1. The Impact of Droughts and Floods on Food Security and Policy Options to Alleviate Negative Effects Stephen Devereux Institute of Development Studies University of Sussex, UK IAAE plenary session: “Economics of Natural Disasters” Gold Coast, Australia, 13 August 2006

2. Structure of Presentation 1.Analytical framework: Weather–induced natural disasters as a sequence of failures of “entitlements to food” 2.Policy responses to: (1) failures of production (2) failures of labour markets (3) failures of commodity markets (4) failures of informal transfers 3.Conclusions

3. Drought & Flood Impacts on Food Security as a Sequence of “Entitlement Failures” Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements  Source of food: What one grows  Source of vulnerability: Harvest failure  Source of food: What one works for  Source of vulnerability: Unemployment  Source of food: What one buys  Source of vulnerability: High food prices  Source of food: What one is given  Source of vulnerability: Lack of support

4. Impacts of Weather Shocks on Crop and Livestock Production Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements  “Direct entitlement decline” : (1) Reduced yields of food staples; (2) Reduced yields of marketed crops; (3) Livestock weight loss and mortality.  Risk factors : (1) Dependence on rainfed agriculture; (2) Undiversified livelihoods; (3) Limited access to non-covariant income.  Long term impacts of climatic risks : (1) Risk–averse behaviour by farmers (2) Under-investment in new technologies (3) Agricultural stagnation, persistence of low–input low–output farming systems.

5. Impacts of Weather Shocks on Foodcrop Production in Malawi Production–based entitlements Maize production in Malawi, 1984–2002

6. Impacts of Weather Shocks on Foodcrop Production in Malawi Production–based entitlements Depletion of maize stocks in Malawi, 2000–2002

7. Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements Impacts of Weather Shocks on Labour Markets  Effects on rural labour markets : (1) Harvest failure forces food producers to seek alternative sources of food and cash; (2) Ratio of those offering employment to those seeking employment falls; (3) Excess supply of labour drives rural wage rates down.  “Derived destitution” : (1) Income shock reduces demand by farmers for non-agricultural goods and services; (2) Incomes of those whose livelihoods depend on agricultural incomes therefore decline; (3) Affected groups include traders, barbers.

8. Impacts of Weather Shocks on Labour Markets in Malawi Labour–based entitlements Labour supply and demand in rural Malawi, 1992–2002 Labour demand Labour supply 0 1 2 3 4 5 6 7 8 9 10 1992 1993199419951996199719981999200020012002

9. Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements Impacts of Weather Shocks on Commodity Markets  Effects on food supplies : (1) Where markets are weakly integrated, food availability decline reduces market supplies; (2) Precautionary or speculative hoarding exacerbates market supply constraints.  Effects on food prices : (1) Reduced food availability or withholding supplies causes food prices to rise; (2) Since demand for food is price–inelastic, prices can rapidly double and re-double.  Asset sales as a “coping strategy” : (1) Selling livestock or other assets to raise cash for food causes a collapse in terms of trade; (2) Selling productive assets leads to destitution.

10. Impacts of Weather Shocks on Food Markets in Malawi Trade–based entitlements Maize and cassava prices in rural Malawi, 2000–2002

11. Impacts of Weather Shocks on Asset Markets in Malawi Trade–based entitlements Mean value losses on asset sales in rural Malawi, 2001–2002

12.  Immediate risks : (1) Extended family support requires access to non–covariant income (eg. urban relative); (2) Patron–client relationships tend to be exploitative (eg. high–interest loans); (3) Covariant and protracted shocks erode community–level coping capacity.  Longer–term risks : (1) “Modernisation” – changing social norms; (2) Commercialisation – from “moral economy” to “market economy”; (3) HIV/AIDS is also undermining community coping capacity, especially in Africa. Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements Impacts of Weather Shocks on Informal Transfers

13. Policy Responses to Failures of Crop and Livestock Production Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements  “Productivity–enhancing safety nets” : (1) Fertiliser subsidies (making a comeback?); (2) Free inputs (“Starter Packs” in Malawi); (3) “Livelihoods packages” (Ethiopia).  Longer–term risk–reducing strategies : (1) Agricultural intensification (eg. irrigation) (2) Agricultural diversification (risk–spreading) (3) Agricultural commercialisation (4) Livelihood diversification (non-covariance) (5) Migration (“resettlement”) (6) Sedentarisation (pastoralists) (7) Urbanisation (“up & out” or “down & out”).

14. Production–based entitlements Policy Responses to Failures of Crop and Livestock Production Alternative scenarios for “future agricultures” in Africa Low GrowthHigh Growth Low Vulnerability Diversification (On–farm; off–farm) Migration (Rural–rural; rural–urban) High Vulnerability Intensification (Access to inputs) Commercialisation (Land reform)

15. Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements Policy Responses to Failures of Labour Markets  Employment–based safety nets : + Self–targeting (work, time, low wage/ ration); + Consumption smoothing (if well timed); + Can create durable assets with food security potential (micro-dams, feeder roads). – Work norm excludes labour–constrained; – Bad timing interferes with on–farm labour; – Low wage/ ration reduces nutritional impact; – Public works assets are rarely maintained.  Principles (EGS & NREGA in India) : (1) Flexible, demand–driven, guaranteed; (2) Payment in cash rather than food; (3) Assets generate value for beneficiaries.

16. Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements Policy Responses to Failures of Commodity Markets  Buffer stocks or grain reserves : + Inter-temporal arbitrage – buy cheap after harvest, sell later to dampen price rises; – Expensive, inefficient, undermines markets; – Vulnerable to political corruption (Malawi).  Price policies and subsidies : + Protects producers against low prices; + Protects consumers against high prices; – Expensive, inefficient, undermines markets; – Leakages (elite capture, porous borders).  However : Re-emergence of price seasonality (since agricultural liberalisation abolished most policy instruments to address it) is a major source of vulnerability that needs urgent policy attention.

17.  Food aid : + Smooths consumption, protects assets; – High transactions costs; – Disincentives to food production and trade; – Does not address non-food needs; – Requires accurate targeting (as does cash).  Cash transfers : + Cheaper than food to transport and deliver; + Stimulates markets and local economies; + Invested in agriculture as well as consumed; – Real value falls as food prices rise (‘FACT’ in Malawi pegged transfers to market prices); – Could exacerbate food price inflation; – Possible negative gender impacts. Production–based entitlements Labour–based entitlements Trade–based entitlements Transfer–based entitlements Policy Responses to Failures of Informal Transfers

18. Transfer–based entitlements Policy Responses to Failures of Informal Transfers Coping Strategy Index in rural Malawi, 2005–2006

19. Conclusions 1 st best: PRODUCTION – Prevention is better than cure:  Strengthen and “drought / flood–proof” agricultural production;  Strengthen markets and infrastructure (to reduce supply failure);  Reduce chronic poverty (to minimise demand failure). 2 nd best: LABOUR – Insure against weather shocks  Weather–based insurance;  Guaranteed employment schemes. 3 rd best: TRADE – Correct for market failures  New approaches to open market operations (eg. call options);  New approaches to subsidies (eg. vouchers / inputs–for–work). 4 th best: TRANSFERS – Compensation as a last resort  Cash transfers are usually preferable to food aid, but neither addresses structural failures of production and markets.  Don’t reify the 4 th best!