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Annex A: Ethiopia Case Study Lead Author: Courtenay Cabot Venton, Independent Consultant
1 Context
1.1 Introduction
This Ethiopia case study is part of DFID research on the Value for Money (VfM) of cash,
voucher and in-kind transfers, which will lead to the development of DFID guidance. In-
country research took place July 2013 in Addis. A wide range of agencies involved in
humanitarian response was interviewed and data requested. The majority of
humanitarian response is focused on cash and in kind aid, implemented in large part by
a few agencies, and hence these were the focus of the analysis.
1.2 Emergency Response in Ethiopia
Ethiopia is exposed to a range of hazards including drought and floods, human and
animal diseases/epidemics, and conflict (internal and external). Vulnerability is
widespread throughout the country due to high levels of chronic poverty and food
insecurity.
The number of people in need of humanitarian assistance in Ethiopia varies from some 2
million to 6 million annually, though spikes in need have pushed this figure upwards of
13m. Meanwhile, the number of refugees has increased from 150,000 to over 650,000
in the last 3 years, with continued new arrivals and a high risk of further influxes1.
Endemic chronic food insecurity plus a certain level of transitory food insecurity –
households ‘churning’ in and out of hunger from one year to the next in response to
household- or local-level shocks – is normal in Ethiopia. However, a large-scale
covariant shock – for example, a widespread failure of rains or rapid rise in food prices
that affects millions of households simultaneously – still has the potential to trigger a
famine. Famines have been a recurrent feature of Ethiopian history: since 1970,
Ethiopia experienced two official famines (1973-4, when it is estimated 250,000 died,
and 1984-5, when up to a million died) when years of extremely poor rains were
1 DFID (2014). Business case: Support to the Humanitarian Response Fund (HRF) and OCHA in Ethiopia. Based on UNHCR fortnightly refugee updates.
2
exacerbated by poor agricultural policies and (in the 1980s) civil war. Three years of
successive poor rains in Somali region may have led to 100,000 deaths in 1999-2000;
crisis years were also experienced in different parts of the country in 2003, 2008 and
2011.2
Since 2005, the Government of Ethiopia and international partners have been
developing a portfolio of integrated instruments to respond to food insecurity within
the context of emergency relief.
The bedrock of this portfolio is the Productive Safety Net Programme (PSNP).
Established in 2005, the PSNP is a Government of Ethiopia administered programme
which provides 6 months of timely cash and/or food transfers to around 6.6 million
(average 2010/11 to 2014/15) chronically food insecure people who would previously
have depended on emergency relief. On average, approximately 2.8 billion Birr, or
$140m is distributed each year via the PSNP. The PSNP’s Risk Financing Mechanism
(RFM) is designed to allow the programme to expand when a larger-than-normal
drought hits, by providing short-term (one season) transfers to additional, transitorily
food insecure beneficiaries in PSNP areas, and / or extending the duration of transfers
to existing PSNP beneficiaries for additional months.
However, the PSNP does not reach everyone in need. Three to five million people are
outside its operational area or beyond the capacity of PSNP to expand services to them
in crisis.3 These figures could be much higher depending on the definition of poverty
used; using consumption poverty rather than food security, the number of people
vulnerable to absolute poverty has been estimated at 27 million, with 12.2 million of
those living outside of PSNP woredas.4 Between 2010 and 2014, annual Humanitarian
Requirements Documents (HRD) have requested food assistance for an average of 3.47
million people, above and beyond what has been covered by the PSNP (regular caseload
and, in 2011 and 2014, also the RFM). The coverage of the PSNP will expand in the next
phase (from 319 to 411 woredas, and from 5.2 million people in 2014/15 to 10 million –
both chronic and transitory – from 2015/16); nonetheless, this will still be less than the
level for annual food insecurity and several million will continue to rely on relief food
assistance to protect their lives and livelihoods for the foreseeable future.
2 DFID (2014). Annual Review: Ethiopia Productive Safety Net Programme. 3 DFID (n.d.) “Support to Ethiopia Relief Operations in Ethiopia, 2012-2015”. 4 Hill, R.V. and C. Porter (2014) PSNP/HABP formulation process: Vulnerability study to assist with assessment of the potential caseload for the next generation of PSNP and HABP. World Bank and Herriot-Watt University for Ministry of Agriculture; 13th January 2014.
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Figure 1: Number of People Supported by the Emergency Response System and PSNP5
Emergency relief programming in Ethiopia provides food assistance to chronic and
transitory food insecure populations who are not reached by the PSNP, either because
they live outside the 319 districts that the programme covers; or because the PSNP risk
financing instrument which might cover transitory food insecure households in PSNP
districts is not triggered6; or because (as in 2011 and 2014) needs exceeded the capacity
of the RFM and even when it was triggered, additional humanitarian food assistance has
been needed. In addition to emergency relief programming, the large refugee
population in Ethiopia also receives humanitarian aid from the international community,
including food aid for all refugees.7
Ethiopia relies heavily on imports for commodities used in food aid programs, implying
that global market conditions have an impact on decisions to source commodities and in
5 World Bank (2010) ‘’Designing and implementing a rural safety net in a low income setting: lessons learned from Ethiopia’s PSNP 2005-2009.” p. 107 6 In recent years, on average 80% of the HRD food insecure population has fallen within the PSNP programme area, and should arguably have been served by the RFM. For various reasons, however, the RFM was not triggered in 2012 or 2013. 7 DFID (n.d.) “Support to Ethiopia Relief Operations in Ethiopia, 2012-2015”.
0
2
4
6
8
10
12
14
16
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
food security programming, 2000-2014: humanitarian and PSNP caseloads (millions of people supported)
humanitarian
PSNP
sources: Wiseman et al 2009 p. 39; 2008 and 2009 HRDs from http://reliefweb.int/report/ethiopia/; Rahmato 2013 p. 116 in Rhmato, Pankhurst and van Uffeln 2013
Formatted: Font: +Headings (Calibri)
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the cost-efficiency of in-kind assistance. In-kind food aid in Ethiopia that is sourced from
local markets, with combined needs for the PSNP and WFP programs, runs close to 1m
tons of cereals (2012). According to FAOSTAT, Ethiopia imports some 500,000 tons of
food aid per year.
1.3 Transfer Options
In the case of Ethiopia, cash and in kind transfers are the two dominant modalities.
Transfers in emergencies have mainly focused on in kind aid. However, since the
introduction of the Productive Safety Net Programme (PSNP) in 2005, Ethiopian
authorities have sought a ‘cash first’ principle in the delivery of assistance to
programme beneficiaries.8 Progress towards this aspiration has been mixed, however.
Particularly in years of high inflation, beneficiaries (and woredas and regions) prefer
food to cash, and this is reflected in a shift in the balance of PSNP transfers back
towards food.
WFP has recently piloted several initiatives using cash transfers and also programmes
using a combination of food and cash (referred to here as “hybrids”). Vouchers have not
been used for emergency response except in a few cases with very small pilot
programmes implemented by NGOs. These various programmes are described below.
Because of the poor state of Ethiopian telecommunications and internet networks,
there has not yet been much innovation to use electronic payment systems for
delivering cash. Two small-scale pilots (EFIP – the Ethiopia Financial Inclusion Project –
and now more recently MBirr) have attempted to develop electronic cash transfer
systems, with potential to deliver PSNP (and humanitarian) transfers: however, the EFIP
PSNP pilot encountered numerous problems, and arrangements for MBirr to deliver
PSNP transfers are still under discussion. Rather, cash is delivered via the government –
WFP transfers the requisite amount to the government at the federal level, who then
distribute the cash via their normal channels of devolving finance (an identical system to
making civil servant salary payments). As a result, cash is delivered in much the same
way as food – distributed via distribution points in envelopes.
8 WFP (2013). “Market and cash transfers in Ethiopia: Insights from an initial assessment.”
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Figure 2: Cash and Food Transfers under the PSNP
Source: Ministry of Agriculture PSNP Annual Plans, compiled by DFID Ethiopia.
