6. Ration System and Other Public Interventions

It is crucial to examine the response of the government to the economic crisis precipitated by the UN Sanctions for a number of reasons. Firstly, as we have already discussed above, the government has been the dominant force in the allocation of resources as a result of the availability, in the past, of oil revenues. Secondly, in the post-sanctions period, specific state interventions, notably the monthly ration, have been critical in avoiding large scale hunger and starvation. Finally, the response of governments to major crises reveals a great deal about both the underlying political priorities as well as administrative and managerial abilities. In this section we focus mainly on the state ration system. We also make some comparisons with other public services and government interventions.

6.1. Coverage

A central feature of the state ration system is that it is comprehensive and non-targeted: everyone in entitled to the ration regardless of means and the ration and its price are uniform across the country. This was the principal finding of the 1991 study, and was based upon surveys of households and markets in urban and rural regions from all government-controlled governorates at the time. Up until that time, there had been a great deal of speculation outside Iraq that the ration system was used selectively as a reward and punishment device by the Iraqi regime against various sections of the population. The 1991 visit found no evidence for this. On the contrary, it was found that even people who were quite outspoken in their opposition to the regime received the ration and were satisfied with the functioning of the ration system.

During our second visit, we covered fewer locations and interviewed a smaller number of households than in the 1991 visit. What we found is that the ration system, but for some details, operated exactly the same way as observed in 1991.

In section 4.2 above we have given details of the quantities of the various commodities that are supplied as part of the monthly ration. We did not find a single family which reported even a small difference between the quantities it received and the officially announced quantities. Furthermore, the ration agent was usually a local grocer and people faced little difficulty in obtaining the ration on time. It is fair to assume, therefore, that the ration system does function quite effectively.

The fact that the quantities are uniform all over the country, and that these are regularly broadcast in the public media, is an important factor in ensuring that people have good information about their entitlement. Although the basic ration entitlement is uniform all over the country, we did find some minor variations, two of which are worth mentioning. First, the quality of the goods supplied, particularly the quality of the wheat flour, varies from month to month, and also from location to location, though we did not observe any systematic variation between locations in different regions of the country.

Secondly, from time to time supplies of items that are not normally part of the monthly ration are made available. In particular, we were told by all respondents in the Baghdad area that they had received small quantities of poultry meat during the Muslim holy month of Ramadan in the previous year. Some families, also in the Baghdad area, reported receiving occasional supplements of lentils and chickpeas. Outside Baghdad, particularly over most southern towns and villages, we did not come across any household which had received supplements to the usual ration. This exception, however, proves the rule. While there is some discrimination in the dispensation of public resources including the ration system, this discrimination is limited to extra items that are outside the normal ration entitlement. The basic ration is, from all evidence, comprehensive and equitable.

6.2. System of Delivery

All families are registered with a local ration agent, and receive coupons corresponding to the number of members of the family. Ration agents are usually local grocers for whom the disbursement of the ration is a side activity. The agents receive supplies from government-controlled wholesale stores and silos and flour mills on the presentation of coupons which they collected from the families in return for the delivery of the previous ration. These ration coupons are the currency within the ration system. Though these are not transferable, the goods supplied on the ration are obviously marketable. As each agent has only about 40 or so local families registered with him, he is in a position to monitor their situation. Likewise, his clients are able to monitor his performance.

There is potential scope for mutually advantageous collusion between the agent and his clients at the expense of the government. Some instances of such collusion are likely to occur. But the possibilities would appear to be few, given the punishment to deter such collusion are high. This includes the revocation of licence to act as a ration agent, which is a guaranteed source of income, and in the extreme the closure of the business. Moreover, the whole rationing system is computerised and, as explained to us by the Minister of Trade, special checks are built in the system to weed out false claims by exaggerating the numbers in the household and registration with more than one agent.

To obtain ration tickets, household heads have to register with the ration office in the neighbourhood and have to present identity cards which all citizens and foreign residents must carry. We visited one such office in Baghdad. The data collected by these neighbourhood offices is collated and stored centrally and cross-checked against the data collected when identity cards are issued. Ration tickets carry the name of the head of the household and the month for which it is valid, and are colour coded by governorates. Ration tickets are distributed to households by the ration office. An interesting feature of the system of checks on the abuse of the ration system is that it is focused on preventing false claims rather than on the resale of rations on the open market. There seemed to be no attempt to brand the goods supplied on ration. Given that the ration is designed just to prevent starvation, there is little incentive for households to sell their ration. However, we were told that poor families often sell infant formula milk and feed their infants ordinary food, occasionally with fatal consequences for the infant.

