Introduction

This paper presents a theoretical analysis of the problems raised for the domestic agriculture of underdeveloped countries by the use of foreign food surpluses. The issues analyzed are twofold: (1) How large and serious a discouragement to domestic agriculture is the importation of foreign food surpluses? (2) Given the type of expenditures for economic development to which the receipts from surplus sales are devoted, by how much do such expenditures offset any negative effect of the surplus by (directly or indirectly) encouraging development of domestic agriculture? In particular, how does the expenditure in such programs required to just offset such effects compare with the receipts from the sale of the surplus? It is hoped that a rigorous theoretical statement of what is involved in these questions will prove useful in empirical work, although it is clearly not a substitute for detailed investigation.

The results obtained suggest the need for econometric analysis of price effects on both supply and demand of agricultural commodities in underdeveloped countries. It is shown that such price effects can be of considerable importance in policy evaluation. Thus, such quantitative investigation seems clearly called for, if only to establish that such effects are quantitatively small.

The Size of the Effect

Theoretical Analysis – Open Sale

In his well-known paper on the value of United States farm surpluses to underdeveloped countries, T. W. Schultz gives an example of the possible effects on farm prices of the receipt of surplus commodities.