The Conditions for Compatibility between Aid and Trade in Agriculture

Abstract

I. Economic Growth and Agricultural Imports United States farm lobbies have consistently opposed the budgeting of foreign aid programs designed to promote in less developed countries (LDCs) modern agricultural technologies for commodities that compete with U.S. farm exports. Political support for this view has increased as a result of the recent decline of U.S. agricultural exports and the disastrous consequences this has had on farm incomes. The presumption is that there is a conflict between aid and trade. Whether this position is correct or not and what the policy instruments are that can be used to harmonize aid programs with trade interests are the subjects that are explored in this article. The short-run view espoused by the farm lobbies does not take into account the fact that technological change in LDC agriculture can create strong economy-wide growth and income effects with the potential of increasing the level of agricultural imports in future years. Countries such as Korea, Malaysia, Taiwan, and Thailand have all shown how successful agricultural development sustained broad-based industrial growth, which, subsequently, increased the demand for imports of coarse grains and feedstuffs. Stimulating the demand for U.S. farm exports via technological change in LDC agriculture is, however, not free of difficulties. Successful agricultural development has, for the moment, transformed India and China into self-sufficient countries instead of inducing higher import demand through income effects. This has been due to a failure in the linkages between agriculture and the rest of the economy to propagate agricultural growth as well as lack of employment creation. Also, in all cases, there are substantial time lags between successful technological changes in agriculture and increased import demand. Farm lobbies, with high private time-discount rates in measuring the gains from trade, tend to oppose aid while the rest of