1.3.1 In-Kind Transfer
There are currently three implementation approaches for humanitarian and PSNP
assistance in the form of in-kind transfers:
(i) WFP/Government of Ethiopia managed - WFP are responsible for international
procurement of food and delivery to the major regional hubs. The Government
manages the onward transport and distribution to the point of beneficiary. WFP
provides technical support and, along with Government, undertakes distribution
and post distribution monitoring;
(ii) WFP managed for Somali Region – with WFP managing the whole operation from
procurement to distribution; and
17% 26%
15%
51%
43% 42%
27%
46%
18%
27%
39%
34%
56%
28%
67%
22%
27%
24%
-
1
2
3
4
5
6
7
8
9
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15(plan)
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cash and food
food only
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(iii) The Joint Emergency Operation Programme – a conduit for USAID in kind food
contributions - implemented by US NGOs.
(iv) A fourth and separate intervention is in place for Ethiopia’s growing refugee
caseload.9
1.3.2 Cash Transfers
The two main programmes implementing cash transfers are:
The UNHCR/WFP cash transfers for relief programme; and
The Productive Safety Net Programme (PSNP).
UNHCR/WFP have also been using cash transfers with refugees, but this programme is a
hybrid using both cash and in-kind and hence discussed below.
Both of these programmes are implementing both cash and in kind transfers, and
therefore provide a useful benchmark for comparing transfer modalities. Having said
this, caution should always be used when comparing cash and in kind simply because
there will always be differences between areas (demographics, timing of transfer, etc),
although none of these issues were raised per se in the report.
UNHCR/WFP cash transfers for relief
The implementation of the pilot cash in relief program in Ethiopia started in July 2013
initially covering a total of 98,194 beneficiaries in Amhara and Oromia regions within 29
woredas. By the end of the fourth round in 2013, the number of beneficiaries had grown
to 249,452 with over 50 million Birr (approximately $2.5m) distributed.
Woredas need to be in non-PSNP areas, relatively surplus producing and have well-
functioning markets in order to qualify for a cash intervention. Woredas are considered
for cash intervention after thorough analysis and assessment of the market. Individual
beneficiaries are identified based on the targeting guidelines used by the in kind relief
program.
The amount of cash received by individual beneficiaries is determined based on the
market price of each commodity type in each woreda, i.e each woreda might have a
different transfer value based on their respective market price. Market prices are
regularly collected by WFP field monitors and Government partners and sent to country
office VAM units for review and computation of the transfer value. When market prices
change significantly (namely over 10% of the price in the previous month), transfer
9 DFID (n.d.) “Support to Ethiopia Relief Operations in Ethiopia, 2012-2015”.
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values change, otherwise they remain the same from month to month. The time lag
between monitoring and computation can be large. The transfer value ranged from 100
Birr ($5) to 250 Birr ($13) per person per month in 2013.
The implementation of the program is handled by Government, mainly the DRMFSS (the
Disaster Risk Management and Food Security Sector of the Ministry of Agriculture and
Rural Development), with which WFP signed an agreement. WFP provides the resource
(for cash transfer to beneficiaries and associated administration cost for the
implementation of the program) to DRMFSS. DRMFSS is responsible for deploying the
required human and logistic capacity for disbursement of the cash to beneficiaries,
management of the resources, monitoring and reporting on the cash utilization. In all
the regions, finance staff at woreda level are actively involved in the distribution and
management of the cash.10
Productive Safety Net Programme (PSNP)
In 2005, the Government of Ethiopia launched the Food Security Programme (FSP), with
the Productive Safety Net Programme (PSNP) at its centre. The PSNP provides transfers
(cash or food) to 6-8 million chronically food insecure (CFI) Ethiopians for six months
each year, 85% of whom receive transfers as wages for labour on small-scale public
works projects (which are selected by the community and contribute to environmental
rehabilitation and local economic development), while 15% are ‘direct support’
beneficiaries (disabled, elderly, pregnant or lactating women) who receive unconditional
transfers.11
For example, in 2013/14 total payments to beneficiaries in cash are budgeted at 3.47 bn
birr ($173m). Some 2.19 million beneficiaries will receive transfers only in the form of
cash (i.e. for six months); 1.21 million will receive it as a mix of cash and food. Assuming
the usual mix of three months cash followed by three months food for those who
receive cash and food, total cash payments to cash only and cash-and-food beneficiaries
amounts to a total of 16.77 m person-months of cash; implying payments of 206.7 birr
($10) per person per month12. This is in line with the monthly cash transfer values
reported by beneficiaries in the 2012 impact assessment household survey13. In
addition, 244,856 MT of food is budgeted for 1.76 million beneficiaries who will only
receive food transfers, and another 1.21 million who will receive both food and cash.
10 WFP, Update of Cash in Relief in Ethiopia 11 DFID (2014). Annual Review: Ethiopia Productive Safety Net Programme 12 DFID Ethiopia calculations based on MoA PSNP Annual Plan and budget EFY 2007 (2014/15). 13 Berhane, G. et al (2013) The implementation of the Productive Safety Net Programme and the Household Asset Building Programme in the Ethiopian highlands, 2012: Program Performance Report. IFPRI, IDS and Dadimos, July 15th 2013.
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The implied size of food transfer (17.25 kg per person month in 2014/15, and slightly
lower in previous years) is, again, in line with the 2012 survey findings.
1.3.3 Hybrid Transfer Mechanisms
In the WFP/UNHCR joint programme for refugees, a small amount of the traditional
food package has been substituted with cash, such that beneficiaries get a “hybrid”
package that includes both food and cash.
WFP/UNHCR joint programme on cash for food assistance for refugees
WFP and UNHCR have been implementing a hybrid cash/food package since 2013 in
Somali refugee camps in Jijiga. The programme was implemented because several
assessments recommended the introduction of cash based on the evidence that
refugees were selling a large portion of their food transfer. A shift to cash was also in
line with recent WFP and Government of Ethiopia policy shifts towards cash. As a result,
market feasibility studies were undertaken that demonstrated that refugees have no
restrictions to access markets and that existing market infrastructure and systems would
be able to absorb the increase in demand created by the cash intervention.14
A portion of the standard food basket is substituted with cash. Table 1 shows the
breakdown of a standard food transfer, and a cash and food transfer under the pilot
programme. As this was a pilot, the programme partners all agreed to start with a
cautious approach, replacing 6 kg of the wheat grain (about 50% of the allocation), with
100 Birr in cash ($5).15
14 UNHCR (n.d.) “Direct Cash Transfer for refugees as a means of humanitarian assistance to address food needs in Refugee camps: Pilot Program in Somali Refugee Camps in Ethiopia” 15 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”.
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Table 1: Comparison of Food Baskets under the Pilot Refugee Programme
Item Original in-kind
food basket Food and cash
combined Wheat grain 11.4 kg 5.4 kg
Rice 4 kg 4 kg
Pulses 1.5 kg 1.5 kg
CSB + 1.5 kg 1.5 kg
Vegetable oil 0.9 kg 0.9 kg
Sugar 450 g 450 g
Salt 150g 150g
Cash ETB 100 (USD $5.36)
The programme is run alongside ARRA, the government Agency for Refugees. As a
result, the implementation of the cash pilot in the field relies on government structures
and operating procedures that are similar to other larger-scale cash operations under
the PSNP. WFP transfers the total monthly allocated cash to ARRA’s bank account, and
ARRA transfers the cash from Jijiga Bank to its safe. On distribution days, the cash is
transported with a security escort from Jijiga to the camps. The distribution of cash (in
envelopes) is done in combination with the food distribution. The distribution facilities
were adapted for the cash distribution in order to improve safety and security during
distributions. The roles of the three organizations remain similar with that of food ration
distribution. UNHCR generates the distribution list; WFP allocates food and cash; then
ARRA conducts the cash distribution directly to the beneficiaries. Joint monitoring,
compliant handling, review of distribution and post distribution are routine activities
conducted before, during and after each distribution.16
1.3.4 Vouchers
There are a number of voucher programmes being implemented in Ethiopia, though
these are all very small scale and the evidence around value for money was non-
existent. They are summarized here in brief.