The rationing system for its functioning relies heavily on the elaborate system of policing and surveillance which reaches down to the grassroots. It is interesting to note the dual use of this system both for coercion and social welfare. Another important feature of the rationing system is the symbiosis of the government and the private sector. Shops distributing the rations are privately owned. They are, in general, neighbourhood grocery stores which also supply rations as one line of business. The same shops also sold items supplied on ration at market prices. Many of the mills which supply wheat flour for ration are also privately owned. There appears to be enough economic incentive for the private sector to partake in the operation of the ration system.

We also visited a centre for the distribution of sugar, tea and cooking oil to ration agents. On the presentation of the ration tickets collected from households for delivering the last ration, they were issued with the entitlement to collect the next set of rations.

We visited all the links in the chain of the rationing system, all in the Baghdad area. They all seemed to be efficiently run. The efficiency with which the Iraqi rationing system operates and its apparent success in not only preventing false claims but also making it relatively easy to collect ration tickets and rations stand in a marked contrast to the operation of similar rationing system in a number of developing economies such as India and Pakistan, where the abuses of the system were extremely widespread.³⁵

6.3. Availability to Entitlement

The ration system in post-1990 Iraq can be viewed justifiably as an example of a successful food security programme in the time of economic crisis. The government's response to the economic shock can be viewed at two levels. In the first instance, it can be examined as an emergency food distribution system that prevented the onset of famine at a time when purchasing power collapsed dramatically, and when there were serious questions about the smooth functioning of markets.

There is now a considerable body of evidence from international experience that shows that famines are likely to occur not simply due to inadequate food availability in aggregate terms, but due to the collapse in the entitlements of particular sections of the population.³⁶ In the case of Iraq, also, it is clear, that in the absence of public intervention, famine conditions might have prevailed. The ration system protected the basic food entitlement of all sections of the Iraqi population from falling below a point where mass starvation could have occurred.

The ration system played a key role in preventing famine at a time of economic shock. Since then it has emerged as an effective mechanism for converting the country's aggregate food availability into a basic universal entitlement year on year to date. While there is a great deal of literature now on the experience of various countries in dealing with a dramatic decline in food entitlements at the time of emergency, there are few examples of similar interventions that have been sustained over such a long period. The Iraqi state ration stands out in the sense that it combines an efficient system of food distribution with a sustainable system of procurement.

We believe that the procurement system is sustainable because it is based largely on Iraq's domestic production of grains, and therefore relies little on the availability of foreign exchange. In this regard, it is an important departure from the way that most sectors of the Iraqi economy were organised prior to the sanctions.

Even if we accept the official data on the output of foodgrains (see section 5.1 for a discussion of why the official data might be downward biased) Iraq's aggregate output was sufficient to cover the needs of the ration system in 1995 (Table 7). Admittedly, for this to happen, the 'wheat flour' supplied in the ration would comprise of a large part of grains other than wheat, such as barley. Reports on the quality of the flour, which is supplied through the ration system, suggest that such dilution does take place.

The fact that a country can produce enough grain to cover its basic needs does not imply that it does indeed do so. The recent history of famines around the world amply demonstrates that potential or actual output does not freely translate into food security for the population. In the absence of a well-designed and effectively-managed procurement system, production targets may not be realized and whatever is produced may not actually reach the ration system. If, for example, the procurement price is much lower than the market price, farmers would have an incentive to conceal their output from the procurement agency. If the gap between the procurement price and the market price were large enough and if concealment were difficult, people might actually withdraw from grain production altogether.

In the Iraqi procurement system, farmers are required to supply the procurement agency with an amount of grain which is calculated by multiplying their cropped area with the designated yield of the land in question, which, in turn, is calculated by taking into account various production conditions and is based on some notion of the average yield of that land. In principle, then, the entire output is supposed to be sold to the procurement agency, which is a local committee of the Ministry of Agriculture. The penalty for any shortfall is the market value of that shortfall -- i.e. a farmer who fails to meet the target set for him would have to purchase the shortfall from the market and supply it to the procurement agency. Farmers can apply for consideration if due to some specific reason the harvest turns out to be much lower than average. In such cases a local committee of the Ministry of Agriculture with knowledge of local production conditions adjudicates.

Procurement systems of this type are not uncommon in situations where there is a government food subsidy to consumers. Part of the subsidy is raised by imposing a tax on farmers, who are required to sell some part of their output (in the case of Iraq, the entire harvest) to the government at lower than market prices. The tax is the gap between the market prices and the procurement price. Like any system of taxation, procurement systems also attract evasive behaviour on the part of the taxed population.

