We employ a computable general equilibrium approach to examine the effects of alternative food aid distribution schemes for drought-response food aid to Mozambique. Alternative schemes have very distinct impacts on household welfare and prices. Compared with monetization of food aid by government, direct distribution to households (by population shares) strongly benefits rural households. Even assuming that government cannot target food aid strictly at drought-stricken rural people, our results indicate that, when improving household welfare is the primary goal of the food aid, direct distribution of food aid to households is preferred.
Even though food aid (surveyed by Maxwell and Singer, 1979) has progressively declined as a share of total official development assistance from more than 15% in the early 1970s to less than 5% in the 1990s food aid has always been a controversial form of aid. It has generated debate, and volumes have been written. Much of this literature focuses on the political economy of food aid and whether food aid is ‘additional’ (e.g., Colding and Pinstrup-Andersen, 2000 and Ruttan, 1993); the impacts of food aid on agricultural production in the recipient country (e.g., Barrett, 1998 and Isenman and Singer, 1993); and the real cost of food aid relative to other forms of development assistance (e.g., Clay et al., 1996). A second strand of literature examines monetization — whether food aid, particularly project or emergency, should be sold or distributed to consumers directly (e.g., Dorosh and Haggblade, 1997, Maxwell and Templer, 1994 and Reutlinger, 1984).
Questions regarding the impact of food aid are typically, and appropriately, posed and analyzed in a partial equilibrium context. Nevertheless, general equilibrium effects of food aid are widely acknowledged to exist and to be important. The analytics of food aid in general equilibrium have, for example, been traced out by Bhagwati (1985). However, despite vastly increased capacity to conduct applied or computable general equilibrium (CGE) analysis in recent years, relatively little CGE analysis has been conducted on food aid issues. The CGE analyses conducted to date have generally focused on assessment of food aid needs (Riaz, 1992 and Sadoulet and de Janvry, 1992). The present article seeks to contribute to the debate regarding monetization of food aid using a general equilibrium approach. Specifically, the general equilibrium effects of alternative distribution schemes for food aid following a drought are examined for the case of Mozambique. We find that different distribution schemes (e.g., who takes possession of the food for either direct consumption or resale) have very distinct general equilibrium effects.
The remainder of this paper is structured as followed. Section 2 provides background on food aid to Mozambique. Section 3 presents the CGE model employed with special attention to unique features of the model and the treatment of food aid. Section 4 discusses simulations and results. A final section concludes.
This paper has examined the effects of alternative food aid distribution schemes for drought-response food aid to Mozambique. Alternative distribution schemes have very distinct impacts on household welfare and prices, notably the relative price of agricultural goods. Compared with monetization of food aid by government, direct distribution to households (done by population shares in the experiments) strongly benefits rural households for two reasons. First, when households take ownership of the food aid, they experience the first order impact of the resource transfer. Second, since households direct the large majority of any increment to income to the purchase of agricultural goods, the increase in household income generated by the food aid expands the demand for agricultural goods. Alternatively viewed, when households derive income from food aid, the desired components of nominal absorption shift towards agricultural products. As a result, agricultural terms of trade improve (even relative to the drought without food aid scenario), which further benefits rural households. Despite the maintained assumption that government cannot target food aid strictly at drought-stricken rural people, these results indicate that, when improving household welfare for the poorest is the primary goal of food aid, direct distribution of food aid to households is preferred.
