Friday, November 20, 2009

How to provide minimally-market-distorting aid.

Food aid. Aid deliveries are often criticized for distorting the market--it is precisely the high profits for food during lean times that provide the profit signals to farmers to keep producing. So by providing food aid when things are lean, you are reducing productive capacity, thereby increasing the number of times when aid is needed. It's a vicious cycle.

No place can be sure that they will always produce enough food locally to meet their needs. Worldwide, this failing is met through trade, because someone is always producing a surplus. In the areas that receive aid, however, the market is (a) too expensive, and (b) too far away in terms of infrastructure, to be effective.

A minimally-market-distorting aid program works with these constraints. The aid program should be sourced entirely within those nations who need food aid. Thus one year the aid program would buy food in Uganda when it has a bumper crop, for example, and ship it to Ethiopia, and when Ethiopia has a good year, buy food there and ship to, for example, Mozambique. By buying surplus food in those developing nations, you are providing a price floor for agricultural goods, thus encouraging more production. Also, in order to source your supplies in those countries, you have to invest in the infrastructure to bring the crop to market (in this case, the charity). That infrastructure will serve them well regardless, and it will link those countries into the global food market, thereby reducing the need for charity altogether.

And, as a bonus, by buying where food is the cheapest, you're also keeping total costs down.


Blogger Noumenon said...

Here's a charity that appears to have significant overlap with what you want. Found not by Google but in the archives of a blog I happened to have open in another tab.

7:08 AM  
Blogger Octavo Dia said...

Once again, our two approaches lead to the same place. The developer versus the aggregator.

1:58 PM  

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