3.2 The food stamp scheme
The Food Stamp Scheme which replaced the rationing scheme differs from a commodity-specific subsidy. The subsidy has been converted into an income-support scheme for those who are in need.1 This support (subsidy) is in the form of stamps which have a certain cash value and are encashable against a specified range of commodities. The Food Stamp Scheme confers obvious fiscal advantages since the size of the payment is set in money terms. Both the subsidy and the food stamps represent intramarginal transfers in that they supply only a small portion of total consumption of the commodities concerned.2
3.2.1 Description of the System.
The eligibility for the food stamps is based on total household income and the level of support varies with household size to some extent. Table 8.12 provides a summary of the FSS criteria. All households consisting of five or less members and receiving an income of Rs. 300 or less per month are eligible to receive stamps. For larger households (with more than five members) the ceiling income was raised by another Rs. 60/- per each additional person but the number of beneficiaries depends on the family size. Households with incomes below Rs. 300 per month receive stamps equal to the number of household members. Only additional members are given stamps for families with higher income levels (Table 8.12).
The money value of the food stamps distributed depends on the age-composition of members of the household. The values vary as follows:
Table 8.12 Ready Reckoner Table to Determine Eligibility to Possess Food Stamp Cards.
The stamps were issued against a specified basket of commodities consisting of the following: rice, wheat flour, sugar, milk powder, condensed milk and dried fish. This is believed to give the households greater freedom of choice than a subsidy related to one particular food item.1 Another feature was the issue of separate stamps worth Rs. 9.50 per month for purchase of kerosene for all eligible households. It was due to the fact that kerosene was an item heavily subsidised at the time. Kerosene stamps are convertible into food stamps but not vice versa. Food stamps can be converted into savings deposits at the will of the beneficiaries. The prices of commodities are specified at unsubsidised levels.
3.2.2 Objectives of the Food Stamp Programme.
The rice ration book revalidation exercise and its subsequent replacement by the Food Stamp Scheme were part of the programme of economic reforms undertaken by the present regime since 1977. There was a sharp reversal of economic policies from the previous period in favour of “growth-oriented” policies and more reliance was placed on the market mechanism and economic liberalisation. Hence the immediate objective was to shift budgetary resources for development-oriented avenues while protecting vulnerable groups at the same time. Freeman2 summarises the underlying philosophy as follows.
“A good strategy is to free the productive sector to improve the allocation of resources and increase the efficiency of the economy while using income transfers such as the food stamp programme to maintain a reasonably equitable income distribution”. (P.22)
Although the Food Stamp Scheme was introduced without much prior planning, “the long-run objective is to evolve a system that fulfils several objectives”.3
While these objectives represent longer-term objectives the immediate emphasis seems to have been on containing budgetary costs to manageable levels.
3.2.3 Operation of the Food Stamp Scheme
Table 8.13 shows the total issues of food stamps in each district. There have been 12 issues up to now and the total number eligible covers almost 46 per cent of the population of the country. The number of persons issued with stamps has steadily increased up to the fifth issue (Table 8.13) but thereafter, it has declined. This is due to the freeze imposed by the government on stamp issues in March 1980. Contrary to government expectations, the number eligible seemed to have increased with each issue and the government decided that no new applications should be entertained. By the end of 1983, 7.0 million persons were receiving Food Stamps which represents a coverage of about 46 per cent of the population. The districtwise data show a range from 20.7 per cent to 66 per cent of the total population as among beneficiaries. The age-composition of those who received stamps from the 1st and the 12th issues is shown in table 8.14.
Table 8.13 Food Stamp Issues, Sri Lanka
Table 8.14 Composition of Food Stamps, Sri Lanka
The changing age composition has helped to lower the total cost somewhat as unit cost of adult stamps is lower. The cost for 1984 is estimated at Rs. 1,510 million. The cost of kerosene stamps has increased recently with the increased stamp value from Rs. 9.50 to Rs. 22.00.
The government has succeeded in curtailing the cost of the food stamp scheme to about 7 per cent of public expenditure. This is due to maintaining the value of food stamps at the same level as in 1979 and freezing the number of beneficiaries from 1980.
The income transfer in money terms under the food stamp scheme is generally higher than under the ration scheme. The food stamp transfer is larger, particularly for larger families. For a family of seven members in the bottom income decile, the levels of transfers are Rs. 112 and, Rs. 150 respectively for the ration scheme and the food stamp scheme1.
Table 8.15 Cost of Subsidies, Sri Lanka, 1979-1983
(In million rupees)
3.2.4 Characteristics of Food Stamp Recipients.
Some limited data on the characteristics of food stamp recipients are available from two sources.1 The occupational distribution of the food stamp holders given in Table 8.16 shows that labour households are the largest single category. Since labourers in other trades seem to have been included under respective occupations, it could be assumed that these are mostly agricultural labourers, mainly in the peasant sector. It is also likely that a substantial proportion of these labourers are part-time cultivators owning small holdings. About 29 per cent of the recipients own agricultural land.
