Developing strategies to end hunger
 

7 posts from October 2010

Savings and the Great Recession

My parents were kids during the Great Depression, and I’ve always believed it was because they'd lived through this time in history that they worked so hard to inculcate in me the value of savings. Full disclosure here: I graduated college carying no burden of debt, thanks to my own savings and what my parents had saved for me. 

I don’t know how to say this more politely to make the point, but my parents were unexceptional in too many ways for me to think savings weren’t what most in their generation believed was a necessary tool to manage financial risk and get ahead.

There is no savings gene. Indeed, it’s an attitude in a culture that gets in your bloodstream, just like an attitude that makes people believe they must have the latest gadget or a coat that acts as a billboard for the manufacturer as much as it serves to keep them warm in the winter. 

Here we are in our own Great Recession, which seems like an occasion to get reaquainted with the value of personal savings to help manage financial risk.

The government has built a safety net for people who fall on temporary hard times; but government doesn’t do much to put spring in the net so that people are not only able to get back on their feet but to begin climbing the ladder of opportunity, which is arguably just as vital a function of government. There are various ways that government can do this, but one clearly is to improve polices that encourage all people, not just the rich, to save and that protect their savings from predators like the ones that caused the subprime bust.

Some organizations are focused exclusively on the net and not the ladder. One that has done a lot of thinking about the ladder is New America Foundation, putting out a steady stream of great policy proposals to improve savings opportunities for low-income families. New America has just published an excellent brief that “audits the safety net” and provides some timely recommendations to help low-income families to save.

The brief was written by Rachel Black, whom Bread members will recall was heavily involved in shaping the most recent Offering of Letters to improve the Earned Income Tax and Child Tax credits. One of the ideas she puts forth is to create more opportunities for people to save their EITC return and to put those saving aside for asset-building purposes, like homeownership or a child’s college education. These are reasonable proposals. We've said much the same thing in previous Hunger Reports

Cholera in Haiti

The cholera outbreak that killed 259 people in Haiti brought the earthquake-ravaged nation back to the international front pages.  The upsurge in cholera appears to be stabilizing, with a slowing of the number of cases reported in the affected areas.  Reports from the capital, Port au Prince, indicate success in staving off everyone’s biggest fear:   a massive cholera outbreak in the camps where more than a million people are living without shelter.  An ambitious grassroots campaign to educate the residents of the “tent cities” was instrumental in preventing a widespread epidemic. 

Epidemics of contagious diseases are not a new concern; there were fears that a rash of such diseases would erupt soon after the earthquake.  At that point, however, there was a sense of urgency as health officials and aid groups worked in the midst of chaos to ensure that the onset of the rainy season did not result in another wave of devastation. Aggressive efforts on the ground helped prevent needless disease-related deaths in January and February 2010.

But we are now more than 10 months out from the earthquake. The longer it’s been, the harder it is to maintain a sense of urgency.   There is still a lot of interest, concern, and goodwill.  But the news coverage of the cholera outbreak indicates a return to an old pattern:  reacting to a Haiti in crisis, rather than following through on commitments to support a meaningful national recovery.

Less than 15 percent of the pledged reconstruction funds have made their way to Haiti.  U.S. aid designated for recovery and reconstruction has been held up, largely because of administrative issues at the State Department.  Advocacy groups working to keep Haiti on the agenda are already planning actions around the earthquake’s one-year “anniversary” on January 12, 2011.  

The cholera flare is a wake-up call, warning that the pledged aid to Haiti needs to start arriving – promptly and consistently.  The epidemic has stabilized but could still continue spreading as the New York Times reports today

This is why dealing with the 1.3 million people who are living in camps is crucial.  The international structures paired with the Haitian government to reconstruct the country (some of which I explore in this briefing paper) must take urgent steps to implement a comprehensive settlement and shelter strategy.

Haiti remains alarmingly vulnerable to external shocks and natural disasters. Unless we listen to the wake-up call, the country could easily arrive at the earthquake’s first anniversary with little more than a crisis-management plan masquerading as a reconstruction agenda. 

Ethanol and Rural America

Many residents of rural America regard ethanol as a boon. In the agricultural counties of the Corn Belt and northern Great Plains, the last few decades have experienced a steady outmigration as farms consolidate, jobs vanish and rural communities become uprooted. In these hard hit areas, ethanol plants create jobs and spur economic development, even more so if the plants are locally owned.

