As food have skyrocketed lately and populations constantly on the rise, governments of third world countries are becoming exceeding burdened by the costs of keeping their people fed and nourished. Up until now one of the most common forms of aid for this issue was for government to provide food subsidies; however, these policies are becoming unsustainable very quickly.
Over 3 years in Egypt, from 2009 to 2012 the cost of food subsidies have nearly doubled. Further, it has been noted that much of this aid money gets into the wrong hands. In Burkin Faso, Egypt and the Philippeans, less than 20% reaches the very poor households. In the Middle East and North Africa only 35% of the aid reaches the poorest 40% of the population. These results are from studies conducted by the IMF.
The great desire to cut costs are motivating many countries to seek more efficient and targeted forms of aid. Just recently, Iran began issuing free food handouts while Malaysia and Indonesia are offering extra cash benefits to poor households. These countries are outspokenly against food stamps or vouchers because they are seen as too “American” or “un-Asian”.
However, the International Food Policy Research Institute suggests that this attitude towards food vouchers might be a mistake. The IFPRI has analyzed results of a World Food Program experiment in Ecuador 2011, which compared results from food handouts, cash benefits and vouchers all conditional on the recipients attending nutritional classes. The empirical evidence from these studies found direct food handouts to be the least effective.
The cost of handing out food stuffs is 3 times as much as food vouchers in order to boost caloric intake by 15%. Also, it is 4 times as costly to increase dietary diversity and quality. Additionally, extra costs such as distribution are very high and the experiment showed evidence of wastage; meaning only 63% of the food handed out was actually eaten.
Compare this to the results of cash benefits, where 83% of cash were spent on food, or for food vouchers, where 99% of them were redeemed for nutritional goods.
The IFPRI found that the results were akin to similar experiments conducted in Yemen, Uganda and Niger.
For example, Egypt, who’s policy still revolves around food subsidies, mostly subsidizes starchy grains and bread. As a result 70% of adults are overweight and 29% of under fives have experienced stunted growth. Foods like dairy or vegetables are unsubsidized and unaffordable for many people, greatly decreasing the quality of diet for many Egyptians.
The conclusion drawn by the IFPRI is that food vouchers are more effective at encouraging people to buy healthful goods, and that they are about 25% cheaper for governments to boost the quality of the diet of populations compared to cash benefits or food handouts.
It seems that the switch from universal subsidies to vouchers could be the most efficient way to increase quality of health and eliminate poverty in many struggling third world countries.
Source: *M. Hidrobo, J. Hoddinott, A. Peterman, A. Margolies and V. Moreira, “Cash, food, or vouchers? Evidence from a randomized experiment in northern Ecuador”.
Written by Barbara Jung, Marketing Director of UW Economics Society
