World Food Prices and the Poor: A Slow Food Price Crisis?

1. World Food Prices and the Poor: A Slow Food Price Crisis? MarosIvanic* & Will Martin* World Bank 28 May 2013 *This paper reflects the views of the authors alone

2. Roadmap • World & domestic food price changes • Food price impacts on poverty • Overall changes in poverty rates

3. Food price changes • Consider first key agricultural commodities whose domestic & and international prices can be measured fairly precisely • And whose impacts on both expenditures and revenues of poor households can also be assessed • Rice, wheat, maize, sugar, oilseeds, dairy • We also consider much broader measures • Food CPIs from FAO • That allow us to consider much broader impacts

4. World & Domestic Price Changes

5. Price transmission: rice, wheat, maize, sugar

6. Short run insulation & long run transmission

7. Striking that world prices increased • A large fraction of the 2008 increase in world prices came from countries’ attempts to insulate against this increase • Martin & Anderson estimate 45% for rice • This insulation was mostly gone by 2012 & yet world prices were very high • Shows the substantial– and increasing--pressures on world food markets

8. Particularly strong insulation for rice

9. Slightly less insulation for wheat

10. Somewhat less insulation for sugar

11. Features of price transmission • Strong insulation in the short run • With some intertemporal dynamics • Much stronger long-run price transmission • Does this create a slow food price crisis?

12. Poverty impacts

13. Methodology • Estimate food price changes in 30 sample ctries • Consider six key unprocessed commodities • And overall changes in food prices • Estimate partial poverty impacts for a sample of 30 countries • Weight by population to estimate global impacts • With estimated sampling errors

14. Methodology: Short run impacts • Begin with the Deaton method to measure impacts on household real incomes • ΔW = (ep – Πp).dp • Where ep is the demand for food & Πp is the household’s own production • But allow for 2nd effects on the demand side • ΔW = (ep – Πp).dp +1/2.dp.eppdp • Where eppbased on compensated elasticities of demand for the GTAP CDE demand system

15. Medium & long run impacts • Introduce supply response & wage rate impacts • Medium-run household responses (2-5 years) from a specific-factor model for that economy • Labor mobile across commodities but capital & land fixed • Household firm responses modeled as in GTAP • Δ unskilled wage rates from a GTAP-type national model • Long run impacts assume mobile capital & imperfectly mobile land

16. Wage responses • Capture impacts of output price changes on wages • Stolper-Samuelson effects • Calculated for each country based on the structure of its economy • GTAP-style prodn structure with GTAP parameters & data • Channels considered • Short run: no wage impacts • Medium run: labor the only mobile factor • Long run: labor & capital mobile, land sluggish

17. Median wage elasticities: six foods

18. Median wage elasticities—all food • Medium run • Aggregate agricultural prices: 1.04 (India: 1.08) • Rice: 0.07 (India: 0.18) • Wheat: 0.01 (India: 0.02) • Processed foods: 0.44 (India: 0.50) • Long run • Aggregate agricultural prices: 0.87 (India: 1.25) • Rice: 0.09 (India: 0.21) • Processed foods: 0.21 (India: 0.88)

19. Poverty impacts:10% price ↑ six foods

20. Poverty impacts:10% price ↑ all food

21. Partial vs total poverty impacts

22. Estimated partial impact of food prices on global poverty relative to 2006 (million)

23. Partial vs total poverty impacts • The partial impacts that we have considered reflect only the partial impacts of food prices • These are important and useful for policy makers concerned about issues such as price insulation, domestic food prices, and even agric productivity • For other purposes, such as poverty monitoring, we are interested in total changes in poverty • Where x is all other influences on poverty

24. Global povertyEstimate, impact of food price crisis Poverty estimate without food price shock

25. Conclusions • Price insulation was very short-lived • Most of the price rise was passed through • No evidence that insulation was collectively effective • Estimated the impacts of higher food prices on poverty for the short, medium and long run • Adverse impacts much higher in the short than in the long • Surprising large differences between impacts of 6 key foods & all food • Partial impacts of high food prices are fairly large deviations from the downtrend in global poverty • But fortunately not enough to overcome the downtrend