ACF – Fresh food vouchers
ACF in collaboration with WFP and UNHCR has been managing the nutrition program in
Hilaweyn refugee camp (Somali refugees), Dolo Ado, since 2011. As part of this, ACF has
been implementing a fresh food voucher (FFV) programme targeting lactating and
pregnant women, as well as caregivers of children under 2, representing 1,000
16 UNHCR (n.d.) “Direct Cash Transfer for refugees as a means of humanitarian assistance to address food needs in Refugee camps: Pilot Program in Somali Refugee Camps in Ethiopia”
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beneficiaries in total. 20 vendors were identified and registered to exchange fresh foods
for vouchers over a five-month period. Vegetables were provided by ACD farmer’s
cooperatives in neighbouring villages.
A representative sample of 30% of beneficiaries was included in a nutrition and food
security evaluation. It is cautioned that no control group was included, and therefore it
is not clear whether any changes were a direct result of the FFV programme, nor that
these changes would not have occurred otherwise. The major outcomes documented
include: a decrease in the length of stay at the TSFP; an increase in food scores (due to
increased diversity of diet); and economic support of local markets (an estimated 1
million ETB was circulated within the local market).
Oxfam – water vouchers
Oxfam has been using water trucking with vouchers at a small scale. Emergency water
trucking can be very expensive. Water trucking with vouchers is used by Oxfam to
achieve a planned distribution of water and ensure water reaches the most vulnerable.
The “Cash vouchers for Emergency Water Trucking” programme was implemented in
Somali Region in 2012 as an improvement to direct water trucking with blanket
targeting for short term emergency response. Carefully identified beneficiary
households are issued with cash vouchers through which they can redeem a specified
quantity of water in a given period from water vendors. The access to water with the
voucher system is simply a mechanism to provide water to beneficiaries through
vouchers issued indicating the amount of water to be provided by water vendors. This
system allows communities, through the voucher, to pay for their own supply of water.
Costs are reduced as prices for water are pre-arranged with the water vendors (as
opposed to water trucking where there is little control and prices are high).
WFP HIV/AIDS programme
This programme is not an emergency programme, but is an example of WFP using
vouchers in Ethiopia that was investigated and discussed to gain additional evidence
around potential support for vouchers in general.
WFP has been implementing an Urban HIV and AIDS project, providing food and
nutrition services to HIV infected and affected individuals and households in major
towns of Ethiopia since 2003. The aim was to target beneficiaries with an appropriate
mix of foods that provide adequate and targeted nutrition for HIV/AIDS beneficiaries.
The project found that the overall cost of delivering food to beneficiaries from local
retailers is less costly by 18% to 32% in comparison to the cost required for international
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purchases. There was no cost data on the cost of setting up the voucher programme,
though anecdotal evidence in country suggested that it was twice as expensive as the
cost of an equivalent cash transfer.
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2 Evidence on Value for Money
2.1 Economy Analysis
2.1.1 Introduction
Economy assesses the cost per input of a programme. This is very closely linked to the
efficiency analysis, which looks at the cost per output; improvements to the cost per
input will directly impact the cost per output.
Because in kind transfers have been the dominant transfer modality to date, economy
gains have mostly been made within this category of transfer. Therefore this section
focuses on cost savings within in kind transfers; cash is still in the early stages of
implementation and therefore there is little evidence of economy gains. While the PSNP
has been transferring both cash and food for a relatively long time, to date there is no
analysis comparing the two types of transfer under the PSNP and therefore cannot be
reported on here.
The efficiency analysis that follows builds on the economy analysis to compare the total
cost of in kind and cash transfers, for comparable levels of transfer. It also includes a
greater discussion of the kinds of factors that are driving efficiency gains in cash, and the
scenarios where in kind aid may be more efficient.
2.1.2 Cost Savings within In Kind Transfers – Food Aid
There are several concrete examples of economy gains being made within in kind
transfers in Ethiopia, the majority of which relate to food aid specifically.
The cost per input for in kind food aid has been improved due to the use of:
Government delivery systems;
Central procurement systems; and
Local procurement through the WFP’s Purchase for Progress programme (P4P).
Cost efficiencies from government delivery systems
A DFID analysis of WFP support17 provides some insight into the efficiency gains that can
be made in food aid. In this case, food aid delivers good value for money as a result of
the use of existing government delivery systems. For example, the average delivery cost
17 DFID (n.d.) “Support to Ethiopia Relief Operations in Ethiopia, 2012-2015”.
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of food aid is estimated in this analysis at £91 per person. This cost compares favourably
with eight other WFP operations in other countries in the region (with costs ranging
from £41 per person in Zambia to £136 per person in Sudan), with Ethiopia costs sitting
more or less in the middle of the nine countries assessed. Good infrastructure
contributes to the comparatively low cost of transport (considering the large distances
covered). The use of existing government systems for the majority of distribution, unlike
other WFP emergency operations that typically sub-contract NGO partners, is also
attributed with keeping the cost down.
The average cost of supplementary feeding in Ethiopia is £13 per beneficiary over a 3-
month period, which compares very favourably to global averages of £78.4 due to the
use of government delivery systems.
Central procurement of nutritional inputs18
Deterioration of the food security situation in Ethiopia in 2009 caused a significant
increase in the need for food relief assistance. The resulting additional demand for
blended food for NGO nutrition operations meant that HRF implementing partners
faced increased competition when purchasing materials. Multiple agencies bidding for
stock from a limited number of local suppliers resulted in increased prices, agencies
sitting on surplus stocks while others had none available for critical responses and lower
food quality.
The central procurement mechanism for blended food was initiated by the HRF in 2009,
in response to these inefficiencies. Under the central procurement mechanism, funding
is provided to WFP to maintain a stock and manage the pipeline of these commodities
for use in emergency feeding programmes. Coordinating the purchase of blended food
through this project has ensured that suppliers receive requests from a single buyer
(WFP) as opposed to multiple requests from numerous NGOs. Food quality is ensured
through WFP’s testing channels and the price of blended food is stabilised through
reduced competition.
In 2011, the mechanism was expanded to include vegetable oil after local market oil
supplies did not meet the demands of NGOs supporting different supplementary
programmes. A price cap introduced by the Ethiopian Government, which aimed to
control inflation, further limited the involvement of oil suppliers.
The price per Metric Ton (MT) of corn soya blend was reduced by $102 (a 15 per cent
18 DFID (n.d.) “Support to the Humanitarian Response Fund (HRF) and OCHA in Ethiopia
14
saving) and the price of cooking oil was reduced by $1,083 (a 47 per cent saving) via this
mechanism.
Local procurement
Despite the relatively favourable cost of food aid in Ethiopia, a large portion of food is
internationally procured. Multi-year support offers the opportunity to time
procurement to when international markets are more favourable. WFP’s Working
Capital Finance facility can loan funds internally using forecast project contributions
from DFID and other donors as collateral. Based on this, market information and
estimated aggregated regional needs, funds are loaned to WFP’s Forward Purchase
Facility (FPF) that can then procure and pre-position food in Djibouti.
According to DFID’s 2012-13 annual review of WFP19, DFID achieved a 25% cost saving
through support to local production and procurement. This was far in excess of the 5-
10% milestone set, as was the target for food procured locally (100% of the DFID
contribution was used for local procurement as compared with a target of 50%).
Local procurement is done in two ways:
Firstly, through WFP’s Purchase for Progress (P4P) scheme. Under the P4P, On
the basis of DFID’s predictable funding, WFP is able to sign advance contracts for
the purchase of grain from farming co-operatives in the more productive areas
of Ethiopia. Co-operatives are then able to use these contracts as collateral to
access output loans to aggregate production from their smallholder farmers.
WFP then purchases the food from the co-operatives at the main marketing
season (after harvest). Food produced by Ethiopian smallholder farmers and
procured through WFP is then used for emergency distributions for the poorest
people in the less productive, drought-stricken areas of the country. The P4P
programme is still very small – out of 65 million farmers in Ethiopia, it reaches
60,000.20
Secondly, when the productive capacity of the P4P co-operatives is exhausted,
WFP can purchase food that is commercially available from the Ethiopia Grain
Trading Enterprise (EGTE).
In 2013 with DFID funding, WFP purchased a total of 28,000 MT of maize from its 16
Ethiopian P4P partner Cooperative Unions (CUs) for £230/MT. An additional 21,200 MT
was purchased from the Ethiopian Grain Trade Enterprise (EGTE) for about £220/MT.