In a report published just last week, the Economic Research Service (ERS) of the U.S. Department of Agriculture modeled the effects of increased biofuel consumption on the U.S. economy by 2022. It found benefits for all Americans, including “higher real wages, increased household income, and lower import prices.”

The gains stem from the fact that as petroleum prices will continue to rise, the opposite is the case for biofuels. How swiftly and extensively biofuels can substitute for petroleum will depend on improvements in technology and the rate of investment in the fledgling biofuels sector.

Exchanging domestic biofuels for imported petroleum may be good news for people in the United States, but what about people in developing countries? And regarding the technology, the big question is can biofuels be decoupled from hunger?

Drawing attention to the relationship between corn-based ethanol and global hunger probably won’t lead many residents of depressed communities to oppose building ethanol plants. However, first they should understand that not all ethanol is the same.

Last week, I wrote about cellulosic ethanol, the kind that can be produced from nonfood crops. This is the so-called “next generation” of biofuels, and rural America stands to benefit much more from cellulosic ethanol than the corn-based ethanol that is being produced currently.

In a study focused on North Dakota, Nancy Hodur and Larry Leistritz conclude that biofuels produced from cellulosic resources have a much higher potential for economic impact than corn-based ethanol.  Table 1 compares the economic impact of a corn-based ethanol plant with a plant that uses wheat straw, a cellulosic material.

Jobs for corn vs. cellulosic plant 

The annual economic impact is more than three times higher for the cellulosic plant, and the number of jobs created is close to five times higher.  Corn-based ethanol can’t provide the same value because the corn could be sold in other markets. Larger benefits accrue to cellulosic ethanol because the wheat straw in this example would not be repurposed for other economic ends. Generally, when we talk about cellulosic ethanol, the raw materials are wood waste, grasses, crop waste and the like: nonfood resources.

As it turns out, areas of the country where corn-based ethanol is produced also have a bounty of cellulosic resources. The states in the North Central Region of the country, including those that make up the Corn Belt, account for 60 percent of the country’s total biomass resources.  Because ethanol facilities typically get built near the source of their raw materials, the benefits remain in state if not within the very same communities where the corn-based ethanol has been produced.

 Biomass available in US

The Energy Independence and Security Act (EISA) of 2007 set a goal of producing 36 billion gallons by 2022, with a minimum of 16 billion gallons from cellulosic biofuels. Reaching the goal for cellulosic biofuels will require massively scaling up the infrastructure to produce that much ethanol. To put this in perspective, the nation’s first large-scale cellulosic ethanol plant doesn’t go online until 2011.  To meet the EISA goal by 2022, the nation would need to build 320 plants with a 50-million gallon production capacity. According to a report by the National Renewable Energy Laboratory, these plants would employ upwards of 15,000 workers, and the secondary jobs created by the economic development in surrounding communities would add thousands more.

In North Dakota alone, write Hodur and Leistritz, “If development were to occur on this scale, the cellulosic ethanol industry’s annual contribution to the state economy would be nearly a billion dollars ($800 million) per year and exceed that of the state’s substantial coal mining and conversion industry.”   But this kind of development is only within reach if federal and state officials are committed to achieving the EISA goal.

Foreclosures and Racism

In 2008, Bread for the World Institute analyzed the relationship between poverty and subprime mortgage lending, finding that poor neighborhoods were not only more likely to be targeted by subprime lenders, but in many cases these were the overwhelming share of all home mortgage loans in those neighborhoods. Given the connection between poverty and racial segregation, it was clear that minority neighborhoods were going to be hit hard when the housing bust came.

A new study by researchers from Princeton documents what we had suspected: the tidal wave of home foreclosures taking place is due in part to the deliberate targeting of subprime loans to racial minorities, primarily African Americans.

In the 1990’s the historical practice of not lending to minorities shifted 180 degrees; all of a sudden, minorities were a coveted market for mortgages. This happened for two reasons:

  • The lack of credit (or good credit) of many of these minority clients was no longer a problem for banks because of securitized mortgages, commonly referred to as mortgage‐backed securities. These new financial instruments, which split apart the origination, servicing, and selling of mortgages into discrete transactions, had a two‐fold effect: 1) they reduced the risk to lenders by pooling high and low risk mortgages to sell; and 2) they increased the need for banks to find more borrowers because of the expanded pool of credit.
  • Predatory lending was on the rise. Minorities living in segregated neighborhoods experience predatory financial institutions routinely: pawn shops, payday lenders, and check cashing services that charge high fees and interest rates. This often leaves those living in these neighborhoods unaware of alternative, less expensive credit or financial services, and more vulnerable to lenders willing to sell them a subprime mortgage with an extremely high interest rate. Segregated neighborhoods offer predatory lenders a large number of potential high risk borrowers in one place – making the job easier to secure borrowers in high numbers.

