Risk Management and the Productive Role of Social Protection

Joint brief prepared by the Food and Agriculture Organization (FAO) of the United Nations in collaboration with The New Partnership for Africa's Development (NEPAD) Planning and Coordination Agency*

Authors: Solomon Asfaw(1), Nyasha Tirivayi, Marco Knowles, Benjamin Davis and Mulat Demeke

1 Corresponding author ([email protected])

The designations employed and the presentation of material in this information product do not imply the expression of any opinion whatsoever on the part of the Food and Agriculture Organization of the United Nations (FAO) concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The mention of specific companies or products of manufacturers, whether or not these have been patented, does not imply that these have been endorsed or recommended by FAO in preference to others of a similar nature that are not mentioned.

The views expressed in this information product are those of the author(s) and do not necessarily reflect the views or policies of FAO.

FAO encourages the use, reproduction and dissemination of material in this information product. Except where otherwise indicated, material may be copied, downloaded and printed for private study, research and teaching purposes, or for use in non-commercial products or services, provided that appropriate acknowledgement of FAO as the source and copyright holder is given and that FAO’s endorsement of users’ views, products or services is not implied in any way.

All requests for translation and adaptation rights, and for resale and other commercial use rights should be made via www.fao.org/contact-us/licence-request or addressed to [email protected].

FAO information products are available on the FAO website (www.fao.org/publications) and can be purchased through [email protected].

“This publication has been produced with the assistance of the European Union through the Improved Global Governance for Hunger Reduction Programme. The contents of this publication are the sole responsibility of FAO and can in no way be taken to reflect the views of the European Union.”

* The designations employed and the presentation of material in this document do not imply the expression of any opinion whatsoever on the part of FAO and NEPAD, and EC concerning the legal or development status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. The views expressed in this documents are those of the author(s) and do not necessarily reflect the views of FAO, NEPAD and the funding agencies.

I. Agricultural Risks in Sub-Saharan Africa Almost three quarters of economically active rural populations in Africa are smallholder farmers, making them important players in national agricultural development. Since the livelihoods of these farmers are largely based on agriculture, agricultural development that contributes to increasing the productivity, profitability and sustainability of smallholder farming is critical for reducing poverty and improving food security and nutrition. Agriculture in Africa, however, is increasingly exposed to a variety of risks and uncertainties, including market risk; production risks – climate variability such as drought and floods – pest and disease outbreaks and windstorms; and institutional risks (Antonaci et al., 2012). Government strategies for managing agricultural risks at the household or community level have taken different forms in different countries, but are generally classified into three: (i) Mitigation/Adaptation – activities designed to reduce the likelihood of an adverse event or reduce the severity of actual losses. Risk mitigation options are numerous and varied (e.g., irrigation, use of resistant seeds, improved early warning systems, and adoption of better agronomic practices); (ii) Transfer – this entails the transfer of risk to a willing party, for a fee or premium. Commercial insurance and hedging are well-known forms of risk transfer; and (iii) Coping – this involves improving resilience to withstand and cope with events, through ex-ante preparation. Examples include social safety net programmes, buffer funds, savings, strategic reserves, contingent financing, insurance, etc. The outcome of all these different risk management strategies is to strengthen resilience among rural producers, and to allow them to move to the next welfare level by adapting their farming practices and investing in new technologies and know-how that can increase productivity, income, economic growth and wealth (Antonaci et al., 2012).

Unlike in other parts of the world, most farmers in Africa have no access to government or market-based risk management tools and, when they do, government programmes or private sector initiatives to manage price and production instability are often insufficient. Moreover, social protection programmes are seldom institutionalized, and are rarely used as a risk management instrument to address food and nutrition insecurity. It is against this background that the African Union’s New Partnership for Africa’s Development (the NEPAD Agency) intends to support member countries in mainstreaming agriculture and food security risk management into their Comprehensive Africa Agriculture Development Programme (CAADP) implementation plans. With the NEPAD Agency, African Heads of State and Government have adopted an overall vision to eradicate poverty, achieve food security and build the foundations of sustainable economic development on the continent. Under the CAADP framework, and as stated in a proposal to the G20, NEPAD/CAADP promotes effective risk management strategies at the regional and national levels in order to foster productive investment and achieve an annual agricultural growth rate of at least six percent. The risk management and resilience building approaches, which need to be adapted to the specific local context, are based on a mapping of the various risks affecting both farmers’ and households’ access to food, identifying the appropriate risk-hedging instruments and institutions, and providing adequate agricultural risk management training (from design to implementation) to national experts, rural producers and institutions. In this brief, we particularly try to address the role of social protection as a specific risk management tool.

