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Sunday, June 1, 2008

Rising food prices and the poverty conundrum

This week world leaders gather in Rome for the United Nations food summit. U.N. Secretary General Ban Ki-moon will issue an urgent plea to world leaders at a food summit in Rome on Tuesday to immediately suspend trade restrictions, agricultural taxes and other price controls that have helped fuel the highest food prices in 30 years. The meeting is aimed at forging a common international response to the food crisis.But will rising food prices, on balance, help or hurt the poor? 

Robert Zoellick, the World Bank president asserts that the increases in food prices will drive an additional 100 million people below the poverty line. 

But a much cited World Bank publication by Hartel and Ivanic published in 2007 showed that although freer farm trade and higher prices may raise poverty rates in some countries, it will reduce them in more. The study concludes that since a large proportion of the poor depend on agriculture, national poverty falls in 13 out of 15 countries focus countries in the wake of rich country agricultural liberalization.

Evidently, there are two sides to the food crises. However, the nuance of Mr. Zoellick’s assertion seems to me rather one sided and at best a very broad generalization.  The danger is that such generalizations, especially from the World Bank, tend to bias public policy and opinion and may very likely obstruct structured analysis of the implications and opportunities presented by rising food prices, especially for poor countries.  The result is that the interventions and policy responses will be wrong-headed and at best sub-optimal. 

My view is that higher food prices could be a boon for the small scale rural agriculture. Higher farm incomes spur demand for rural labour, boosting wages for the rural landless. The surge in rural income could outweigh the initial price effect. More importantly, increasing revenues for the agricultural sector and rural economies could attract investments in infrastructure and human services. However, low income urban households, households in the non-agricultural sector, as well as households dependent on transfer payments or remittances from low income urban labourers, may wind up poorer before the benefits of higher food production lead to lower local food prices.

Shifts in national poverty outcomes as a direct consequence of rising food prices will therefore depend on the relative weights of rural versus low income urban populations in the national demographics. It will be helpful to know how these key groups are represented in the figures provided by Robert Zoellick. 

Maros Ivanic and Will Martin. 2008. Implications of Higher Global Food Prices for Poverty in Low-Income Countries.  World Bank Policy Research Working Paper No 4594, April 2008

Thomas Hertel, Roman Keeney, Maros Ivanic and Alan Winters.2007. Distributional Effects of WTO agricultural reforms in rich and poor countries.  Economic Policy, April 2007

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