Both prices compare very favourably with the import parity price (the price that WFP
19 DFID (2013). Annual Review: Support to WFP Relief Operation in Ethiopia, 2012-2015. 20 DFID/WFP Monitoring visit, minutes, March 2014.
15
would have paid for food procured internationally) of £314/MT (as of global prices on
the 15th of March, e.g. Argentina). By purchasing locally, a cost saving of 25% has been
secured below the import parity price (the price that WFP would have paid to procure
internationally). The saving made is sufficient to provide a 15kg ration for an additional
1.1 million beneficiaries for one month.
These savings would not have been possible without the predictability and timeliness
conferred through DFID’s new multi-year approach. The report also identifies that
support to the P4P has further benefits beyond cost savings. These include:
Increasing local production and incomes: In 2013, the pilot P4P is supporting at
least 67,000 low-income smallholder farmers to produce food surpluses and sell
them to WFP at a fair price.
Increased timeliness of assistance: Local procurement can shorten the lead
times for delivery that are involved with international transport that often incurs
lengthy shipping, port handling and land transport timeframes.
Environmental benefits: Fuel emissions associated with the international
importation of food are reduced when food is produced and procured closer to
its distribution point.
Additional cost savings
The HRF has also been working to identify ways to reduce the cost of vehicle rental,
which forms a significant part of the cost of delivering in kind aid. Government
restrictions and high taxes on NGO vehicle purchase make it more cost-effective for
most NGOs to rent vehicles for project implementation rather than purchase and run
their own fleet. Recognising this cost driver, the HRF commissioned a feasibility study in
2012 to compare the costs of renting with the cost of running a UN managed fleet for
NGO and UN use for implementing HRF projects. The results of this feasibility study
showed that the costs of running such a fleet would not compare favourably with the
current rental rates procured by implementing partners ($3,112 per month per car
under UN costing versus current rental rate of $2,735 per month per car when locally
rented) and so no change was made.21
2.1.3 Cost Savings within In Kind Transfers – Other Sectors
Several reports highlight in some detail the cost of in-kind transfers across multiple
sectors – for example nutrition, WASH, NFI kits, shelter, etc. In particular, two DFID
21 DFID (n.d.) “Support to the Humanitarian Response Fund (HRF) and OCHA in Ethiopia
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business cases, one in support of the Humanitarian Response Fund (HRF) and OCHA in
Ethiopia, and the second in the support for Refugees in Ethiopia (2012-2014) contain
detailed costs per beneficiary by intervention type. However, the costs for each
intervention type are not broken down, and therefore there is not enough detail to
determine how these in kind transfers would compare with a cash transfer. Further,
there was no evidence identified that discusses any economy gains within these sectors.
The HRF business case in particular contains a detailed breakdown of average cost by
budget category for all of their funded projects, but caution that this figure cuts across
so many different sectoral interventions that it is difficult to draw any conclusions from
it.
Figure 3: Breakdown of Average Costs by Budget Category for HRF Funded Projects in
2012
2.2 Efficiency Analysis
2.2.1 Introduction
Staff costs 14%
Operating costs 3%
Relief supplies costs 59%
Transport costs 16%
Accountability costs 2%
Administration costs 6%
17
Efficiency analysis assesses the cost per output, i.e. cost per beneficiary. In the case of
transfers, a common metric for efficiency analysis is to compare the total cost per
transfer of different transfer types – cash and in kind aid in the case of Ethiopia.
As described previously, several humanitarian programmes in Ethiopia have shifted part
of their portfolio from in-kind food aid to cash. UNHCR is starting to explore the
possibility of using cash for other NFIs, but this work is preliminary and therefore there
is no evidence to date. Similarly, there has been very limited use of vouchers. The
majority of cash programming has been used in the WFP relief and refugee operations.
The PSNP has also been using both cash and food for a relatively long time, but as stated
previously, no analysis has been conducted that compares the cash with the food.
The most systematic evidence comparing the cost of cash and in kind aid comes from
two WFP programmes, as described in greater detail previously:
The WFP Refugee programme substituted cash for grains in part. In other words,
the typical food basket was revised to take out some of the grain portion of the
basket, and replace it with the equivalent in cash. As such, it offers an excellent
opportunity for comparing both cost efficiency as well as gauging some of the
impacts of the substitution on beneficiary preferences, security, etc.
The WFP relief programme has traditionally used food, but in some areas has
been piloting the use of cash, substituting the food basket in full.
2.2.2 Comparison of Cash and Food Transfers
Table 2 presents the cost breakdown22 of both food and cash under the WFP relief and
refugee programmes. In addition to the commodity cost (the actual food or cash), the
additional costs of delivering food/cash are as follows:
External Transport: the costs associated with the first leg of transport of
donated or purchased commodities from the country in which WFP receives the
consignment and the recipient country.
22 Note that percentages do not total to 100% because of the methodology used for calculating costs. The total cost for the commodity, external transport and LTSH are added together. The percentage mark-up for ODOC/C&V delivery is then applied to this figure. The DSC overhead is applied as a percentage of the commodity plus ODOC/C&V delivery, and the ISC overhead is applied as a percentage of the commodity plus ODOC/C&V delivery plus DSC. The commodity cost is presented as a percentage of this total figure.
18
Landside Transport Storage and Handling (LTSH): comprises the costs required
to care for and physically deliver commodities from the completion of external
transport through to final distribution.
Other Direct Operational Costs (ODOC) are defined as activity inputs – staff,
non-food items or services – that are provided by WFP and used directly in
activities by beneficiaries, the government of a recipient country or other
implementing partners.
Cash & Voucher (C&V) Delivery: In the case of cash and voucher programmes,
the ODOC budget line is substituted with the costs of cash or voucher delivery.
Direct Support Costs (DSC): are costs incurred directly to support projects. They
include costs of international staff, national staff, recurring expenditures,
equipment and capital costs. They are calculated as a percentage of operational
costs.
Indirect Support Costs (ISC): the ISC is applied to the total cost of the transfer as
a means of reimbursing WFP for programme support and administrative
expenditure, incurred predominantly at Headquarters and the Regional
Bureaux.23
It should be noted that percentages do not total to 100% because of the methodology
used for calculating costs. In summary, the commodity costs, external transport, and
LTSH are summed, and ODOC, DSC and ISC are charged as rolling percentages of the
subtotal (see footnote 22 for a more detailed description).
Table 2: WFP Cost of Food and Cash Transfers – Cost as a Percentage of Total24
Relief – in kind Relief - cash Refugee – in
kind
Refugee - cash
External
transport
17% 0% 20% 0%
LTSH 41% 0% 41% 0%
ODOC/C&V
delivery
3% 4% 5% 15%
DSC 10% 8% 8% 8%
ISC 7% 7% 7% 7%
The Total Cost to Transfer Ratio (TCTR) allows an easier comparison across programmes
and transfer modalities. Assuming a consistent commodity cost (equivalent in both cash
23 WFP (2006).”Resource, Financial and Budgetary Matter: Analysis of WFP Cost Components.” 24 Figures from WFP communications
19
and food in order to compare like with like), the commodity cost as a percentage of the
total cost, as well as the TCTR, are highlighted in Table 3.
Table 3: Comparative Cost of Food and Cash
Commodity Cost as a %
of Total
TCTR
Relief Refugee Relief Refugee
Food 53% 52% 1.9 1.9
Cash 83% 77% 1.2 1.3
The cost of delivery of cash within the WFP pilot programming is 25-30% less than in
kind food aid.25 In particular, cash results in substantial savings on both external
transport costs as well as LTSH. The cost of cash delivery as compared to ODOC (the
equivalent cost for food) is quite a bit more in the refugee program in particular (15% as
compared with 3%). However, WFP estimate that this cost can come down as it was
overestimated in the pilot phase. In the last year of operations some of this budget line
was able to transfer to the actual cash delivery to beneficiaries, and the figure will be
revised downwards in the new PRRO.26 The total cost to transfer ratio is significantly
lower for cash than food, particularly in the case of the refugee programme. Many of
the gains of cash transfers arise because WFP didn’t set up a separate system but rather
maintained efficiency by using the existing food delivery system.
