«IMPACT ASSESSMENT DISCUSSION PAPER NO. 12 A REVIEW OF FOOD SUBSIDY RESEARCH AT IFPRI Curtis Farrar Director General’s Office International Food ...»
IMPACT ASSESSMENT DISCUSSION PAPER NO. 12
A REVIEW OF FOOD SUBSIDY
RESEARCH AT IFPRI
Director General’s Office
International Food Policy Research Institute
2033 K Street, N.W.
Washington, D.C. 20006, U.S.A.
Tel: (202) 862-5600
Fax: (202) 467-4439
January 2000 Discussion Papers contain preliminary material and research results, and are circulated prior to a full peer review in order to stimulate discussion and critical comment. It is expected that most Discussion Papers will eventually be published in some other form, and that their content may also be revised.
CONTENTS Page Foreword
Food Subsidies in South Asia
Food Subsidies in Egypt
Food Subsidies Worldwide
A Synthesis of Research on Subsidies
What Next on Subsidies?
Subsidies Research After 1988
The Impact of IFPRI Research on Food Subsidies
ii iii FOREWORD This paper inaugurates a new subset of impact assessment discussion papers drawn from Curtis Farrar’s draft history of IFPRI. At the time of IFPRI’s 20th anniversary, I asked Curt to write a history of the Institute. His approach has been to look at IFPRI's output topic by topic, and to relate that output to what was being written and published elsewhere, thus giving a sense of where IFPRI's contribution fits into the broad evolution of food policy research and practice. The history includes a summary of evidence on the impact of specific research, where that is available, thus providing a good sense of IFPRI’s overall accomplishments, their weight, and their relevance. It is therefore quite fitting that some parts of the draft appear in this series, making them available well before the totality of the history is published. Distribution in this form will also make it easier for those who have comments on the content or its presentation to make their views known to Curt.
It is appropriate to start with research on subsidies, since IFPRI addressed this field early in its history and remains active in it. IFPRI's substantive contribution to the understanding of how subsidies affect the poor is broadly recognized. Moreover, there is substantial documentation of IFPRI’s impact at the country level, as reviewed in other publications in this series.
Future discussion papers excerpted from the IFPRI history will deal with other subjects on which IFPRI has done large amounts of research. Together they should make a significant contribution to our understanding of how IFPRI has enhanced both knowledge and policy action.
At the risk of inadvertently omitting someone, the author would like to recognize the help received from Akhter Ahmed, Raisuddin Ahmed, Harold Alderman, Suresh Chandra Babu, Marito Garcia, Francesco Goletti, Lawrence Haddad, Stephen Haggblade, Eileen Kennedy, Shubh Kumar, John Mellor, Per Pinstrup-Andersen, John Shaw, Simon Maxwell, and Joachim von Braun. All should be held blameless for any faults that remain in the manuscript.
Since its earliest years IFPRI has conducted research on food subsidies, concentrating on methods to achieve the social objectives of subsidies without undue distortion of the economy or excessive economic and political costs. Studies have been conducted in eleven countries, several of which have been the site of more than one project. IFPRI research on food subsidies has had, and continues to have, significant impact at the country level. Moreover, the cumulative weight of the research has influenced how the development community regards food subsidy issues.
In the early years of the Institute, the mid- to late-1970s, IFPRI’s program of research on food consumption concentrated heavily on the analysis of food subsidies and other government interventions meant to achieve social purposes by manipulating the prices of the staple foods. This was a topic of great importance in developing countries, and a subject of much concern among donors. Food price management played an important part in efforts to pursue a basic needs development strategy, which was central to the thinking of the development community in IFPRI’s early years.
IFPRI responded to this priority, however, with some ambivalence, even diffidence, because of conflicting perceptions of the issue. These conflicts were reflected in the wide-ranging, unfocused, and inconclusive discussions of food consumption research strategy in the Board of Trustees in the years 1976 through 1980. Even after a structured program was approved in 1981, a well-defined conceptual approach to price and subsidy issues was still lacking: subsidies were economically distorting and damaging, and in the longer run definitely unwise; but in the real world, they were important because the actions of developing country governments made them so. Those actions needed to be studied and understood, so that subsidies could be made more effective in achieving their social goals and less damaging to long-term economic growth.
Another reason for IFPRI’s interest was the common expectation through the early 1980s that rising demand in the developing world, and a limited response from the industrialized countries, would lead to rising world prices for food staples. If passed into domestic price structures, these high prices would harm the welfare of poor people, except for those who were largely self-sufficient in food staples. Measures to protect the poor from the impact of international price increases were necessary from both the political and the humanitarian perspective.
At the national level, policies intended to encourage growth in food production were expected to involve incentives to producers such as high prices for food and improved technology to lower production costs. Such policies would clearly benefit many in the agricultural sector. The landless rural poor and the urban poor, however, would not be able to take direct advantage of the new technologies because they lacked land, and they would be forced to buy food at higher prices. Interventions in the market might well be needed to protect these groups, at least in the short run.
prices were identified with high rates of privation for the poor and high death rates
The conclusions … about prices are clear. First, efforts to raise agricultural prices must emphasize increasing the effective demand for food by raising the employment and incomes of the low-income people who spend a high proportion of their income on food. As these efforts place upward pressure on food prices, we need ancillary efforts to protect those who are not participating in the benefits from the effects of higher agricultural prices.
