Impact of Natural disaster on the food consumption vulnerability of the extreme poor households -an empirical evidence from Southern part of Bangladesh Mohammad Monirul Hasan SLU, August 6, 2012

1Determinants of the Food Consumption Vulnerability of the Extreme Poor-Empirical Evidence from Southern Bangladesh

AFEPA Master thesis Presentation on ByMohammad Monirul Hasan

Thesis supervisor: Prof. Dr. Imre Fert

CUB, BudapestAugust 6, 2013Background of Study:The southern region of Bangladesh suffers from natural disaster and salinity in the cropping land in every year. Seasonal unemployment lean period for labor demand.Seasonal food deprivation => vulnerability. Sen (1981) identified lean period as a period when the ability of a large segment of the population is limited in acquiring food, employment and other basic necessities. Moreover, big cyclones like Sidr (2007) and Aila (2009) caused huge death toll and loss of permanent assets. Inadequate assistance from govt. and NGOs made them to migrate, cope or simply starve for extended period.

2Background of Study:

Figure: Tracks of cyclone over last 50 year. Source : CEGIS, DHAKA

The household level analysis covers the sample households of following 3 districts of Southern Bangladesh.

-- Khulna -- Patuakhali-- Satkhira

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Source: Maps are generated by CEGIS. Maps are assembled by Author. Map of Bangladesh (upper captioned) is from PKSF. Research Questions:1. What are the determinants of the food consumption vulnerability of these extreme poor households in the southern Bangladesh?

2. Does microfinance play any role to reduce vulnerability of the poor households?

3. What is the impact of two major natural disasters (Sidr and Aila) on food consumption vulnerability?

5Research hypothesis:Household head characteristics (Female, Age, Years of schooling, marriage)Occupation (Wage worker, Self-employed in agri, Self-employed in non-agri, migration)Household characteristics (Max Years of schooling, household size, Sex Ratio, migration of any member)Infrastructure facilities (Access to electricity, tube-well or tap water, sanitary latrine)Households' distance Information (Distance from main road, small market, big market, nearest microfinance branch)Village characteristics (Household in char areas)Physical and financial asset (owned land, agri land, using land, non-using land, free land, cows, goats, poultry, total assets, savings etc.) Household income and expenditure (total income, food expenditure, non-food expenditure)Households' loan information (formal loan, informal loan, deferred payment)Households' coping in disaster (loss and unmet loss in Sidr, Aila and last year crisis, social safety net)6Food consumption vulnerability:Table 1: Dynamics of consumption ordering of the extreme poor householdsTransition matrix of vulnerabilityConsumption ordering inLean periodOccasional StarvationConsumption rationingFull 3 meals in a dayConsumption ordering inNormal periodOccasional Starvation2-1-2Consumption rationing21-1Full 3 meals in a day210Source: Authors calculation; Note: 2 means two degree of vulnerability.7Methods and dataInM-PKSF data. PKSF did census in 2010 of 60,053 HHs.

The criteria for selecting ultra-poor households - (1) Monthly income less than or equal to 3,000 Taka (equivalent to EUR 30) per household during lean period; or

(2) Primary occupation of the household head is daily wage earning (in farming, fishing, logging, honey collection or other activities); or

(3) Having less than or equal to 50 decimal cultivable land.

8Baseline survey 2011InM conducted baseline survey in 2011. 4000 HH were targeted and 3977 HH remains for working dataset.

9Figure 3: A Schematic Diagram of the Sample Households.Source: InM PRIME South report, 2011.Theory and Methodology Theory supported by consumption smoothening-Permanent Income Hypothesis (PIH)Credit Constraint Hypothesis

PIH by Milton Friedman in 1957 Any change in consumption caused by shocks to income (transitory income) could be smoothed sufficiently by perfect capital market borrowing as the household would try to maximize utility. Household will borrow from market when it has transitory low income and by saving when having transitory high income. So consumption patterns of households are largely determined by the change in permanent income.

10PIHhouseholds consumption is not completely smoothened if imperfect financial market prevails (Dercon et al. 2000; Duflo & Udry, 2004; Goldstein, 2004). According to Morduch, (1995) households are credit constrained if they are not able to fill the income gap by borrowing sufficiently while experiencing income shock. Not only the credit constraint but also the household precautionary behaviour could result violation of permanent income hypothesis (Deaton, 1991; Morduch, 1990; Paxson, 1992). According to Deaton (1991) and Kurosaki (2006), savings, other accumulated assets, external assistance and remittances or cash transfer could play the role of absorbers of shocks. 11Risk Rationing Theory According to Boucher & Carter (2001), risk rationing shifts the significant contractual risk to the borrowers when lenders are constrained by asymmetric information resulting voluntary withdrawal of the borrowers from the credit market even though they have the necessary collateral to qualify the loan contract.

Risk is from the both sides- Supply side: Asymmetric information, distance, group formation modalities. Demand side: quantity rationing, transaction cost rationing and risk rationing (timely repayment the instalment, peer pressure from the group members, losing the entrance fee, losing option for future credit from the same institution, losing the deposited savings and any collateral they had in the MFIs)12Method selectionOrdered Probit model => as -2 to +2Heckman Probit model for selection bias => conditional of MFI. Missing value problem. Endogeneity problem.

Propensity Score Matching => matching on observable characteristics between Treatment and control. (Khandker, Koolwal and Samad, 2010), Godtland et al (2004), Khandker et al (2010), Heckman, Ichimura, and Todd (1998) and Caliendo and Kopeinig (2008).

Mean difference => t - test for mean. 13Literature review on similar studiesChambers (1989) describes vulnerability as defencelessness, insecurity and exposure to risk, shocks and stress.Chaudhuri et al. (2002) argues that the main difference between poverty and vulnerability is risk. Pitt and Khandker (2002) showed that micro-credit helps to smooth consumption by effectively diversifying agricultural income and employment. Chaudhuri and Christiaensen (2002) showed that the characteristics of the poor were remarkably consistent with the characteristics of the vulnerable: large family sizes, high dependency ratios, illiteracy, location in counties with low provision of public services and poorer regions of the country.Gnther and Harttgen (2005) found that rural vulnerability were caused by both covariate and idiosyncratic shocks.

14Descriptive analysisTable A1.3: Selected household and village characteristics by participation status.Participants [N=529](mean)Non-participants [N=3448](mean)p- valueHousehold head characteristics Female (dummy) 7.75%15.20%