Poverty Impact of Commodity Price Boom Using Household Survey - The Case of Maize in Zambia

Abstract

This paper uses Household Survey data to analyze the possible effects that a food price surge could have on poverty and overall welfare. In particular, we use the Zambian Living Conditions Monitoring Survey I collected in 1996 (LCMS I) to estimate a demand system that enables us to simulate various price scenarios for the Zambian main staple and its possible effects for different population categories. Differently from previous studies, in our demand system we address two flaws usually encountered in this type of applications: one is the possible selection bias due to non-consumption of a particular staple among households, the other is the difference between the quantity used for estimation (typically logarithm) and the quantity of interest (level). Jointly, this increases the reliability of our technique. Our results show that a 50 percent increase in maize prices, which is in line with the actual surge in Zambia, could lead to an average consumption decrease of 17 percent among Zambian households and overall poverty could rise from 40 percent to 43 percent fairly quickly at national level.