The Effects of 2016-2017 Rice Price Increase on Household Welfare and Poverty in Rural Bangladesh

Abstract

This study assesses the impact of rice price shocks on household welfare and poverty in rural Bangladesh using the first- and second-order welfare measures derived from an indirect utility function. This article contributes to this literature by accounting for the heterogeneous price increase across each household and a differential price increase for net buyers and net-sellers. By utilizing 2015 Bangladesh Integrated Household Survey (BIHS) data, this article finds that a large increase in rice price reduces the welfare of the households and increases the poverty rate in rural Bangladesh. A 35% increase in retail price and a 28.5% increase in wholesale rice prices lead to a 1.72 and 1.43 percentage points increase in the headcount rate (HCR) of poverty in rural Bangladesh estimated using the upper and lower poverty lines, respectively. The decomposition of total households into net sellers and net buyers reveal that households who are net buyers fall into poverty more in number than the net seller who moves out of poverty. The results of this study would be valuable inputs for policymakers to design policies that protect the group of households who get hurt from rice price shocks.