A Relationship between Food Aid and Food Trade: Theoretical Analysis and Quantitative Results

This paper clarifies linkages between food aid and food trade, both theoretically and empirically. A theoretical model first shows that domestic policy is crucial for the trade effects of food aid. Food trade may fall, remain constant, or even rise due to increased food aid. The important issue is whether the recipient country's government spends the counterpart funds to subsidize demand or supply. Estimated cereal import demand functions for Botswana, Egypt, Morocco, Peru, and Sudan indicate very different reactions of food imports to food aid across countries. The paper also investigates from the donor's point of view how a country's food import position affects the amount of food aid it receives. A cross-country analysis of the allocations of the EC's food aid reveals that per-capita food aid is higher the lower the per-capita income of a recipient country, the worse its balance-of-payments situation, and the more it depends on food imports.