Aid, collective action and benefits to smallholders: Evaluating the World Food Program's purchase for progress pilot

Agricultural commodity markets in developing countries often operate in a constrained environment of prohibitive transaction costs. Consequently, smallholder farmers are only partly integrated into these markets, a situation that keeps them in a lower level of development equilibrium (poverty trap). Although cooperative institutional alternatives such as Farmers’ Organizations (FOs) may reduce transaction costs and revitalize agricultural production and commercialization, they rarely have been successful in fully delivering on these promises. Against this backdrop, the World Food Programmed (WFP) has recently implemented a multi-year and multi-country pilot to increase smallholder participation in commodity markets. The projects involved investing in physical and human capacities of Farmer Organizations (FOs) to aggregate commodities and add value, as well as locally purchasing food aid from the same. The combination of interventions was expected to increase the relative price of agricultural products, particularly staple crops. In this study, using Ethiopian panel survey data, we estimated the causal income and investment effects of the Ethiopian P4P intervention among smallholders. Using an entropy balancing (EB) model and semi-parametric difference-in-difference (DID) model, we show that the P4P intervention has increased per capita consumption by smallholders. Our additional analysis confirms that this effect is heterogeneous owing to elite capture within Farmer Organizations. We also find evidence of increased food consumption scores, increased investments in child schooling, and increased asset holding among program-participating smallholders relative to comparison farmers. Policy implications are discussed.