As in the case of the food ration, where effective operation requires good system design, the issue of design and implementation are of paramount importance if a procurement system is to be sustainable. A number of features of the working of the procurement system in Iraq show that the authorities have been attentive to such considerations.

Firstly, the implicit tax on farmers should not be onerous enough for them to engage in large-scale evasion, or worse, withdrawal from grain production altogether. International experience has shown that attempts by procurement (or tax) authorities at shifting much of the burden of the consumer subsidy can badly backfire and result in a depletion of agricultural output. Given the paucity of data on a number of relevant variables, there are no reliable estimates of the implicit tax on agriculture in Iraq. We have attempted to arrive at some very rough benchmark numbers on the basis of known differences between procurement and market prices of wheat. Our rough estimates of this implied rate of taxation range from 20 to 35 per cent of the value of produce.³⁷ Considering the fact that the ration system involves a subsidy of over 95 per cent to consumers, the part of the burden which is borne directly by farmers is relatively modest.

Secondly, since the procurement target for farmers is set according to the area of land they have under crop, a potential form of evasion might be for them to under-report cropped area. The incentive for farmers to do so has been reduced in Iraq by linking the supply of subsidized inputs such as seeds and fertilizers with the reported cropped area. The grain procurement agency also acts as the supplier of subsidized inputs such as seeds and fertilizers, and these are rationed according to reported cropped area.

Finally, evasion at the time of harvest is minimised by the procurement agency exercising some direct physical control over the harvesting operations. In the major grain growing regions of the country, farmers can hire mechanical harvesters either directly from a local branch of the Ministry of Agriculture (which also happens to be in charge of procurement) or from private contractors who in turn also report to the procurement agency. An official of the agency is usually present at the time when the harvesters go into operation and makes a record of the condition of the harvest.

In sum, the Iraqi procurement system appears to be well-designed against various forms of evasion and avoidance that can cripple the functioning of such procurement systems. Most importantly, while the procurement price does indeed imply a net tax on farmers, this tax does not appear to be high enough to substantially dampen incentives. In fact, as we have argued in sections 4.1 and 5.1 above, there has been a large increase in the proportion of the workforce in agriculture, and cropped area has also risen substantially in the sanctions period. Working in tandem the procurement and the ration systems have, thus far, been succesful in turning Iraq’s agricultural potential into higher domestic food availability, and this aggregate availability into basic food entitlements for the population as a whole.

6.4. Repression and Welfare

It is clear from the foregoing discussion that the Iraqi government invests a great deal of financial as well as administrative and political resources in order to maintain the ration system in good stead. This may appear paradoxical to some given the regime's notorious record in terms of brutality and oppression within the country.³⁸

It might be argued that the government’s active role in preventing the onset of mass starvation serves its narrow and cynical aim of the existing leadership of prolonging its rule by averting political strife. Such calculations clearly do have a place in explaining the behaviour of governments. The actual calculation is likely to be somewhat more sophisticated than a simple “bread-for-loyalty trade-off”. By responding in an effective manner to a threat of food insecurity instituted by “outsiders” (i.e. economic sanctions imposed by the U.N. Security Council), the leadership would seek to enhance its claim to political legitimacy within Iraq.

Even if the present Iraqi regime’s commitment to the ration system is motivated primarily by narrow political calculus, it needs to be stressed that this commitment to welfare is not new-found and that it must be viewed in the historical context of welfarist interventions by successive governments in Iraq. These interventions, which include action by the government on a variety of social and welfare issues, such as education (particularly the education of girls), public health care, development of infrastructure and indeed radical land reforms, have been consistent and substantial features of public policy at least since the late 1950s. These welfarist concerns have coexisted for most of this period with political repression and the widespread suppression of civil liberties.³⁹

Both these aspects of the Iraqi state -- i.e. political repression and social welfare -- have been documented over time. The fact that the Iraqi state and the present government have little respect for civil and political liberties is well-established. There is also little doubt that the sanctions regime has done little to alter this situation. Our investigation into the government’s response to economic sanctions has highlighted continuity also in that other less widely recognized aspect of the Iraqi state -- namely its commitment to social welfare.

This point is an important one for developing an understanding of what might happen in Iraq if and when the sanctions regime is relaxed or modified. There has been a tendency to equate political absolutism with absolute appropriation of public resources for private ends. It has been argued, for instance, that the over-riding and exclusive financial priorities of the Iraqi leadership are to amass private wealth and to bolster the state’s coercive and military aparatus.⁴⁰ While there is no doubt that private appropriation and military expenditure are important priorities for the Iraqi leadership, commitment to social welfare expenditure is also an important government priority in its own right. A considered discussion about the future of the sanctions regime needs to keep this point on board.