These cost estimates are comprehensive in that they cover all of the direct costs from
point of origin to delivery to beneficiaries. Clearly cash is more efficient because it
avoids altogether the costs of external and local transport. However, it is also important
to highlight a number of additional costs of cash that are not quantified here but which
would need to be considered. In principle, the second and third bullets are design
issues, which should be equal in measure for both cash and food, but were highlighted
as points where more investment is being made and therefore are included here.
Cost to government for distribution (though this should be minimal because it is
via existing channels)
Cost to distribute at camps – e.g. more rigorous accountability, ensuring that
everyone has their papers, etc.
Costs of doing regular market assessments, monitoring and evaluation.
To counterbalance these costs, cash also results in a number of indirect cost savings that
are not included here.
25 All data used to conduct this analysis was provided by WFP Ethiopia 26 Personal communication, Jaakko Valli, WFP Ethiopia
20
Firstly, cash results in cost savings for beneficiaries, as it takes them far less time to
collect their cash than to collect their food.
In the case of the refugee camps, the average wait time for food was estimated
at 1 hour 22 minutes on average as compared with 33 minutes for cash.27 This
may be slightly offset by the additional time required by households to go and
buy their household needs with the cash, though this was not reported as
burdensome.
In a relief context, whereas food is normally distributed at woreda level, cash is
distributed at a kebele level (via local government) and therefore there are
significant time savings as beneficiaries have much shorter distances to travel.
Findings from the relief pilot programme show that beneficiaries spend at least a
day getting to and waiting at the Food Distribution Points, whereas the average
travel time to the Cash Distribution Points was less than 2 hours. This also meant
that there was no cost of transportation and staying overnight in the case of
cash.28
These time savings can be valued based on daily wage rates – i.e. the value of
that time that could have been spent doing something else – and could add up
quite significantly when considered over months of food distribution.
Selling grains at depressed prices. A primary reason for shifting part of the food basket
to cash was because post distribution monitoring was showing that beneficiaries were
reselling between 30 and 50% of their wheat entitlement. A significant portion of the
cash that refugees could access was used to buy other types of food in the local market
that were highly preferred. Furthermore, refugees were re-selling their wheat at
unfavourable terms: US$ 0.22/kg compared to WFP’s costs of US$ 0.66 to purchase the
commodity and transport it to the camps.29 In other words, the value of the wheat in
the food package was devalued by two-thirds. Given that this is the largest component
of the food package, if the true value of the wheat was accounted for as compared with
cash, the cost efficiency ratios described above would make an even stronger argument
for cash.
WFP reinforces this point in their assessment of substitution and the local cost of the
staple food that is chosen to replace wheat in the food basket. “The main driver for
switching to cash is the fact that beneficiaries are re-selling least preferred commodities 27 WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.” 28 WFP, Update of Cash in Relief in Ethiopia 29 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”.
21
in order to locally buy their most preferred starch or caloric food (pasta and rice). This
means that if the transfer size is calculated using local sorghum or wheat, such
programmatic decision will have a priori knowledge that the cash will not be used to buy
those food items and that WFP is therefore not providing the means for beneficiaries to
meet their caloric needs. Thus, if the ultimate objective is to ensure that beneficiaries
eat the quantity and quality of food to achieve certain food security outcomes, then the
cash transfer should be calculated using the food items that they will indeed
consume.”30 In other words, any calculation of the food security outcomes needs to be
based on what people buy or trade, rather than what they are supplied with.
Cereals make up 78% of the food basket. The total food basket for a monthly general
food ration per household is valued at $19.09 under current rates, and the combined
basket is valued at the same as an equivalent amount of cereal is substituted with cash.
However, if grain prices are depressed by 2/3, the food basket loses its value for the
beneficiary, and the cereal component of the basket drops from nearly $15 to $5,
rendering the food basket worth $9 (despite it costing WFP $19 to deliver it).
Comparison with PSNP
Under the PSNP, the total costs to deliver one birr of cash transfer to a household have
varied between 1.15 and 1.28 birr over the last four years. (These compare to 1.13 birr
in 2009/10 and 1.25 birr in 2010/11.)
This analysis does suggest that cost efficiency for the delivery of cash transfers is broadly
similar for WFP relief and PSNP delivery: both have TCTR values of 1.2 (i.e. a total of 1.2
birr required to deliver one birr to a beneficiary).
30 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”.
22
Table 4: Cost Elements for PSNP Cash Transfers31
Costs in Birr per 1 Birr delivered to beneficiaries
Cost element 2011/12
(EFY 2004)
2012/13
(EFY 2005)
2013/14
(EFY 2006)
2014/15
(EFY 2007)
Admin (salary + non-salary) 0.03 0.07 0.05 0.04
Management 0.02 0.04 0.03 0.02
Capital 0.09 0.16 0.11 0.09
Capacity building 0.01 0.01 0.01 0.03
Total non-transfer costs 0.15 0.28 0.20 0.17
Total costs to deliver 1 birr of
transfer
(transfer cost + non-transfer
costs)
1.15 1.28 1.20 1.17
Source: MoA PSNP Annual budgets, compiled and analysed by DFID Ethiopia.
Estimated administration costs for cash transfers (averaging 5% of total programme
costs) compare well with the international benchmark of 10% for a well-run safety net
programme. However, these TCTR ratios for cash transfers rely upon a number of
assumptions, most importantly regarding the apportionment of total administration,
management, capital and capacity-building costs between cash and food transfers
simply on the basis of the share of cash transfer recipients in total recipients (assigning
half of the cash-plus-food recipient group to cash recipients). In practice, the direct
costs of delivery equivalent cash and food are unlikely to be the same (see above for
why in humanitarian operations costs are lower to deliver cash than food). And,
because it is not possible to assign a cash value to food transfer resources budgeted in
metric tonnes and supplied as such by WFP and USAID, it is not possible to calculate a
similar TCTR for food transfers. As such, it is not possible to compare the TCTR / cost
efficiency of food and cash transfers under the PSNP.
31 Method to determine costs: share of each cost element (i.e. admin, management, capital and
capacity-building) apportioned to cash transfer costs on the basis of cash transfer share of total
transfers (i.e. cash only recipients plus 50% of cash-plus-food recipients, divided by total number
of all recipients). This assumes (i) that all recipients of cash and food receive half cash and half
food when in practice the ratio of months of cash to months of food can range from 1:5 to 3:3);
and (ii) that costs for cash are the same as for food, which is likely to be a highly conservative
estimate. Each apportioned cost element (in birr) is then divided by costs of transfers delivered
to recipients, to obtain cost per birr delivered.
23
Factors contributing to the programme’s success in this area include economies of scale
which allow management resources to be shared across large client numbers and the
use of pre-existing institutional structures for food security, early warning and response
at all levels.
Using household-level data from the panel survey that is used for PSNP impact
assessment, it is also possible to estimate some of the indirect costs to beneficiaries
required to obtain their transfers, and to incorporate this into the VfM calculations.
These costs can be broken down into one-off costs associated with registering and
enrolling in the programme; and recurrent costs associated with collecting the transfer
each month.
Costs to collect payments were relatively small, at least in terms of direct, monetary
costs. 84% reported incurring no costs in travelling to receive payment. However, in
2010 most had to walk a long distance, and often sleep overnight in the open (at no
monetary cost) to obtain their transfers. If these time costs were monetized, the
indirect costs would be higher.
In total, the monetary costs to beneficiaries of enrolment and transfer collection are
estimated at 113 m birr ($5.6m) in 2010. This amounts to 2% of total programme costs.
As mentioned, however, this would go somewhat higher if the time burden imposed on
beneficiaries to obtain their transfers was monetized. Unfortunately, the data on
transfer collection costs has not to date been disaggregated between cash and food
transfer recipients: this would be worth following, to see if (as assumed) distance and
time (and hence imputed cost) are lower for cash than food. It would also be worth
running this analysis with the most recent (2012) data: it is likely that further
improvements in both the density of the rural road network and (known) gains in the
timeliness and predictability of transfer payments between 2010 and 2012 have
resulted in reduced collection costs.
2.2.3 Drivers of Efficiency
Overall, there is clear evidence that cash is far more cost efficient than food delivered in
kind. However, there are a variety of factors that can have a very strong influence on
these calculations, and in certain scenarios food is more cost efficient than cash. Thus it
is very important to understand and assess these factors on a regular basis.
