Beating a not-so-dead horse on food prices

A "loyal reader" writes

Martin Wolf of the FT has written a whole article arguing that: '... higher food prices have powerful distributional effects: they hurt the poorest the most' without even a mention of the basic economics in your September post on food prices: '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).'

Now, I had actually read the Wolf piece and thought it quite reasonable.  Its bottom line is that the rapid rise in food prices is creating a severe problem for some of the world's poor and does require urgent, and coordinated response.  But I don't understand, and that is my correspondent's point, why Martin needs to make the blanket statement that the rise in food prices "hurt the poorest the most."  The fact is that millions of very poor growers of rice and other food products are much better off as a result.  The poor that are affected the worst are the urban poor, not the rural poor.

I am puzzled more generally by how the commentary on the world food crisis misses this basic point.  It's all about how the price rise is an unmitigated disaster for the world's poor, with nary a comment on the fact that some of the beneficiaries are also among the world's poorest. (Some of you will say that all the price increase is absorbed by margins, with little of it showing at the farm gate--but I doubt that is true.) The panic on the part of governments is understandable. They are much more sensitive to the urban poor, who can create greater havoc than the rural poor.  But what about the rest of us?

UPDATE: See the nice paper by Maros Ivanic and Will Martin on household-survey based estimates of poverty impacts from recent food price changes. Of the nine countries included in the sample, seven (Bolivia, Cambodia, Madagascar, Malawi, Nicaragua, Pakistan, and Zambia) experience a net increase in poverty, while two (Peru and Vietnam) experience a decline.   

Comments

[rh]

This is all very country specific. It may well be that the number of rural poor who are (net) purchasers of rice/wheat is very large -- possibly large enough that it may outnumber the total urban poor. In any case, from what I can tell by looking at household expenditure survey data (India and Bangladesh, in particular), a large majority of the rice consumed by people in each of the bottom 2-3 quintile groups in rural areas is purchased (including that sold through the public distribution system).

[jimi]

what about food aid recipients / refugees?

[Linca]

A fair part of the rural poor sell part of their production just after harvest, to reimburse debt, pay taxes, etc..., and frequently end up having to buy food when prices are highest, a few weeks before the next harvest, when they have eaten through their production. Even net purchasers end up buying food.

[Domino]

Danni,

Glad to see the switch to households rather than countries in discussing the impact of these price changes.

I think the point is that the losers in these changes are moving below a minimum level. Their loss is given more moral weight than the gain of other poor people. This is an application of Rawlsian morality, and I don't see why it isn't valid.

We have many people who were very poor moving into starvation. Of course there are many people who were very poor who may now be only moderately poor, but many people seem to think the cost here is outweighing that benefit (even though few are probably bothering to check).

If the change was in the other direction (dramatic slump in world food prices) you can bet the same people would make the same statement: "this is an unmitigated disaster for the poor!" because many poor people would move to starvation even though many other poor people would be better off in real terms. Although this would be a different group of poor people.

[robertdfeinman]

There was a conference last year in Africa on how to deal with the rise of mega-cities. If I remember correctly, I think the number is now up to 14.

These cities suffer from poor infrastructure, especially clean water and sanitation. There is a lack of work and most new arrivals live in slums. Now add in the issues of food supply and it looks like a trifecta: lack of food, water and housing.

Moving away from the countryside is a world-wide trend and doesn't seem to be getting adequate attention.

[Matt]

Your point about the negative effects of rising food prices hitting largely urban, rather than rural, poor populations is well founded; however, I seem to recall that the World recently hit - or will soon hit - a milestone in that more than half the Globe's population now lives in cities. To say that food shortages affect "just" the urban poor unduly minimizes the problem. It is also worth noting that it is the urban poor that have the greatest capacity, because of their concentration, to cause serious political instability, especially since the traditional social support networks that exist even in impoverished rural areas generally don't exist in cities.

[Barkley Rosser]

Dani,

Another point that is being missed here is that the very poorest of the rural poor in many countries do not own the land that they farm and have arrangements with the landowners that do not allow them to reap much of the gains from higher prices. These people will also be hurt, not just the urban poor, or those who sell their crop right away and buy food later.

[Melvin]

Questions that come to mind.

1. Are most of the world´s poor urban or rural?

2. What is the relative impact of high food prices on each group? Do the urban poor lose more than the rural poor gain?

3. How much poorer -if at all-, on average, are the rural poor? Is the difference big enough that a reduction in rural poverty coupled with an increase in urban poverty would end up increasing poverty rates overall (though perhaps reducing the poverty gap?

4. What should be of more concern? The poverty gap or the poverty rate?

[Fabio]

2 comments:

a) It's generally true that the poorest are hurt most by high food prices, as they spend a high percentage of their income on subsistence (i.e. food).

b) Many rural poor are in fact net food buyers.

