Introduction

In this introduction to Food Policy’s special issue the guest editors look at the various ways in which food policy, food aid and economic adjustment can interact to mutual advantage. As de- veloping countries pursue economic adjustment strategies to compensate for the unprecedented world recession, concern is being expressed about the condition of poor people in low-income countries and the need for ‘adjustment with a human face’. With increasing amounts of aid resources being used for adjustment programmes, interest has grown that food aid should also be used more purposefully to support the adjustment process.

John Shaw is Economic Advisor at the World Food Programme, 426 Cristoforo Colombo, 00145 Rome, Italy. Hans Singer is Professorial Fellow at the Institute of Development Studies, University of Sus- sex, Brighton, Sussex, BNl 9RE, UK.

The opinions expressed in this special issue of Food Policy are those of the authors of the various contributions and do not necessarily represent the views of their institutions.

Food policy, food aid and economic adjustment

John Shaw and Hans Singer

Developing countries are seeking to adjust their economies to the realities of current internal and international conditions, after ex- periencing a world recession of unprecedented magnitude since the l93Os, and in the face of continuing acute economic conditions. Unless both external as well as internal factors are given adequate attention, drastic demand-restricting measures may be imposed on poor countries in order to avoid total economic collapse. Particular concern is now being expressed about the condition of poor people in low-income countries and for the need for what has come to be called ‘adjustment with a human face’ to protect their well-being and to promote economic growth with equity.

With the increasing amount of aid resources from the international financial institutions, like the International Monetary Fund (IMF) and the World Bank, and from bilateral donors being used for adjustment programmcs, interest has grown that food aid - an external resource that bulks large in many low-income developing countries - should also be used more purposefully to support the adjustment process.

Food is vital in the affairs of all nations, even more so in the low-income, food-deficit countries with inadequate food production or insufficient foreign exchange to import the food they need. Food and related concerns and issues should, therefore, be key determinants in designing and implementing economic adjustment policies and prog- rammes. These concerns arise from balance-of-payments and debt servicing problems. the role of the dominant agricultural sector in the economic growth of most developing countries, the all-pervasive effects of food pricing policies for producers and consumers and their effects on the employment and incomes of poor people, and the need to ensure food security for all, which might require compensatory measures for target groups of poor people.

Mutual benefits can be forthcoming from the association of food aid with adjustment programmes. The adjustment process can be strength- ened, while food aid provided within the adjustment framework can be more effective. This is not to imply that food aid can be used like some kind of ‘magic dust’ to work wonders and overcome the mistakes and errors of badly designed adjustment programmes. But it does have special characteristics which are particularly appropriate for addressing

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the macroeconomic difficulties of developing countries and the mic- roeconomic concerns of the poor in those countries. Food aid amounts to about $3000 million a year - about lO”/o of the annual official development assistance of the major donor countries. What is particu- larly significant is that it is largely additional to current financial aid - and that it has the best prospects for growth compared to financial aid which stagnates or even decreases in real terms - given the large food stocks that have accumulated in the major, developed exporting countries. Food aid flows in cereals currently represent only about 4% of those stocks, 6% of cereal world trade and 10% of total developing country imports.

This special issue maps out the various ways in which food policies, food aid and economic adjustment can interact to mutual advantage. Contributions are grouped into three sections: conceptual issues and concerns relating to the political and social as well as economic aspects of adjustment; institutional viewpoints of some of the major donors assisting adjustment programmes; and case studies of the experience of some selected countries in the implementation of adjustment measures.

‘See, World Food Programme, Roles of Food Aid in Structural and Sector Adiust- ment (WFPCFA: 23/5 Add l), April 1987, which draws from a joint consultation held by WFP and the World Bank in December 1986. ‘For a sketch of the origins of the separa- tion of soft financial aid (IDA) and food aid in the UN system, see H.W. Singer, ‘The terms of trade controversy and the evolu- tion of soft financing: early years in the UN’, in G.M. Meier and D. Seers, eds, Pioneers in Development, Oxford Universi- ty Press, Oxford, UK, 1984, pp 296303.

