Implications of structural adjustment for household food security in Africa
Dr David Sahn is Director of the Cornell University Food and Nutrition Policy Program and Associate Professor of Development Economics, Cornell University, Ithaca, NY, USA.
Large balance of payments and budget deficits implying unsustainable imbalances between aggregate demand and supply led most countries in sub-Saharan Africa to begin the process of stabilization and structural adjustment during the 1980s. In general, adjustment measures included exchange rate devaluation, fiscal policy restructuring, monetary discipline and interest rate rationalization, as well as an array of institutional reforms that involved redefining the role of the state and public enterprises engaged in a range of activities including control of agricultural input and product marketing. This process was by and large not discretionary, insofar as the disequilibrium in account balances would have brought about adjustment with or without the support of international financial institutions and bilateral donors.
Adjustment has been criticized a great deal for contributing to increased poverty and food insecurity (Cornia, Jolly and Stewart, 1987). Much of the early criticism of the human consequences of adjustment was based on Asian and Latin American experiences, and many assumed that the same deleterious effects were occurring in Africa. This assumption, however, failed to account for the differences in conditions prior to reform and the nature of the process of adjustment in Africa.
A discussion of the consequences of adjustment on food security that takes stock of the existing knowledge about a region as large as sub-Saharan Africa is indeed a perilous exercise. The diversity of countries in the region, compounded by the divergence in the sequence, pace and nature of economic adjustment, impedes generalizations. Nonetheless, a picture of the impact of adjustment is emerging, although it is clearly not applicable to all countries in all aspects. A combination of empirical observations and economic models has provided the basis for the generalizations discussed below.
To begin, a highly simplified framework of the pathways through which adjustment affects food security is given in the figure above. Countries undertake economic policy reforms, having pursued a set of domestic policies prior to adjustment and facing a set of external conditions (e.g. terms of trade, capital flows, export demand). Two primary pathways then exist, revolving around redefinition of the state's role, by which the process of adjustment filters through the economy to affect food security. The first pathway is through fiscal policy reforms, including changes in the level and allocation of public expenditures. The second is a process of reforming markets and market structures to affect incomes and prices as mediated by the impact on factor payments, prices, employment and output.
FISCAL POLICY REFORMS
Governments play an important part in promoting food security through public spending on social services. Reductions in health services can increase morbidity, affecting both food requirements and the household's ability to produce, purchase, process and prepare food. Education affects earnings and the types of decisions made by the household in allocating time and pecuniary resources, consequently affecting the demand for food.
Similarly, fiscal policy reforms affect the provision of consumers' food subsidies. To the extent that eliminating subsidies raises marginal prices or results in a significant income loss for the poor, food security is imperiled. The corollary of government spending is that revenues must be generated or a deficit must be incurred to finance such expenditures. These combined actions may have short- and long-term negative implications for growth and income distribution.
Contrary to the experiences with adjustment in countries in Latin America and Eastern Europe, the empirical evidence indicates that government expenditures as a share of gross domestic product (GDP) were not reduced for Africa as a whole in the 1980s. In real terms, nearly half of the countries for which data are available have seen total expenditures rise in the period after adjustment, while expenditures in half the countries declined. This suggests no overall pattern of government contraction in conjunction with instituting economic reforms, largely because of the dramatic increase in financial inflows from international financial institutions and donors during the decade. However, the increasingly large share of total expenditures devoted to interest payments is a source of concern.
Real levels of social-sector expenditures for education and health increased during the course of the decade in sub-Saharan Africa. However, the social sector was stressed by the rapid rate of population growth. Education and health spending per caput at the end of the decade were approximately the same as in 1980. Health and education expenditures as a share of total expenditures, or as a share of discretionary expenditures (i.e. those net of interest payments), also show no sign of having declined during the 1980s. In terms of intersectoral distribution of resources, a larger share of any increase in total spending has been allocated to the social sector than to other sectors since countries began their reforms.
