The Potential and Limitations of Self-Targeted Food Subsidies

Abstract

Can self-selection of subsidized commodities be used as a mechanism to transfer income to the poor? Evidence from two self-targeting programs, one in South Africa and one in Tunisia, shows that although self-targeting can clearly improve the distribution of food subsidies to the poorest members of society, its power to alleviate poverty and reduce income disparities is limited by preference patterns, income inequality, and the size of the individual subsidies. Self-targeting through quality and product differentiation can be a useful means to reform existing universal subsidy schemes, but it should be considered a transitional tool while the capacity for implementing more precise mechanisms is developed. Self-targeting-subsidizing only those commodities the target group has indicated it prefers-has been put in place as a way to reform generalized food subsidies and limit participation in these programs to the intended beneficiaries. By choosing to subsidize commodities consumed primarily by the poor, governments have found that they can improve the targeting-and reduce the costs-of food transfers. Selftargeting is attractive because it sidesteps the difficulty of determining how much income people have. By targeting the behavior of the poor, which they reveal, policymakers can avoid having to screen individuals on the basis of their incomes, which they generally do not divulge. One of the first examples of self-targeting reported in the literature was an experiment in Bangladesh in which sorghum flour was used as an alternative to wheat in ration shops (Karim, Majid, and Levinson 1980). This successful pilot program proved to be better targeted to the poor population than wheat flour (which was itself self-targeted) because rice is the preferred grain in that country (Ahmed 1988). Self-targeting can be also be achieved by quality differentiation. Tunisia subsidizes foods in several product groups (cereals, cooking oil, sugar, milk) according to the consumption preferences of the rich and the poor for various items in each group (Lindert 1995b; Tuck and Lindert 1996). Both Morocco and Egypt have reduced the

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“…As a consequence, higher levels of government have to rely on local insiders, who are supposedly better informed, to implement pro-poor programs. Previous research confirms that such decentralization can reduce monitoring costs and improve the targeting of pro-poor programs (Klugman 1997, Alderman andLindert 1998;Coudouel, Marnie, and Micklewright 1998;Bird and Rodrigues 1999;Ravallion 1998;Alderman 2001). However, due to a lack of political accountability, empowering local administrators also increases the risk of corruption (Seabright 1996, World Bank 2003, Olken and Pande 2011, Ferraz and Finan 2011.…”

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