Food aid as an external support for adjustment’

The use of food aid in structural and sector adjustment lending (SAL), developed largely under IMF and World Bank auspices, has attracted recent attention on the part of those concerned with both SAL and with food aid. This is not difficult to understand: SAL needs food aid and food aid can benefit from SAL. Those administering SAL are increasingly ready to concede that the sacrifices involved in adjustment programmes require more oiling of the wheels - additional external resources are needed to make adjustment more ‘growth oriented’ and/or give it a more ‘human face’. Insufficient attention to those issues has contributed significantly to major problems in the adjustment process. Those administering food aid are aware of a need to link food aid with ‘food strategies’ and efficient macroeconomic policies to avoid disincentive effects - the same objectives as adjustment programmes - and to combine food aid with financial aid to maintain demand for food out of increased incomes, to make up for the leakage of food-aid generated income transfers into non-food expenditure. It is not surprising that in their search for additional resources, the eye of adjustment lenders should have fallen on food aid; nor that in their search for uses of additional food aid and acceptable policy frameworks, the eye of food aid agencies should have fallen on SAL. If there is any surprise, it is that it should have taken so long for the two sides to get together - a tribute to the strength of the bureaucratic separatism of agencies within the UN system.’

The very principle of SAL amounts to recognition that the risks and hardships of structural adjustment, often de fucto imposed from the outside, require additional resources and some compensation in the form of external support. This is, in essence, the principle of symmetrical responsibility of balance-of-payments surplus and deficit countries - the cause that Keynes fought for so hard at Bretton Woods (largely unsuccessfully, although the principle is in theory enshrined in the statutes of the IMF). Food aid could provide additional external support. given that food aid has more political support for expansion (in view of mounting food surpluses) than financial aid, so that additional

FOOD POLICY February 1988 3

food aid mobilized in support of SAL need not be at the expense of financial aid available. This additional support will help to soften the rigours of adjustment and to modify the adjustment period to the pace and sequence by which reforms can realistically be expected to take place. This will help to make adjustment programmes politically acceptable to the governments - and, perhaps more important, to the people - of the low-income, food-deficit countries. Food aid seems particularly suited to play this role since the dissatisfaction of urban populations with the increases in food prices usually involved in adjustment programmes. and the ensuing food riots (or the fear of them), have proved the downfall of many adjustment programmes. Recent experience in a number of developing countries has shown this to be the reality, as the case studies in this issue indicate. Food aid can provide the recipient governments with the resources to subsidize higher prices for local food producers, without pricing the poor consumer out of the market, during a transition period while employment/incomes are generated.

Triangular food aid transactions would provide developing country food exporters. or potential food exporters, with foreign exchange.3 It should be possible to give such triangular transactions special weight in the framework of additional food aid mobilized in support of SAL if certain practical difficulties arc overcome. Food aid thus used would also serve to compensate food-exporting developing countries for low international prices due to the agricultural policies and protectionism of the major food-exporting developed countries.

Food aid directly used to build up local food stocks and reserves can provide a ‘safety net’ during the adjustment period, particularly for countries threatened by periodic droughts or other disasters. Such a safety net may enable developing countries to engage in the longer-term structural changes that are essential to adjustment. Another area where food aid can provide an essential safety net is where adjustment requires structural changes, such as land reform or the transformation of traditional farming systems which may disrupt production in the short run, or changes which are considered a risky leap into the unknown,

3Triangular transactions involve donor such as introduction of new crops or new marketing systems. countries providing cash to purchase food The funds arising from the sale of food aid received as balance-of- in a developing exporting country for use as food aid in another developing country.

