850. Do Higher Food Prices Increase or Decrease Poverty?

The impact of rising food prices on poverty is a complex issue. Today we present a recent article by Headey and Hirvonen (2023) published in Nature Food.
 
There have been notable spikes in food prices in recent decades, most notably in 2007-2008, 2010-2011, and 2021-2022. The impact of these spikes on poverty levels is a subject of ongoing debate. While food is a major “expense” for the poor, many poor people also receive “income” from the production and sale of food, so rising food prices should encourage increased food production.
 
In their study, Headey and Hirvonen conducted an in-depth analysis of annual data on poverty rates, real food price fluctuations, and food production growth from 2000 to 2019 in 33 middle-income countries using the World Bank’s poverty criteria. Using panel regression analysis, their results suggest a reduction in the number of people living below the poverty line of less than US$3.20 per day as a result of year-on-year increases in real food prices, except in urban and non-agricultural regions.
 
While international food price spikes can pose challenges for impoverished urban populations, previous research has shown that higher domestic food prices often lead to a reduction in poverty rates at the national level, at least for several years. However, the exact mechanisms behind this phenomenon remain elusive. Headey and Hirvonen's study, based on a relatively short annual panel, suggests that rising food prices tend to alleviate poverty in less urbanized, more agriculture-based economies, but have a limited impact on overall poverty levels in more urbanized environments.
 
It's worth noting that a significant proportion of the world's poor live in rural areas and remain engaged in agricultural activities. Research has shown that domestic retail prices strongly influence food supply, and that increased demand for labor accompanies the expansion of food production, leading to higher wages for unskilled workers, at least in the short run. In essence, the compelling narrative emerging from this research suggests that elevated food prices can stimulate agricultural production in the short run, fostering increased labor demand and subsequently reducing rural poverty.
 
The authors acknowledge certain limitations of their study, including the lack of rural and urban poverty estimates reported at the country level, the lack of a definitive causal relationship between food price increases and poverty reduction, and the omission of increases in the prices of inputs such as fertilizer and fuel. It is also noted that the poverty reduction observed during the 2007-2008 crisis, both globally and at the country level, may not be readily replicated in the context of the 2021-2022 crisis due to the financial strain caused by the COVID-19 pandemic and inflation in food, fuel and fertilizer prices.

Reference
Headey, D., Hirvonen, K. Higher food prices can reduce poverty and stimulate growth in food production. Nat Food 4, 699–706 (2023). https://doi.org/10.1038/s43016-023-00816-8

Contributor: SHIRATORI Sakiko (Information and Public Relations Office)