Another interesting feature highlighted in the analysis of declarations made by food stamp recipients is that 23 per cent of the sample households were headed by females. About 17 per cent of the sample receive other forms of benefit. The F & NPPD Survey also found that almost 50 per cent of the sample were in receipt of other food aid. Thriposha was received by 28.5 per cent and 13.7 per cent received public assistance. These groups may overlap to some extent and may represent a core poverty group as observed by Freeman.2
The sample survey by the Food & Nutrition Policy Planning Division in 1980 shows that the average family size of a recipient household is 5.08. The mean monthly household income reported was Rs.165. The average value of food stamps received by a family amounted to Rs. 91 which represents a substantial addition. The contribution of food stamps to income may be much less when allowance is made for possible underreporting of income.
Table 8A-3 shows additional characteristics of food stamp recipient households according to income group. The majority of households fall into the Rs. 101-200 monthly income group. The mean monthly income levels show a range between Rs. 51-225 for the main groups. The income transfer implied by the value of food stamp is understandably higher for lower income groups. Recipients spend 77 per cent of stamps received on rice and the proportion spent varies inversely with income level. Yet food stamps have provided only 28 per cent of the total rice consumed by the recipients.
Table 8.16 Occupation and Income Earning Assets of Food Stamp
3.2.5 Some Issues in the Operation of the Food Stamp Scheme
The Food Stamp Programme has been beset with the question of the trade-off between its different objectives from the inception. The high level of population coverage has serious implications for fiscal cost if income support in real terms is to be maintained. I shall take up each of these aspects in the following discussion.
(a) High level of coverage
The coverage level at present represents 53.2 per cent of the total population that qualified for the previous rice ration scheme (Table 8A-4).
Freeman1 makes the following observation about the level of coverage.
Recent survey data also lend support to the view that the number receiving food stamps exceeds the estimated number of households with incomes less than Rs. 3,600 per annum. The Consumer Finance Survey2 found that only 12 per cent of spending units have incomes less than Rs. 300 per month while 22 per cent had incomes below Rs. 400. According to the Socio-Economic Survey of 1980/81, the proportion earning below Rs. 350 per month is only 18 per cent. The Food Stamp Survey referred to earlier showed that 20 per cent of the present recipients were ineligible to receive stamps.
Several problems arise with the administration of the programme.
(b) Decline in the real value of food stamps
With the introduction of the food stamp scheme, the government also took the decision to allow consumer prices of the food basket to settle at the level of world prices.1 This led to enormous increases in the retail prices of the relevant commodities as shown below.
This has led to a sharp decline in the real value of food stamps. Within one year of the scheme, the value of stamps fell by 30 per cent in terms of the price of rice. By late 1983, the value fell to almost 50 per cent of the 1979 level. The decline in real value in terms of the Colombo food price index is also similar (Table 8.17). The estimates are based on an average value of Rs. 95 per month per family. The fall in the real value of kerosene stamps has been arrested somewhat by the recent increase in their value to Rs. 22.00 per month. Still the proportion of kerosene value covered by a stamp has declined from 89 per cent to 70 per cent between 1979 and 1983. This sharp decrease in the real value of food stamps has enabled the government to stabilise the fiscal cost below Rs. 2,000 million per year.
Table 8.17 Real Value of Food Stamps, Sri Lanka, 1979-1983
(c) Nutritional impact of the programme
Several surveys have suggested a worsening of the nutritional situation in the country in recent times. Hence it is relevant to examine the implications of the switchover to the food stamp scheme for nutritional levels.
The Food & Nutrition Policy Planning Division has carried out an analysis of the nutritional impact of the programme for a hypothetical family of five members comprising two male adults, a female adult and two children below 8 years.1 This family is entitled to Rs. 95 worth of stamps and it is assumed that the entire amount is spent on rice. Hence the energy and protein intake from the use of stamps for rice consumption could be ascertained. The findings are summarised in Table 8.18.
Table 8.18 Percentage of Family Requirements met by Food Stamps in Sri Lanka
Initially, food stamps contributed 36 per cent to total energy intake but this has fallen sharply with increased prices. The present contribution would be still lower. The same study notes that the previous rice ration would have met only 11.4 per cent and 10.9 per cent of the energy and protein requirements respectively. This calculation has not taken into account the subsidies involved in the paid ration and other food items such as the sugar ration for children available at the time.
Any leakage from the food stamp scheme would reduce its role further. Sale of food stamps by recipients to others is one possible leakage but its incidence is low according to survey findings. The leakage through inclusion of unintended beneficiaries is believed to be high.