payments or budget support (which account for the bulk of total food

See D.J. Shaw. ‘Trianaular transactions in aid) can provide the local finance for SAL projects, especially if pooled food aid: concepts and practice - the by the various donors as common counterpart funds and administered example of the Zimbabwe operations’, IDS Bulletin, Vol 14, No 2, Institute of Develop-

within the framework of SAL programmes. The same effect is achieved

ment Studies, University of Sussex, 1983; if the food aid is ‘monetized’; this also reduces local transport cost and and Relief and Development Institute, A increases the cost-effectiveness of income transfer by food aid.4 Donor Study in Triangular Transactions and Local Purchases in Food Aid, commissioned by

cooperation, by way of World Bank Consultative Groups or UNDP

WFP, in WFP Occasional Paper No 11, Round Tables, and in support of agreed adjustment programmes, can

Rome, Italy, 1987. serve as a catalyst for the creation and agreed use of common food aid ‘Such monetization of food aid has been vigorously advocated by Shlomo Reutlin-

funds. This has been found quite effective, though only in a small

ger of the World Bank. See S. Reutlinger, number of countries such as Mali and Senegal. The establishment and ‘Proiect food aid and eauitable arowth: administration of common funds has also given the World Food inco’me transfer efficiency ‘first!‘, inReporf of the WFP/Government of the Nether- lands Seminar on Food Aid, The Hague,

Programme (WFP) a coordinating role in those countries for food aid in general. corresponding to the role of the World Bank in financial aid.

October 1983, WFP, 1984, pp 167-i78. For experience with the monetization of project food aid see World Food Program- Sustaining employment and incomes for the poor me, The Monetization of WFP Food Aid, WFPICFA: 2414, September 1987. The conditions of IMF and World Bank SAL lending have clearly been

FOOD POLICY February 1988

lnrroduction

shaped by belief in the superiority of a market-oriented and outward- oriented development strategy, and a view that correction of balance-of- payments deficits requires at least temporary sacrifice of other objectives. These sacrifices are believed to be necessary in order to lay the foundations for subsequent sustainable economic growth and development. The ‘austerity’ of such a model has attracted much criticism from various quarters while the IMF has argued that ‘austerity’ is not imposed by them but by the balance-of-payments pressures which they try to remedy, and that the distribution of the adjustment burden remains under the control of the recipient governments.

Five major criticisms have been made relating to adjustment

programmes of the IMF and the World Bank, particularly in Africa. First, their concept, design and implementation may not have been fully adapted to the domestic realities of developing countries. Second, they have not been of long enough duration to address the critical problems of structural transformation and low productivity. Third, the measures adopted to reduce domestic demand have adversely affected investment programmes, jeopardizing future production potential. Fourth, the international environment has been generally unfavourable for the adjustment process of primary producers. Fifth, external assistance to bridge the foreign exchange gap has either not been forthcoming in the right amounts, on the right terms and at the right time, or it has been tied to the implementation of domestic measures that many countries have found politically and socially unacceptable.

The combined impact of the recession and SAL conditionality has

often been in the direction of increased inequality of income distribu- tion. Even where income distribution has remained technically the same, the cuts in national income involved - often quite severe -would impose a greater real sacrifice on the poorer sections, with richer groups protected by a cushion of inessential expenditure. So while the debate rages as to whether the SAL conditions are necessary or unduly austere or contractionist, it is the poor in the adjusting countries who carry the brunt of sacrifices. Critics argue that this is counter-productive and amounts to a harmful destruction of human capital which, in turn, has an adverse effect on long-term growth and development. To take an extreme example: if malnutrition among young children increases and leads to irreversible loss of physical and mental capacity, this can in no sense be described as ‘laying the foundations for viable future economic growth’.

It is at this point that food aid could usefully be deployed to counterbalance the tendency of SAL to undue austerity and contrac- tion, rather than expansion, in the economy. Food aid is well suited, for example, to support labour-intensive, rural works schemes,’ which create incomes and assets among the poor, provide employment for the victims of austerity programmes and make possible economic expansion with minimum new balance-of-payments pressure. Such programmes can be directed at improvements in the rural infrastructure (increasing the supply elasticity of agricultural production in response to the price incentives of the SAL-supported adjustment programmes), can address the recurrent cost and maintenance problems of developing countries’ and can also support foreign exchange saving (import substituting) lines of activity.