24
A study by WFP on Markets and Cash Transfers in Ethiopia32 provides a very good
discussion around the effects of food prices and market integration on transfer choice.
The study comes to the same conclusion as this one, namely that economic analysis
confirms that cash transfers usually constitute a cost-efficient transfer mechanism in
Ethiopia, compared to in-kind food aid. However, the authors go on to highlight how
substantial seasonal changes in local food prices, exchange rate variations and volatile
international market conditions have a strong bearing on the cost efficiency of cash or
voucher transfers. Market integration is also a necessary condition for the
implementation of cash at scale.
These two issues are discussed in greater detail below.
Food Prices
If international food prices are lower than local food prices, food transfers may become
more cost efficient than cash transfers.
A number of factors can affect food prices, and they can vary from month to month and
between different areas of Ethiopia. Local prices can be depressed by the arrival of the
harvest (as supply increases, prices go down) or the onset of a devaluation in currency.
Local markets then become more competitive relative to imports. However, as food
prices rise in the lean season, international food aid may become more competitive. Not
only that, but imports of food may be necessary to make up the lack of supply to meet
demand. In the case of a major shock to domestic prices (i.e. after a drought), in-kind
assistance can, temporarily, become more cost efficient. As a result, seasonal peaks and
troughs in local food prices affect the cost efficiency of cash relative to in-kind food aid,
and this can also vary from season to season.
Market Integration
Cash transfer systems rely on integrated food market systems that allow supplies to
flow from surplus to deficit areas, allowing an increase in demand to take place without
undue price increases.33
Generally speaking, market integration is stronger for maize than for wheat. A WFP
report highlighted that a national market assessment conducted by WFP found that
markets in Tigray, Amhara and the Northern zones of the Somali regions were well
integrated and able to absorb a cash intervention.34
32 WFP (2013). “Market and cash transfers in Ethiopia: Insights from an initial assessment.” 33 WFP (2013). “Market and cash transfers in Ethiopia: Insights from an initial assessment.” 34 WFP, Update of Cash in Relief in Ethiopia
25
However, the WFP markets and cash study found that significant geographical
disparities exist in market integration, and these can also vary depending on the type of
grain, highlighting the importance of understanding local and regional market
characteristics.35
Both price and market integration data need to be further combined with logistics costs.
For example, in regions of Ethiopia with very high WFP logistics costs relative to other
areas, seasonal changes may not be enough to tip the balance in favour of in-kind food
aid. Equally, if these areas do not have sufficient food in the local markets to carry cash
transfers, food aid may be the only option.
2.3 Effectiveness and Cost-Effectiveness Analysis
Cost effectiveness analysis examines the cost per outcome. This can be hard to quantify
as outcomes can vary, and can be difficult to measure and monetize. This analysis
requires an investigation into the impacts of different types of transfer, as well as the
factors that influence effectiveness.
The data in the previous section clearly demonstrates that:
1. There have been some significant and important cost savings in food aid
delivery;
2. Cash has been cheaper to deliver than food in the major emergency cash
transfer programmes implemented by WFP; however,
3. There are some very important factors that can impact efficiency as cash is taken
to scale that need to be carefully considered.
In addition to being cost efficient, there are a variety of factors that influence the
effectiveness of cash transfers as compared with food aid. A variety of impact
assessments have been conducted in Ethiopia that demonstrate significant impacts on
outcomes as a result of cash:
Cash Utilization. Firstly, households are allocating cash towards household
needs (with little to no spend on so-called “temptation goods”).36 As a result of
households being able to spend their cash tailored to their most immediate
35 WFP (2013). “Market and cash transfers in Ethiopia: Insights from an initial assessment.” 36 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”. WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.”
26
needs, we are seeing improvements in outcomes. Households also maximize
their cash by allocating small amounts towards productive activities.
Beneficiary Preference. Beneficiaries typically cite a preference for cash,
explaining that cash gives them enhanced dignity and negotiation power, and
this is especially true for women.
Improved Food Consumption and Dietary Diversity. In the case of Ethiopia,
households using cash demonstrate better food consumption and dietary
diversity scores, as compared with one year prior. However, this is not in
comparison to food aid, and such a study would need to be undertaken to
understand which transfer delivers higher scores.
Economic Impact on the Local Economy. The cash injection has multiplier effects
in the local economy by supporting traders and local markets.
2.3.1 Cash Utilization
Several assessments have been conducted of the cash transfer programmes to identify
the impact of cash, and how households are using their cash.
In the pilot programme in the Somali refugee camps, the survey data on cash utilization
show that 77% of the cash is used to buy food. The main commodities bought are milk,
vegetables, sugar, pasta, wheat flour and meat/eggs.37 These are not typical
commodities included in a food basket and suggest that people are using cash to buy
alternate goods that are more suitable for their household. As reported in greater detail
below, dietary diversity has increased in the project area, and beneficiaries report that
the cash gives them flexibility that enables households to diversify their diets. The
findings imply that dietary diversity has improved as a result of cash; however, the study
did not explicitly compare scores with food and with cash recipients, and further work
would be required to draw any conclusions from this.
The relief cash programme shows similar outcomes. According to a report of the third
round of cash distribution, 78% of the cash is spent on food items, and 17% has been
invested in livestock (the remainder has been used for other household needs including
healthcare and household items; the report does not elaborate on the mix of food
bought).38 The lessons learned report highlights that households have been maximizing
37 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”. 38 WFP (2014). “BCM Report of Oromia Region for the 4th Round Relief Cash Distribution.”
27
use of the cash by allocating a small amount for more productive activities (education,
livestock, fertilizer etc), that could lead to longer term ability to cope/graduation.39
2.3.2 Beneficiary Preference
Generally speaking, beneficiaries prefer cash. In the case of the refugee camps, post-
distribution monitoring with beneficiaries revealed that 80% of beneficiaries are
satisfied with the combination of in-kind food and cash, and that the commodity that
they prefer to receive in cash equivalent is wheat. The 20% of unsatisfied beneficiaries
would like to have all their wheat entitlement monetized, and not only the 6 kg (or close
to 50%) that the current pilot contains.40
According to focus group discussions, the relief cash programme has enhanced dignity
and strengthened the negotiation power of refugees with the traders41.
Further to this:
All of the sampled beneficiaries responded that there has not been any conflict
within the household over control of relief cash.
64% of the sampled beneficiaries responded that decisions on how to utilize the
cash within the household are made jointly.
Most of the sampled beneficiaries preferred cash to food. This is a big change as
compared to the 1st round of cash relief where 65% of the sampled beneficiaries
preferred food. This is mainly due to timely adjustment of the transfer value
based on the prevailing price of food in the local markets, ample availability of
food in the market and enhanced understanding of cash as an alternative mode
of transfer by the beneficiaries.
No major challenge was observed at most of the cash distribution sites. Between
20 and 50% of respondents (depending on the location) pointed out long waiting
times at the distribution site as a major challenge.42
According to the post distribution report, there were no major gender or protection
issues. 78% of people who collected the food and cash entitlement were women. 99% of
respondents felt safe travelling to the distribution site; during the distribution; and
39 WFP, Update of Cash in Relief in Ethiopia 40 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”. 41 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”. 42 WFP (2014). “BCM Report of Oromia Region for the 4th Round Relief Cash Distribution.”
28
travelling back to home.43 Further, no significant changes in protection issues have been
identified in the relief programme (as monitored by the WFP monitoring system and the
complaints desk managed by UNHCR and ARRA).44 This finding was also echoed in the
relief programme, where women reported being more involved in decision making on
the utilization of the funds.45
It should be noted that, by sharp contrast, beneficiary preferences have been quite
different around the PSNP. A number of studies have found that PSNP beneficiaries
prefer exclusive food transfers over all other options, including cash/food combinations.
It was reported that the relative value of the cash transfer and the fear that it will not be
able to keep up with rising prices results in the preference for food over cash.
Beneficiaries worried more about their capacity to afford food rather than its availability
in the market.4647 This finding speaks to the importance of timing and location of cash
transfers, to ensure that the cash retains its value and to avoid negative experiences
with cash transfers.