II. What is Social Protection? Definitions for social protection abound, with most focusing on risk management and the assistance of poor people. Social protection can generally be defined as a set of interventions, the objectives of which are to reduce social and economic risk and vulnerability, and to alleviate extreme poverty and deprivation.

Devereux and Sabates-Wheeler (2004) define social protection as describing “all initiatives that: (1) provide income (cash) or consumption (food) transfers to the poor; (2) protect the vulnerable against livelihood risks; and (3) enhance the social status and rights of the excluded and marginalised.” The European Commission defines social protection as “a specific set of actions to address the vulnerability of people’s life through social insurance, offering protection against risk and adversity throughout life; through social assistance, offering payments and in kind transfers to support and enable the poor; and through inclusion efforts that enhance the capability of the marginalised to access social insurance and assistance” (European Commission, 2010). Overall social protection can play four important roles: (i) prevention: avert deprivation, mitigate the impact of an adverse shock, avoid negative risk coping strategies (ex-ante); (ii) protection: provide relief from economic and social deprivation, including alleviation of chronic and extreme poverty (ex- post); (iii) promotion: enhance asset accumulation, human capital and income-earning capacity among the poor and marginalised; and (iv) transformation: address power imbalances that create or sustain economic inequality and social exclusion.

III. Evolution of Social Protection Programmes in Sub-Saharan Africa Over the last decade, a growing number of African governments have launched social protection programmes to provide assistance to the elderly and to households that are ultra-poor, labour-constrained, and/or caring for orphans and vulnerable children. Typically, ministries of social development manage the programmes. The main types of social protection instruments used in African countries include cash transfers, workfare and public works programmes and in-kind safety nets. Cash transfers provide recipients with resources that enable them to maintain a minimum level of consumption. Cash transfer programmes in Africa have tended to be unconditional rather than conditional, hence not requiring recipients to meet certain conditions, such as using basic health services or sending their children to school. Workfare and public works programmes supply temporary employment to recipients able to contribute their labour in return for benefits, at the same time creating public goods in the form of new infrastructure, making improvements to existing infrastructure, or performing and delivering services (Del Ninno et al., 2009). In-kind safety nets (e.g. food aid, supplementary feeding and school feeding schemes, etc.) help recipients to access food, health care, education, and other basic goods and services. Other, more common instruments in parts of Southern Africa include social insurance schemes – primarily social pensions and health insurance.

Some of the African social protection instruments implemented during the last decade include the Kenyan Cash Transfer for Orphans and Vulnerable Children (CT-OVC), the Malawi Social Cash Transfer (SCT), Mozambique’s Programa de Subsidios de Alimentos (PSA), Ethiopia’s Productive Safety Net Programme (PSNP), the Livelihood Empowerment Against Poverty (LEAP) programme in Ghana, the Child Grant Programme in Lesotho, South Africa’s Child Support Grant and Old Age Pensions, Rwanda’s Vision 2020 Umurenge Programme, Burkina Faso’s nationwide school feeding scheme under the Burkinabé Response to Improve Girls' Chances to Succeed (BRIGHT) integrated programme, and the Zimbabwe SCT. Several other countries, including Uganda, Tanzania and Liberia, are also pursing safety net programmes (Asfaw et al., 2012).

