responsive to
  demand?
• will cash transfers exacerbate rather than
  stabilise food price inflation
• At the beneficiary level
• ask programme participants about their
  preferences
• What does the demographic/labour profile of the
  community look like? Is a PWP suitable?
• From the donors perspective
• accurate predictions of future food prices are
  essential for planning, budgeting and delivering
  social transfer programmes
• Build a contingency fund into budgets.

27
Beneficiary preferences
28
Design Choices (2)

• Social protection should respond to specific,
  identified vulnerabilities in specific local
  contexts no blueprints.
• Interventions should be driven by objectives and
  needs, not by preferred instruments or available
  resources.
• Interventions should be mindful of beneficiary
  preferences, not just designer preferences.
• Compensatory social transfers can not solve
  structural failures of weak markets, institutions
  or bad policies.
• Social protection should be predictable,
  sustainable and guaranteed by accountable
  dutybearers.