The increase in incomes among the poor prevents the counter- productive destruction of human capital. As already mentioned,

“Food aid and rural employment-led equit- able growth in sub-Saharan Africa’, in WFP, Review of Food Aid Policies and Programmes, WFPICFA: 1715, April 1984, pp 12-21. ‘Anthony Jennings and D. John Shaw, ‘Food aid and the recurrent cost problem in developing countries’, Food Policy, Vol 12, No 3, August 1987, pp 213-226.

FOOD POLICY February 1988 5

monetized food aid can have high income-transfer efficiency. Countries with more equal income distribution may find it easier to adjust to balance-of-payments pressures. By sustaining employment and incomes of the poor, food aid would also maintain demand for local food, thus avoiding disincentive effects,’ although for this purpose food aid would need a supplement of financial aid, both to support the non-food cost of public works and to provide for non-food expenditures out of the increased incomes. A process of demand expansion induced by food aid is not only needed as a counterpart to austerity programmes, but also to counteract disincentive effects.” Thus food aid may help to make adjustment more growth-oriented. less austere and more acceptable.

Protecting vulnerable groups

Adjustment programmes inevitably produce ‘winners’ and ‘losers’ in both the short and the long run. Where the poor are the losers, some form of targeted compensatory programme is necdcd. Such program- mes may consist of compensatory employment or food-access schemes. Food aid has a special comparative advantage in supporting such schemes.

Two groups that tend to be hurt by adjustment measures and that are appropriate beneficiaries of compensatory programmes supported by food aid are those who lose their jobs and those who cannot afford price increases in basic food commodities. For each of the two groups the most appropriate compensatory measures would be to provide income- earning, productive employment. In the short run, however, it may be necessary to provide food directly to the vulnerable groups most adversely affected by the adjustment process.

Income in the form of food has special relevance for intrahousehold income distribution in poor communities - a neglected subject in the literature of income distribution.” Women and children are the poorer household members, compared to household heads and other older males. This is so partly for rational reasons (where the household head provides the whole income of the family, the maintenance of his productive capacity is critical), but partly for reasons of power and control. Income in the form of food is more directlv under the control of

7Simon Maxwell, Food Aid:Agricultural Disincentives and Commercial Markets,

women, and both women and children benefit more from this form of

Discussion Paper No 224, Institute of De- income. Women and children are not only the poorer household velopment Studies, Brighton, Sussex, UK, members, but also the most vulnerable to cuts in income and living December 1986. %ee P. lsenman and H.W. Singer, ‘Food

standards, as well as to the effects of disasters caused by nature or by

aid: disincentive effects and their “policy man.

implications”‘, Economic Development Food aid directed to child nutrition, school feeding, mother and child anb Cultural Change, Vol 25, No 2, 1971. ‘See UNICEF/WFP, Food Aid and the

health clinics, etc, has therefore an in-built natural poverty orientation.

We//-being of Children in the Developing A large family size (ie a large number of children) is a major cause of World, The Waldon Press,New York, NY, poverty in developing countries. Moreover, the birth rate is invariably a USA, 1986. ‘oA.R. Jolly, G.A. Cornia et al, The lmpacf

declining function of income: the lower the income, the higher the birth

of World Recession on Children, Perga- rate. And yet children are a particularly strategic part of the human mon Press, Oxford, UK, 1984. Giovanni capital of a country. Hence the special impact of the recession and the Andrea Cornia, Richard Jolly and Frances Stewart, eds, Adjustment with a Human

adjustment burden of women and children, shown (among others) by

Face, Oxford University Press, Oxford, studies initiated by UNICEF,“’ represents a special weakness of UK, 1987. market-oriented austeritv programmes. The correction of this weakness “A R Jolly Adjustment with a Human > Face, Barbara Ward Lecture, 1985, Socie-

by food aid targeted on women and children could play a crucial role of

ty for International Development World giving adjustment a more human face.” Conference, 1985. Other vulnerable groups often especially hard-hit by SAL conditions

