Food Aid And Commercial International Food Trade

1. This paper was commissioned by the Trade and Markets Division of the Organisation for Economic Co-operation and Development (OECD) to address the relationship between food aid and commercial international food trade as background to an anticipated OECD study on the export competition aspects of food aid. The terms of reference for this study call for "a critical review of the existing literature on the potential use of food aid as an export support policy or, alternatively, the potential that food aid bears implications similar to those of export supporting policies." 2. This paper can be summarized as follows. Food aid has multiple objectives, modalities and effects and there has been significant movement over time in each of these areas. Concerns about the use of food aid as an export support policy are founded in both the history of bilateral food aid, in the political economy of food aid support in major donor countries, and in some current uses. The effects of food aid on commercial international food trade turn on several key factors, chief among which is its targeting, of which timing of deliveries is an important subfactor. Due to inevitably imperfect targeting at both macro and micro levels, food aid clearly displaces commercial sales of food contemporaneously in recipient economies. The evidence is unclear as to the distribution of these short-term losses across domestic and foreign suppliers in recipient countries, but the evidence somewhat favors the conclusion that most of the displacement comes out of commercial imports. Whether this displacement adversely effects international food markets depends on the manner in which the food aid is obtained, how well integrated the recipient economy market is with the global market, and recipient demand for variety. The longer-term effects of food aid turn on the dynamic income effects of food aid receipt and the extent to which these stimulate future food demand. The crucial questions then are how the short-term losses due to contemporaneous displacement of commercial imports, the global market effects of alternative food aid procurement modalities, and the long-term gains from any derivative income stimulus balance out over time and how these costs and benefits are distributed among donors and third party exporters. Research on these topics has been surprisingly scarce and, largely as a consequence, premature conclusions are too often drawn on the basis of quite limited evidence on the contemporaneous displacement effects of food aid on recipient country markets. Finally, because food aid's effects on trade stem directly from the efficacy of targeting, policymakers exploring the effects of food aid on commercial international food trade must consider explicitly the trade-off between higher expected displacement of commercial trade and higher expected targeting errors of exclusion of intended beneficiaries through restrictive distribution rules.