The result was a tremendous increase in lending of subprime mortgages ‐‐ loans to high‐risk borrowers with imperfect credit – to minorities.

The researchers recommend greater enforcement over predatory lending through the Civil Rights Act. The establishment of the new Consumer Financial Protection Bureau, led by Elizabeth Warren, is a good start, but it will need  the support of Congress and the administration to keep the lending industry in line as it pushes back on reform. As the excerpted quoted from the Princeton report shows, the industry has proven adept in their own "whack-a-mole" way of staying ahead of regulators. Policymakers must be vigilant.

What is Country Ownership? (A look at a success in Cape Verde)

Cape-verde-woman

School feeding program in Cape Verde. Photo: UN

That question continues to be hotly debated among development professionals, policy wonks, and other stakeholders working to make aid to poor countries more effective.  By definition, it is a concept best illustrated by the country doing the “owning,” not something batted around by folks in Washington.

But still, there is a need to understand how donor country policies can better support the process of country ownership in achieving development outcomes.  Most agree that this requires, at a minimum, a commitment to responding to locally-driven solutions and to strategies designed by the countries themselves.  Supporting country ownership also requires a commitment to building the capacity of the partner governments and other stakeholders to drive development in their country.

There was a remarkable report on Cape Verde a few weeks ago that is a great example of how country ownership is a process.  It may have flown below the radar screen of the international media.  The World Food Program (WFP) partnered with Cape Verde for decades (beginning well before the U.N. Millennium Development goals (MDGs) were established) to create a national food security program.    The program includes a universal free school meal initiative, critical because school lunch is the only nutritious daily meal available to many Cape Verdean children.

The school lunches are not only a critical tool in the fight against hunger but also serve as an incentive for parents to send their children to school.  Today, 92 percent of Cape Verdean children attend school. 

There are many successes in this story.  But the most relevant to country ownership is that as of this month, the Cape Verdean government is taking over the national school feeding program.  The country is now solely responsible for both the management and the financing of the policy.

As we learned about the full transition of the WFP school feeding program to Cape Verdean authorities, the Millennium Challenge Corporation (MCC) announced that  its Cape Verdean “compact” had just become the first to be completed. Compacts are large-scale grants to promote sustainable economic growth; the $100 million Cape Verde compact was awarded in 2005 for economic growth initiatives.

 The Cape Verde compact had several positive outcomes; it helped strengthen the country’s investment climate, improved infrastructure, increased agricultural productivity, and achieved key policy reforms necessary for sustained economic growth.  Cape Verde has successfully moved to the next level and is now working on its second MCC compact – the first MCC partner country to do so.

Cape Verde’s school feeding success and its completion of the MCC compact lend support to the concept of country ownership as a development principle. They also serve as an important reality check: the process of social and economic change through supporting country ownership takes time, intense engagement, and long-term investments.

Ethanol Still Hasn't Turned the Corner

Last week, analysts were discussing whether a sudden rise in corn prices, due to lower than expected crop yields in the United Sates, might touch off another food-price crisis like the one in 2007-2008, when the price of grains skyrocketed and so did the ranks of the hungry.

Earlier this year, a Russian export ban on wheat touched off similar concerns. It’s clear we’re in an era of volatile grain prices. This is a serious issue affecting poor people around the world because staple grains are mostly what they eat.

Getting back to corn—and ethanol—the United States is the largest corn producing nation in the world, and about a third of its yield is used to produce ethanol. In the 2007-2008 food-price surges, the World Bank and International Food Policy Research Institute concluded that one of the major factors driving prices was the diversion of food crops to produce ethanol.

I’ve been studying the rapid growth of the U.S. ethanol industry since 2006. It started with my work on the 2007 Hunger Report: Healthy Food, Farms and Families. Back then, it was common to hear that the next generation of biofuels—made from things like grass, algae, wood chips, i.e. products that do not compete with food crops—was just around the corner. Every time I delved back into the issue, I heard the same refrain: that next generation was just around the corner. So how wide a turn is this corner?

When the U.S. government passed The Energy Independence and Security Act (EISA) in December 2007, it set a target of producing 100 million gallons of next-generation cellulosic biofuel by 2010. Cellulose is basically what distinguishes the next generation from the current. I could go more into this, but let’s not digress. Go here for some background information on cellulosic biofuels. 