FOOD POLICY February 1988

would be rural landless people hit by higher food prices who can benefit from food-aid-supported public works, pastoralists and the urban poor - all likely victims of adjustment. The special benefits to women can also be justified by their reproductive and productive roles, especially as food producers.‘” The abolition of general food subsidies, often part of SAL conditionality, can advantageously be accompanied by selective food aid targeted at special vulnerable groups. Admittedly, fine targeting of food aid can be difficult and defective, but even broadly or imperfectly targeted food aid may be better than general subsidies. It may also be necessary to forego some degree of precision in targeting in order to facilitate the operation, and reduce the administrative costs, of a compensatory programme.

Designing efficient food-aid compensatory and protective program- mes for vulnerable groups poses some basic problems. Care should be exercised to avoid initiating or supporting high-cost, inefficient prog- rammes from which governments in recipient countries would find it politically difficult to retract. They should also not be used as a means by which the designers of adjustment programmes can avoid taking the poor into account in the rectifying measures that they propose.

Emphasis on the protection of vulnerable groups against ‘austerity’ should not be taken as support for a purely ‘corrective’ function of food aid under which the SAL agreement is first negotiated, and then food aid is rushed in as special hardships become apparent. Rather, food aid should be built as a resource, both general and with specific functions, into the SAL agreement from the very beginning. This requires a view as to how the costs and benefits of adjustment will be distributed between different groups, given the policy of the government. and as to the purposeful use of food aid to affect this distribution. In the past this has not been the case. Neither in adjustment negotiations nor in meetings of the Consultative Groups/Round Tables have the related questions of the distributional implications of SAL (as well as other aid) and of food aid yet found their proper place. The more systematic association of food aid with SAL from inception could, and should, bring on improvement in this respect, and thus provide the opportunity to plan participation of food aid in the adjustment process in a timely and harmonious way and enable the designers of SAL to understand and appreciate the intricacies of food aid.

Maintaining social services

The reduction of government deficits is a common feature of adjustment programmes ayd of programme food aid. Food aid is an important source of government revenue in a number of developing countries. Additional food aid as part of SAL can help to reduce budget deficits and, perhaps more important, reduce the rate of inflation - another key objective of SAL conditionality. With such convergent objectives. the use of food aid in SAL seems an obvious avenue to explore. It is necessarv. however. that revenue derived from the sale of food aid does

“Mona Hamman and Nadia H. Youssef, i

‘The continuum in women’s productive not have an adverse impact. Rigorous planning, management and use of

and reproductive roles: implications for such revenue is required for it to have a beneficial effect and not be used food aid and children’s well-being’, in as ‘easy money’.‘3 UNICEF/WFP, op tit, Ref 9, pp 89-l 03. 13WFP ‘The management of funds gener-

Cuts in government expenditure enforced by balance-of-payments

ated fr;m food-aided projects’, WFPKFA, pressures and SAL conditionality have fallen with special severity on the 2315 Add 2, 1987. maintenance of essential social services in outlying rural areas, eg rural

FOOD POLICY February 1988 7

“‘Jolly, Cornia et a/, op c;t, Ref IO.

8

health services :md mother and child health clinics.‘J Much of the rhetorical emphasis on the importance of humon cilpital, basic needs and rural priorities is. in fact, negated by the impact of the recession and SAL programmes. Whatever the intentions of the IMF, World Bank and other sources of SAL, governments belicvc th:lt they arc expected to conccntratc on ‘essential directly ‘productive’ investment ;md cut out such ‘luxuries’ ;is social cxpcnditures - and often act accordingly. Emphasis on ‘cost efficiency’ in government services 2rnd loss of ;idministrative capacity may serve ;IS ;m :rrgumcnt for the reduction of the more difficult rural services, which may also require foreign exchange for imported items such as drugs :md fuel for transport. Once such services have collapsed they may be difficult to restore. Food ;lid in the adjustment package can serve to support such services, both directly and indirectly. through balance-of-payments support and monetization.

