Welfare impact of higher maize prices when allowing for heterogeneous price increases

Abstract

In this paper, we explore the short-term welfare impact of higher maize prices on different regions and socioeconomic groups in Kenya. We find that approximately 80% of the population would be negatively affected by higher maize prices and that poor households would lose a larger proportion of their welfare than wealthy households. More specifically, rural landless households would lose the most, whereas households with landholdings of five acres or more would gain. We simulate a 25% increase in maize prices and find that rural poverty would increase by approximately 1 percentage point and urban poverty by 0.5 percentage points. Moreover, the impact differs among regions; poverty would increase by 3 percentage points in the rural parts of Coast Province, whereas it would be almost unchanged in the rural parts of Western Province. Furthermore, we relax the standard assumption that consumer and producer prices change in the same proportions and allow for heterogeneity in marketing margins among districts. We demonstrate that relaxing this assumption substantially affects the results and that the results from previous research were thus likely biased.