Transcript Measuring the Poverty Effects of Higher Food Prices Rafael de Hoyos DECPG Washington DC, October 2, 2008

Measuring the Poverty Effects of
Higher Food Prices
Rafael de Hoyos
DECPG
Washington DC, October 2, 2008
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Motivation

From January 2002 to February 2008 the WB
global “real” food price index rose 140 %

The massive increase in food prices have
important redistributive and poverty impacts
around the world
  What are the (simple) methods available to
measure the poverty effects?
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Motivation

75% of the world’s poor live in
“agricultural households”

An increase in food prices can
increase the income of the
poorest households

Therefore, the global poverty
effects of an increase in food
prices are not clear

Objective: show the possible
poverty effects of the recent
changes in food prices
Source: Bussolo, De Hoyos and Medvedev (2008)
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Outline

Food Prices and Poverty: Conceptual Links

International vs. Domestic Food Prices

Simulation Results using the Global Income
Distribution Dynamics (GIDD) dataset



Change in the Urban Poverty Deficit
National Poverty (headcount and gap) Effects
Limitations
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Conceptual Framework
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International vs. Domestic Food Prices
Is the increase in international food prices a
good indicator of the reduction in
purchasing power suffered by consumers in
developing countries?
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International vs. Domestic Food Prices
Nominal Cumulative Increase (LCU, Jan 2005 – Dec 2007)
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International vs. Domestic Food Prices
Relative Cumulative Increase (LCU, Jan 2005 – Dec 2007)
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Measuring the Urban Poverty Effects
Change in the Poverty Deficit (Dessus, Herrera, de Hoyos, 2008):
Old Poor
New Poor
• The change in PD can be approximated by the following equation:
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Data Requirements
 Household
survey data:
Household welfare aggregate
 Food share
 Rural/urban households classification

 Domestic
change in CPI, and food CPI
 Elasticity of Substitution
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Assumptions used in Dessus et al. (2008)
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Results from Dessus et al. (2008)
90% of the
increase in PD
is due to the
“old poor”
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Poverty Effects: Including Rural Households
Real income can be defined as follows (De Hoyos and Medvedev, 2008):
if :
then:
Which simplifies to:
Share of Income from
Agricultural Activities
Share of Total Household
Budget Spent on Food
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Data used in De Hoyos and Medvedev (2008)

Household survey data for 73 developing
countries coming from the GIDD
Food share observed for 21 countries and imputed
for the rest using Engel curves (De Hoyos and Lessem, 2008)
 Agricultural income shares observed for 19
countries (RIGA project) and imputed for the rest
using polynomial regressions


Domestic CPI, and food CPI for period Jan.
2005 to Dec. 2007 coming from ILO.

All the simulations are based on changes in
relative food prices
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Results: Total Poverty Effects
The change in the headcount implies an extra 155 million under
the poverty line and an increase in 7% in the poverty deficit 18
Results: Total Poverty Effects

Large heterogeneity across countries
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Limitations
Which price shock should we use? Nominal, real,
relative?
 Focusing on food CPI instead of particular
commodities could hide important price effects
within the food basket.
 More country-specific information on the % of
total income that is coming from agricultural
self-employed activities rural households
 General equilibrium effects? Substitution effects
are important.

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