While these figures offer some consolation, a number of factors limit their significance in terms of their implications for food security. First and foremost, the experience of individual countries often departs from regional averages in both directions. In some countries social-sector spending has risen markedly since the beginning of donor-financed adjustment lending. Conversely, in other countries spending has fallen; this applies to both countries undertaking adjustment programmes under the auspices of international financial institutions and those shunning such relationships.
More troubling is that even in those countries of sub-Saharan Africa where social-sector spending has been protected, the system of social expenditures has been heavily biased toward secondary education and hospital-based health care, to which the poor generally lack access. Aggregate sectoral expenditure figures therefore mean little in terms of services actually received by the poor.
Reflecting concern over such skewness in the allocation of public services, adjustment programmes in Africa have often included efforts to rationalize public expenditures and reorient social-sector spending. While some strides have been noted, it is a monumental undertaking to reorient the role of the state in the social sector, especially in the face of financing that is inadequate even in those cases where budgets have increased.
FOOD SUBSIDIES, MARKET REFORMS AND PRICES
While adjustment programmes have brought about some reductions in consumer food subsidies, the impact of such reductions for food security, as a rule, has been small. Most prominent among the reasons is that, unlike the food subsidies of South Asia, Latin America and Eastern Europe, subsidies in Africa did not effectively deliver cheap food to the vulnerable households, Where subsidies were prevalent, they rarely reached the poor; instead they were highly rationed to the benefit of civil servants, professional workers and the well-to-do in urban areas. In many cases, the inefficiency and deficiency of state-run marketing systems often served even the politically influential inadequately (see e.g. Arulpragasam and Sahn, 1992; Sahn and Arulpragasam, 1991; Sarris and van den Brink, 1992; Jabara, 1991).
Once again, there are exceptions to the generalization that the poor were not well served by state intervention of directly pursuing cheap-food policies. In such cases, some of the poor have been adversely affected in the short term by reductions in consumer subsidies. Prominent among these are the cases of the urban poor in Madagascar (Dorosh, Bernier and Sarris, 1990) and Zambia (World Bank, 1986). Even in these situations, the negative food security implications will be limited to the capital city, where the number of vulnerable households is small relative to the number of rural households that stand to benefit directly from improved incentives for producers of staple crops that were taxed to provide low-priced commodities for those in urban areas.
Devaluation of the exchange rate and related market liberalization have been said to exacerbate food insecurity, since rises in market prices for staple grains and other tradable goods were anticipated as a result of these policies. Yet comparisons among a large number of African countries show no indication of generalized increases in real consumer prices in the wake of economic reform. The expected increase in the real price of staple foods, especially tradable cereals, did not come about primarily because most consumer purchases were taking place on market-clearing parallel markets prior and subsequent to reforms. Foreign exchange and food product markets had already adjusted to the grievous distortions imposed by ineffectual state intervention. Likewise, concurrent with devaluation, other changes in trade policy and marketing arrangements were occurring that often were of greater importance in price determination. As reforms of state-run marketing enterprises proceeded and state-imposed marketing regulations were relaxed, the costs of marketing fell in a number of cases, reflecting greater competition, reduced transaction costs and so forth. In addition, the rationalization of trade policy, including the structure of tariffs and quantitative restrictions, also contributed to more moderate free-market retail prices in many of the countries examined (Sahn, 1992b).
