Food Security Without Food Transfers?
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Food Security Without Food Transfers?



Ethiopia Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI/EDRI) Seminar Series, November 1, 2011

Ethiopia Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI/EDRI) Seminar Series, November 1, 2011



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Food Security Without Food Transfers? Food Security Without Food Transfers? Presentation Transcript

  • Introduction2 Food Security in Ethiopia  Persistent availability problem  1960-2001: per capita food availability always significantly below requirement (Demeke et al, 2004)  High number of people with insecure access  Number of estimated food transfer beneficiaries trending upwards (Demeke et al, 2004)  Numerous utilization issues  Acute watery diarrhoea (AWD), malnutrition, child wasting and stunting prevalent
  • How to Tackle Access and Availability? Subsidies or3 Transfers?  Productivity Increament through fertilizer subsidy  Lower cost of inputs- benefits farmers  Higher production: availability  Lower prices -for consumers: access  Food transfers based on local procurement  Transfers used to address access  Higher prices benefit farmers  Stimulate more production: availability
  • Why Interest in Transfers from4 Local Procurement and Subsidies?  Transfers effective in raising food consumption, but incomplete “additionality” (Dorosh & Del Ninno, 2002)  Fertilizer subsidies have proved effective in the past:  Malawi experience: higher application rates and yields (Gilbert et al, 2009)  Role in Green Revolution in Asia (Demeke, 2004)  In Ethiopia, given declining soil fertility and land availability constraints, food production growth has to happen at the intensive margin (increasing land productivity)  But high cost of inputs
  • The Ethiopian Fertilizer Market5  Before 1993: Govt Monopoly  93-00: significant private sector participation  2000-present Regional Holdings first and later Cooperative Unions dominate the market 140.00 120.00  1993: 15% subsidy 100.00  1995: 30% subsidy Kg /ha 80.00  1996: 20% subsidy 60.00 40.00 20.00  February 1997: Subsidy Removed 0.00 Marked fall in fertilizer 1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09  application rates Cereals All crops
  • The Simulations6  IFPRI standard static CGE model  EDRI 2005 SAM  17 sectors  Separate accounts for teff, wheat, maize, non traded agriculture & fertilizer  No regional disaggregation  Factors closures…  Labour is not fully employed and is mobile across sectors  Land is fully employed and mobile  Capital is fully employed and activity specific  Marginal propensity to save is fixed; investment adjusts  Tax rate fixed, government savings adjusts  Foreign savings fixed, exchange rate is flexible  DPI is numeraire (CPI flexible)
  • Fertilizer Subsidy, Transfers from7 Local Procurement… and both FERT:  50% decrease in fertilizer price through a subsidy on imported fertilizer  A realistic fertilizer demand response to fertilizer subsidy , = , ∗  Used a micro simulation model based on empirically estimated yield functions  to quantify the likely effects of additional fertilizer application on national yields 1 − = ∗ , ∗ ,  LOCAL:  No subsidy on fertilizer and No change in food aid wheat imports  Increase in wheat transfers to rural poor through local procurement  We also assume wheat transfers have a 0.25 MPC  10kg transfer increases counterfactual HH consumption by 2.5 kg = , + ′ + ∗ + ∗ ′ ′ ∗ , = ∗ , + , ∗ −  FERTL:  50% decrease in fertilizer price as in FERT  Some food aid wheat imports replaced by local procurement  same level of local procurement as in LOCAL
  • Micro simulation model- based on empiricallyestimated yield functions To quantify the likely effects of additional fertilizer application on national yields  Four steps:  First, we measure the increase in fertilizer application rate.  Second, we allocate the additional fertilizer consumed to enumeration areas (EAs) - simple sharing rule.  Third, we use the yield function estimated in Asrat, Bizunesh, and Seyoum Taffesse (2010) to predict yields for every EA with the old and new fertilizer quantities.  Fourth, we compare average predicted yields across EAs with the old and new fertilizer quantities, calculating
  • Partial Eq Cost of the subsidy and a transfer of the same cost to the9 gov’t The Partial Eq cost of the subsidy to the government is: ∗ ∗ ∗ pwm - World price 0.729 tm- Subsidy 0.707 EXR1- Exchange rate post-subsidy 1.019 QM1- Fertilizer demand post-subsidy 2.230 Total cost of subsidy 1.171 The subsidy will cost 1.171 billion birr. 1.061 billion birr of wheat can be transferred for the same cost: Total cost of wheat transfer 1.171 Total logistic costs 0.110 Total amount transferred (value) 1.061
  • Comparison of Simulation Results10 and Sensitivity Analysis
  • Cereal Production & Supply:11 Availability of Food % Change in Domestic  Subsidies (FERT + Production FERTL) cause 40.0 higher production 35.0 and supply gains for 30.0 all cereals 25.0 20.0  FERTL increases 15.0 domestic production 10.0 of wheat further 5.0 0.0  Food transfers Teff Wheat Maize (LOCAL) affect FERT FERTL LOCAL production and supply of wheat only
  • Income Effects: Purchasing12 Power HH Income: % Change From  Fertilizer subsidy Baseline (FERT + FERTL) 6.00 raises income of all HHs 5.00 4.00 3.00  Wheat transfers 2.00 (LOCAL) deliver highest income 1.00 gains for rural 0.00 poor Rural Poor Urban Poor  But small-no FERT FERTL LOCAL gains for other
  • Cereal Consumption of the Rural13 Poor: Access 25  Fert subsidies (FERT FERT FERTL LOCAL and FERTL) increase 20 consumption of all cereals  Lower prices and higher 15 incomes contribute to access  Food transfers 10 (LOCAL) increase wheat consumption 5 only  Transfers and small income effect increase 0 access Teff Wheat Maize NT ag  Higher cereal prices tend to lower access
  • [1] This is calculated as the ratio of absolute change in GDP over absolute change in government savings. General Equilibrium Effects 14  Same partial eq cost for all simulations, but in general eq revenue and expenditure (ie govt net revenue) change  Fertilizer subsidy (FERT + FERTL) income effect has positive effect on govt tax revenue  Subsidy with local procurement most cost-effective at delivering GDP growth % Change in real % Change in gov savings DGDP/ GE costs GDP (GE cost) FERT 1.9 -19.2 2.27 FERTL 2.6 -19.9 3.03 LOCAL 0.3 -22.6 0.30
  • Conclusions15  Subsidy with Local Procurement has a strong Food Security Response  Fertilizer subsidy with local procurement (FERTL) delivers:  The best domestic production and supply (availability) response for all cereals  Large household consumption (access) response for all cereals  Smaller loss in government net revenue  Locally procured transfers (LOCAL)…  Generate little general supply response compared to fertilizer subsidy  Large consumption response (access), especially wheat  Harm food consumption of other groups; mis-targeted food
  • Productivity increament is effective16 in tackling Chronic Food Insecurity  Ranking of policies in terms of cereal consumption of the rural poor (access) depends on our assumptions on productivity & MPC:  If high productivity & low MPC, fertilizer subsidies to be preferred for improving access to food of rural poor  Ranking in terms of cereal supply (availability) is more robust to different productivity and MPC assumptions  High agricultural productivity growth, coupled with local procurement, delivers an effective
  • Conclusion…17  However, Policies focusing on one dimension of the yield function alone, such as fertilizer subsidy, are unlikely to deliver the necessary improvement in yields.  Food transfers may still be the most effective short-to mid-term answer to food access insecurity when high return agricultural productivity policies are not available.
  • 18 THANK YOU!