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Economic Instruments

Many economic instruments have been developed to improve the socio-economic conditions of the poor and the most vulnerable. Economic instruments have two main aims: first, to build the social worth of the vulnerable householder by enabling an increase in their income, their purchasing power and their access to financial markets (Zeller et al. 1997) and, second, to stabilize and/or lower food prices by way of targeted interventions such as income transfers, food subsidies or public work projects for those subjected to food insecurity. These economic instruments are in effect instruments of social protection (Sen 1999, p. 24).

The impact of policy instruments, however, needs to address both short and long-term impacts of food security or transitory food crises. Clearly, food insecurity responds both to emergency measures in the short run and long-term structural measures such as enabling access to social services and education that enables behavioural shifts. Microfinance schemes have been evidenced to being effective in alleviating poverty and enhancing capabilities (Robinson 2001; Yunus 1999). It is clear that what is important to enable a household’s ability to shift from consumption to welfare is not only access to specific services (formal and informal) but also risk-bearing capacity.

Financing can impact these behavioural shifts towards knowledge build and welfare systems that enable food security in three ways: [1]

  • 2. Much earlier on, Schultz (1961) observed that to enable such behavioural shifts required investment in human capital, which is the second factor in enabling knowledge and capacity build for the future.
  • 3. It is further argued that enabling human capital build contributes to the development of social capital, which can help small farmers through co-operatives and networks to protect their interest (Brown and Ashman 1996) and, in turn, food security.

Zeller et al. (1997) identified three pathways where financing would have an impact: first, by enhancing householders’ and farmers’ income generation; second, through asset investment strategies; and third, by way of direct use of credit to finance immediate and long-term needs. The relative importance of income and food security has long been recognized but not applied as more has been done in developing food production than focusing on food security (Mulder-Sibanda et al. 2002). With regard to asset investment strategies, this has not always been high as a research priority, although the need for investment in capital build is acknowledged not only to enable farms to grow but also to improve productivity of labour and food security (HLPE 2013).

  • [1] Physical capital builds. Here consideration is given to alternativebuild, for example, instead of growing low-yielding crops householders might consider improved seeds and high-yielding crops(Feder et al. 1985). Programmes can be developed to enhance therisk-bearing ability of small farmers. For example, Zeller et al. (1998)found, in their study on smallholder farmers in Malawi, that households with small farms and low risk-bearing ability, participating inagriculture credit programmes, tended to be able to adopt more capital-intensive crops—and to become more risk-taking in theirbehaviours.
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