Publication Details

Cash transfers and high food prices

explaining outcomes on Ethiopia's productive safety programme

Rachel Sabates-Wheeler
Stephen Devereux
2010

Abstract

The rapidly evolving social protection agenda has been closely associated with the delivery of ‘predictable cash transfers’ to large numbers of people in Africa, Asia and Latin America (Farrington and Slater 2006; Devereux and Sabates-Wheeler 2007). In many programmes, cash transfers are given unconditionally, but in others they are conditional on the uptake of social services (education, health) or the provision of labour (public works), with the aim of changing behaviour or creating productive infrastructure, to facilitate sustainable exits from poverty. Recent debates have focused on whether conditionality affects behaviour and outcomes more positively than unconditional cash transfers (Molyneux 2007), and whether public works actually create economically useful assets (McCord 2008). An ongoing and highly politicised debate concerns the relative efficacy of cash now been implemented across the world, but the ‘cash/food debate’ remains unresolved, and has been given fresh impetus and urgency by the recent global food price crisis (Benson et al. 2008 )

Typically, cash transfers are set at a level sufficient to purchase a basket of commodities in local markets. These commodities are usually restricted to basic food items –sometimes just a quantityof the staple cereal (e.g. a 50kg bag of maize or rice), sometimes equivalent to a standard food aid ration (e.g. 20kg of maize, 4kg of beans, 1 litre of cooking oil) – but occasionally include other goods and services (e.g. groceries, school fees or a contribution towards health costs). Unless delivered in the form of a commodity-denominated voucher, there is no restriction on what recipients can purchase with the cash, though they are often sensitised about the purpose of the programme, which is invariably to protect subsistence food consumption in poor households.

Two questions arise immediately. Firstly, what prices are used to set the cash transfer level? Food prices can vary substantially between global and domestic markets, and within countries. Secondly, what happens if these prices change significantly after the cash transfer level is set? Prices can increase due to general price inflation, seasonal cycles, or ‘price spikes’ associated with famines. Sceptics have used the recent global food crisis to argue that cash transfers are inappropriate in weak economies, pointing to the inability of many large-scale programmes to increase cash payment rates in line with price rises.

In fact, several innovative responses to food price variability have been observed in recent cash transfer programmes in Africa. In Swaziland’s Emergency Drought Relief (EDR) programme in 2007/08, social transfers were delivered half in cash and half in food. In Lesotho’s Cash and Food Transfers Pilot Project (CFTPP) in 2007/08, a lag between price monitoring and response resulted in declining transfer value, until a once-off adjustment of 25% was made towards the end of the five-month intervention. In Malawi’s Food and Cash Transfers (FACT) project in 2005/06 and Dowa Emergency Cash Transfers (DECT) project in 2006/07, transfers were index-linked to local food prices, and were adjusted before each monthly disbursement (Devereux 2008).

This paper aims to shed further light on the cash/food debate, drawing on empirical evidence from Ethiopia’s Productive Safety Net Programme (PSNP). Our data derive from a new dataset – a two-wave panel survey of PSNP beneficiaries and a non-beneficiary control group, conducted in 2006 and 2008. Data was collected prior to the roll-out of the programme, so we use the two waves to estimate the programme effect of additional two years. Specifically, we estimate, econometrically, a growth regression model to compare the impacts of different payment modalities. Ethiopia has experienced unprecedented rates of inflation since 2007, which have reduced the real purchasing power of (un-indexed) PSNP cash payments. In this context, our findings confirm that food transfers or ‘cash plus food’ packages are superior to cash transfers – they enable higher levels of income growth, asset accumulation and self-reported food security. These results raise questions of fundamental importance to global humanitarian response and social protection policy. Can cash transfers be agile enough to respond to dramatic price rises (or even regular food price seasonality)? Do policy-makers have the budgetary flexibility to indexlink cash transfers and adjust them frequently – perhaps even monthly? What is the appropriate mix of cash and food transfers in contexts of unpredictable and volatile food prices?

Publication Type(s)

Conference Paper

Ten Years of War Against Poverty Conference Papers

Conference: Ten Years of War Against Poverty

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