For nearly a half century, food aid has aroused considerable debate among economists. However, a definitive answer to the fundamental question - “What is the impact of food aid?”- has proven elusive. Theodore W. Schultz’s 1960 article warned that program food aid likely had a disincentive impact on farmers in recipient countries. More recently, Christopher Barrett has maintained that food aid has little effect on local production, but rather displaces imports (2002). Both ideas are based on an examination of program food aid; food that is sold on the recipient country’s market. Since the 1960s, assistance has evolved beyond program food aid to include targeted food aid, which is at least intended for free distribution to the hungry poor.
In this study a welfare analysis is performed to develop hypotheses regarding the relationships among targeted food aid, program food aid, imports and production. The central hypotheses resulting from the theoretical framework are that program food aid discourages production and it may displace imports. Targeted food aid displaces imports and may discourage domestic production.
These hypotheses are tested using a vector autoregression similar to that used by Barrett et al. (1998). Departures from Barrett’s study include the use of fixed effects to control for differences among countries and differentiation distinguish between targeted and program food aid. INTERFAIS data on food aid (provided by the World Food Programme) are used along with FAOSTAT data on per capita cereal production and imports by country; the data span the years 1988 to 2000 and 64 countries.
The main findings of the empirical work are that neither targeted nor program food aid affect food production in the countries receiving them and that both result in import displacement. However, the degree of import displacement is greater for program food aid than for targeted food aid. The implications of this research for policy makers are that improvements to social welfare may be achieved through distributing targeted rather than programme food aid.