The contribution of the food stamps to calorie consumption has been assessed by Edirisinghe and Ratnayake2 using the 1980/82 Food & Nutrition Survey findings. The contribution is estimated at 18 per cent of total calorie consumption for the bottom decile and 4.5 per cent for the fifth decile (Table 8.19).
Table 8.19 Contribution of Food Stamps to Calorie Consumption in Sri Lanka
The calorie addition from the food stamp scheme cannot therefore, be considered substantial. The low income deciles already have large calorie deficits. Hence the needed income transfer to close the calorie gap through the food stamp scheme would have to be substantial. Sahn1 has calculated the change in per capita expenditures needed to close the calorie gap (Table 8A-5). The required transfer is particularly large in the urban sector, ranging between 54-81 per cent. He concludes that: “Attempts to bring about adequate intake through transfers of income will be extremely expensive and have to reach the majority of the households in Sri Lanka”.
(d) Implications of food price indexing for the food stamp programme
If the food stamp programme is viewed as an income support programme for the poor, the purchasing power and nutritional status of the households initially receiving stamps in 1979 would have to be maintained. To achieve this objective, it is necessary to index the value of stamps by a price index reflecting increases in the real price of food. Such indexing would however lead to a marked increase in the fiscal cost of the programme at the present level of coverage. This is the basic dilemma facing policy makers at present.
Selowsky1 has analysed the implications of food price indexing and the various trade-offs in this context. He found that real incomes and calorie consumption levels will decline significantly under less than full-indexing if consumer food prices are raised to world prices. On the other hand, fiscal cost of the programme will increase from 3.02 per cent of the GNP under ‘no indexing’ policy to 6.6 per cent of GNP under full-indexing. This would mean a more than doubling of fiscal costs. Under partial indexing (at a level of 1/3 indexing) budgetary costs (as per cent of GNP) would increase only by 39 per cent.
3.2.6 Policy Options.
Thus, the food stamp scheme is not providing sufficient relief to the poor groups in the present context. The government is confronted with the twin problems of high programme coverage and falling real value of food stamps. Several options could be explored2. It is assumed that there is no scope for the reintroduction of a commodity-specific subsidy due to cost constraints. The abolition of the food stamp scheme also cannot be considered as a serious alternative.
The abolition of the programme without an alternative scheme would result in a reduction of the real income of the poor. Some provision has to be made for core poverty groups who cannot benefit from normal economic expansion. The level of public assistance to such groups would have to be raised substantially. A cash subsidy however, may not guarantee that the nutritionally vulnerable groups would use it for meeting basic food demands. The following options may be considered.
(a) Continuation of the present policy
The present strategy is essentially one of reducing the real value of food stamps without any indexing. It may help to contain the fiscal cost of the programme but it runs contrary to the primary objective of the introduction of the scheme - that of protecting the poorest groups in the community. The policy will reduce real incomes further and adversely affect nutritional levels of people who already experience large calorie deficits.
(b) Restructuring of the food stamp programme.
This would essentially mean a reduction in the level of coverage and indexing of stamps to arrest the decline in real values. There is general agreement that this is the most sensible strategy in the present context.1 The basic problem is how to reduce the level of coverage. More centralised administration has been suggested in this respect. There should be a built-in mechanism to reduce coverage with growth in incomes. The limited growth performance of the economy in recent years would have made a major reduction in beneficiary coverage rather difficult.
A number of improvements could be made in the implementation of the food stamp scheme to render it more effective as an anti-poverty programme.
The level of beneficiary coverage is a major issue. The freeze imposed by the government is not a good strategy because it leads to the commission of deserving beneficiaries. The F & NPPD estimates2 that about one third of the beneficiaries may not qualify under proper assessment of incomes. Hence high priority should be given to the elimination of the unintended beneficiaries from the programme. Freeman3 has suggested the use of a district quota system determined centrally in order to reduce local pressures to expand coverage.
The powers given to the lower level administrative officials should be reduced and district panels from senior management levels could be established to review selection of beneficiaries.
The eligibility criteria need urgent revision. There is general agreement that the eligibility criterion should not be household income but per capita income. The present system discriminates against poor families with large family sizes.
Indexing of the value of stamps is imperative if income support to the poor groups is to be maintained. The government has not taken any step in this direction (except in the case of kerosene stamps) due to its budgetary implications. Since most households spend food stamp income on rice, the value may be linked to the price of rice.
The present cut-off line for eligibility to the scheme was fixed in 1979. In view of recent food price increases, the minimum level should be increased. This measure will also inflate budgetary costs unless programme coverage is restricted to core poverty groups. The F & NPPD has recommended a per capita income level of Rs. 75-80 per month as the revised ‘poverty’ line. It is also not realistic to use income as the sole criterion. The criterion should be supplemented by data on occupation and asset ownership, particularly land.1, The present programme bypasses sections such as estate labour who are particularly vulnerable to market fluctuations.
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