[Derrill Watson]

One answer out of four for Barkley Rosser:

1) Most of the world's poor are in rural areas (see reports by Hazell and Lipton on the IFPRI website), though of course this will vary between countries.

A second factor that hasn't been brought up yet here is what these farmers are growing. Cassava farmers, and others whose crops are largely non-tradables, are certainly worse off because the relative price of their good is falling. So we can't even generalize to net-sellers, but to net-sellers of those products whose prices rise.

Of course, government actions could throw off a great many calculations. Restricting trade to starve neighboring countries, rationing and fixing prices, stockpiling, and all while still subsidizing alternative uses for the crops (read: biofuels - and for an excellent look at the Law of Unintended Consequences, see de Gorter and Just http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1071067
). It's a heady mix.

[Barkley Rosser]

Given the lack of a substantive followup on my point regarding land ownership, I did some checking. Not surprisingly there does not appear to be any global data source on this issue. All I could find was report after report regarding this country and that country and the other.

But, the upshot of this is that there are a lot of countries out there, both developed and less developed, which have high levels of absentee ownership of rural land, many of them at the the 30% to 40% level, or even higher.

The bottom line is indeed that Dani has a serious problem here. This horse is all too alive and snorting. Quite aside from the folks not growing or selling grain, there are lots of farmers in poor countries who are tenants, sharecroppers, or whatever, with only a rather pathetic ability to participate in the gains from the rising prices of all these basic grains. As far as I am concerned this point pretty much turns Dani's argument mostly into rubble.

[Rupert Simons]

I share your intuition that rural poor people are mostly net producers of food and so should benefit from food price rises - but I've seen a fair bit of evidence that they don't. Specifically, in Liberia:

- A World Bank survey found most households in rural areas (80% ,as I recall) are net food consumers, because they grow less rice than they need to eat, so they have to sell a small amount of cash crops (rubber, cocoa) to buy more food. The price of the cash crops has been rising, but not as fast as the price of rice.
- Anecdotally, on my last trip to Liberia I asked RURAL people whether the increased price of rice was a good thing and they said "no, because we can't sell our local rice in the market and imported rice, which we rely on during the lean season, is more expensive".

The only long-term solution will be to grow more rice domestically and make people more receptive to it - but I think it's way too simple to say "people in rural areas are net food producers so they should benefit." Maybe in the very long run.

[Ambrish]

Another important point is to what extent the farmer is able share the gains from price increase. Some anecdotal evidence from India suggests that even in the periods of high food prices, the actual growers tend to get the same price as before. The price gains go to a large chain of middlemen, a feature of unhealthy distribution chains. The result is: low prices for the producer and high prices for consumer, most of the times.

[Ali S]

'The poor that are affected the worst are the urban poor, not the rural poor.'

Dani, obviously- the analysis has to be based on country specific perspective.

In a country such as Pakistan, which is a feudal society outside the urban land, I find it difficult to comprehend that the gains are not absorbed by the margin.

I dont know if you are aware of the lead up to the current wheat debacle in the country, but the current intensified mayhem is the consequence of the short fall in policy monitoring by the respective authorities as a response to the foreseen(projected) crisis in the country coupled with the international price hike.

Last year, it was noted that there will have a wheat shortage domestically
, hence the banking tiers wre given incentives to provide specific funds to the farm land (as it doesnt otherwise) to expand their crop base etc, to serve the rising needs of the local market in the projected shortage months.

Although the money was used to expand crop production, the produce was exported rather than sold to the local market. Hence, the funds were used to expand exports at the cost of the local consumer.

Further, the authorities in response imposed a tax on these exports, however the tax was under priced (as after tax price, was still lower than the international price), hence exports continued. Therefore, the domestic shortage, coupled with the international rising price (as now the need for imports) has dampened the gut of the poor.

Now is the urban or the rural or both who suffer?
Definitely, the urban- but I would argue the rural suffers aswell, given the structure of societal norm of practice, life and distribution coupled with the old fashion latifundia and minifundia reality.

Therefore, surely an increase in overall poverty, irrespective of the balance of concentration of the poor in the urban or rural countryside.

However, were the funds and rising profits used to expand the crop base in (true terms) the productive sense, which can draw divivends over he long run?I dont know!

Note: My perspective is obviously based on secondary source, as I havent been following the developments recently.

[Per Kurowski]

A lot of things will always hurt the poorer the most. Our views about this issue will depend on whether we are wearing the cap of making the poverty of the poor more bearable or the cap of trying to get them out of poverty. And it is not easy, since we know that one way or another we should wear the two caps at the same time; and this even when their colors do not match so well.

[Blissex]

«Our views about this issue will depend on whether we are wearing the cap of making the poverty of the poor more bearable or the cap of trying to get them out of poverty.»

