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The Social Amelioration Program: Food or cash?

Tara Alessandra Abrina, Jane Lynn Capacio, and Annette Balaoing-Pelkmans

How should the government provide social amelioration for Filipinos affected by the lockdown due to the COVID-19 pandemic? Is it better to dole out cash or to provide food to households?

IMAGES (PHILIPPINE PESO) BY FLORANTE VALDEZ FROM PIXABAY; (VEGETABLES) BY DARIA SHEVTSOVA FROM PEXELS

The “entitlement approach” to hunger

The term “entitlement” is often associated with perceptions on whether people feel deserving of privilege or special treatment. However, the concept has garnered a more negative connotation during the COVID-19 pandemic when, for instance, certain people were prioritized for scarce medical resources. For Nobel Laureate and economist Amartya Sen, who developed the “entitlement approach” to hunger, “entitlement” is a reliable source of food. “To understand hunger,” Sen says, “we have to look at people’s entitlements, i.e., what commodity bundles (including food) they can make their own.”4 At that time, Sen’s idea was a new approach to hunger at the time, which, previously, was centered around the production of food as a policy lever.

Sen goes on to write, “[t]he real issue is not primarily the overall availability of food, but its acquirement […]. If a person lacks the means to acquire food, the presence of food in the market is not much consolation.”5 Indeed, this explains why Sen observed that in countries like India and China, the life expectancy during a famine is not nearly as low as the life expectancy at the end of chronic food deprivation.

Market-based entitlement is arguably the most prevalent and sustainable source of food in normal times. However, during crises, vulnerable people can be forced to look elsewhere for sources of food. In the context of the current COVID-19 crisis and its resulting lockdowns, this means that the urban poor may be more vulnerable than the rural poor, because the rural poor are much more likely to be able to source food without markets or monetary income.6 Simply put, the rural poor have more food entitlements than the urban poor.

In both the Philippine and the global setting, it seems too short a run to assume that there is food shortage,7 especially in terms of local produce such as vegetables and marine products. Indeed, there are posts circulating on social media of farmers leaving their products out for anyone to get for free (see Figures 1 and 2 below), deciding that the cost from spoilage is much greater than any possible revenue they can still earn from it. However, at the beginning of the enhanced community quarantine (ECQ), the prices of food started to rise, causing the Department of Trade and Industry (DTI) to implement a price freeze over select food items.8 The increase in prices could be due to shocks across the entire downstream supply chain. This could also be attributed to panic buying by consumers9 and to the strict and uneven implementation of the ECQ at regional borders, which restrict the flow of goods, smiliar to what happened at the port of Masbate.10

Cash or in kind?: Social amelioration in times of crisis

The entitlement approach to hunger paved the way for value chain analysis in solving hunger. Before, one only needed to look at producers and consumers in analyzing food demand and supply. Now there is an entire field dedicated to studying the producers, consumers, and everyone in between. The Food and Agriculture Organization (FAO) of the United Nations uses the three pillars of food security in their analysis: (1) availability, (2) access, and (3) utilization. For the following discussion, we take availability and utilization as given (i.e., there is enough local supply for the next three months, and regardless of what they are given, beneficiaries will consume healthy food) and focus on the second pillar: access.

Textbook author Julie Schaffner, in her book Development Economics: Theory, Empirical Research, and Policy Analysis, explores the question: “When transfers must be distributed in the immediate aftermath of a disaster, and when local food supply is thus low and inelastic,” is it better to distribute cash or provide food? According to her, “assuming communities are cut off from larger markets by high transfer costs, the distribution of food transported in from outside the communities may be far more effective at increasing local food consumption [utilization] than a cash distribution.”11 This is mainly because the real value of cash transfers decrease when food prices increase as a result of demand shocks (e.g., panic buying).

Table 1 below explores the recommended forms of social amelioration for the most vulnerable households during a pandemic, where the availability and utilization of food is assumed high and optimal, respectively.

In a previous post, key (preliminary) recommendations for the safe and efficient delivery of rice to households affected by the current lockdown was discussed. Studies on supply, demand, and distribution channels for other essential food items are also needed. Scenario building on a premise that (a) supply for certain goods is truly low and that (b) these goods are mostly imported also needs to be studied immediately.

Recommendations

Free the entire food supply chain. As of April 5, 2020, the government’s Social Amelioration Program (SAP) has successfully downloaded Php 16.35 billion to 3.7 million conditional cash transfer (CCT) beneficiaries.12

Although cash transfers are discouraged—as its real value may decrease from the artificial rise in prices—the DTI’s price freeze protects consumers against this. However, this transfers the burden on producers, as demand for goods increases but the costs of logistics during the lockdown are higher.13 In this case, even when the real value of cash is protected through a price freeze, retailers may still get discouraged from continuing business if their revenues are not enough to pay for fixed or logistics costs. Entitlements in the form of physical access, especially for the most vulnerable urban households, will still be impaired.

Given that distributions were made in cash, the fixed costs (e.g., salaries, rent) or logistics costs of businesses must therefore be subsidized to ensure that the food supply chain is not hampered. They must be allowed to “apply” for this subsidy, as in what local government units (LGUs) did for the SAP funds. A quick and efficient system for downloading cash subsidies for business must also be in place.

Furthermore, all the cogs in the supply chain must be allowed to work with a skeletal workforce. This includes processors, consolidators, packaging, and logistics companies. Even in a scenario where local governments step in to pay for large bulks of food supplies for relief operations, it simply cannot function as the entire supply chain. Facilitating the movement of these cogs through critical checkpoints is crucial and frees up government transportation for more urgent needs. This can be done with a unique identifier such as the Rapid Pass,14 which was recently just launched for frontliners and can be adjusted to accommodate these supply chain cogs.

Our recommendation during the pandemic phase is social amelioration both for households (first-best: food; second-best: cash) and food businesses (i.e., subsidies for fixed/logistics costs, unhampered supply chain), where the latter ensures access to food for households with cash subsidies.

Post-peak jumpstart. As the lockdown eases after the epidemiological peak, people will warily step out of their houses and businesses will start to open shop to accommodate them. At this point, cash then becomes the first-best form of relief. It reminds households of the autonomous purchasing power they once had before the crisis, while businesses can once again start earning revenues, albeit one meter apart. As the economy is slowly given its bearings, a bit of cash for households is just what is needed to jumpstart this path to “the new normal.”

With the Philippines having a headstart by distributing cash amelioration even during the pandemic, the mandate of the government is simply, as it has always been, to protect the flow of goods to the market. Or at the very least, their task is simply not to impair it.

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