Food Price Shocks and the Changing Pattern of Consumption Expenditure across Decile Classes in Rural and Urban India: A Difference-in-Difference Analysis

Abstract

Against the backdrop of liberalised trade in agricultural commodities in the twenty-first century, world food prices have risen at a faster pace since 2007. Food price volatility is inextricably connected with the problems of food security due to its implications for the availability of food, household incomes and purchasing power, malnutrition, per capita consumption expenditure and the changing patterns of consumption on the part of poor people. In India’s case, a declining trend in the availability of food grains in the post-reform period can be explained by the encouragement given to the export of food grains due to India’s comparative advantage vis-a-vis the international market in relation to the pricing of food grains. However, the mere availability of food in the country is obviously not sufficient to ensure access to food for all households. In this context, our main objective in this paper is to evaluate the implications of food price volatility on access to food across decile classes in India. Empirical results reveal that consumption expenditure differs in both spatial (rural and urban) and temporal (pre- and post-2008) dimensions; specifically, the relative loss of consumption expenditure is significant in urban regions in comparison to rural regions in post-2008. In fact, difference-in-difference regression results also reinforced our earlier findings that differences in consumption expenditure can be explained by the spatial effect.