Review of the reform portion of the multi-year (1992-1995) PL 480 Title III program in Ethiopia : a joint USAID Government of Ethiopia assessment

The reform strove to (1) liberalize food markets and develop a safety net program (SNP); (2) encourage privatization of the agri-based industrial sector; and (3) increase the private sector's role in domestic trade. Each component has made significant progress. Market reforms have been successful, although the private sector, without considerable support, will not be in a position to meet the new challenge. Under the first component, the Government of Ethiopia (GOE) has greatly reduced its intervention in grain markets, thereby eliminating the distortions whereby producer prices were depressed and consumer prices were subsidized. At present, subsidies are provided only through public or NGO-sponsored safety net programs and relief operations. However, this liberalization is difficult to attribute solely to the program, since the process began before its inception. Title III resources also helped the GOE establish a Food Security Reserve, which has enabled more timely allocation of resources to communities faced by periodic production shortfalls. Despite implementation problems, food aid is now used more efficiently. The SNP has generally succeeding in augmenting meager food supplies and has even introduced possibly more sustainable kinds of supports than simple hand-outs, e.g., revolving fund schemes and food-for-work activities. Being only a 1-year program, however, the SNP met the needs of only a small portion of the food insecure population and was unable to meet the needs of the chronically poor. Under the second component, 250,000 metric tons of cotton provided by the program to public textile factories allowed recovery in textile production (which had sharply declined in 1992), albeit at high cost and low productivity. Complementary market reforms and efforts to restructure public enterprises had mixed results, as high prices have accompanied the new opportunities for private investment in the textile and food processing subsectors. Despite significant restructuring, public enterprises have not significantly improved their efficiency. Resources for the third component were funneled into the first two components. Overall, despite the success of market reforms, the private sector is in great need of support: the market is developing in a not wholly competitive way, with a few large enterprises dominating. Moreover, there are few employment opportunities outside the public sector, as the rate of implementation for private projects is slow. The following are lessons learned. (1) The program's strength lay in its ability to address short-term issues that arose as a consequence of reform. But the real impact of basic economic reform measures are long-term. (2) The SNP -- though constrained by its low coverage and short duration -- enjoyed the successes noted above and deserves continuance beyond 1 year. (3) With the withdrawal of public enterprises such as the marketing parastatal AMC/EGTE, there is a need to work out operational modalities if such enterprises are to assume new roles in support of private enterprise and regulate the market. The program demonstrated several market failures that arise with liberalization, including volatile grain prices, the limited capacity of the private agricultural and other sectors to keep up with agricultural production, and the tendency of smaller firms to be overshadowed by a few large trading houses. (4) Emergency assistance needs to be balanced with development assistance; Title III is considerably flexible and can support both types. It is useful to note for the future that resources can be: programmed in the form of project, sector, or non-project assistance; monetized to use proceeds for specific economic development activities, for sector support, or to support policy reform; distributed in direct feeding programs; used to establish emergency food reserves; or expended through a combination of any of these.