There is always a certain number of people who rejoice that what they regard as low productivity, exploitative parasites are getting what they deserve. View like these are still pretty common today:

http://www.nde.state.ne.us/ss/irish/irish_pf.html
In October, 1846, Trevelyan wrote that the overpopulation of Ireland "being altogether beyond the power of man, the cure has been applied by the direct stroke of an all-wise Providence in a manner as unexpected and as unthought of as it is likely to be effectual." Two years later after perhaps a million people had died, he wrote, "The matter is awfully serious, but we are in the hands of Providence, without a possibility of averting the catastrophe if it is to happen. We can only wait the result." Later that year Trevelyan declared: "The great evil with which we have to contend is not the physical evil of the famine, but the moral evil of the selfish, perverse and turbulent character of the people."
James Wilson, the Editor of the British publication, The Economist, responded to Irish pleas for assistance during the famine by saying, "It is no man's business to provide for another." He thought it was wrong for officials to reallocate scarce resources, since "If left to the natural law of distribution, those who deserve more would obtain it."

[Publius]

What is your response to Paul Collier's take?

[JCM]

I have a problem with this idea that the rural farmers in developing countries are all going to have a net increase in income as a result of higher food
price.
The fact that the rural poor are going to be better off as a result of an increase in food price is consistent in a framework of perfect competition if those rural poor can sell directly in international markets or if they can choose between competitive intermediaries.

But many small producers of food products are selling to just one intermediary within a small margin of fluctuation. The higher price would then be absorbed by the intermediary in terms of higher margins.
Consequently, the farmer that just produces one kind of product will see the price of others produces heighten without having the compensation. Therefore he would also be worst off.

Is my reasoning accurate?

[NPTO]

How does this square with your recent discussion with Tyler Cowen?

[Mritiunjoy Mohanty]

"The poor that are affected the worst are the urban poor, not the rural poor."

Like so many other people on this blog have said, it is very difficult generalise in this manner.

It might hold true for countries where the bulk of the population is urban but certainly not in others.

I know it does not hold in India, an economy I know something about. The following observations about India might be germane to this debate and address some issues raised by Barkley Rosser.

1. India is still a substantially rural country. More than 60% of the population lives in rural areas.

2. Roughly 26% of the population lived below the poverty line in India in 2004/05 and this poverty in India is overwhelmingly rural.

3. In 2004/05 average urban consumption expenditure was almost twice that of rural - rural folk tend to be poorer than urban.

4. About 57% of India's labour force in 2004/05 was employed in agriculture. Of this, approximately 35% earned their living from daily waged labour, i.e., neither owned any land nor were able to hire-in land, but worked on other peoples land in terms of daily casual employment. This 35% would almost all be buyers of foodgrain (very little of the wage would be paid in kind) and would be seriously affected by a sharp increase in food prices.

5. If we compare like with like, as in casual employment in rural and urban areas, average consumption expenditure of urban casually employed labour is higher than that of rural casually employed labour.

6. Largely two reasons for this: first, urban daily wage rates tend to be higher than rural (both in nominal and real terms); and second, an urban casual labourer is likely to employed for a larger number of days per annum than a rural casual labourer.

Given all this, in India the rural poor are affected much more than the urban poor by increase in foodgrain prices.

Mritiunjoy Mohanty

[frank_benji]

You may also want to add another WB paper on the topic, with somewhat different results (hope you'll think it's 'nice' as well): Are Low Food Prices Pro-Poor?

http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2008/06/03/000158349_20080603171459/Rendered/PDF/wps4642.pdf

[rolex watches]

This is clearly replica watches the job for our legal fraternity to engage the establishment to necessary breitling watches steps by filing petitions in various courts. IF one fails another should be cartier watches filed taking every one to task. It is rolex watches useless to suggest ways and means to solve tag heuer watches the day to day problem to well paid employees tissot watches of government controlled establishments. Only active omega watches judiciary will resolve this problem.
http://www.watchvisa.com
http://www.watchvisa.com/breitling-watches.html
http://www.watchvisa.com/cartier-watches.html

[rado watches]

Why is everyone just montblanc watches willing to accept power cuts? Don't you think that patek philippe watches having continious power is your right? If people aren't going to demand rado watches 24X7 power, don't expect anything zenith watches to change. The government needs to look at other sources parmigiani watches of power generation. The only solution is more power panerai watches production. Nothing less.
http://www.watchvisa.com/montblanc-watches.html
http://www.watchvisa.com/patek_philippe-watches.html
http://www.watchvisa.com/rado-watches.html
http://www.watchvisa.com/tudor-watches.html

[orexis online 50]

In a Russian restaurant in Chicago, I once had a bottled beer called
Okocim Porter. Delicious. I also tried a different dark beer called
?ywiec Porter that was almost as good. Both are bottled beers and
both are dark Porters.
My question is: are either of these beers available in the UK?
Perhaps there's a 'beers of the world shop' somewhere, or perhaps a
Polish shop that imports them? I've tried Google and tried 2 local
Polish shops - to no avail. Ideas?

