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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.

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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

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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%

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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”.

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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.