Abstract
This paper presents an analysis of the welfare consequences of recent increases in food prices in Mexico using micro-level data. We estimate a QUAIDS model of demand for food, using data collected to evaluate the conditional cash transfer program Oportunidades. We show how the poor have been affected by the recent increases and changes in relative prices of foods. We also show how a conditional cash transfer program provides a means of alleviating the problem of increasing staple prices, and simulate the impact of such a policy on household welfare and consumer demand. We contrast this policy with alternative policy responses, such as price subsidies, which distort relative prices and are less well-targeted.
Highlights
The substantial increases in world food prices over the decade up to 2009, and especially between 2006 and 2008, have raised considerable concerns about the welfare of poor households, for whom food represents a substantial share of consumption, and who might already be at levels of consumption close to subsistence
As prices of different foodstuffs have been changing at different rates, households may have been able to alter their spending patterns, exploiting relative price changes to limit the impact of food price rises on their welfare
We develop a demand system to analyze the impact of food price rises on poor households in rural Mexico
Summary
The substantial increases in world food prices over the decade up to 2009, and especially between 2006 and 2008, have raised considerable concerns about the welfare of poor households, for whom food represents a substantial share of consumption, and who might already be at levels of consumption close to subsistence. Many of these programs have been rigorously evaluated, and in order to do this, detailed survey data have been collected that include information on expenditure and consumption patterns and, in some cases, unit values and prices These surveys provide an invaluable data source for estimating the impact of food prices on poor households. One can use them to estimate detailed and theory consistent demand systems that can be used to estimate ‘true’ price indices for different types of households that reflect substitution possibilities when relative prices change These price indices allow one to evaluate the consequences of food price increases for consumer welfare. Rather than presenting the coefficients, we discuss both the income and price elasticities implied by the estimates
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