[cerebritis]

I had two computers both connected to a wireless router. Yesterday I connected a third computer to the network and, although the connection goes through for this new computer, one of the original computers now says "Limited or no connectivity" and cannot connect to the Internet. Is it possible that the new computer is using up too much bandwidth and is therefore preventing the other computer from accessing the Internet?

[rolex watches]

People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com

[rolex watches]

People usually say :"Seeing is believing." http://www.tt88times.com
Each attempt has a corresponding gain, in part or obvious, or vague. At least we have the kind of satisfaction After I bought this watch ,in a sense,it means a great deal to me. http://www.fashionhairfu.com

[ghd straighteners]

GHD straighteners was kmown as ghd flat iron, which was authorized online seller provides all kinds of hair straighteners,pink ghd,purple ghd,babyliss. By visiting ghd australia , you will find what you want and made yourself more beautiful.If you miss it ,you miss beauty.Buy a piece of ghd for yourself.Come and join us http://www.ghdoutlet-au.com/ to win the ghd iv styler.

[birkenstock]

Birkenstock was Made in Germany since 1774 . Check out our Birkenstock sandals and Birkenstock shoes including the Birkenstock gizeh,at the lowest regular outlet prices, free shipping and when you put on Birkenstocks. you will feel very comfortable.

[MBT Shoes]

Thank you for introducing me the useful information.And .....Totally boring. can you tell me where is the red and gold colors...? I predict a very low seller....I look forward your answer.thank you!

[Nike Air Jordan]

"Aren't safety improvements by and large extremely cheap"

[replica rolex paypal]

私はアメリカではないので、ブログの記事は、よく書かれて、私はとても好き読み取り、すべての単語の私は非常に理解、ほとんどまだ読んでいないが、私はあなたの資料では、知識を学ぶことを望んでまた、我々は良い友達になることを願って。ありがとうございました！ ！

[who called me]

Your post gives useful and sensible information for someone who is thinking of venturing into home based business enterprise.thanks for your great work

[http://www.mbtsandal.com]

I already have my [url=http://www.mbtsandal.com/mbt-changa-c-17.html]MBT Changa[/url] shoes more than 6 months - using mainly taken the 3-4 mile walk. Once you become comfortable walking shoes, main battle tanks, you will find that your leg muscles work the way you will not encounter in normal shoes. For the first few times you wear, about 20 minutes after the pain disappears, it seems effortless and walking.
Shorten your stride, faster, of course, you go straight you pull back and stomach in.
You may have heard on one of the points is to go a mile in the main battle tank shoes, walking shoes are common in the exercise equivalent of two miles. I can not find any research confirms this view.
Personally, I noticed that my muscles get more exercise when I wear [url=http://www.mbtsandal.com/mbt-chapa-gtx-c-18.html]Cheap MBT Chapa GTX Shoes[/url]. Since I bought them, I would like to walk more and longer distances, leading to weight loss.
I have chronic back pain my entire adult life, and to walk in these shoes shift away the pressure on my back. I have discussed, who also has a few people [url=http://www.mbtsandal.com/]Discount MBT Shoes[/url], they say, they are the only shoes to wear, because they reduce their back pain.

[free web directory]

DMOZ4U is a quality Free Web Directory, human edited Free Web Directory with quality internet resources. Submit free link, or find websites of your choice.

[lv handbags]

I don’t think you can do that, yet.~

[jordan shoes]

I’ve seen progression in every post. Your newer posts are simply wonderful compared to your posts in the past. Keep up the good work!

[chi flat iron]

love me ,love you ,love every body.

[viagra online]

This is going to be a great deal of fun, which is one of the things I love about both shows - the sense of playfulness with the genre. Seems like they're going to make good use of Fargo's history of working with AIs with personality issues, a nifty choice to hang a plot around. Looking forward to it!

[Account Deleted]

raf

Thanks for article.

[Ohioguide]

columbus injury lawyer
I always enjoy reading your posts and I look forward to your next one.

[Account Deleted]

http://www.jerseys-house.com/

dwrfdf

[Account Deleted]

Raf
raf

Thanks to you !!

[Account Deleted]

Raf
raf

Thanks for visiting ;)

[Account Deleted]

Raf
raf

Thanks for comment ...

[Account Deleted]

Many places and centers offer business and trade promotions to both buyers and supplier.What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
sexshop
sexyshop
sexshop online
alongador peniano

[Account Deleted]

You made some good points .I did a little research on the topic and found that most people agree with your blog. Thanks and appreciate to you for your Brilliant effort.

organic seo service

[Account Deleted]

recover powerpoint presentation

Thanks for posting, good an article!