Improving Food Aid: What Reforms Would Yield The Highest Payoff?

1. Improving Food Aid: What Reforms Would Yield The Highest Payoff? Erin Lentz and Chris Barrett Cornell University AAEA Symposium on Food Aid Controversies In An Era of Policy Reform July 2006 Long Beach, CA

2. The Best of Times, The Worst of Times Food aid – HR, more generally –far more professionalized in recent years: EWS/ENA, improved rations, shift from program to emergency, rise of local/regional purchases, etc. Yet, calls for reforms growing louder and more broad-based … WTO, FAC, Canadian policy change, White House budget proposal, CARE white paper, BftW Hunger Report, SOFA 2006, Barrett & Maxwell, etc. … Which reforms most likely to benefit the food insecure? Most commentators argue inductively, not recognizing the context-dependence of the cases they cite. Yet, so much varies from one place to the next …

3. Modeling Possible Food Aid Reforms Integrated model of the food aid distribution chain, from donor appropriations through operational agency programming decisions to household consumption choices. Simulate alternative policies and resulting welfare effects Sensitivity analysis wrt key parameters Goal: Identify what matters most to improving the well-being of food-insecure households in recipient countries. Answers: (1) For OAs: improved targeting (2) For US govt: ocean freight costs

4. An Integrated Analytical Model We build an analytical model with 3 actors: - Donor government: allocates ODA budget (cash vs. food) - Operational agency: given cash/food mix, allocates cash for transfers/public good/LRP and allocates food between DD/monetization. - Representative household: chooses consumption patterns (sell/consume in kind transfers, use of cash transfers, income effect of public goods) Key environmental parameters: political additionality, ocean freight rates, donor/recipient market prices, transport costs, targeting, corruption, hh preferences.

5. An Integrated Analytical Model Market implications of alternative designs are crucial because of - OA monetization, targeting, and demand from LRP - Recipient resale or induced purchases - Parameterize and conduct extensive sensitivity analysis to query: -What policy changes benefit food insecure households the most? - How does optimal policy vary with conditions?

6. Simulation Results: Targeting Improvements in targeting generate relatively large gains in welfare, no matter the policy regime --- ~15x increase (vs. only 0.5 for shipping cost reduction) W1=status quo, W2=cash for LRP, W3=no monetization, W4=halve ocean freight

7. Simulation Results: Price-Dependent Optimal Policy Reforms Relative donor/recipient market prices heavily affect which policy regime is optimal W1=status quo, W2=cash for LRP, W3=no monetization, W4=halve ocean freight

8. Summary Useful tool for integrated, qualitative assessment of what factors most matter when setting/reforming food aid policy Practical findings: Targeting is the key variable, not just b/c of direct effects but because of indirect effects through markets Optimal policy depends on prevailing parameter values … be careful about one size fits all statements about how best to adapt current food aid policies to help the poor! Reduced ocean freight most commonly dominant reform

9. Thank you for your interest! Paper available on the web at http://aem.cornell.edu/faculty_sites/cbb2/papers/ Comments on the paper would be greatly welcomed.