Sometimes it is the direct lack of food and other essential consump- tion items and transport that forces teachers. p;lr;nnedical personnel and administrators to abandon the outlying rural areas. Examples of valiant attempts to respond to the increased need in times of pressure by increased. rather than rcduccd, soci;rl expenditures can be found in several developing countries. No doubt more countries would follow this route if resources and incentives were available. As for cost- efficiency, UNICEF has pioncercd low-cost strategies for maintenance and dcvclopmcnt of essential services for children and other vulncrablc groups, which Icnd thcmsclvcs directly to support by food aid.

‘Austere’ adjustment often compels :I government to increase the real price of public services, thus making them less accessible to the poor. This regressive distribution effect can cnll for special and sclcctive action to enable the most vulnerable groups to mnintain ;ICCL‘SS to essential public services. Food aid is well suited to perform this function. both directly by supplementing incomes and indirectly by monetization to provide resources for selective and well-targeted subsidies.

A flexible international food aid arrangement

An international arrangement for food :lid is needed for it to be able to respond flexibly to support economic adjustment measures. Since adjustment often requires ii multiyear commitment. an arrangement should be devised to deliver food itid flexibly to take account of ;I country’s changing import requirements from year to year. Would it be appropriate to store food :lid in years of excess supplies and use the stored supplies when local food is short? Or cm donors build flexibility into’their own programmes, following the example of the European Commuhity’s alternative facility, which allows financial aid to substitute for food aid when a country’s food supply position would make it inappropriate to continue to provide food aid‘?

The question is raised as to what to do with direct food-aided development projects in :I year when domestic production is plentiful and no imports are required. It would then be desirable to find an alternative mode of financing. which would also allow the purchase of domestically produced food and, at the same time, assure the sustainability of the projects. Apart from adjusting food aid flows, one possibility might be for food aid agencies to accumulate a fund of domestic currency from the sale of part of the food aid. which could then bc used to sustain food-aided projects in years when external food

FOOD POLICY February 1988

supplies are not needed. Alternatively, other aid-in-kind assistance (seeds, pesticides, fertilizer, agricultural tools and equipment. livestock feed) could be provided in place of food aid and the revenue derived from their sale in the recipient country used to sustain the implementa-

tion of development projects. Can a funding arrangement be set up that would provide an

appropriate mix of food and financial aid for projects specifically designed to develop human resources and physical assets, with most of the resources expended being used for augmenting current incomes of food-insecure households?

Forty years after the Marshall Plan, is there the political will to launch a major international initiative taking advantage of the large food stocks in Europe and North America? Such an initiative might include the following main elements among others. The low-income, food deficit countries to be assisted would be identified. A programme of food aid would be worked out collectively by the donors concerned with the recipient government for each country separately, and coordinated with the provision of financial and technical assistance. The food aid provided would support specific development policies and programmes for achieving self-reliance, reducing poverty and improving nutritional status, and for projects particularly designed to benefit the poor by supporting their productive capacity and well-being, promoting equit- able adjustment with growth, and thereby reducing the social costs and enhancing the human dimension of adjustment programmes. Particular attention would be given to avoiding disincentive and counterproductive effects on domestic agricultural production in the recipient countries and on commercial trade.

Food aid would be brought within the national development plans of recipient countries and considered as an integral part of overall development assistance by ministries of planning and finance in the formulation of such plans. A coordination committee would be established in each beneficiary country comprising representatives of the government and the donor countries and organizations. Recipient governments would establish or strengthen appropriate food manage- ment units to coordinate operations relating to the planning and management of food aid. They would also take steps to improve the assessment of their food aid needs and to establish national early warning systems with external assistance. An appropriate monitoring and evaluation system would be established in each benefiting country.

FOOD POLICY February 1988