IV. Social Protection and Risk Management The predominant view from the literature is that social protection may protect beneficiaries from shocks, reduce negative coping strategies that undermine longer-term livelihood sustainability and improve ability to engage in more profitable, yet more risky livelihood activities (i.e. reduce risk adversity) (Figure 1). One group of empirical literature investigates the impact of social protection on recovery from shocks. Evidence shows that a public works programme in India reduced income fluctuations, while a public works programme

in Ethiopia protected households from the negative effects of crop damage on child growth. Nonetheless, although a food-for-work programme in Ethiopia increased risk sharing within treated villages, it also reduced household capability to manage idiosyncratic crop shocks – perhaps as a result of food aid crowding out informal insurance, and subsequently leaving beneficiaries inadequately insured to manage idiosyncratic risk (Dercon and Krishnan, 2003). Conditional cash transfers (CCTs) in Latin America also facilitated recovery from shocks; some of the positive effects include reduced child labour in Nicaragua, protection of consumption for coffee farmers in Nicaragua and Honduras during global price drops, income diversification in Brazil and the decline in school dropouts in Mexico. A second group of empirical studies looks at the impact of social protection on adverse coping strategies. The evidence generally shows a reduction in the use of adverse coping strategies that deplete household assets. One study finds that Ethiopia’s PSNP prevented 60 percent of the beneficiaries from engaging in distress sales during a drought (Devereux et al., 2005). The Malawi Social Cash Transfer pilot scheme reduced begging for food or money by 14 percent, and reduced school dropout rates by 37 percent. In Ghana and Kenya, the LEAP and CT-OVC programmes reduced child labour, distress asset sales and indebtedness (OPM, 2012). The impact on risk coping behaviour is also influenced by gender and programme design. In Malawi, children in female-headed households benefitted from the social cash transfer programme via a decline in non-household wage labour and an increase in participation in household chores, whereas children in male-headed households only experienced a decline in school absenteeism (Covarrubias et al., 2012). Yet, these gender-specific outcomes are also a reflection of the constraints facing the households, as female-headed households are also single-guardian households that face challenges in balancing domestic work with income-generating activities (Covarrubias et al., 2012). In addition, cash and in-kind transfers may increase social capital and strengthen informal safety nets and risk-sharing arrangements, provided that appropriate mechanisms and an enabling environment are created.

Another group of studies looks at the productive role of social protection. There is good reason to believe that social protection – and cash transfers in particular – can have direct positive impacts on growth attained via productive decisions at the household and local economy levels. The livelihoods of many beneficiaries of social protection programmes in sub-Saharan Africa (SSA) are predominantly based on subsistence agriculture, and will continue to be so for the foreseeable future. The exit path from poverty is not necessarily the formal (or informal) labour market, but rather self-employment generated by beneficiary households themselves, whether within or outside agriculture. Most beneficiaries live in places where markets for financial services (such as credit and insurance), labour, goods and inputs are lacking or do not function well. Cash transfers typically represent about 20 percent of per capita expenditure and, when provided in a regular and predictable fashion, may help households to overcome the obstacles that limit their access to credit or cash. This, in turn, can increase productive and other income-generating investments, influence the beneficiary’s role in social networks, increase access to markets and inject resources into local economies. These impacts come through changes in household behaviour and through impacts on local communities and economies (on social networks, labour and goods markets, and on multiplier effects) where the transfers occur (Asfaw et al., 2014).

Specific impacts of social protection on productive activities vary, depending, among other things, on the type of instrument used, the household member receiving the transfer, his or her socio-economic status, livelihood activities and contextual factors (e.g. land tenure arrangements, institutional capacities, access to markets, and agro-climate).

Pathway Outcomes Local Economy Effects

Constraints to consumption Social protection Weak or missing credit and Agricultural productivity Multiplier effects interventions insurance markets Direct farm production Demand/trade of CFW Inability to smooth consumption Alleviation of goods/services, credit, liquidity, Agricultural asset accumulation Savings, and liquidity constraints Vouchers savings constraints Spillover effects to Change in use of inputs and ineligible rural households Risk aversion UCT Certainty techniques Ag- lower food prices Poverty Behavioural CCT Labour allocation response SP- change in food prices

