Improving Food Aid: What Reforms Would Yield The Highest Payoff

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Improving Food Aid What Reforms Would Yield The
Highest Payoff?

• Erin Lentz and Chris Barrett
• Cornell University
• AAEA Symposium on
• Food Aid Controversies In An Era of Policy Reform
• July 2006
• Long Beach, CA

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The Best of Times, The Worst of Times

• Food aid HR, more generally far more
  professionalized in recent years EWS/ENA,
  improved rations, shift from program to
  emergency, rise of local/regional purchases, etc.
• Yet, calls for reforms growing louder and more
  broad-based WTO, FAC, Canadian policy change,
  White House budget proposal, CARE white paper,
  BftW Hunger Report, SOFA 2006, Barrett Maxwell,
  etc.
• Which reforms most likely to benefit the food
  insecure?
• Most commentators argue inductively, not
  recognizing the context-dependence of the cases
  they cite. Yet, so much varies from one place to
  the next

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Modeling Possible Food Aid Reforms

• Integrated model of the food aid distribution
  chain, from donor appropriations through
  operational agency programming decisions to
  household consumption choices.
• Simulate alternative policies and resulting
  welfare effects
• Sensitivity analysis wrt key parameters
• Goal Identify what matters most to improving the
  well-being of food-insecure households in
  recipient countries.
• Answers (1) For OAs improved targeting
• (2) For US govt ocean freight costs

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An Integrated Analytical Model

• We build an analytical model with 3 actors
• - Donor government allocates ODA budget (cash
  vs. food)
• - Operational agency given cash/food mix,
  allocates cash for transfers/public good/LRP and
  allocates food between DD/monetization.
• - Representative household chooses consumption
  patterns (sell/consume in kind transfers, use of
  cash transfers, income effect of public goods)
• Key environmental parameters political
  additionality, ocean freight rates,
  donor/recipient market prices, transport costs,
  targeting, corruption, hh preferences.

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An Integrated Analytical Model

• Market implications of alternative designs are
  crucial because of
• - OA monetization, targeting, and demand from LRP
• - Recipient resale or induced purchases
• - Parameterize and conduct extensive sensitivity
  analysis to query
• -What policy changes benefit food insecure
  households the most?
• - How does optimal policy vary with conditions?

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Simulation Results Targeting
Improvements in targeting generate relatively
large gains in welfare, no matter the policy
regime --- 15x increase (vs. only 0.5 for
shipping cost reduction)
W1status quo, W2cash for LRP, W3no
monetization, W4halve ocean freight
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Simulation Results Price-Dependent Optimal
Policy Reforms
Relative donor/recipient market prices heavily
affect which policy regime is optimal
W1status quo, W2cash for LRP, W3no
monetization, W4halve ocean freight
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Summary

• Useful tool for integrated, qualitative
  assessment of what factors most matter when
  setting/reforming food aid policy
• Practical findings
• Targeting is the key variable, not just b/c of
  direct effects but because of indirect effects
  through markets
• Optimal policy depends on prevailing parameter
  values be careful about one size fits all
  statements about how best to adapt current food
  aid policies to help the poor!
• Reduced ocean freight most commonly dominant
  reform

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Thank you for your interest!

• Paper available on the web at
• http//aem.cornell.edu/faculty_sites/cbb2/papers/
• Comments on the paper would be greatly welcomed.