A Proposed Allocative Mechanism for U.S. Food Aid

Selected data support the conclusion that on the average the United States has provided a proper balance of domestic farm production controls versus food exports to handle excess farm production capacity. The allocation has been much less than optimum at the margin, however, and strong tendencies exist to overdo food aid. A mechanism is proposed in this article that “adjusts” prices for institutional factors but harnesses the inherent equilibrating forces of the market. The method achieves an optimum balance between food and nonfood aid and between exports and production controls to handle excess U.S. farm production capacity. It is proposed that all our foreign aid be given as cash and that foreign aid recipients be permitted to purchase U.S. farm commodities at a discount. The discount as a percent of market value should be equal to the USDA cost of inducing farmers not to produce $1 of farm commodities.