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Implications of higher global food prices for poverty in low-income countries
The winners and losers of the rise in food prices
Authors:
M. Ivanic; W. Martin
Publisher:
World Bank, 2009
Basic food commodities that are traded globally, including wheat, rice, maize, sugar and poultry, are important for small farmers and consumers in the developing world. Higher global food prices are a shock factor which can be directly correlated to increased livelihood vulnerability and poverty. In many poor countries, recent rises in the price of staple foods have created winners and losers. Those selling food, though still relatively poor, have gained; whilst consumers, who are also relatively poor, have been hurt. The overall impact on poverty is dependant on the balance between these two effects.
In order to try and understand that balance, in this report, the authors use a simple yet data-intensive methodology to assess the basic effects of food price increases on household income. Data is correlated to produce an average result of the effects of food price increases for all low-income countries. Available data on households from nine low-income countries is used to show that the short-term impacts of higher staple food prices on poverty differ considerably by commodity and by country.
The methodology consists of two experiments. Firstly an estimation of the importance of small changes in the prices of individual commodities on poverty rates in each of the sample countries. This is achieved by conducting a stylised simulation to assess the effect of a small change in the price of each commodity. Secondly, the impact of actual food price changes between 2005 and 2007 on poverty in the sample countries is estimated. The way in which commodity price changes lead to changes in the wage rate for unskilled labour, the other key source of income for most low-income households identified in Ravallion (1990), is also considered.
The authors note substantial differences for the effects of food price rises, depending upon the type of commodity and between rural and urban households. However, overall poverty increases are much more frequent and greater than are poverty reductions.
The authors conclude that increases in global food prices would appear to translate into an increase in the poverty headcount of 105 million people (out of the low-income population of 2.3 billion); corresponding to a loss of almost seven years of poverty reduction.
