For decades, the international community has supplied food aid to developing countries to help them meet shortfalls in their domestic food supplies. This aid has proved to be crucial in averting famine and preventing malnutrition, disease, and associated social problems that, over the long term, exact a heavy economic toll.
Few would argue with the goal of food aid, but is it as effective as it could be? In an examination of the experiences of some 150 developing and transition countries from 1970 to 2000, the authors evaluated whether global food aid did, in fact, stabilize consumption, whether it targeted those countries most in need, and whether ill-timed disbursements of food aid actually had negative fiscal consequences.
Problems with aid disbursement
Research on foreign aid often looks at assistance in the aggregate rather than examine its component parts, such as disaster relief, humanitarian assistance, and food aid. The research that has looked specifically at the food component of aid has tended to concentrate on individual country programs. This new working paper, by contrast, focuses on global food aid and its cyclical pattern.
In particular, the paper assessed the timing of global food aid disbursements and whether they suffered from the same unfortunate pattern identified in earlier research on individual programs—that is, a “procyclical” pattern. Such a pattern implies that food aid falls as the recipient country’s food production contracts, which means that less is available exactly when it is most needed. More desirable would be a countercyclical distribution of food aid, which means that food aid increases at the same time food production falls in recipient countries.
Pitfalls of poor timing
A procyclical pattern to the distribution of food aid can have serious macroeconomic consequences in recipient countries. While some food aid is distributed directly to households, a substantial portion is sold in domestic markets at below-market prices. These food sales generate counterpart funds in local currency, providing critical budget support for the country. When food aid is procyclical, it creates problems for fiscal management, as these counterpart funds are not available to stabilize the budget at a time when other revenues are weak. This fluctuation is especially problematic in countries where the size of counterpart funds is substantial. A procyclical pattern of food aid also aggravates fiscal management problems on the expenditure side because of the increased pressure on the budget caused by intensified spending on programs designed to offset the adverse consequences of food shortages.
A mixed record
When the authors analyzed the statistical relationships between global food aid and cyclical fluctuations in food availability, they found that roughly two-thirds of the countries indicated slight, but not significant, countercyclicality. Overall, food aid is acyclical—neither significantly procyclical nor countercyclical. Thus, the timing of the disbursement of food aid is not optimal.
But global food aid was found to be progressive—targeting those most in need—and responsive to absolute shortfalls across countries. For African countries, and the poorest countries in all regions, the authors found that food aid was significantly progressive and countercyclical. But for the majority of the countries that were only moderately food insecure, food aid was acyclical. And even in those countries where food aid was found to be both progressive and countercyclical, the quantities of food aid disbursed were woefully inadequate to cover the shortfall in supply.
The authors concluded that, for global food aid to have the maximum positive impact, its quantity must be increased and its timing improved. For this to occur, the international donor community needs to pay attention to, and understand, the economic cycles of its aid recipients. Because food aid programs are sometimes hampered by slow implementation and bureaucratic inertia, the development of early warning systems could prove vital to triggering their mobilization. Better coordination among donors is also critical. The IMF’s Poverty Reduction Strategy Papers, the authors indicated, could serve as a tool for devising and coordinating food aid strategies and agricultural development.
Copies of IMF Working Paper 03/40, “Foreign Aid and Consumption Smoothing: Evidence from Global Food Aid,” by Sanjeev Gupta, Benedict Clements, and Erwin R. Tiongson, are available for $15.00 each from IMF Publication Services. See page 166 for ordering details. The full text is also available on the IMF’s website (www.imf.org).