Rising Food Prices and Household Welfare in Ethiopia: Evidence from Micro Data

Abstract

This paper analyzes welfare implications of rising commodity prices in Ethiopia based on household budget surveys. Our findings suggest that a rise in relative prices of such necessities as cereals would lead to a large deterioration in the welfare of households in urban areas. In rural areas generally land-rich households tend to benefit significantly from the recent surge in food prices, while the land-poor and typical farm households tend to experience negative growth. Thus, price shifts in favour of agriculture could aggravate poverty conditions in rural areas. Simulated Gini computed from simple demand systems indicate worsening income distribution in urban areas due to price shifts that would exacerbate the already dire poverty conditions. The paper also reported own and cross-price elasticities mainly for cereals to gain insight into magnitude of demand shifts due to income and price changes.