Food aid and producer price incentives

Working Paper
[FMRSP Working Paper 32]

Food aid, (aid supplied as food commodities on grant or concessional terms), has played a useful role in Government of Bangladesh efforts to increase food security in the last three decades. At the national level, food aid has added to foodgrain availability, helping to reduce the gap between foodgrain consumption needs and supply from domestic production. And at the household level, food aid has increasingly been targeted to poor households, increasing their access to food. Moreover, resources from food aid have helped successful development projects and programs in Bangladesh. However, sustained increases in domestic production of both rice and wheat have increased the likelihood of disincentive effects arising from continued large inflows of food aid.
Food aid to Bangladesh and total global food aid deliveries (both predominantly in the form of wheat) have varied substantially over time. Total food aid worldwide increased between the 1970s and the 1980s, and peaked in 1992/93 at 15.2 million tons. Subsequently, total food aid flows declined steeply to only 5.6 million MTs in 1996/97 as U.S. contributions fell from 8.5 million MTs in 1992/93 to only 2.3 million MTs in 1996/97. Total food aid again increased in 1998/99 and 1999/2000 to over 10 million MTs each year, with the U.S. contributing about 60 percent of the total, similar to its average over the past two decades. These fluctuations in food aid at the global level to a large extent reflect supply considerations in donor countries.
Food aid to Bangladesh has declined over time, from on average of about 1.2 million tons per year in the 1970s and 1980s to only about 600 thousand tons by the end of the 1990s. Uses of food aid have also changed over time. In the seventies, much of the food aid was sold in PFDS channels, with the counterpart funds used for general public expenditures. In later years, donors introduced conditions for the use of counterpart funds, stipulating that they be used for jointly agreed projects, and eventually discontinued monetization of food aid through sales channels. Reforms of the PFDS in the late 1980s, including a gradual reduction of the subsidy in sales channels, eventually led to closing of major sales channels in the early 1990s. By the late 1990s, about 85 percent of all PFDS distribution was disbursed through channels targeted to poor households and food aid accounted for about one-third of total PFDS distribution of about 1.8 million MTs per year. In contrast, food aid from 1986/87 through 1991/92 averaged 1.4 million MTs per year, accounting for nearly 60 percent of average distribution of 2.4 million MTs.

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Date and language
May 2001
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