Who should benefit from social protection? New evidence on targeting

As African countries look into various forms of social protection, one of the key debates revolves around the issue of targeting – who should benefit from cash transfers or other forms of support? A debate has arisen between two positions – those who believe in poverty targeting and those who favour categorical targeting.

Poverty targeting means that programmes should attempt to identify the poorest and most deprived members of society, and provide benefits only to them.

Categorical targeting, on the other hand, means that benefits go to people who fall into a specific category that is closely associated with poverty – such as old age pensioners, or children under a certain age.

The question of which form of targeting is better, is one of the biggest dilemmas facing policy makers who are thinking about implementing large-scale, countrywide social protection programmes.

New evidence

A new brief prepared for the Regional Hunger and Vulnerability Programme (RHVP) by Frank Ellis and Francesca Marchetta, weighs in on this debate with some new evidence.

The brief looks at a common approach to poverty targeting in southern Africa. In this approach, benefits are given only to the ‘ultra poor’ – households that can’t even get enough food to eat, and who also lack active adult labour in their households – in other words, nobody in the home who is able to go out and work. In Malawi and Zambia, the proportion of households that meet these criteria is commonly understood to be about 10 per cent (based on national living standards surveys).

In pilot social cash transfers in these two countries, this national proportion of 10 percent has also been used at community, sub-district and district level – so within each community or district, only about 10 percent of people are selected to benefit from cash transfers.

There are two objections to this:

Firstly, it excludes many ultra-poor households who are just as badly off but happen to have labour in their household (even though they may still lack land, skills, tools and job opportunities).

Secondly, while the proportion of the ultra poor may be roughly 10 percent overall nationally, this figure is likely to vary widely across geographical areas within a country – so in some areas you may find that many more than 10% of the local population is ultra poor, while in other areas there will be less than 10%.

Ellis and Marchetta investigate the validity of these objections by looking at evidence from two countries: Ghana and Malawi. They chose these two countries among other reasons, because they offer some interesting contrasts: socio-economic conditions in Ghana differ widely across geographical regions, while Malawi is relatively more homogenous.

The authors worked with national survey data in the two countries, and used these figures to test the impacts of different approaches to poverty targeting.

Findings

The findings are interesting. Firstly, they found that without a doubt, it’s a very bad idea to apply a uniform percentage across the entire country, as a cut-off point for selecting beneficiaries. This is because some regions within a country simply have more poor people than others – in Ghana for example 70% of those who should be beneficiaries are concentrated in just three of the ten regions in the country, so targeting 10% in each region would be highly inequitable. Even in countries such as Malawi which is relatively homogenous,if a uniform proportion (10% for example) is applied, there is very high risk of leaving out people in deprived places who should benefit from transfers and including people in less deprived places who should not be eligible.

Secondly, the experiments found that ‘leapfrogging’ is a definite problem in places where income distribution is relatively equal to start with – such as in Malawi. Because poor people’s incomes do not differ all that much, when benefits are given to the 10% of the so-called ‘ultra poor’, many of these people suddenly become better off than large numbers of non-beneficiaries.

Conclusions

So what does this mean for the targeting debate?

The authors point out that both categorical and poverty targeting have strengths and weaknesses.

One advantage of a categorical approach is that the choice of category usually involves a single rule (like an age range or a minimum age) and payments are made to all those who obey the rule. Because everyone who falls into that category will benefit, such a scheme is seen as fair, and so is likely to be more socially and politically acceptable than a scheme based on poverty targeting. In the case of old age pensions, for example, all citizens know that when they reach the required age, they will receive the pension.

But categorical transfers do have weaknesses. Some people who are not necessarily poor will benefit, and poor people who do not fit the criteria may not benefit – such as a poor household without a pensioner in it. Also, because everyone within a specific category will be covered, categorical social protection schemes can be expensive – and so difficult for low-income countries to afford.

Poverty targeted transfers also have strengths and weaknesses. Their strengths are that they can reach diverse types of people desperately in need of state support, and – at least in theory – it is possible to minimise errors of including or excluding the wrong people. Also, by limiting benefits to a specific percentage of the population, governments can keep such transfers affordable.

But while this looks good in theory, in practice it is very difficult and expensive to minimise inclusion and exclusion errors.

What the study by Ellis and Marchetta shows, is that if such poverty targeting does not take account of regional differences in poverty within a country, it may also leave out many of the poorest and benefit many who are relatively better off.

Finally, in many countries, it is difficult to ensure that the transfer amount is big enough to make a difference, but small enough so that it doesn’t leapfrog beneficiaries over non-beneficiaries. Such leapfrogging is inherently unfair, and can undermine social acceptance of the grant and create political difficulties.