2.3.3 Improved Food Consumption and Dietary Diversity Scores
The results from a WFP assessment of the cash/food distribution in the refugee camps48
indicate that the food consumption and dietary diversity score among the refugees has
significantly improved. Beneficiaries are also highly satisfied since the cash provides
them flexibility and enables households to diversify their diets.
As discussed previously, cash in the refugee camps was introduced because
beneficiaries were selling between 30-50% of the wheat received to buy other types of
foods in the local market that were highly preferred. Thus, by using the food
consumption scores (FCS) and coping strategy indices (CSI) from the refugee camps, it
was concluded that the utilization of food aid was not as effective as intended.
43 WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.” 44 WFP/UNHCR (2014). “Joint Programme Review on Cash for Food Assistance: Cash pilot in the Sheder and Aw Barre Refugee Camps, Jijiga”. 45 WFP, Update of Cash in Relief in Ethiopia 46 USAID (2013). “USAID-BEST Analysis.” USAID Office of Food for Peace, Ethiopia. 47 Berhane, G. et al (2013) The implementation of the Productive Safety Net Programme and the Household Asset Building Programme in the Ethiopian highlands, 2012: Program Performance Report. IFPRI, IDS and Dadimos, July 15th 2013. 48 WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.”
29
Since the introduction of the cash component, there has been a substantial
improvement in FCS (as measured in October 2013) when compared against FCS data
from the baseline (August 2012). The analysis of data from a representative survey49 in
Sheder refugee camp revealed the following:
Households with an adequate food consumption score increased from 47% to
75%. Very small households (1-2 members) remain vulnerable, with worse scores
than the camp average.
The cash distribution seems to have increased refugees’ dietary diversity scores.
The percentage of households with low dietary diversity fell from 77.5% baseline
to 35% in October 2013. The percentage of households with medium and high
dietary diversity increased: medium (35% up from 16.5%) and high (30% up from
6%). The cash distribution allows beneficiaries to purchase more fresh items like
vegetables and milk. The percentage of households consuming most food groups
in the week prior to the survey increased greatly: vegetables (92% from 58.8%),
milk (71% from 31.4%), roots/tubers (71% from 31.4%), and meat/eggs (42%
from 27.5%).
The mean Coping Strategy Index (CSI) score was 13 in October 2013 up slightly
from 11.5. The combined cash and food assistance amount is still not enough to
meet beneficiary needs. 83% of households reported that they did not have
enough food to last them to the next distribution. The average shortage period
was 8 days.
While the majority of the cash is being used for food security needs, refugees are
still selling 53% of the cereal ration to purchase preferred food items. This
indicates that the cereals provided do not meet their dietary needs and
preferences even with the switch to providing some cash. Refugees sell 15% or
less of other items in the food assistance basket suggesting that these items are
more acceptable.50
49 This report uses a representative survey conducted in August 2012 as a baseline. Since refugees depend almost entirely on food assistance and there were no major programmatic changes between August 2012 and July 2013, there should not be substantial changes in food security levels in the camp. In addition, the camp is well established so conditions have been relatively stable over the past few years. The August 2012 survey should provide an adequate estimation of baseline rates before the introduction of cash in the camp. The data collection phase of the survey was conducted between 21 and 26 October 2013. This period was chosen because it fell a couple of weeks after the cash and food distribution, which takes place during the first week of the month. By the end of October, the beneficiaries had received four monthly cash transfers (from July to October) and therefore some impacts of the cash programme were expected to be captured by the survey. 50 WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.”
30
It should be noted that respondent preferences may vary by season (pre or post
harvest) and therefore additional surveys during different seasons would help to enrich
the understanding of people’s preferences.
2.3.4 Economic Effects on Local Economy
According to the post distribution report, the cash distribution had positive effects on
markets. Traders report an increase in business. There were no supply shortages, no
price inflation, and no tension with the local community. Traders are more willing to
lend money and their loans are repaid more quickly. Refugees have started additional
businesses in the camp.51
Reinforcing these findings, impact evaluations from the Protection to Production
Project52 estimate that each Birr transferred generated Birr 1.84 and Birr 1.26
(depending on the treatment area) of real total income through multiplier effects in the
local economy. These findings are based on cash transfers in a non-humanitarian
context, but nonetheless offer interesting evidence on the potential for multiplier
effects. They note that most of the productive impact is with non-beneficiary
households, and that caution has to be exercised because these multiplier effects will
not be realized if local supply cannot meet demand.
2.4 Barriers to Scaling Up
Given that cash is likely to be more cost efficient and effective in many scenarios in
Ethiopia, what are the barriers to scaling up cash that need to be addressed?
The two primary factors that prevent scaling of cash in Ethiopia that are prevalent in the
literature and consistently discussed in consultation include:
Capacity for technology, and
Market integration.
Further to this, a variety of additional issues were raised in consultation, namely:
51 WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.” 52 The “From Protection to Production (PtoP)” project is a multi-country impact evaluation of cash transfers in sub-Saharan Africa. The project is a collaborative effort between the FAO, the UNICEF Eastern and Southern Africa Regional Office and the governments of Ethiopia, Ghana, Kenya, Lesotho, Malawi, Zambia and Zimbabwe. http://www.fao.org/economic/PtoP/en/. Presentation by Benjamin Davis (FAO) and Justin Kagin (UC Davis), Nov 12-13, 2013.
31
Cash is not available at an equivalent level to food supply (linked to US food
policy);
Multi-year funding is required to provide consistent support to cash
programming; and
Issues over choice of product.
Capacity for Technology/E-transfers
Ethiopia has one of the weakest mobile/internet infrastructures in Africa. Unlike
neighbouring countries where mobile money and similar technology is prevalent, even
in poor rural areas, these services are lacking in Ethiopia.
In turn, the limited expansion and development of the banking and telecommunications
system in Ethiopia places a notable limit on the options for cash transfer. Not only does
this limit scale up, but also limits opportunities to maximize VFM, as such systems can
bring significant economies of scale to the system.
In 2013 WFP commissioned a study to assess the feasibility of mobile phone based
transfers, but technology-specific hindrances limited the ability to use such technology,
and hence the pilot has used cash in envelopes as the only feasible transfer modality.
The study further proposed different technological solutions to support cash transfers in
the camps, but the government’s position towards the use of technology and access to
refugee data by third parties meant that the use of any type of FSP or technology was
not an option that could be considered.
At the same time, the current system, which operates through the government systems
to devolve and distribute the cash at a local level, has experienced some delays. In the
WFP relief operations, the DRMFSS is the government partner in cash transfer
implementation working together with the regional DPPC, zones and woreda finance
and early warning officials. However there have been some challenges especially in the
transfer of funds, which have taken over 15 days to transfer from DRMFSS to regional
accounts.53 The PSNP faced similar issues in its first phase (2005-2010) with serious
delays in transfers.
An electronic transfer system could avoid these delays by allowing direct transfer to
beneficiaries. It would further avoid the need to push larger sums of cash through the
government system.
53 WFP, Update of Cash in Relief in Ethiopia
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Having said this, the PSNP faces the same set of constraints and yet has been able to
reach scale. While limited capacity on technology is certainly a constraint to
implementing this transfer modality, the perception that it is limiting scale up more
generally is countered by the success of the PSNP. Potential e-transfer modalities for the
PNSP are currently being investigated, but are at an early stage.
Market Integration
Scaling will require a good understanding and knowledge around the ability of markets
within Ethiopia to be able to a) absorb food price increases (so that cash does not lose
its value) and b) absorb cash without a significant impact on price inflation in local
markets.
Further to this, seasonal fluctuations can be significant. For example, according to an
IFPRI study54, intra-annual price variations of 40-50% are typical for maize in Ethiopia,
implying that price volatility is a chronic feature of the local cereal market.
Additional factors that seem to drive a market’s capacity to absorb price increases
include the commodity type (the supply chain in place will heavily influence its capacity
to handle higher demand); market size (smaller markets are more susceptible to price
increases when demand surges); and distance from supply source (markets that are
more accessible to trade are less likely to experience undue price increases).55
Further to this, a number of factors affect the ability of local markets to absorb cash in
Ethiopia:
Low capital could limit traders’ capacity to respond to higher demand. In the
WFP Markets and Cash report, they found that traders in Amhara and Tigray
generally lack adequate access to capital. Although credit exists, it is usually an
in-kind merchandise advance from their supplier, to be reimbursed before the
next delivery. This low-quality of credit is not what traders need to invest or
increase their turnover.