FFW Crop and livestock output, Spending diversification Boost in agric and non Rural Household agricultural labour markets, Pensions Investment ↑ wages Agricultural Non-separable Foodprograms aid Risk taking Social protection Changes in social networks consumption Indirect & Access to Land reform production technology, Intrahousehold Reduce vulnerability (risks, shocks)

knowledge, inputs resource Human capital accumulation Income (revenues and labour) Extension Constraints to production and factors of allocation production Off farm investments Irrigation Lack of knowledge (farming, Consumption, nutrition and food security markets) ↓ negative risk coping strategies NRM Uncertainty from covariate risk Durable asset accumulation Social networks Certainty Input ↓ -negative risk coping strategies Soil fertility, lack of inputs, factors technology of production Gender Income generating capabilities Marketing Weak or missing credit and Notes insurance markets Agroclimate High risk/return investments Microfinance Figure 1: Ag, Agric-agriculture Savings, and liquidity constraints Economic context Human capital accumulation InteractionInfrastructure between Social Protection and Agriculture SP-social protection (prices, infrastructure, Risk aversion Labour allocation NRM-Natural resources management markets) Poverty ↓ decrease ↑ increase Social context (community, High transaction costs culture) 4 MediatingServices Factors

Programme design

Most of the available evidence on the direct and indirect impacts of social protection instruments on productive activities derives from evaluations of cash transfers and public works schemes, while some evidence from provision of school meals and education fee waivers also exists.

Cash transfers and public works schemes can directly impact productive activities by increasing investments in agricultural assets, input use and farm output; and by shifting household labour from agricultural wage labour to on-farm labour and increasing the quantity and quality of food produced at home. As mentioned above, these schemes also indirectly impact productive activities – by preventing risk-coping strategies that deplete household agricultural assets and, together with school feeding and education fee waivers, by increasing investments in human capital (child education and health). These interventions can also support non-agricultural livelihoods through increased off-farm investments from microenterprises, and by making labour allocation decisions more flexible (Tirivayi et al., 2013; IEG, 2011).

Cash transfers and public works interventions can also create significant income multipliers in local economies, given that beneficiary households spend the transfers on goods and services predominantly sold or produced by non-beneficiary households (Thome et al., 2013).

V. Challenges and Opportunities There is robust evidence from numerous countries (especially in Latin America and, to some extent, in Sub- Saharan Africa) that social protection instruments, above all cash transfers, have leveraged sizeable gains in access to health and education services, as measured by increases in school enrolment (particularly for girls) and use of health services (particularly preventative health and health monitoring for children and pregnant women) (Fiszbein and Schady, 2009; Barrientos and DeJong, 2004; Davis et al., 2012). However, there are three areas where both theory and practice are rather limited, especially in the African context: (i) in the use of social protection as a means to insure households for more productive, but riskier, activities and entrepreneurship; (ii) in the conscious use of local spillovers and ensuring the economic value of the local infrastructures created by social protection interventions (e.g., in public works); and (iii) in social protection’s role in boosting overall economic growth and stabilizing demand in times of crisis (Alderman and Yemtsov, 2012).

The absence of an operational means to use the productivity‐enhancing potential of safety nets or other social protection instruments for promoting entrepreneurship and better resource allocation is a particularly glaring limitation. In the best case, only the general principles of the risk reduction framework are applied at the programme design stage (as with PSNP in Ethiopia). The main principle is the predictability of transfers over time, which is implemented by enrolling participants in a social protection instrument for a sufficiently long period of time (five years in the case of Ethiopia).

Despite the challenges, SSA countries are also learning from recent experiences in scaling up cash transfer programmes, which shifted from a focus on those vulnerable during times of crisis to the chronically poor, and from short-term humanitarian interventions to long-term development investments. The need to adapt instruments to new circumstances also made many countries acutely aware of the shortcomings of the instruments available to them. With ongoing CCT programmes in Latin America reaching stages of maturity,

it is now possible to conduct empirical studies of the long-term effects of these programmes on the growth of beneficiaries’ incomes. These efforts are also under way in many African countries. New “productive safety nets” (e.g., public works, micro‐credit, nutrition), focused on boosting productive potential through small farmer livelihood development projects, are increasingly popular around the world. For instance, the PSNP in Ethiopia is using an integrated set of interventions to promote the productivity and resilience of rural livelihoods, and its evaluation is already lending important insight into the design and implementation of such interventions. A marked shift has also occurred in donor assistance to social protection, favouring interventions that stimulate local food production, while integrated systems and programmes that work across sectoral boundaries are also receiving increased attention (Alderman and Yemtsov, 2012).

