Food aid benefited Ethiopia

While it may be given with good intentions, food aid can have negative effects. By increasing the local supply of food, such aid may depress prices and undercut the income of rural farmers. The National Bureau of Economic Research (NBER) argues, however, that food aid was worth it in Ethiopia.

The authors analysed the consumption and expenditure survey data from both urban and rural Ethiopian households in regard to wheat (the only cereal food aid). They found that only 12 per cent of rural households and less than 3 per cent of urban households earned income from the sale of wheat. In contrast, most households were net consumers of wheat:

Roughly 85 per cent of the poorest households are net buyers of wheat.

There are more buyers of wheat in Ethiopia than sellers of wheat at all levels of income.

Moreover, poor households benefit proportionately from a drop in the price of wheat.

This means that food aid benefits Ethiopian households at all income levels and that the poorest benefit the most. It only harms about 12 per cent of rural households. Indeed, the benefits are substantial:

The price of wheat in Ethiopia would be $295 per metric ton without food aid, compared to an actual price of $193 per metric ton.

Consequently, the average household gains $37 per year from food aid.

In Ethiopia, the poverty line is about $132 per year, so the impact is quite substantial.

Source: Carlos Lozada, Does International Food Aid Harm the Poor? NBER Digest, March 2005; based upon: James Levinsohn and Margaret McMillan, Does Food Aid Harm the Poor? Household Evidence from Ethiopia, National Bureau of Economic Research, Working Paper No. 11048, January 2005.

For text: http://www.nber.org/digest/mar05/w11048.html

For abstract: http://papers.nber.org/papers/w11048

For more on Foreign Aid: http://www.ncpa.org/pd/budget/budget.htm

FMF Policy Bulletin/ 21 June 2005