Government policies aim to keep prices low, and measures are taken to protect
consumers’ purchasing power. For instance, traders of local cereals and pulses in
Amhara and Tigray report being subject to measures preventing them from
storing food for excessive amounts of time: in practice traders are fined if the
value of their grain inventories exceeds the total value of the capital reported on
their business licenses and a margin of 25 per cent. Whilst designed to prevent
54 IFPRI (2010) Maize Value Chain Potential in Ethiopia: Constraints and opportunities for enhancing the system. In WFP (2013). 55 WFP (2013). “Market and cash transfers in Ethiopia: Insights from an initial assessment.”
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hoarding, such regulations might, over the medium term, reduce incentives for
investments in storage capacity and exacerbate seasonal price swings.
A number of reports echo these issues in PSNP areas. A USAID56 appraisal found that
traders face constraints in accessing additional credit to increase sales in response to an
expanded market. Overall, traders’ responses to the appraisal suggest that in the
majority of woredas canvassed traders have both a presence and the capacity to expand
that presence given assistance in the sourcing of finance. Berhane et al found that small
traders indicate that they do not have the capital or capacity to keep more stock so as to
be able to respond to increased demand.57
Additional Barriers to Scale
During consultation, the following additional barriers to scaling cash were raised:
Limited availability of cash as compared with food. USAID currently provides
approximately $110m in food aid each year in Ethiopia58, under the Title II “Food for
Peace” initiative. Under this programme, US surplus food is used for emergency
response, rather than cash being used to buy food either internationally or locally. As a
result, an equivalent amount of cash is not available.
Insufficient multi-year funding to commit to cash at scale. A number of stakeholders
felt that it was essential to have multi-year humanitarian funding in place for cash, to
allow for agencies to invest in the systems required to expand to more areas, and to
ensure that they could commit to cash transfers with a reasonable sense of certainty
and continuity. Several mentioned that the high quality of systematic studies on cash in
Ethiopia had been conducted specifically to lay the groundwork for multi-donor, multi-
year funding for greater use of cash.
Availability of cost efficient products. The evidence presented suggests that
beneficiaries use their current cash transfers largely to buy food as well as other
household essential items, and that food consumption and dietary diversity scores have
increased as a result. Cash could also be extended to other low cost items where quality
is not an issue – for example to buy cooking utensils, or soap. However, if cash is used
56 USAID (2013). “USAID-BEST Analysis.” USAID Office of Food for Peace, Ethiopia. 57 Berhane, G. et al (2013) The implementation of the Productive Safety Net Programme and the Household Asset Building Programme in the Ethiopian highlands, 2012: Program Performance Report. IFPRI, IDS and Dadimos, July 15th 2013. 58 Pers Comm, Jason Taylor, USAID
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for larger items such as shelter, there are greater concerns over beneficiaries being able
to select and afford the most cost efficient and effective product.
For instance, the DFID business case for support for refugees59 presents a VFM
assessment for shelter in camps. The business case makes the case for transitional
shelters. While transitional shelters are more expensive than tents, the lifespan of the
transitional shelter is 4 years, as compared with the tents that require replacing every 4
months. The cost of housing one family in a transitional shelter for 4 years is $690,
whereas housing the same family in a tent costs $5,400. The cost saving of one shelter is
therefore $4,710 over a 4 year period.
It is not clear whether a cash transfer for shelter would result in a family buying the
transitional shelter, which is significantly better value for money, and may suggest that
a voucher could be appropriate in this scenario. Firstly, the high quality shelters would
need to be available in the local market. Secondly, the family would need a cash
transfer with a high enough value to be able to afford the much more expensive
traditional shelter. And finally, the family would have to choose to buy the transitional
shelter over the option of a cheaper tent whilst still maintaining cash to spend on other
household needs.
59 DFID (n.d.). Business case: Support for Refugees in Ethiopia:2012-2014
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3 Maximizing VFM: Conclusions
Based on the evidence presented, the following conclusions and recommendations can
be drawn to maximize the value for money of emergency transfers in Ethiopia.
In most scenarios in Ethiopia, cash is more cost efficient and effective than in kind food
transfers. In WFP pilot programming, cash is 25-30% less expensive than in kind food
aid. The evidence has clearly laid the groundwork for demonstrating that cash can be a
more effective transfer modality in many scenarios in Ethiopia. A lot of efficiency gains
have been made in in-kind food aid transfers, and yet cash is still comparatively more
efficient in pilot programmes.
Additional efficiency gains in cash could potentially be made through increased scale
and through the use of innovative transfer mechanisms. Transfer mechanisms that
transfer direct to beneficiaries could improve the system greatly, but it is not clear what
is feasible, or how much it would cost. Therefore it is recommended that a more
detailed study is commissioned to examine the feasibility and cost of introducing
electronic and other systems. The potential use of the localized MFI infrastructure in
Ethiopia should be a core focus of this study.
Cash should be expanded to new areas, and also the component of cash within
existing refugee operations should be expanded. A great deal of effort has gone into
systematically assessing markets in Ethiopia, and piloting cash within WFP refugee and
relief contexts, with the clear aim of expanding programming. The evidence clearly
supports greater use of cash in humanitarian programming. And it is clear that there are
many areas where the necessary conditions to implement cash, such as strongly
integrated markets, are present. Some commodities, such as oil and sugar, are
subsidized by the government or not available in local markets, and therefore will
necessarily be a part of the food ration. However, cereals are much more readily
available and can be substituted for more cash. In the case of the refugee programmes,
beneficiaries receiving combined food/cash are still selling on average 53% of the cereal
ration to buy other goods, suggesting that even greater flexibility would be welcome.60
The WFP Ethiopia programme is currently only 5-6% cash, as compared with their global
commitment to scale cash from 11% currently to 30% in the next two years61.
60 WFP/ARRA/UNHCR (2014). “Final Report: Joint WFP/ARRA/UNHCR Post-distribution Survey on the Combined Cash and Food Distribution for Somali Refugees, Sheder Refugee Camp.” 61 DFID/WFP Monitoring visit, minutes, March 2014.
36
Ongoing expansion should be complemented by programmes that help to build
appropriate conditions for cash in other areas. For example, as highlighted previously,
the USAID appraisal finds that traders in PSNP areas felt that they have both a presence
and the capacity to expand that presence, but require assistance in the sourcing of
finance. As a result, they suggest that programmes are implemented alongside cash that
facilitate the provision of credit – either through receiving vouchers or through direct
cash sales – to those traders that might participate in the market expansion process.
Credit could be guaranteed through microfinance institutions or finance these traders
directly and receive repayment through the redemption of vouchers or cash revenues.62
However, the approach needs to be flexible and cognizant of local market conditions.
The Value for Money argument for cash depends very much on food prices as well as
local market integration, and any programming needs to retain some degree of
flexibility in order to respond to changing market conditions. Market conditions are
likely to continue to change – ongoing inflation and shortages in food supply suggest
that the price of food will continue to increase and cash needs to reflect these changes
to retain its value. Cash transfers can be index-linked to food prices to ensure that
beneficiaries can consistently purchase what they need. But index-linking can only go so
far; for example, the price of staple foods in Ethiopia in 2008 increased to around 300%
of 2006 prices, eroding the real value of the cash transfer.63 So called “hybrid”
programming could be very useful in this regard, with in kind food transfers
complementing cash transfers when supply is low, or where markets are not sufficiently
integrated for cash.
Donors should commit to a multi-donor, multi-year facility to support cash. Multi-year
funding will allow agencies to commit to cash and invest in the required infrastructure
to scale cash as a response mechanism where appropriate.
62 USAID (2013). “USAID-BEST Analysis.” USAID Office of Food for Peace, Ethiopia. 63 Slater, R, and D Bhuvanendra (n.d.). “Scaling Up Existing Social Safety Nets to Provide Humanitarian Response: A case study of Ethiopia’s Productive Safety Net Programme and Kenya’s Hunger Safety Net Programme.” Overseas Development Institute.
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