Social protection and safety nets
Do consumer price subsidies really improve nutrition?
Consumer price subsidies and nutrition: results from two Chinese provinces
Authors:
R., T. Jensen; N., H. Miller
Publisher:
Center for International Development, Harvard University, 2008
Many developing countries use food price subsidies or price controls to improve the nutrition of the poor. However, subsidising goods on which households spend a high proportion of their budget can create large wealth effects. Consumers may then switch towards more “luxury” foods with higher non-nutritional attributes like taste, but lower nutritional content per unit currency, weakening or perhaps even reversing the intended impact of the subsidy.
This paper presents data from a randomised programme of large price subsidies for poor households in two provinces of China, Hunan and Gansu. Using consumption surveys gathered before, during and after the subsidy was introduced, the authors find that poor households in Hunan actually reduce their intake of calories and several other important nutrients in response to the price subsidy. In Gansu, calories and other nutrients do not decline; the estimated effects are in most cases actually positive, but they are extremely small and not statistically significant.
Overall, the authors conclude that the consumer price subsidy did not improve nutritional status, and may in fact have worsened it. This is despite the fact that the sample households are extremely poor, both by Chinese and international standards, and are thus the group whose nutrition, food prices subsidies are typically intended to improve.
However, it is asserted that this result should not be extrapolated too far, especially as regards recent sharp increases in world food prices. It is noted that:
- first, these prices have affected many goods; although consumers may be able to effectively buffer their nutrition in the face of an increase in the price of a single good, even one that comprises a large portion of their budget, this does not necessarily imply that they can do so in the face of increases for many goods
- second, although this experimental subsidy was substantial, averaging 20 percent, it is possible that larger price increases, such as those reported recently, may have a more substantial and harmful effect on nutrition
