March 19, 2015

Rising food prices can lower poverty – but only in certain areas

Rising food prices can lower poverty – but only in certain areas

Evidence shows that rising food prices:

  • benefit areas where the poor are net food producers
  • improve welfare for poor women and children
  • but can still badly affect areas where the poor are net food consumers

The last few years have seen dramatic spikes in food prices, raising concerns about how downward income reallocation will affect the poor in developing countries. According to the FAO, the number of undernourished people in sub-Saharan Africa rose to a record 236 million in 2009.

However, a new article by Ralitza Dimova points out that the effect of rising food prices varies according to the labor demographic in specific regions. She finds that a region will benefit from rising food prices if the workers who live there are net producers of food, as rising prices can lead to job creation and wage increases.

Furthermore, because women are more likely to work with food crops than with traditional cash crops, rising food prices often has a positive impact on the welfare of women and children.

On the other hand, regions in which the majority of workers are net food consumers are likely to be badly affected by rising food prices and, of course, institutional constraints can still exacerbate poverty in the long-run.

Summing up her research, Dimova said: “Our results on the welfare implications of a food price spike in a relatively poor net food importing country- Ivory Coast- are counterintuitive and interesting. Contrary to conventional wisdom and some alternative evidence, we find that the food price shock benefited the poor, especially those residing in rural areas.”

The welfare impact of rising food prices, by Ralitza Dimova, was published on 19th March 2015.

IZA World of Labor is a free, online resource created by the Institute for the Study of Labor (IZA) in collaboration with Bloomsbury Publishing Plc. Articles focus on global labor economics issues, drawing on empirical, evidence-based research in order to offer pertinent comment and evaluation, and best-practice policy advice.

Ralitza Dimova is a senior lecturer in development economics at the University of Manchester, and her current research interests include education and employment in poorer African countries. She joined the IZA as a Research Fellow in 2006.