Cash transfers for climate-resilient development

drought

Kathleen Lawlor (University of North Carolina at Asheville), September 2015

Climate change poses significant threats to the current and future well-being of children across the world, particularly children in low-income countries. Climate models predict that certain regions of the world, such as Sub-Saharan Africa, will experience dramatic disruptions to rainfall patterns and agricultural yields. As a result, the Intergovernmental Panel on Climate Change (IPCC) notes that climate change is projected “… to slow down economic growth, make poverty reduction more difficult, further erode food security, and prolong existing and create new poverty traps…” Clearly, how the international community chooses to address climate change mitigation and adaptation has important implications for human development, intergenerational equity, and children’s rights.

Many climate adaptation strategies are currently being formulated and tested around the world. Crop insurance and ecosystem-based adaptation are often touted as important strategies for rural Africa. However, recent evidence from one of Zambia’s largest social protection programs – the Zambian Child Grant Programme – suggests that much more attention should be paid to another strategy that is highly effective in helping households cope with extreme weather events affecting agricultural production: unconditional cash transfers.

Researchers found that by extending small (about $12/month), regular payments to subsistence farmers unconditionally and prior to weather shocks, the Zambian Child Grant Programme enabled poor, rural households to employ coping strategies typically used by the non-poor, such as spending savings, once they encountered weather and other negative income shocks. Additionally, despite the fact that 81% of households in the study experienced droughts, floods, and sharp fluctuations in food and crop prices in the year after the program started, households receiving the cash transfer were still able to increase their food consumption by 29-35% between 2010 and 2012 (as compared with the change over time in the control group). Transfer households were also 14 percentage points less likely to say they coped with a negative shock by reducing food consumption and 20-25 percentage points less likely to be severely food insecure.

Taken together, these findings provide strong evidence that unconditional cash transfers are a powerful policy option for helping rural households escape the poverty traps that climate change threatens to entrench. When faced with a weather shock that ruins a harvest, poor, agricultural households often cope by simply reducing food consumption, given a lack of savings, credit, and cash to cope. Reducing food consumption can have especially negative consequences for children, harming their ability to learn, grow, and thus escape poverty in the long-run. This negative feedback loop is a classic example of what economists mean when they talk about “poverty traps” – self-reinforcing conditions that cause poverty to persist. The fact that cash transfer households in Zambia were able to not just avoid poverty traps in the face of weather shocks, but also increase their food consumption despite these challenges is especially encouraging, because it suggests that these households are on growth trajectories that will make them less vulnerable to negative shocks in the future.

Why did receiving unconditional cash transfers prior to droughts and flooding enable households to productively cope with these negative income shocks and avoid coping strategies associated with poverty traps? There is a diversity of reasons. Many households had already used the transfer to expand the size of their farms, and so may have had more food on hand to tap into once subsequent harvests were damaged. The transfer also had a large impact on fertilizer purchases, which may have increased crops’ resilience to weather shocks. And because many of those who expanded their farms began selling some of their agricultural production in markets, some households were able to increase their cash savings and purchase food when needed. Others invested the transfer in the establishment of non-farm businesses and were able to use the cash-flow generated to increase their food consumption.

This diversity of responses points to some of the unique benefits of unconditional cash transfers as both a climate adaptation and overall development strategy. Unconditional cash transfers don’t require that we know precisely when and where climate change will cause harvests to fail. Whether the cash is used to cope with a weather shock, a family illness, or to increase agricultural production, evidence is accumulating that the poor routinely invest unconditional transfers in fighting poverty. Unconditional transfers also don’t require that governments and donors try to pick the winning strategy; rather, they empower the poor themselves to decide what changes to make to their livelihoods. Such self-selection can yield efficiency gains by allowing individuals to pursue their respective talents and diversifying livelihoods at the local level. And by promoting individual’s autonomy and agency, unconditional cash transfers respect human rights as well.

Lawlor, K., Handa, S., Seidenfeld, D. and the Zambia Cash Transfer Evaluation Team (2015). Cash Transfers and Climate-resilient development: Evidence from Zambia’s Child Grant Programme, Innocenti Working Paper No.2015-03, UNICEF Office of Research, Florence. Available at: http://www.unicef-irc.org/publications/777

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