Saturday, 18 August 2007


Interesting things happening in the area of food-aid. Many NGOs, and recipient countries, are dissatisfied with some of the consequences of the way emergency food-aid is granted by many donor nations.

The basic summary is that very often (disregarding catastrophic and widespread famine or massive population displacements) shipping food from overseas actually has serious adverse consequences for the recipient.

This is particularly where food shortages in recipient countries are localised in only certain areas, and where on an aggregate basis there is sufficient food available, but market prices are rising due to localised shortages.

In these situations, granting cash relief to local populations is very often proving to be a much more effective mechanism than shipping food from overseas. This is because the
food donated is often that produced by Western (or, using the semantics of development, 'Northern') farmers benefiting from both significant trade barriers protecting their own domestic markets, and lavish subsidies which often result in excess production in the North (the CAP anyone?).

This food is effectively dumped by donors in the recipient countries, flooding their markets, distorting the price mechanism, and significantly adversely affecting local producers.

Local producers are therefore hit by a double-whammy, and there is often no incentive mechanism created for them to improve their own production techniques (e.g., through yield enhancement or investment etc).

The costing of such food-aid is also significantly raised by the shipping costs of transporting this food from the North. Such shipping of course typically being done by contracts granted to shippers from the donor countries...and the cost of such shipping also often being more than the value of the food-stuffs being transported! And then of course the time needed to actually ship the food means that it arrives much later (the US GAO itself estimates a 4.5 month timelag!)

"So what" is one instinctive response to this, since the local consumers are apparently spared
having to 'indulge' the profit-maximisation motives of their local producers. However, note that effectively they are instead indulging the similar motives the Northern producers! And the Northern shippers are not complaining either...

The acid test should be what is the most cost-effective (since this is ultimately paid for by the Northern taxpayers like you and me) and sustainable way of addressing the underlying problem of food-shortages (usually due to poor harvests rather than catastrophic nationwide famine).

And many NGOs and recipient countries are finding that giving cash to the people affected is actually a much more cost-effective and successful solution. The same $ (or £ or €) of Northern taxpayers' funds goes much further (and therefore buys more food) when it is not lining the pockets of Northern farmers or shippers.

Good old Keynes also comes into this, since the effect of people receiving cash which they spend within their domestic economy is to create a shorter-term consumption multiplier effect, as well as a longer-term investment multiplier.

There are also significant social multipliers that are being discovered. The recipients of this cash don't spend it just on food. They make independent consumption decisions, and actually have been found to spend some in capital goods for their own farms (like equipment or seedstock for next year), school fees for their children and so on. This also helps counteract one of the more longer-term debilitating factors of food shortages which is the diversion of people's assets and economic activity into areas which do not yield longer-term benefits for them - examples of this would be selling or liquidating assets like livestock to raise food or funds to buy food, working as cash-labour (often leading to population movements or family separations), stopping schooling and so on.

Quite a few agencies - including, of course, Concern Worldwide which has been trialling this in Malawi - are finding that such cash transfers are actually much more effective. Recipient countries like Eritrea are also making the point.

Lastly, this can also be linked to more subtle institutional improvements in areas such as financial access for the poor, womens' rights and so on. For example, early trials in some areas found that male recipients had a greater tendency to waste this cash (on alcohol and girlfriends!) than female recipients. So by distributing such cash to women, this improves the contextual environment for women, improves their position and makes them more vocal in general (and therefore for other matters as well).

In addition, rather than just handing cash out, by linking this to mobile-technology and smart-cards (with fingerprint details embedded) it starts creating an environment, infrastructure and awareness for other services that can work through similar channels, such as of course banking (and particularly saving) for the poor. If this sounds far-fetched, then look at this excerpt.

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