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