Least-cost cheap-food policies: some implications of international food aid

Abstract

Many low-income countries pursue cheap-food policies in which consumers pay subsidized prices for bread, rice and other staples, This paper addresses the issue of why different governments select different food subsidy policies, using multiple instruments rather than a simple across-the-board subsidy to provide consumers with access to cheap food, It examines the optimal structure of cheap-food policies in the context of a partial equilibrium model in which the country may be large in trade, and is able to combine import subsidies or tariffs, and output taxes or subsidies, to transfer income to consumers through the market. The model allows for a marginal opportunity cost of government revenues greater than one dollar. In addition, in the model, food aid from overseas may be either given away to the consumer, or given to the government for subsequent sale in the domestic market. The results indicate that only by happenstance will a country choose to use a pure consumption subsidy or a pure import subsidy to transfer income to consumers. In addition, an increase in international food aid does not necessarily lead the government to reduce producer and consumer prices for a commodity. cD 1999 Elsevier Science B.V. All rights reserved.

Tax treatement of farmers in the Republic of Serbia

“…In financial literature there are stances that prescribing reduced rates for agricultural products results in negative protection of agricultural, i.e. this solution does not make distribution of income more equal, because only urban poor may have gained trough lower food price, but not rural poor (Jonson, 1993), and that pure consumption subsidies are much better solution (Alston et al, 1999).…”

On the discovery of millet prices in Mali

“…Centralised authority was generally dismissed as disingenuous; governments had simultaneously leveraged their involvement in staple food markets into working political capital (Bates 1981). Marketing boards were used to both tax agriculture, and maintain cheap food prices in urban areas to avoid civil unrest and garner favour among key political allies (Sanders et al 1996; Alston et al 1999). Such urban bias has contributed to the agriculture stagnation that has occurred in several countries, leaving rural areas underdeveloped (see the discussion in Duncan and Jones 1993).…”