Short- and Long-Run Impacts of Food Price Changes on Poverty

This study uses household models based on detailed expenditure and agricultural production data for 315,000 households from 31 developing countries to assess the impacts of changes in global food prices on poverty in individual countries and for the world as a whole. The analysis uses national Computable General Equilibrium models to assess the impacts of food prices on wage rates for unskilled labor, which are particularly important for the welfare of the poor. At the household level, the real income of households is modelled taking into account the impacts of food price changes on the profits of unincorporated farm enterprises, and their sales of labor outside the farm firm. A top-down approach is used, with particular attention paid to consistency between the behavioral responses of the households and at the national level. The study finds that food price increases unrelated to productivity changes in developing countries raise poverty in the short run in all but a few countries with broadly-distributed agricultural resources. This result is primarily because the poor spend large shares of their incomes on food and many poor farmers are net buyers of food. In the longer run, two other important factors come into play: poor workers are likely to benefit from increases in wage rates for unskilled workers from higher food prices, and poor farmers are likely to benefit from higher agricultural profits as they raise their output. As a result, higher food prices appear to lower global poverty in the long run, although there are important differences between the impacts in different countries....