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Analyzing the Impact of Food Price Increases: Assumptions about Marketing Margins can be Crucial

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Author Info

  • David Dawe

    (Agricultural and Development Economics Division, Food and Agriculture Organization)

  • Irini Maltsoglou

    (Environment, Climate Change and Bioenergy Division Food and Agriculture Organization Italy)

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    Abstract

    This paper shows the importance of explicitly considering marketing margins in analyses of the impact of price changes on the welfare of different segments of the population. Failure to acknowledge the implicit marketing assumptions embedded in an analysis that assumes equal percentage changes for both farm and consumer prices leads to a bias towards finding negative impacts of higher food prices. In addition, the bias is not necessarily uniform across income quintiles; thus, failure to explicitly consider marketing margins could lead one to conclude that the poor are hurt relatively more than the rich by a price increase when in fact the opposite is true, or vice-versa. We provide rules of thumb and simple techniques that may help to ascertain, in many circumstances, the percentage change in consumer prices that is appropriate for a given percentage change in farm prices.

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    File URL: ftp://ftp.fao.org/docrep/fao/011/aj990e/aj990e.pdf
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    Bibliographic Info

    Paper provided by Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA) in its series Working Papers with number 09-02.

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    Length: 12 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:fao:wpaper:0902

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    Postal: Agricultural Sector in Economic Development Service FAO Viale delle Terme di Caracalla 00153 Rome Italy
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    Web page: http://www.fao.org/es/esa/
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    Related research

    Keywords: Food prices; food policy; poverty; household surveys; marketing margins; distributional impact.;

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    1. Nicholas Minot & Francesco Goletti, 1998. "Export Liberalization and Household Welfare: The Case of Rice in Vietnam," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 738-749.
    2. Deaton, Angus, 1989. "Rice Prices and Income Distribution in Thailand: A Non-parametric Analysis," Economic Journal, Royal Economic Society, vol. 99(395), pages 1-37, Supplemen.
    3. Budd, John W, 1993. "Changing Food Prices and Rural Welfare: A Nonparametric Examination of the Cote d'Ivoire," Economic Development and Cultural Change, University of Chicago Press, vol. 41(3), pages 587-603, April.
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