For real? Income and non-income effects of cash transfers on the demand for food
Stephan Dietrich & Georg Schmerzeck
#2020-006
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