In such a development context, food subsidies will continue to be an important means of dealing with those problems. Our research program is probably doing more work on food subsidies and how to maximize their benefits to the poor and minimize their detriment to production than any research institution in the world (IFPRI 1982, 10–11).
In an article published in 1984, Mellor, continuing his collaboration of more than 20 years with Bruce Johnston of the Food Research Institute at Stanford University, made the case for a broadly based strategy of development as the only approach that could overcome widespread malnutrition in a reasonable time frame. This long-held view of Mellor’s is considered elsewhere in the IFPRI history. Here it is cited to illustrate the
framework in which IFPRI approached the study of subsidies under Mellor’s leadership:
In the context of development strategies that provide slow growth in food supplies and employment there are substantial political and humanitarian pressures for a more direct attack on poverty. Narrowly targeted approaches are generally not successful; hence, the widespread use of broad food subsidies and rural employment schemes. The effectiveness of such programs in improving incomes and nutritional status of large numbers of the poor, as well as the high costs in public revenues is well demonstrated … [IFPRI research cited]. Where alternative use of these resources is not for growth in agricultural production and employment, food subsidies may play an essential political stabilizing role while an effective growth strategy gets under way (Mellor and Johnston 1984, 548–549).
but the financial and administrative costs of targeting got considerably more emphasis.
Subsidies were a symptom of the failure of development policy. Nevertheless, they might be acceptable, even necessary, so long as they did not get in the way of long-term development (Mellor and Ahmed 1988, 9–10, 241–252).
In its first medium-term plan, for the five-year period starting in 1988, IFPRI made all of the arguments cited above in favor of research on subsidies and added another. It argued that subsidies targeted to the poorest part of the population could have beneficial impacts on growth. In the discussion of seasonal food shortages the plan suggested that “Short-term alleviation of absolute poverty through subsidized nutritional interventions enhances labor productivity and human capital formation among the poor, contributing to long term development and self-sustainable poverty alleviation.” (IFPRI 1987, 21) All of these convincing arguments notwithstanding, whenever economists write about subsidies, the overriding principle of liberal economic management hovers in the background. Timmer summarized it this way: “The standard remedy for curing rural poverty and inadequate food production is for governments to move towards free trade and get out of agricultural pricing” (Timmer 1995, 455). The tendency for economists to become defensive when discussing subsidies was exacerbated in the decade of the 1980s by the prevalence of the structural adjustment philosophy in development assistance.
This philosophy gave priority to reducing waste and conserving financial resources in order to get back on the path of stability and then onto the path of growth. Emphasis on the distortions and waste involved in subsidies grew in importance and concern for the immediate plight of the poor declined. It was an age of stabilization rather than basic human needs. The importance of understanding the role of subsidies remained, but the discomfort level in focusing on the issue increased. The case made by IFPRI for moving from general to targeted subsidies fitted well into the structural adjustment approach.
Prices could be left to the market, while targeted programs met the needs of specific groups of the poor. Many governments followed this approach. Pinstrup-Andersen recalls that Jamaica was an example of a country where such a policy was implemented by the government following consultation with IFPRI.
As we shall see, research on food subsidies was pervasive and durable at IFPRI.
The Institute achieved two different but related kinds of impact in this field. First, IFPRI research on food subsidies has been recognized in the economic and development communities as preeminent in both scope and quality. Second, in several countries, advice based on IFPRI research contributed to the adoption of policies with high levels of economic return. All of this is spelled out in detail at the end of this paper. Before reaching that point, we need to examine the research and the context in which it took place.
A Review of Food Subsidy Research at IFPRI Impact Assessment Discussion Paper No. 12 January 2000 Curtis Farrar Page 4
FOOD SUBSIDIES IN SOUTH ASIA
Most of the research done on consumption issues in IFPRI’s first five years dealt with subsidies, mainly subsidies in South Asia. Several governments of the region had retained, with modifications, food subsidy and distribution systems implemented by the British during World War II, so there was extensive experience to study. IFPRI conducted two studies on Kerala, in southern India, where there was an extensive food subsidy program, generally considered to be quite effective. Despite having a relatively low per capita income, Kerala had succeeded in raising the quality of life of its citizens well above the average for India through a combination of food subsidies and public services in health and education.
The first Kerala study published by IFPRI was based on observations over a sixmonth period of 43 households drawn from a random stratified sample of 120 households, and selected for below-average income and the presence of children of weaning age. The author, Shubh Kumar, who joined IFPRI in 1978 and held a Cornell University PhD in nutrition, found that families receiving the subsidy increased their net caloric intake by between 17 and 34 percent. Kumar also found a positive relationship between food subsidies and the measured physical status of children of weaning age (Kumar 1979). IFPRI food subsidies research of that time generally did not use direct indicators of nutritional status or look within the household unit. In this respect, Kumar’s work prefigured later IFPRI research on food consumption, which emphasized nutrition.
P. S. George, from the Indian Institute of Management in Ahmedabad, undertook the second Kerala study. He spent the year 1977 at IFPRI and wrote a detailed empirical analysis of the operation of the public foodgrain distribution system in the state (George 1979). The system included forced procurement of a portion of the local paddy crop, restrictions on movement of grain into and out of the state, importation of grain by the state government, and distribution of fixed quantities of grain at specified prices. Unlike many food subsidy systems, Kerala’s aimed both at the rural population and at urban dwellers.