April 13, 2005

Uh-oh... Is It Time To Be Pro-Farm Subsidy?

Oh, how I'm trying so hard this evening to get work done and not blog, but eh, it's useless to resist. So, time to talk about food aid. Yes, food aid... The counterintuitive take on this topic is that food aid often proves quite harmful to recipient countries. Basically: after a crisis hits, it often takes a while for Western donors to whip up the proper aid package, and when the goodies finally reach a given country, the famine or whatnot is usually over. So the flood of foodstuffs just ends up depressing prices on the local market, thus further impoverishing farmers and hitting the poor (who usually tend to be farmers) quite viciously.

But a new paper by a handful of NBER researchers picks this argument apart with a case study in Ethiopia. Food aid comes in—and since it's Western aid, that usually means wheat—does its thing, and decreases wheat prices. But as it turns out, only 12 percent of rural Ethiopian households report any positive income from wheat (others grow sorghum or barley or coffee or whatever). Meanwhile, many, many more Ethopians are net buyers of wheat, and most of those families are poorer than the producers. So basically... U.S. aid to Ethiopia helps poorer consumers to a tune of some $37 per year on average (no small amount: the poverty line over there is $132 a year), and hurts wealthier producers by $157 per year. 'Tis redistribution at its finest!

And now I wonder if one could make a similar argument with respect to American and EU farm subsidies, which do, it's true, kneecap farmers in developing countries, but also help third-world consumers buy cheap stuff to eat. Is the net effect positive, as in Ethiopia? And, secondly, does that sort of income redistribution help or hinder overall economic growth? Well, we'll just have to wait for the next NBER Digest to find out, won't we...
-- Brad Plumer 1:33 AM || ||