No Nonsense
Disaster aid and anti-inflationary recovery
AVAILABLE statistics indicate that each year affluent nations mete out 6 to 8 million tonnes of food aid, reaching refugees, households in famine zones, and people all around the world who tread the poverty line.
Notwithstanding that the Food Aid Program (FAP) saves lives -- reaching schoolchildren who often go hungry and grow undernourished, and helpless mothers having no sources of income -- many aid experts think that food aid should be reserved only as a last resort. They favour giving cash or vouchers to the vulnerable instead, arguing that FAP can disrupt domestic markets and hold back recovery from a crisis.
Proponents of this view argue that hunger exists not because of lack of availability of food -- it exists because of lack of income and accelerating post-disaster price hikes. They often suggest that the prevailing FAP often advances the petty interests of donors instead of the cause of the disaster victims.
For example, when California raisin producers were having problems in 2003, raisins were included among the food aid the US gave the WFP. And then there's the dilemma of rich countries donating surplus food to subsidise their own farmers.
Food aid may disrupt domestic markets in at least two obvious ways:
First, stuffing the markets with cheap food causes prices to fall, which helps the needy food buyers but hurts local farmers, depriving them of the fair price of their produce. This has an unplanned effect on the whole agricultural sector. For example, say rice prices drop and people start buying rice instead of wheat. Then wheat farmers endure hardships.
Second, late arrival of food aids disrupts the market for the next season's harvest, making it difficult for local farmers to pull through. This happened in Malawi in 2002, and also became a problem in Niger in 2005.
An alternative for FAP is cash or vouchers, allowing the disaster stricken people to buy their daily essentials, including food, soap, kerosene or whatever else they need most, even if they've lost their sources of making a living.
The Rome-based UN World Food Program (WFP) channels the most significant emergency food aid, although some governments donate large amounts of food bypassing the WFP. The US is by far the biggest donor, providing more than half of global food aid. Canada, Japan, Australia and the European Union countries are also major contributors to the food aid bank.
Although WFP prefers emergency and disaster aid in hard cash, a lot of donations are pledged "in kind," like food from donor countries -- about 75% of all food aid in 2004 was directly dispersed in this way. Plausibly, cash donations have a cascading effect -- buy food locally or from neighbouring countries to help the needy with spillover effect of boosting local economies.
Food aid is sometimes distributed in development projects -- hungry people work on infrastructure building in exchange for food -- the widely known Food for Work Program (FWP).
But some experts are less enthusiastic about FWP, which they deem to be patronising, and difficult to organise and maintain; instead they favour cash and food vouchers. Another argument against FWP is the uncertainty of its continuance if the food aid dries up. This has happened in several Latin American countries.
As noted above, many governments channel large amounts of food directly to NGOs, either in emergencies or for development projects. For example, as of November 27, Usaid has pledged to contribute more than $10 million under the Food for Peace program for post-Sidr relief and recovery efforts.
The aid package includes more than 3,000 tons of Food for Peace assistance as part of Care and Save the Children grants provided through Usaid. The US, additionally, has provided more than $14.4 million in emergency funds, commodities and transportation to assist relief efforts.
Most food experts posit that food aid has limited effectiveness unless it targets the most needy -- especially women and children. It is also time consuming, and may often reach the distressed weeks or months after the most crucial period.
When natural disasters like Cyclone Sidr strike, helping the dispossessed and the dying becomes the overriding considerations -- there is little time to think about how best to utilise the cash donations for the benefit of the victims and the economy. This is especially important for an economy where scourge of price spirals of daily essentials have already dried up the buying capacity of fixed income consumers.
Under the unabated price spiraling environment in Bangladesh (inflation in double digits), this article argues in favour of direct food assistance imported from donor countries, FWP, and a minimum amount of cash handouts to buy non-food essentials.
Food items coming from outside the country would put downward pressure on inflation by offsetting shortages -- while buying those from local markets for donations purposes by foreign donors add further inflationary pressure on items already in short supply, and also adds to the already staggering money supply (through converting, say dollars to taka), inducing further demand pull inflationary pressure.
The recently proposed Vulnerable Group Feeding (VGF) program to begin next month should not be run by buying food items from the domestic market. Cash donations should be used for repair and rebuilding of housing and infrastructure with locally produced construction materials, which will rejuvenate the construction sector and generate employment and income.
FWP, if properly organised and maintained, would be strongly anti-inflationary, since the outcome is the production of real goods and services without increasing the money supply -- and better yet, infrastructure rebuilding would offer a stream of real services in the foreseeable future.
The Bangladesh Bank's release of $180 million from its reserve for import of foodstuff is also anti-inflationary, since it is tantamount to currency sterilisation -- an equivalent amount of Bangladesh currency, in the process, will find its home in the vault of the central Bank. Any taxes levied on interest income from savings and fixed deposits to finance disaster recovery would have very little anti-inflationary effect.
By being prudent in its fiscal operations, the government can soundly rehabilitate the dispossessed victims of Cyclone Sidr while avoiding further demand pressure on the already inflationary economy.
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