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Shlomo Reutlinger
I have been given the "enviable" task of saying all there is to say about food subsidies in 15 minutes. The stringent time limit obviously gives me licence to gloss over many important details while concentrating on some central issues. In any case, it is my understanding that we are not here on this occasion to probe the frontiers of knowledge, but to draw attention to the gravity of urban malnutrition and to lend support to sensible initiatives from both economic and nutrition perspectives.
Although the topic assigned to me is food subsidies, I feel impelled to say something first about the wider context of urban malnutrition and the need for doing something about it. In the current period of structural adjustment, some influential voices express doubts about the need and desirability of expanding public resources for improving urban nutrition. For instance, the objective emphasized in current planning of food aid, a major source of funding for interventions to improve nutrition, is very much to assist the rural population and to downgrade urban interventions. In addition to questioning the affordability of any public interventions, the case is often bolstered by reference to the prevalence of an urban bias in past policies, and the presumption that currently advocated structural adjustment reforms are neutral or even positive for the nutrition of the population because many of the advocated changes benefit the rural population and most of the poor live in rural areas.
While these perceptions of course have some validity, they have to be balanced by wider recognition that not all urban interventions are manifestations of an urban bias. Much of what has been said in recent years about that bias in the policies of many developing countries is true. It has resulted in costly misallocation and under utilization of resources, and it has led urbanization to proceed more rapidly than
This paper was presented at the ACC/SCN symposium on Urbanization and Nutrition held in Washington, D.C., in March 1987. warranted in many instances. Yet, it would be overly simplistic and wrong to conclude that therefore there is no need for interventions to assist the urban poor. It is important to remember that urbanization per se is both an essential and a positive feature of development.
The often-heard assertion that structural adjustment is neutral or even positive for the nutrition of the population because it improves the relative position of agriculture is also beside the point. The chances are that higher prices for agricultural commodities will not reduce rural poverty, or may not do so for a long time. The rural poor are often landless or nearly landless. Unless and until rural employment and wages rise, they may become worse off as a consequence of having to pay higher prices for the food they must purchase. Even if the demand for labour in rural areas escalates, population growth is unlikely to leave much room for reabsorption of the urban poor in agriculture. Even more dangerous is the lingering conventional wisdom that attributes malnutrition to the absence of national food self-sufficiency and therefore subsumes improvements in nutrition in any policy that promotes food production.
In many ways the nutritional problems faced by an urban household are more complex and difficult than those encountered by an equally poor rural household. Urban people can count much less on support from the extended family and communal mutual assistance. New migrants are confronted with unfamiliar social values and organizations, and have many new demands on their time and budget.
There are other reasons why the urban poor should not be overlooked. First, failure to address the problems of individual households can have large externalities for the whole community, the spread of disease and crime to mention only two. Second, many of the urban poor may be only temporarily deprived, requiring assistance between jobs or until they can integrate themselves into the urban labour market. Short-term assistance may enable them to survive a lean period without causing undue harm to their health and draining their energy. Third, the delivery of nutrition, health, and education services is often much less costly in areas of high population density than in rural areas. Finally, it is politically imperative for governments to address the urban plight. Failure to support urban nutrition programmes undermines political stability and therefore the capacity of governments to perform their broad development function.
Once it is recognized that urban poverty and nutrition problems are not merely the consequence of bad policies and are likely to be particularly severe during periods of economic adjustment, it is important to evaluate food subsidies in the broadest possible context of the urban environment that harbours a multitude of threats to the nutritional health of the population, only one of which is lack of food. Some of these can be addressed by providing households with additional resources through food subsidies. Others must be combated through better support services, such as education and health services, water and sewage lines, and public transportation. An urban nutrition strategy must ensure a proper allocation of resources to a variety of interventions.
Food subsidies: discarding what does not work and taking new initiatives
What about food subsidies? Clearly most of the favourite programmes and mistakes of earlier years are no longer affordable. The scarcity of national resources is too severe, and the number of potentially very poor households that require assistance is too large. I will first comment on some of the bad features of subsidy programmes that should be discarded.
