Abstract
We revisit a methodology to gauge the short-term effect of price changes on smallholder farmer’s welfare that is popular amongst policy makers and academia. Realising that farmers face substantial seasonal price volatility over the course of an agricultural year, we pay particular attention to the timing of sales and purchases. In addition we depart from the implicit assumption that all farmers scattered across rural areas face the same prices when interacting with markets. Using maize marketing during the 2007–2008agricultural season in a sample of smallholders in Tanzania asan illustration, we find that especially poor farmers face greater losses than what a standard analysis would suggest. We also relate our methodology to factors that are likely to affect potential benefits or costs from inter-temporal and spatial price dispersion, such as means of transport, access to price information and credit.
Highlights
The answer to the question of whether rising food prices are beneficial for the well-being of semi-subsistence farmers in developing countries crucially depends on the household’s net position with respect to the commodities affected by the food price increment
This section serves as a motivation to extend measures that rely on the concept of net benefits or net losses associated with price changes
Our study looks at market participation during the 2007–2008 agricultural year for maize in Tanzania
Summary
The answer to the question of whether rising food prices are beneficial for the well-being of semi-subsistence farmers in developing countries crucially depends on the household’s net position with respect to the commodities affected by the food price increment. The methods referred to above are generally implemented in a fairly aggregate way, both in the time and the spatial dimension It involves calculating each household’s net position on the basis of a cross-sectional survey and simulating welfare effects by multiplying these ratios by actual or projected changes in prices that are the same for all households regardless of the timing of sales and purchases and the location. This is so because fellow villagers know that this is the upper limit for the farmer’s willingness to pay, and competition among sellers will be low as most food will have been sold immediately post-harvest In such a scenario, the farmer incurs most of the transaction costs twice. The section describes the methods that are used to assess short run welfare effects of commodity price movements, and the extensions we propose to capture seasonal and spatial price heterogeneity.
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