Karen Macours, Patrick Premand & Renos Vakis Severe weather conditions can undo even the best northwest Nicaragua, where more than 90 percent of efforts of families to break free of poverty. households rely on semi-subsistence agriculture. Households that rely on subsistence or small-scale Although families in this area knew the risks of farming are especially at the mercy of severe weather. agriculture, including that of losing an entire crop to Droughts and floods wipe out crops, leaving families drought, relatively few had managed to develop hungry or without anything to sell to pay for outside sources of income. essentials such as school fees or medicines. Indeed, empirical evidence from many parts of the developing world has established large welfare losses following weather shocks in developing countries (see Fafchamps et al., 1998, Jensen 2001, Dercon, 2004, and many other studies). Climate changes have made weather even more variable in many countries, exacerbating problems such as droughts, extreme temperatures and flooding. In Nicaragua, the second poorest country in Latin Photo: Nahuel Berger / World Bank America after Haiti, poverty is compounded by Policymakers seeking to offset the unexpected weather conditions. Temperatures have increased, have increasingly used Conditional Cash Transfer rainfall has become increasingly irregular, and the (CCT) programs to help families through difficult window for the country’s two annual crop cycles has times. In agriculture, different options of agricultural shortened, further constraining the ability of farmers adaptation, such as irrigation, adoption of drought to rely on subsistence farming crops to meet their resistant varieties or changes in cropping practices, needs. The issue is critical because the majority of are often discussed as policy responses. To Nicaragua’s poor—who make up almost half of the complement adaptation strategies, social safety nets country’s 5.8 million people—are concentrated in such as food aid, cash transfers or food-for-work rural areas. Many are small-scale farmers who don’t programs have become widespread (Grosh, et al., have irrigation systems for their crops, leaving them 2008; Fiszbein and Schady, 2009). Many governments especially vulnerable to droughts. This impact are now wondering how to adjust these approaches evaluation focused on rural communities in to help households protect themselves against themselves against future droughts and other severe shocks and become more resilient even after they weather conditions. The program was implemented exit such programs (World Bank, 2012). But what in six municipalities with very high rural poverty rates. makes a difference in the long-term? Are small grants Communities in the municipalities were grouped in or training programs effective methods to help farm blocks based on crops, microclimates and households develop non-agricultural businesses, infrastructure. Out of the 44 blocks selected for the thereby enabling them to better manage weather pilot, half of the communities in each block were shocks in the future? randomly assigned to treatment groups and the other half to the control group. There were 56 treatment communities, with a total of 3002 eligible households, and 50 control communities. Households in the treatment communities were To understand what might allow families to assigned by lottery to one of three groups. The first better manage risks, the World Bank supported group qualified for a conditional cash transfer an evaluation of a pilot program in Nicaragua to program that gave them $145 if they met certain encourage rural households to diversify beyond conditions including: taking children for regular small-scale farming 1 . The project found that two growth monitoring check-ups; sending children aged years after the program ended, households that 7-15 to school; attending lessons on nutrition and received vocational training or investment grants to using at least some of the transfer to improve the start non-agricultural businesses were better nutritional content of family meals. The amount was protected against the negative effects of severe increased by $90 if the family had school-age drought than families that only received conditional children, with an extra $25 per child for school cash transfers. These results suggest that helping supplies. The second group qualified for the same farmers develop other income-generating different cash transfer program and received a scholarship for businesses can be an effective and sustainable ex- vocational training to develop new marketable skills. ante approach to reduce poverty by protecting them The third group qualified for the conditional cash against the financial repercussions of severe weather transfer program and received a $200 grant to and climate changes. develop a non-agricultural business. Households that received the grant had to provide a start-up plan and The Nicaraguan Government created a one-year received training and technical assistance to develop pilot program targeting farming families affected the plan. Take-up was close to 100 percent for all the by a severe drought in 2004. The program sought groups. The program lasted one year, and baseline to help families cope with their immediate problems data were collected in April-May 2005, right before by giving them cash transfers. The larger goal was to the program was launched. There was a follow-up give families opportunities to expand beyond small- survey nine months into the program in July-August scale farming by offering vocational training and 2006. A second follow-up survey was carried out investment grants. The longer term question was between August 2008 and May 2009, which allowed whether households would be able to diversify their researchers to look at the state of households two income streams so they could better protect 1 Demand versus returns? pro-poor targeting of business grants and vocational skills training years after the program had ended. The results consumption in households that received nothing. discussed below are based on this later survey. The rise in consumption during these periods was matched by an income boost of 4 to 5 percent over the control group. However, there was no similar increase for households that got vocational training. 