Impact of rising food prices on consumer welfare in the most populous countries of South Asia

Abstract

PurposeThe purpose of this paper is to evaluate the welfare cost resulted from an increase in food prices in the three most populous countries of south Asia (Pakistan, India and Bangladesh).Design/methodology/approachThe effect of rising food prices on consumer welfare is analyzed by using the compensating variation technique. The measurement of the total consumer welfare effect requires the estimation of price elasticities which are calculated by using linear approximation version of the almost ideal demand system.FindingsThe results indicate that cereals (wheat, rice) are relatively price inelastic. However, protein-rich food items like chicken and mutton are relatively more income elastic where consumer welfare declines in all countries mainly for cereals and milk, as these food items are relatively less elastic to price fluctuations.Social implicationsPakistan, India and Bangladesh represent together about 37 percent of the total world undernourished population. This study suggests that government should target the most vulnerable consumers (low-income group) to improve the income level in these countries.Originality/valueIt is the first effort to estimate and compare that how food inflation affects the consumer welfare in the most populated countries of South Asia. This type of study is also important for the policy planners to overcome the welfare cost under different setting of price and income so it is an effort toward this direction.