Cheap food for all
The most pervasive intervention in food markets is to make some foods available at below cost of supply. Sometimes, particularly in socialist economies, the supply is rationed. While it is an exaggeration to say that such subsidies are at the root of countries' present economic crises and poor development performance, anyone concerned with urban malnutrition should question the wisdom of perpetuating general food price subsidization.
We all know that general food subsidies are politically very popular: everyone in the urban population buys food, and governments feel more secure if they can be seen as the benevolent suppliers of cheap food. Contrary to what many would have us believe, there is no strong economic argument against perpetuating this "food illusion," provided that it is financed properly-say, through a progressive income tax or by restricting the supply of or taxing luxury goods. In reality, however, financing often occurs implicitly through inflation or explicitly through the imposition of import-restricting policies, which distort the allocation of a country's resources and stifle development or restrict the supply of essential consumer goods.
From the nutrition perspective, the main reason for rejecting general food subsidies is that they do so little good for the poor, perhaps none at all. The problem is that these costly subsidies are financed in ways that deny resources for other, more effective, interventions and often are indirectly financed by the poor. Such is the case if they depress employment and wages or cause a rise in the prices of non-subsidized commodities consumed by the poor. How much nutritional benefit can one expect a poor household to get from a programme that subsidizes corn, rice, or bread and is financed by restricting imports of vegetable oil, sugar, and salt and selling these items at much inflated prices; or one that subsidizes low prices for small quantities of rations and is financed indirectly by supplying more of the same commodities needed by the household at inflated prices?
Even if the poor gain on balance from general food subsidies, the gains are often too small to do them much good. The disabled, the sick, and the temporarily unemployed need much more than a 20% or 40% discount on the staple foods-which are often not the cheapest source of energy or nutrients, and which they cannot afford to buy even at the discounted price.
Despite these reservations, we should not call for the abolishment of general food subsidies in all cases. When they do some good for the poorer groups, they should be thrown out only if better programmes can be put in their place. As implied already, the worst feature of general subsidies is not the common objection that they "leak" benefits to the general population. After all, that is the source of their political popularity. Granted that governments like to continue these leakages, they still might be persuaded to change the mode of financing the programmes. They must certainly be dissuaded from allowing these subsidies to be financed by poor farmers. If the financing is right and the administrative cost is very low, such programmes could be still superior to food interventions that are well targeted in principle but not in practice, or where the cost of administering those programmes is very high in relation to benefits conveyed to households.
Subsidized food distribution to target populations
Next in popularity are public food-distribution programmes for target groups. Examples are the distribution of rations through special stores operated by the government or health centres, the distribution of subsidized rations by general stores, and school feeding programmes. In principle, these programmes provide more support for adequate nutrition at a much lower cost. In practice, however, they often do not work well. By their nature, they are inflexible in responding to changing needs of the target population and to changing market conditions. They tend to supply foods that are not the potentially most economical sources of nutrition for the intended households. They frequently become hostages of food suppliers, such as food aid programmes or the domestic suppliers of processed foods. The marketing cost is sometimes very high when bureaucrats market foods in small quantities.
Another drawback of direct food-distribution programmes is that they often do not benefit the poorest. For example, some of the foods made available are too expensive for the poor even at discounted prices; the poorest often cannot collect from distant government stores or afford to wait in long queues; and school feeding programmes are often least well organized in schools attended by the poorest children (and some of the poorest may not send their children to school or may not have school-age children, e.g., young families and the elderly).
This does not mean no programmes are reasonably cost effective and worth supporting. Successful ones may be very difficult to replicate (particularly on short notice), however, in countries where the nutrition situation is rapidly deteriorating and the indigenous institutional infrastructure does not exist already.
Food money and other ways to augment household income
Fortunately, there are some types of interventions that have the advantage of circumventing many of the difficulties of subsidy schemes. They include food stamps or food vouchers, and outright cash. Such programmes can accomplish almost anything that other targeted food subsidies can, but more effectively and at a lower cost.
