Investigating the Effects of Increasing Food Prices on the Welfare of Urban Households in Iran

Abstract

The aim of the present study is to investigate the effect of increasing food prices on the welfare of urban households in Iran using the Almost Ideal Demand System (AIDS) based on the Panel Data Method and the extraction of prices and income elasticities in five different food groups: bread and cereals, meat, dairy and eggs, fruits and nuts, vegetables and legumes. These food groups all had a high coefficient of importance in the household food basket in the period from 2006 to 2017. The Compensatory Variation (CV) index was used to assess welfare losses among these households. To estimate the welfare losses due to price changes, the country's provinces were divided into two groups with high and low urbanization ratios. The calculation of the CV index also showed that households faced a decrease in welfare with the increase in food prices and suffered financial losses. Also, based on their levels of urbanization, the existence of a one-to-one relationship between inflation and welfare loss in both groups of provinces was confirmed. This was such that, welfare losses due to a one percent increase in inflation required double the compensation and a five-fold increase in the incomes of households living in provinces with both high and low urbanization rates.