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

Author

Listed:
  • David Dawe

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

  • Irini Maltsoglou

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

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.

Suggested Citation

  • David Dawe & Irini Maltsoglou, 2009. "Analyzing the Impact of Food Price Increases: Assumptions about Marketing Margins can be Crucial," Working Papers 09-02, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  • Handle: RePEc:fao:wpaper:0902
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    File URL: ftp://ftp.fao.org/docrep/fao/011/aj990e/aj990e.pdf
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    References listed on IDEAS

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    1. 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.
    2. Christopher B. Barrett & Paul A. Dorosh, 1996. "Farmers' Welfare and Changing Food Prices: Nonparametric Evidence from Rice in Madagascar," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 656-669.
    3. 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.
    4. 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.
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    Cited by:

    1. Félix Badolo & Fousseini Traoré, 2015. "Impact of Rising World Rice Prices on Poverty and Inequality in Burkina Faso," Development Policy Review, Overseas Development Institute, vol. 33(2), pages 221-244, March.

    More about this item

    Keywords

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

    JEL classification:

    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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