Earlier this year, the Environmental Protection Agency estimated cellulosic biofuel production output in 2010 would be 6.5 million gallons, more than 90 percent below what was mandated in EISA. You can’t miss a target by much more than that. Incidentally, the 2013 target is 1 billion gallons! 

Just yesterday, Agriculture Secretary Tom Vilsack spoke at the National Press Club and reiterated the Obama administration’s commitment to spur investments in next generation biofuels. Obviously this is good news. But accelerating development of the next generation may depend more on whether the government is willing to make a break with the current generation.

A far larger share of government expenditures goes to preserving the status quo than changing it. The troublesome policy is a tax credit to industries that blend ethanol with gasoline. In the United Sates, the blend is usually 10 percent ethanol to 90 percent gasoline. This is expected to change to 15 percent ethanol soon. Absent other measures by the government to control production, this will increase the amount of corn being used for ethanol.

The tax credit expires at the end of 2010, but there’s a very good chance it will be extended. Vilsack confirmed that this is the administration’s intention in his remarks. The tax credit is bad policy for several reasons. Not only does it discourage innovations needed to bring next generation biofuels to scale, but the tax credit is essentially a subsidy to the oil industry, which does the blending, and costs tax payers $6 billion per year. If the credit is renewed, another bad policy probably will be too. Ethanol imports face a tariff of 54 cents per gallon, so other large ethanol producing nations, like Brazil, are effectively kept out of the U.S. market.

FAPRI 5-10 
 

Next-generation biofuels are not right around the corner, at least not without the government’s commitment to get there much sooner.

America Sinks Deeper into Poverty

Census data for 2009 were released in the last few weeks, and by now anyone who’s been following the news knows poverty increased around the country. The official U.S. poverty rate in 2009 was 14.3 percent, an increase of 1.1 percent from 2008. The unemployment rate has barely changed since 2009, so it’s safe to assume the current poverty rate is probably no better.

I’ve been digging through the Census numbers to see what’s hidden there that’s worth reporting. I was curious to see how areas of the country I’ve visited in recent years for the Hunger Report are doing. I tend to do my fieldwork in very poor areas—places that were never flush to begin with. You would think the numbers couldn’t fall lower, but unfortunately they can.

One of the saddest things I found in the data didn’t get much attention. I noticed that in Washington, DC, 18.8 percent of its children are living in extreme poverty. That means their family’s income in 2009 was half or less than the poverty rate—which in 2009 was $22,050 for a family of four. That means kids growing up in extreme poverty were in a family of four earning less than $11,025.

I know many people don’t believe there is poverty in the United States, or think that what’s called poverty in this country is a misnomer because it would be the lap of luxury in places like rural Africa. But I defy anyone who believes this to consider what it must be like for four people to live on $11,000 or less a year, anywhere.

In DC, 18.8 percent means more than 20,000 kids. You start adding kids in other cities, and it quickly starts to look like a national epidemic. In Detroit, 27.4 percent of the kids live in extreme poverty. I could tick off percentages in other cities, but don’t the numbers start to seem like—well, numbers? 

The Washington Post’s Petula Dvorak wrote yesterday about the effects of poverty on children, including the effects on their brains:

Studies show that increased levels of cortisol, a chemical produced in the body as a result of stress, can seriously affect a child's brain development, stunting memory and disrupting learning patterns.

The stress of living in poverty gnaws at children. Poor kids who took part in one study were found to have elevated levels of cortisol in the morning. When the children showed up at a high-quality, small-group day-care center, where they bonded well with their teacher, the cortisol levels dropped. By afternoon, they were similar to the morning levels of their middle-class counterparts.

So, essentially, being poor costs a kid at least half a day in the classroom just to get the brain back to normal.

The thing about poverty I’ve found hardest to deal with is that people try to get out, and they can’t. Everything’s harder when you start lower. Yesterday, a woman I got to know while working on the 2008 Hunger Report told me she had to close the photography business she started. I spent hours interviewing this woman and learned how hard she worked to overcome the obstacles in her life when she was younger, and the incredible effort she made to hold her family together.

A gifted photographer, she wanted for years to start her own business—mostly shooting weddings—and when she finally did so, the recession was already under way. I believe she put every bit of energy she had into this enterprise. She has three children, making them a family of four. I don’t know whether this setback will put them in extreme poverty again, but it’s a reminder that the economy doesn’t spare you just because you work hard and try to get ahead.


 

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