For real? Income and non-income effects of cash transfers on the demand for food

Cash transfers have become a key policy tool to protect vulnerable populations from malnutrition. Ample evidence shows these programs to have positive impacts on nominal food consumption expenditure. However, with rising food prices, nominal impacts might systematically differ from real impacts. We analyze the effects of Kenya's Hunger Safety Net Program on food demand during a drastic price shock. We find that the impact on nominal food expenditures overstates the impact measured at constant prices. Two factors explain this result: Firstly, households spend most of the transfer on food irrespective of prices, thus increasing losses due to the price shock in absolute terms. Secondly, shifting expenditure towards food categories more strongly affected by the price shock leads to disproportional real losses among treated households. Structural changes in demand associated with transfer modalities account for up to half of the loss in real food expenditures compared to control households.

Keywords: Cash transfers, Food prices, Demand, Social protection, Kenya

JEL Classification: D12, I38, O12, Q11