1. Two years after the program ended, families 3. Families who only received conditional cash eligible for either investment grants or vocational transfers didn’t do as well after the end of the training were better protected against weather program. “shocks” than families that qualified only for Households that qualified only for the conditional conditional cash transfers or didn’t receive anything. cash transfer did consume more food and other goods during the year the program was in effect. But The program was designed both to help families two years after the project ended, these households cope with immediate difficulties, as well as help them weren’t able to maintain these higher consumption over the long-term by giving them seed money to levels compared with the control group. Nonetheless, build a non-agricultural business or training to start when broken down to look only at consumption of a small business (like sewing) or get a non-farming food, these households did better than the control job. Overall, families that received either vocational group, both in the quantity and the quality of food training or investment grants did develop alternate consumed. The more nutritious food may be because income-generating activities, reducing their of the effect of the conditional cash transfer program, dependency on crops. As a result, these households which emphasized behavioral changes with respect were fully protected from the effects of droughts. to nutrition, as well as the spillover of having more They were able to maintain their normal levels of local food for sale thanks to the investment grant that consumption, instead of having to cut down on food sparked creation of new businesses and stores. and other expenses because of lower income from crops. The ability to maintain—or even boost 4. One reason why the investment grant resulted in consumption in some cases—was likely driven by relatively higher income and consumption is that increased incomes of the two groups. During households that qualified for the grants were 13 droughts, households that qualified for either percentage points more likely to be involved in non- vocational training or investment grants had a higher agricultural self-employment. income when compared with the control group. Two years after the program ended, families that qualified for the grant were more likely than those 2. In addition to being fully protected against the who received vocational training or only cash effects of drought, households that received grants transfers to be running their own small businesses, to start small businesses also had higher such as having a bakery, making cheese or running a consumption and incomes than the control groups corner store. Such businesses usually have small during “average” weather conditions two years after start-up costs—buying an oven for baking or goods the end of the program. to stock a store, for example— making the $200 This wasn’t the case for households that qualified for investment grant critical to getting households vocational training. During periods of average started. weather, consumption by households eligible for business grants was 8 percent higher than 5. Those who received investment grant weren’t just This impact evaluation provides evidence that in running a business, but they were turning a good addition to providing short-term support in times profit. of weather shocks that can cut incomes, social Average annual profits—measured two years after protection programs that help families create households had qualified for the grant—were about new economic opportunities can have a long- $30 higher than the control group. They also had an term impact. They can protect households against annual $10 return on livestock, for an average annual the negative effects of droughts and other weather- return rate of 15 to 20 percent on the initial $200 related problems over the longer-term and provide investment. Households running businesses said opportunities for higher earnings. What this shows us they expected profits to keep growing. is that reducing poverty, strengthening resilience and building productive opportunities can go hand in hand. Helping small agricultural households manage the risks that come from climatic changes and bad Karen Macours, Professor, Ecole d'économie de weather isn’t easy. Cash transfers can help families Paris, karen.macourspsemail.eu cope in the short-term, but in this case they did not Patrick Premand, Senior Economist, World Bank’s offer a long term solution. The challenge is to help Social Protection & Labor Department (GSP), households successfully develop other income- ppremand@worldbank.org generating activities to carry them through bad weather and smooth out the “shocks” to Renos Vakis, Lead Economist, World Bank’s consumption that occur when crops fail. Poverty and Equity Global Practice (GPVGE), rvakis@worldbank.org As this experience showed, vocational training and investment grants can be effective in helping households manage the negative effect of severe droughts. Two years after the program ended, families that received investment grants not only better managed during bad weather, but their average income rose overall. Families that qualified for training didn’t have a similar rise in average income, but their income was less variable during times of weather shocks. This note series is intended to summarize good practices and key policy findings on Poverty-related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank, its board or its member countries. Copies of these notes series are available on www.worldbank.org/poverty