Least‐cost cheap‐food policies: some implications of international food aid

Abstract

Many low‐income countries pursue cheap‐food policies in which consumers pay subsidized prices for bread, rice and other staples. This paper addresses the issue of why different governments select different food subsidy policies, using multiple instruments rather than a simple across‐the‐board subsidy to provide consumers with access to cheap food. It examines the optimal structure of cheap‐food policies in the context of a partial equilibrium model in which the country may he large in trade, and is able to combine import subsidies or tariffs, and output taxes or subsidies, to transfer income to consumers through the market. The model allows for a marginal opportunity cost of government revenues greater than one dollar. In addition, in the model, food aid from overseas may be either given away to the consumer, or given to the government for subsequent sale in the domestic market. The results indicate that only by happenstance will a country choose to use a pure consumption subsidy or a pure import subsidy to transfer income to consumers. In addition, an increase in international food aid does not necessarily lead the government to reduce producer and consumer prices for a commodity.

Trade, policy, and food security

“…Examples include the credit programs offered by France and other European countries for sales of wheat and other crops to low income countries up to the late 1990s and the U.S. GSM 102 and 103 credit programs, also targeted to developing countries (Smith & Goodwin, 2001). Nonemergency food aid programs, in which the donor country ships domestically produced food to other countries, also fall into this category because essentially these are exports offered with a 100% subsidy (Alston, Smith, Acquaye, & Hosseini, 1999). Although export subsidy programs tend to increase prices in a country's domestic markets, 5 The WTO Nairobi Package would impose new disciplines on export credits (capping the maximum repayment period to18 months), food aid (must be needs-driven, provided in fully grant form, and not tied to commercial agricultural exports or other goods and services), and agricultural-exporting State Trading Enterprises.…”

On the discovery of millet prices in Mali

“…Centralised authority was generally dismissed as disingenuous; governments had simultaneously leveraged their involvement in staple food markets into working political capital (Bates 1981). Marketing boards were used to both tax agriculture, and maintain cheap food prices in urban areas to avoid civil unrest and garner favour among key political allies (Sanders et al 1996; Alston et al 1999). Such urban bias has contributed to the agriculture stagnation that has occurred in several countries, leaving rural areas underdeveloped (see the discussion in Duncan and Jones 1993).…”