Analysis of the impact of subsidy removal programmes with respect to agricultural inputs, especially fertilizer, reflects a similar situation. Few countries have effectively administered fertilizer subsidies. Furthermore, the benefits of input subsidies did not accrue to the poor for the most part. This was the case, for example, in Malawi (Sahn and Arulpragasam, 1991) and in Cameroon (Blandford et al. 1992). An exception where the fertilizer subsidy was distributed quite equitably across income groups is Ghana (Jebuni and Seini, 1992).] The complexity and inefficiency of state-operated subsidy programmes often contributed to untimely arrivals, extensive rationing, availability of inappropriate types of fertilizer and prices that were in fact often not substantially below import parity. On the other hand, there are cases where inadequate planning of subsidy removal programmes contributed to hardship. These include fertilizer subsidy removal programmes which were instituted commensurate with a credit squeeze, as well as those in which a protracted transition period away from state controls created uncertainty among private sector agents (see e.g. von Braun, Puetz and Webb, 1989; Jabara, 1990). However, the fact remains that countries that have not made market and trade reforms for either fertilizer or food products continue to have highly segmented and inefficient markets, which contribute to keeping prices in excess of what they would be in the absence of state intervention and extensive rationing. This argues for moving quickly to reform market structures and transform the role of the state from one of interfering in markets to one of facilitating competition of private-sector agents through, for example, information collection and dissemination and infrastructure development.
The discussion of the impact of adjustment on incomes must distinguish between rural and urban households. The preponderant evidence suggests that the rural poor rarely witnessed a decline in their real incomes as a consequence of adjustment (Sahn and Sarris, 1991). In fact, if and when structural reforms (as opposed to stabilization policies) are actually undertaken, very often the poor stand to benefit (see e.g. Van Frausum and Sahn, 1992; Dorosh, 1992; Benjamin, 1992). The shift in the terms of trade toward rural areas and the removal of distortions that actively discriminated against agriculture raised rural incomes in many instances, especially those of net sellers of agricultural products. However, even poor African farmers with small amounts of land who are net consumers of food products often benefited. The reasons are, first, that low-income smallholders are often engaged to some degree in export-crop production, and to the extent that incentives have increased for these crops their incomes have risen; second, the high degree of subsistence of the rural poor, coupled with the evidence that market prices for food crops have generally not risen for the reasons discussed above, indicate few cases where harmful income effects have been noted through increases in the price level.
Improved producers' incentives appear to have had positive effects on rural non-agricultural incomes according to models that incorporate multiplier analysis (Dorosh, Haggblade and Bernier, 1992). The magnitude of the benefits, however, has been limited by the weak forward and backward linkages in African economics, contrasting with the situation in Asia (Haggblade, Hazell and Brown, 1989).
Despite the generally favorable movement in rural incomes, several factors have reduced the potential positive benefits of adjustment. First, a number of countries have been slow to remove distortions that work against the rural poor who are concentrated in producing, processing and marketing agricultural goods. Second, the inward looking and subsistence orientation of a large share of the rural poor reduces possible up-side effects of improved price incentives. Third, institutional constraints have often reduced the robustness of the intended supply response in agriculture. That is, state disengagement sometimes leaves a vacuum that is inadequately filled by the private sector. Market failures and missing markets, whether the result of inadequate financial markets, poor infrastructure, information asymmetries, absence of extension and appropriate improved seed varieties or similar causes, have certainly reduced the level of income gains below that which price-oriented adjustment had promised (Sahn, 1992b).
In urban areas the effect of adjustment on incomes has been quite different, although the debilitating effects of the economic stagnation that preceded reforms were equally harsh. In the restructuring of the civil service, those civil servants who retained their jobs gained from the reform process, since the adjustment programmes generally dictated major increases in real wages for those who remained during the reform process. Conversely, other urban residents lost their jobs through reductions in the size of the civil service in many African countries (Sahn, 1992a). However, three factors mitigated the magnitude of the implications of job loss for those engaged in the civil service. First, in many countries a generous severance package was provided (see e.g. Alderman, 1991; Arulpragasam and Sahn, 1992). Second, prior to the retrenchment of state workers the value of real wages had generally fallen dramatically (Sahn, 1992a). In particular, inflation from undisciplined fiscal and monetary policy dramatically eroded real formal-sector wages in the years prior to adjustment. Accordingly, the data suggest that the wages of many public-sector workers were making a surprisingly small contribution to household incomes. Third, the evidence, albeit limited in coverage, indicates that most of those who lose their jobs will be absorbed by the private sector, although this may be accompanied by declines in real wages (Alderman, Canagarajah and Younger, 1992; Mills and Sahn, 1992; see also e.g. Arulpragasam and Sahn, 1992).
