Global Development: Views from the Center
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April 24, 2008
The Economist got it wrong!! on safety nets and food prices
Posted by Nora Lustig at 09:59 AM
You probably saw that this week's Economist devoted his leader to soaring food prices. They made two mistakes:
1. In the editorial they say that it is better to distribute cash rather than food to protect local growers. At a time in which one of the problems is hoarding, cash may push prices even further. There cannot be a blanket recommendation of this kind.
2. In the lead article they have a box on safety nets and mention Mexico's PROCAMPO program as an example of conditional cash transfers that could be applied elsewhere. First, PROCAMPO is NOT a conditional cash transfer program. The transfer program is called PROGRESA/OPORTUNIDADES (see Millions Saved, Case 9). Second, and more importantly, PROCAMPO is a program that subsidizes those who have land (it is similar to US farm subsidies), the overwhelming majority are net sellers of agricultural goods, so it would do no good at all to have such a program if what you want to do is help net buyers. On the other hand, the Mexican government could use PROGRESA/OPORTUNIDADES to transfer a higher amount of money to the beneficiaries so they can cope with the increases in food prices. The same could be done with similar programs elsewhere.
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Comments
You argue that cash is no better, or worse, than food aid because hoarding is taking place - and cash will therefore just push prices higher. Isn't there always some hoarding or "hoarding"? Who is to decide whether it is at an acceptable level? More cash will always tend to increase prices. That does not preclude the effect we are seeking: Increased purchasing power of the poor. And market forces bringing more of the food into the area.
Posted by: Hans Peter Melby at May 12, 2008 01:11 AM