Poverty Impact of Recent Food Price Rises

To quantify the poverty impacts of the recent rise in food prices, we use a global computable model (Global Trade Analysis Project [GTAP]) with a sample of 28 household surveys with data on individual households’ expenditures and income sources. These national surveys are drawn from low- and middle income regions from around the world and represent 41% of the population living in these countries (see table 1).We use local food price changes for the commodities where we have data for the June–December 2010 period. For the commodities where the local price data do not exist, we work out the pass through of global commodity price changes on local prices using the share of that commodity’s import in total consumption. In the second stage of our calculations, we apply the expected domestic price changes to determine the increase in the cost of living for net consumers and the increased profits of net producers. Combining these two impacts, we calculate the net impact on each household and determine whether it has been thrown into or lifted from poverty, defined at the expenditure level of $1.25 per person per day. The results show that in half of our sample, we observe an increase in poverty greater than 0.5 percentage points, and in eight countries an increase of more than 1 percentage point, including Tajikistan, where poverty is expected to have risen by more than 3.6 percentage points, and Pakistan, where the 1.9 percentage point increase in poverty is mostly due to higher wheat prices, with the impact on consumers far outweighing the beneficial impact on medium and large farmers. In contrast, in Vietnam, poverty is expected to have declined because a large portion of poor households are net producers of rice and benefit from their high price. Applying the population-weighted average increase in poverty to the total population in low- and middle-income countries, we infer that the recent rise in food prices may have put 44 million people into poverty in these countries. This reflects 68 million people who fell below the $1.25 poverty line and the 24 million net food producers who were able to escape extreme poverty.

	Total population (millions)	Sample population (millions)	Share of the population covered by sample (%)	Poverty rate change, percentage points	Poverty rate change (millions)
Low-income countries	828	286	34.5	1.1	9.5
Middle-income countries	4,758	1,987	41.8	0.7	34.1
Total	5,586	2,272	40.7	0.8	43.7

Source: World Bank staff estimates produced by the Agriculture and Rural Development Unit of the Development Research Group and the Poverty Reduction and Equity Group. Estimates for the poverty impact of 2008 food price increases using this model can be found in M. Ivanic and W. Martin (2008), “Implications of Higher Global Food Prices for Poverty in Low-Income Countries,” Agricultural Economics 39 (Supplement): 405–16.

http://www.worldbank.org/foodcrisis/food_price_watch_report_feb2011.html

 

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