Managing High and Volatile Food Prices in Developing Countries Since 2000

Abstract

Abstract Purpose This chapter examines the long-run behavior of real food prices and the impact of food prices on poor and vulnerable households. It also examines the price policy responses of governments to high and volatile food prices, and the impact of food prices and policies on the poorest in the society. Methodology/approach We focus on the impacts of food price changes on individual households, particularly on those living near the poverty line using the standard World Bank measure of poverty at US$1.25 per day in purchasing power. Findings We found that the effect of an exogenous increase in food prices typically raises poverty in the short run when many poor households are net buyers of grain and wage rates do not have time to fully adjust. In the long run, higher food prices increase food output and raise the wage rates of poor households from unskilled off-farm labor. The end result is that higher food prices can contribute to long-run poverty reduction. Practical implications Combining the impact of the price changes and government policy responses allows an assessment of the overall impact of higher world food prices on poverty.