Coupons given to selected households entitle them to purchase food of a stated value in any store. The store gives the coupons to the bank in return for cash. The bank is reimbursed by the government. The direct costs of administering the programme are minuscule; stores and banks need not charge, because the programme brings in customers. Food prices may even be lowered, as marketing costs are reduced with the larger volumes handled by the stores. The only administrative costs are for printing the coupons! handling the distribution, and auditing against abuses. In many existing programmes the coupons can be used to purchase only a restricted list of foods. This is rarely advisable because the list may fail to include the best bargains (household needs and market conditions can be highly variable) and because it might lead recipient households to sell their coupons at less than full value. Other variations are possible, but all programmes should be adapted to existing food-marketing systems and financial institutions, and to the target population in particular locales.
Many objections to these schemes can be raised, which I will try briefly to deal with here.
First objection: It is difficult to identify the target population
This applies to any direct food-distribution scheme. Some advocate that purchasing-power assistance should be provided only to households with young children or to persons with visible health impairment. Others advocate that assistance should be provided only to households willing to do something in return: participate in public employment programmes, send their children to school every day, or avail themselves of health and nutrition education services. In fact, any of these options can be developed more easily if they are tied to a food-coupon scheme and do not simultaneously require setting up separate food distribution or feeding programmes. Educators, health workers, and extension workers whose function it is to advise poor households on improving their housing and sanitary facilities and administrators of public works programmes can do a better job if they are left to concentrate on what they do best and are not required to market food.
Second objection: Not all the food coupons go to the intended beneficiaries
Such leakage is likely to be less than that found in direct food-distribution programmes. Persons entitled to receive the coupons are likely to be aware of their entitlement and complain if they are deprived A government store or a store specifically designated to distribute rations can more easily divert a shipment, or sell the subsidized food under the counter to customers ready to pay the market price and blame the disappearance of rations on logistical problems. Any government that cannot control the distribution of food coupons is even less likely to run an efficient direct-distribution programme.
Third objection: These schemes do not allow nutritionists to influence exactly which foods will be consumed and by whom in the family
A food-money scheme provides no assurance that the household will use the additional purchasing power in the so-called right way. Neither do most price-subsidy or direct-distribution schemes provide such assurance. Unless the supplied food contains the full complement of nutrients for the household and is not tradable, aid is easily substituted for purchased items, and the released purchasing power can be spent in accordance with the consumers' preferences [1]. Essentially, they all augment the purchasing power of the recipient household. Only a subsidy provided in the form of a lower price for any amount a household wishes to purchase provides an additional incentive to purchase that food (not all food!) over and above the generalized "income effect." The gain, however, is often not worth the cost. The additional food-purchasing incentive may not be for the food that can provide nutrients to the household in the most economical way, or the cost of administering the programme may not be worth the gain. If passed on to the household, additional untied purchasing power proportional to the savings realizable from not having to administer a food price subsidy programme may lead to a higher level of food consumption.
Perhaps nutritionists could be more effective if they would spend their time educating households in ways of making best use of all their available resources, rather than designing and then insisting on supplying standardized rations. The best use of resources is likely to be different for different households, depending on the composition of the family, their individual nutritional requirements and tastes, and different economic opportunities. Even if it could be determined how additional resources in the household should be best used, however, it must be realized that providing a particular ration cannot assure that an equivalent increase in the consumption of that food will actually occur. The household sovereignty over its behaviour cannot be easily circumvented. The notion that it is possible to increase an individual's energy intake by 300 calories or protein intake by 20 g if a ration of this magnitude is supplied should by now have become thoroughly discredited.
Fourth objection: The cost is high
A food-money programme may be nutritionally effective if it increases the average truly needy individual's annual purchasing power by US$10 or US$20 or a household's income by US$50-US$100. If coupons are distributed to 20% of the population, it might cost US$4 million to US$8 million for an urban population of two million. Is this much if compared with alternative food subsidy programmes or with the cost of wasted human capital?
