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The short- and medium- term impacts of rises in staple food prices

Abstract

There is widespread concern about the impact of recent food price rises on the welfare and food security of poor people and about future impacts of high prices. Responses to these concerns are, however, sometimes clouded by lack of clarity about the nature of short and medium term impacts of food price changes for different people. This paper reviews both theory and empirical evidence on these impacts. It finds that theory and empirical evidence are broadly complementary and consistent, with a high degree of variability in impacts. In broad terms staple food price increases have had very serious effects on the poor in national or local economies which have experienced high food price shocks without broad based growth processes. Poor net buyers of food, in both rural and urban communities, have been most negatively affected, with limited second order benefits from high staple food prices tightening labour markets in poor rural economies. Short term impacts can be ameliorated by economic growth and, for international food price increases, by limited price transmission. Economic growth and lower domestic price transmission of high international prices in different countries, notably India and China, have led to lower increases in global poverty, hunger and malnourishment than hunger and poverty simulations have suggested. However these findings should not detract from the very serious impacts high food prices have had for very large numbers of very poor people in poor countries, and the need for policies and action to address this.

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Notes

  1. 1.

    The focus of this paper is on staple food prices. Further references to ‘food prices’ should be taken as referring specifically to staple food prices.

  2. 2.

    This paper focuses on the impacts of high food prices per se. It does not consider the further costs of adjustment and uncertainty that arise with food price shocks and food price volatility, although these are of course all closely related.

  3. 3.

    This is the case with ‘normal goods’. For Giffen goods the ‘income effect’ may lead to an increase in consumption following a price increase (Jensen and Miller 2008).

  4. 4.

    It may also be affected by exogenous increases in prices of inputs, such as seeds and fertilisers. FAO (2011) show that such changes are likely to have relatively small effects on increased profitability of food production as compared with the effects of higher food prices. There may, however, be important dampeners on the affordability of input use if farmers face seasonal capital constraints (for example Dorward and Poulton 2008).

  5. 5.

    See for example Delgado et al. (1998)

  6. 6.

    This raises again questions about how food prices are defined, what they are measured against – incomes of (different) consumers, prices of other goods and services purchased by (different) consumers, production inputs, or alternative products.

  7. 7.

    International grain prices are summarised using the World Bank Development Prospects Group ‘cereals’ price index. This hides considerable diversity in shorter term price fluctuations between maize, wheat and rice, but shows well the broad patterns which are common to all the main grains.

  8. 8.

    This relationship needs to be examined in the context of evidence of long run relationship between oil prices and grain prices, with increasing influence of oil prices on grain prices in recent years (Arshad and Hameed 2009; Baffes 2011). Furthermore, there are multiple relationships between oil and food and hence oil and food prices, with oil both an input in grain production, and an output from grain and other agricultural production (in the sense that increasing amounts of maize, sugar and oilseeds are used for ethanol production). Oil prices also have important effects on consumer prices for non-food expenditure on transport and power.

  9. 9.

    This is complicated by the increasing correlation between food and fuel prices noted above, as this means that consumers will often face correlated price changes in both their food and non-food expenditures.

  10. 10.

    See also Headey et al. 2012, who report spatial variability in results from different studies and note that an increase in rice prices may reduce consumption of important micro-nutrients but not of calories as households reallocated spending from a more diverse diet in order to maintain calorie consumption

  11. 11.

    We focus below on more microeconomic studies but note that a variety of macroeconomic impacts have been observed, very much as discussed earlier in the Macroeconomic analysis of food price changes section (for example Dia Kamgnia 2011)

  12. 12.

    However Minot and Goletti 1998, modelling the effect of liberalisation on rice prices, estimates slight reductions in the incidence and severity of poverty for two reasons: net sellers of rice are more common among the poor, and poor households which make small net purchases may either be able to increase production and switch from deficit to surplus producers or benefit from higher increases in producer prices as compared with consumer prices.

  13. 13.

    A number of commentators (for example Rodrik (2007, 2008)) have commented on apparent contradictions between simulations reporting benefits for the poor from liberalisation of agricultural policies (leading to increases in world food prices) and apparently similar simulations reporting welfare losses for the poor from high food prices. Hertel and Martin (2008) explain that there is no contradiction: their liberalisation simulations show welfare losses to the poor from high food prices following reductions in rich country domestic support and export subsidies (consistent with later simulations of the effects of high food prices), but these are outweighed by benefits to the poor from reductions in rich and poor country agricultural tariffs. Rodrik (2008) also notes the effects of sample selection.

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Acknowledgments

I am grateful to two anonymous reviewers, the editor, Peter Hazell, Derek Headey and my colleagues in the Centre for Development, Environment and Policy for helpful comments on earlier drafts of this paper. The views and any errors or omissions in the paper are, of course, my responsibility.

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Dorward, A. The short- and medium- term impacts of rises in staple food prices. Food Sec. 4, 633–645 (2012). https://doi.org/10.1007/s12571-012-0210-3

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Keywords

  • Food prices
  • Food security
  • Food staples
  • Rural poverty