Using already-available evidence, some specific features of project design could enhance the productive and risk management effects of social protection interventions. These include steps to make productive focus more effective and more consciously used in practice. One focus can be reinforcing current practices in the existing instrument of social protection by emphasizing new growth‐enhancing elements (for example, for any cash transfer programme, carefully considering introducing linkages to other financial services, including enhanced access to savings instruments and marketing operations; for public works, ensuring economic value of assets created by including adequate funding for non‐wage components and active involvement of local communities in planning; for agricultural livelihood development programmes, incorporating risk mitigation and insurance features, etc.). It is also vital to use economic cost‐benefit analysis where appropriate, and cost‐effectiveness studies to inform programme design (e.g., duration and size of benefits, conditionalities, provision of productive services to beneficiaries) and evaluation. When and where possible, cross‐sectoral design and the systems approach should be applied to SP programme design so as to enhance positive synergies and to minimize distortions.

References Alderman, A. and Yemtsov, R. (2012). Productive Role of Social Protection. Background Paper for the World Bank 2012–2022 Social Protection and Labor Strategy, the World Bank. Antonaci, L., Demeke, M. and Soumare, M.S. (2012). Integrating risk management tools and policies into CAADP: Options and Challenges. FAO-NEPAD policy brief. Asfaw, S., Davis, B., Dewbre, J., Handa, S. and Winters, P. (2014). Cash Transfer Programme, Productive Activities and Labour Supply: Evidence from a Randomised Experiment in Kenya. Journal of Development Studies, 50(8): 1172-1196. Asfaw, S., Covarrubias, K., Davis, B., Dewbre, J., Djebbari, H., Romeo, A. and Winters, P. (2012). Analytical Framework for Evaluating the Productive Impact of Cash Transfer Programmes on Household Behaviour: Methodological Guidelines for the From Protection to Production Project. Paper prepared for the From Protection to Production project. Rome, UN Food and Agriculture Organization. Barrientos, A. and DeJong, J. (2004) Child Poverty and Cash Transfers. Report 4. London: Childhood Poverty Research and Policy Centre. Covarrubias. K., Davis. B. and Winters, P. (2012) From Protection to Production: Productive Impacts of the Malawi Social Cash Transfer Scheme. Journal of Development Effectiveness, 4(1), pp. 50-77 Davis, B., Gaarder, M., Handa S. and Yablonski, J. (2012). Evaluating the Impact of cash transfer Programmes in Sub-Saharan Africa: An Introduction to the Special Issue. Journal of Development Effectiveness, 4(1), pp. 1-8. Del Ninno, C., Subbarao, K. And Milazzo, A. (2009). How to Make Public Works Work: A Review of the Experiences. SP Discussion Paper, No. 0905, World bank, USA. Dercon, S., and Krishnan, P. (2003). Food Aid and In-formal Insurance. Center for the Study of African Economies Working Paper Series 2003-01. Devereux, S. and R. Sabates-Wheeler (2004). Transformative Social Protection. Brighton, Institute of Development Studies. Fiszbein, A. and Schady, N. (2009). Conditional Cash Transfers for Attacking Present and Future Poverty, with Ferreira, F.H.G., Grosh, M., Kelleher, N., Olinto, P. & Skoufias, E., The World Bank Policy Research Report, 2009, Chapters 2, 5. IEG (2011). Evidence and Lessons Learned from Impact Evaluations on Social Safety Nets. Independent Evaluation Group. Washington, DC: World Bank. OPM (Oxford Policy Management). (2012). Qualitative research and analyses of the economic impacts of cash transfer programmes in Sub-Saharan Africa: Ghana Country Case Study Report. Paper prepared for the From Protection to Production project, draft version August 23, 2012. Rome, UN Food and Agriculture Organization. Thome, K., Filipski, M., Kagin, J., Taylor, E., and Davis, B (2013) Agricultural Spillover Effects of Cash Transfers: What Does LEWIE Have to Say? American Journal of Agricultural Economics, 95(5):1338-1344 Tirivayi N., Knowles, M. and Davis, B. (2013). The Interaction and Potential Synergies between Social Protection and Agriculture – A Review of Evidence. Paper prepared for the From Protection to Production project. Rome, UN Food and Agriculture Organization.

II4240E/1/12.14