Of more critical importance than the plight of civil servants, who are not generally included among the most vulnerable, is that of informal-sector workers. Little empirical evidence exists upon which to formulate any generalizations about the changes in their welfare since adjustment began. However, the indications of a moderating of urban food prices, as well as the increased availability of consumer goods and commercial activity in urban centers resulting from the infusion of foreign exchange that accompanied policy reform, support observations of a burgeoning of informal-sector activity. However, many of these jobs were undoubtedly low paying, only providing for the minimum subsistence of the household. Clearly, the future challenge is to generate decent-paying jobs, but to do so without relying on the state to maintain employment levels through an inefficient civil service.
The experience in Africa suggests that adjustment does not generally harm household food security. Exceptions may exist; in Côte d'Ivoire, for example, government-led investment resulted in an unsustainable overexpansion of the economy, precipitating the need for adjustment which resulted in lower incomes, primarily for those residing in urban areas (Glewwe, 1988). In Cameroon, the need for, and response to, adjustment had similar harsh effects on urban households as in oil-producing countries in Latin America that were hard hit by a fall in world prices (Sahn, 1991). On the whole, the policy reforms in sub-Saharan Africa occurred in countries with widespread poverty, extremely inadequate social services and food subsidy and transfer programmes, stagnating economic growth and acute distortions. In these economies consumers and producers had already developed mechanisms to respond to ineptness and corruption; parallel markets and various types of coping mechanisms (e.g. home consumption, barter arrangements) had emerged in response to the inability of government to deliver vital services such as infrastructure development and maintenance and agricultural research and extension. Thus, the widely held presumption of deleterious effects of adjustment on Africa's poor is perhaps explained by the erroneous tendency to confuse the reforms being undertaken with the economic crisis that precipitated the need for them, coupled with a failure to understand how the pervasiveness of parallel markets and related coping mechanisms protected the household's ability to maintain an adequate level of consumption.
Equally important in assessing the effects of adjustment is the question of who benefited from distortions and thus who lost when distortions were (or, in many cases, it is hoped will be) reversed. The criticisms that adjustment reduced consumer and producer subsidies, raised prices, slowed down increases in minimum wages and so forth overlook the fact that food scarcities, inflation and lack of fiscal discipline had already contributed to spiralling prices and erosion in real wages. Similarly, subsidies and rent-seeking opportunities were rarely enjoyed by the poor. Rather, the politically powerful urban residents were the main beneficiaries of distortions that both hurt the poor in the short term, as manifested in shortages of goods and services and scarcity prices, and also hurt the poor in the medium and long term by retarding the pace of economic growth.
These points underlie the fundamental lesson of this review: government disengagement is appropriate since market interventions by the state, often undertaken under the guise of promoting food security, have a propensity to generate distortions that in fact do just the opposite. When the merits of various interventions in markets - stabilizing and subsidizing food prices, fertilizer subsidies, providing free access to health care and so forth - are initially put forth, they are often compelling. Such actions are rarely considered in the broader context of macro-economic sustainability and administrative feasibility. Furthermore, in practice, original objectives that justified intervention remain unmet and the most needy target groups unserved. The losses due to the high opportunity costs of direct government market interventions, coupled with inefficiencies and rent seeking, become debilitating to the broader process of development and further imperil the objective of improving food security.
In general, moving quickly to reform markets and institutions will not harm the food security of vulnerable groups. However, doing so will not always be a prescription for improving their welfare, especially in the short term. Where the market infrastructure is not well developed and the entrepreneurial class is inexperienced, there will initially be a vacuum when state control recedes. This suggests a new role for government, for example one of collecting and disseminating information, supporting agricultural research and instituting appropriate investment codes. Furthermore, the inevitability of market failure in the social sectors highlights the need for governments to expand efforts in facilitating appropriate investments in human capital and in providing an appropriate safety net for the poor in the form of social security and targeted interventions.
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