The Cost of Donor Demands

A global hunger crisis in 2007 and 2008, caused by a rapid rise in food prices, drove an additional 100 million people into hunger. The crisis illustrated some of the structural problems of foreign aid. Donors regularly attach conditions to aid, sometimes forcing policy changes in the recipient countries. For example, starting in the 1980s, donors demanded changes in the agriculture sectors of aid recipients^1—specifically, reduced tariffs on agricultural imports. As a result, developing countries’ food imports surged and millions of smallholder farmers—the largest share of poor people in the world—were no longer able to compete in their own domestic markets. Imported agricultural products, supported by trade-distorting subsidies in the exporting countries, poured in from some of the same nations that were providing foreign aid. Meanwhile, donors were drastically cutting assistance for agriculture and shifting their focus into other sectors. This combination of factors led to steadily decreasing agricultural productivity in aid-dependent countries. Decades of underinvestment in agriculture meant that when food prices spiked rapidly in 2007 and 2008, developing countries were unable to increase domestic food production quickly enough to respond effectively. The hunger crisis could have been averted or certainly mitigated if countries had not been forced to adopt tariff policies prescribed by donors. In the kind of partnership envisioned in a country-led model, countries would determine their development priorities and donors could voice any concerns and work with recipients to refine their objectives, but they would not attach conditions to force policy change.

Issues