September 29, 2007

Food prices and poverty

Here is a question for the economics student: Are higher world food prices good or bad for the world's poor?

If you have been paying attention to the advocates of the Doha "Development" Round, who have trumpeted the benefits that the poor would get from agricultural liberalization in the advanced countries, you would be answering that it's got to be good. After all, poor people make a living off agriculture, and if the prices of what they produce increase, their real incomes must go up as well.

But now turn to the concerns being expressed (here and here) about the consequences of the rise in food prices due to the growing demand for biofuels (especially ethanol made from corn), and you get the exact opposite implication: higher food prices, it is now said, raise the cost of living for the poor and reduce the real amount of food aid the gets delivered.

The real answer of course is that it depends on whether a poor household is a net seller or buyer of food (that is, whether it grows more or less food than it consumes). This means that the rural poor generally tends to benefit from higher food prices, whereas the urban poor generally get hurt. How large the impact is depends, in turn, on the size of the food account as a share of total expenditures or income of a household. And whether the change is good or bad for a nation's poor as a whole depends on the geography of poverty in a country.

So as an economist loves to say, it depends. But it depends in predictable ways on household and country characteristics.

But you would not know it from the way these issues get discussed in the public debate.

Comments

higher price of the commodity will increase the earning of the former and this earning will be used for the future time so in simple manner it is quite good for that former who is taking the advantage of the increasing price.

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