Fifth objection: There is not much actual experience with food money schemes
To my knowledge, food-money programmes have been implemented in only four countries: the United States, Colombia, Sri Lanka, and Jamaica. A large food-stamp scheme has been recently instituted in Mexico. It is encouraging that in all these cases the programmes have run smoothly, the administrative cost have been low, and most of the benefits have been captured by the intended target population.
The US food stamp programme "provides assistance on a typical day to 1 out of 11 Americans. With a turnover of about 50% among typical households in any 12-month period, one out of seven people in the country receive some food stamps every year" [2]. The only disputed issues in this programme are whether it is properly targeted and whether enough eligible persons use it. Also, it is debatable whether to continue the programme as is or to simplify administration further by distributing cash to participants.
In the Colombia food-voucher scheme, eligibility was restricted to households with young children and pregnant or lactating women. The coupons were distributed by health centres. The programme worked well, except that its contribution to households' purchasing power fell far short of what was needed, and its impact on nutrition probably could have been greater if the coupons had not been restricted to a list of foods that included highly processed items not ordinarily purchased by the poor. An explicit objective of the programme, however, was to provide an expanded market for the Colombian food-processing industry.
The Colombia food-stamp programme was dismantled in 1982, perhaps because it worked too well. It took away resources from programmes that diffused benefits to politically more influential groups and effectively transmitted them to those in greatest nutritional need. It generated bureaucratic opposition from agencies operating more traditional programmes that make more intensive use of programme administrators (i.e., that leak more of the benefits to intermediaries). In the words of one analyst, "Probably one of the main reasons [for dismantling the programmed is that malnutrition is not contagious in the short run. Poor families lack the organizational power to demand solutions to malnutrition" [3].
The Sri Lankan programme also illustrates that it is feasible to transfer income efficiently with food stamps, although whether it accommodates the proper target population and responds to changing circumstances affecting households' needs is still debated [4]. The Jamaican scheme distributes food vouchers primarily through MCH centres. This replaces distribution of food by the health clinics, and seems to work much better.
One major deficiency of all existing food-voucher programmes in developing countries has been that they have augmented family income by only a few percentage points. Attempts to detect statistically significant improvements in nutritional status therefore have been quite unsuccessful. It would be as wrong to draw negative inferences about the validity of the food-voucher approach from these studies as it would be to infer that aspirin does not produce benefits on the basis of experiments with the administration of minuscule doses.
Conclusion
A real danger exists that the current enthusiasm for overturning the urban bias in many developing countries, together with prevailing stringent economic conditions, might encourage neglect of programmes and policies genuinely needed to preserve the well-being of the urban population. This would be extremely short-sighted as well as politically explosive.
Existing policies and programmes sorely need to be changed, but this must not compromise the objective of providing all households with minimally adequate purchasing power as well as access to the many public services on which persons in urban areas must depend. Improperly financed market-wide food subsidies and undervalued exchange rates, ostensibly used to make life bearable for the urban poor, are neither effective nor financially sustainable.
The primary, if not exclusive, purpose of any food subsidy programme should be to supplement the purchasing power of the beneficiaries. Even if desirable, attempts to use a food subsidy programme to influence the allocation of the additional purchasing power by the household are usually very costly and ineffective. Reallocation of available resources by households is usually best accomplished through nutrition-education programmes and the use of other incentives.
The most desirable food subsidy programme is a food-money scheme. It is simple to administer and can be implemented quickly. It is consistent with the objective of developing functioning markets for food. Almost all the money spent on the programme can be put into the pockets of the needy. It can be used flexibly in conjunction with health, education, and work programmes. It can be used to accommodate the special requirements of the chronically needy or the temporarily unemployed.
Augmenting a person's purchasing power by US$20 per year is the equivalent of providing that person with 300 g of cereals or 1,000 calories daily. Such a programme would have an annual per capita cost of US$2 if coverage is 10% of the total population. Many existing food subsidy programmes provide much less while costing much more.
Perhaps we should be thinking about international financial assistance to countries willing to institute but unable to pay for such programmes. It would cost a fraction of the current US$12-billion US food-stamp programme. It might also be an appropriate way of ensuring that the cost of structural adjustment in debtor countries will not be paid by the poor.
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