You can find links to this and more research here and download the full research paper on poverty targeting here.

Fertiliser subsidies or cash transfers – renewing the debate

Fertiliser subsidies have received a lot of attention, and praise for success in combating food shortages in Africa. The most notable case is that of Malawi, which introduced a fertiliser subsidy in 2005. In late 2007, the New York Times, for example, published an article hailing Malawi’s success in fighting famine.

But in a new research paper, Professor Frank Ellis of the Regional Hunger and Vulnerability Programme (RHVP), argues that while fertiliser subsidies have a number of benefits, they also have limitations, and should not be seen as an alternative for other social protection measures for the poor — most notably, social cash transfers (pensions and child support grants, for example).

Ellis argues that while fertiliser subsidies have been successful in boosting food production overall, they do little directly to protect poor and vulnerable households from poverty and hunger. Practical experience has shown that such subsidies mainly benefit non-poor farmers – those who have access to cash, land and labour. Even if some attempt is made to allocate coupons to poorer farmers, they will in most cases sell their coupons, because they can’t afford fertiliser even at the subsidised price.

Fertiliser subsidies are supposed to be used as a bridging measure to deal with market failures, Ellis says. Once these outcomes have been achieved, the subsidies should be gradually phased out — otherwise they become a drain on public finances, preventing support being given to other worthwhile social and economic goals. The problem is that once such subsidies are in place, governments usually find that it’s politically very difficult to reduce or remove them. This means that subsidies can take a heavy toll on the national budget, long after they have ceased to deliver benefits.

Nevertheless, poor and vulnerable people can gain from fertiliser subsidies indirectly in three ways:

* Firstly, poor farmers who are allocated vouchers and then sell them in effect get a cash transfer (but this is a very expensive way of providing a cash transfer);

* Secondly, the poor benefit from lower food prices as a result of the higher supply thanks to better crop production;

* Thirdly, a vibrant agriculture increases demand for rural labour, creating additional jobs and potentially resulting in higher rural wages.

Ellis believes, though, that these benefits of subsidies can’t be used as arguments for neglecting social transfers that can combat poverty and vulnerability more directly, and less expensively.

Cash transfers such as social pensions provide for those who are not part of the active labour force.  They reach those who are unable to generate a livelihood due to lack of land or labour. They do this directly through providing purchasing power. They are equally effective in urban and rural areas. Cash transfers can be delivered securely and cheaply using electronic methods, and their overall cost within the national budget is stable and predictable.

To some extent, fertiliser subsidies and social cash transfers can complement each other. But they also compete – money that a government spends on subsidies is not available to use for pensions and grants, and vice-versa. So it is important that policymakers look at the tradeoffs involved, before making decisions.

The case of Malawi

Malawi has had a fertiliser subsidy for the past four years, and has run a number of pilot cash transfer programmes. According to Ellis, most field studies of the fertiliser subsidy show there’s a vibrant parallel market in coupons, and that members of poorer rural households who are allocated subsidy vouchers, do indeed tend to sell them for cash.

Then too, the budget cost of the Malawi fertiliser subsidy has quadrupled over four years, because the cost of fertiliser shot up in 2008.  The cost of the subsidy has grown from 1.4 to 4.7 per cent of GDP and from 5.1 to 13.9 per cent of total government revenue.

As for the benefits of the subsidy, these were initially large, but have declined over the years. Maize production rose significantly at first, and this led to a drop in maize prices by mid-2007. But by late 2008, prices had risen steeply again, for a range of reasons – and despite the government’s attempts to put a ceiling on the maize price.

This can be contrasted to social transfers: A universal pension for the over-60s, for example, would cost just 2 per cent of GDP and 6 per cent of the budget (as opposed to nearly 15 per cent of the budget that has been allocated to the fertiliser subsidy). The same would apply if instead the government opted for a combination of a pension for those over 65, and a transfer to vulnerable households without pensioners.

Recommendations

Ellis recommends that rather than focusing on only one transfer option (either cash transfers or fertiliser subsidy), governments should adopt a portfolio of instruments. Each has different strengths and weaknesses.

One of the things that Ellis’s paper makes clear is that the debate can no longer be about affordability — clearly, effective social protection measures are affordable — but rather about what measures are most appropriate for meeting the twin goals of boosting food production, and protecting the poor and vulnerable.

View the full research paper here.

A video documentary produced by RHVP on Malawi’s fertiliser subsidy, can be viewed on YouTube:

Meanwhile, IPS reports that Malawi has put measures in place to end subsidy fraud. This emerged at the meeting of the Food Agriculture and Natural Resources Policy Analysis Network (FANRPAN) in Maputo, Mozambique from 1-4 September.