In Afghanistan, after two decades of civil strife and successive droughts from 1998 to 2002, large inflows of food aid, distributed mainly to returning refugees and through food for work programs, have helped offset production shortfalls of wheat, the country’s major staple. At the same time, private international trade from neighboring countries, especially Pakistan, has also played a major role in augmenting wheat supply and stabilizing prices.

This paper presents an analysis of wheat prices and market flows in Afghanistan based on results of surveys of wheat traders and millers, and econometric analysis of price movements in major markets in Afghanistan and Pakistan. In spite of food aid imports, domestic prices were not lowered below import parity levels in most major Afghan markets. Thus, the price evidence suggests that large-scale inflows of food aid, which benefited the country by providing resources for targeted food for work and other programs, did not have major price disincentive effects on domestic production, at least through mid-2003. However, following the 2003 bumper harvest, the analysis suggests that continued food aid inflows may have depressed producer prices by as much as about 15%. Moreover, given substantial prospects for rehabilitation of irrigation infrastructure, there is ample scope for increasing domestic production of wheat and decreasing import demand, so price disincentive effects of food aid remain a possibility in the future, as well.