...for work programs, it stimulates development; and by reducing the need for food imports it has prevented large cumulative deficits in poor countries. Critics of food aid argue it has increased the dependence of developing countries on food imports. The dumping of surplus production for free or nearly no cost to poorer nations means that the farmers from such countries either cannot produce at competitive prices, or lose the incentive to produce entirely (leading, over time, to the deterioration of the infrastructure of production). They also claim that food aid is inefficient--it often fails to reach the most needy and has high administrative costs.

However, credible empirical evidence on the role of food aid in combating poverty is limited. Levinsohn and McMillan (2006) use nationally representative household survey data from Ethiopia to identify the relationship between household income and household wheat sales and purchases (the cereal most commonly distributed by food aid programs). They find

* Net buyers of wheat are poorer than net sellers.

* At all income levels there are more buyers of wheat than sellers. Only 12% of Ethiopian households sell wheat.

* The net benefit ratios are higher for poorer households, indicating that poorer households benefit proportionately more from drop in the price of wheat.

Levinsohn and McMillan also undertake a welfare analysis of food aid in Ethiopia. They treat the Ethiopian wheat market as a partial equilibrium in a closed country, which received extra wheat via food aid. They observe the actual price (with the wheat aid), and then calculate a counterfactual wheat price that they believe would have held, given some posited elasticity of demand, absent food aid. Finally, they calculate the distributional effects under the counterfactual price and conclude the poor were typically better off with the low (with food aid) price. Based on these findings, they conclude that Ethiopian households at all levels of income potentially benefit from food aid, and the benefits of food aid go disproportionately to the poor.

A serious limitation of this analysis is its failure to address the long-term impact of food aid on production and consumption patterns. Ideally, we would extend Levinsohn and McMillan by examining net benefit ratios along the Ethiopian income distribution pre-and post-food aid. This would tell us whether the provision of food aid was associated with households changing from net producers of wheat to net consumers of wheat. Longitudinal data of this sort are not available for Ethiopia pre-food aid. Instead, we use indirect evidence based on trends in production, consumption, and prices to examine the long-term consequences of food aid for Ethiopia. (1)

We then extend their analysis to the entire group of developing countries...

NOTE: All illustrations and photos have been removed from this article.



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