The effects of rising food prices on poverty in Mexico

Valero-Gil, Jorge and Valero, Magali (2008): The effects of rising food prices on poverty in Mexico.

Abstract

We evaluate the impact of the rise in food prices during 2006-2008 on the poverty and extreme poverty rates in Mexico. We concentrate on the poor’s consumption of staple foods, and analyze the change in their consumption brought about by changed prices. We also allow households receiving income from the farming and livestock sector to benefit from increases in prices of food products. We find a modest increase in poverty using 2006-2007 prices, however, there is a daunting effect on the poor once the 2008 prices are taken into account. After considering the positive effects of public policies announced in 2008, such as reduced taxes and tariffs on food products and greater subsidies to the extremely poor, the poverty rate measured through consumption increases from 25% to 33.5%, and the extreme poverty rate from 10.58% to 16%, given the increase in food prices. Further analysis using the theory of optimal taxes suggests policies oriented towards relieving the food price pressure on the Mexican poor should aim at lowering the prices of eggs, vegetable oil, milk, and chicken.

• Item Type: MPRA Paper
• Language: English
• Keywords: Food price changes; Poverty; Mexico
• Subjects: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency ; Optimal Taxation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis ; Prices; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I38 - Government Policy ; Provision and Effects of Welfare Programs; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q18 - Agricultural Policy ; Food Policy

References

Ahmad, E., Stern, N., 1984. The Theory of Reform and Indian Indirect Taxes. Journal of Public Economics 25, 259-298.

Atkinson, A.B., 1970. On the measurement of inequality. Journal of Economic Theory 2, 244-263.

Chen, S., Ravallion, M., 2004. Welfare Impacts of China’s Accession to the World Trade Organization, in D. Bhattasali, S. Li, and W. Martin, eds., China and the WTO: Accession, Policy Reform, and Poverty Reduction Strategies. Oxford and Washington DC: Oxford University Press and the World Bank.

CIE, 2008. Price Index for the Metropolitan Area of Monterrey. Facultad de Economía. Universidad Autónoma de Nuevo León.

CONEVAL, 2008. Evaluación de la Pobreza en Mexico. Consejo Nacional de Evaluación de la Politica de Desarrollo Social (CONEVAL). Available at http://www.coneval.gob.mx/coneval/comunicado2/Cuadros_1992_2006.zip

Consultores Internacionales, 2008. Indice de precios metropolitano, Consultores Internacionales, S.C., July 2008.

Cortés, F., Hernández Franco, D., Hernández Laos, E., Skékely Pardo, M., Llamas Cruz, H., 2002. Evolución y características de la pobreza en México en la última década del siglo XX. Secretaría de Desarrollo Social. Documentos de Investigación 2.

Coudouel, A., Hentschel, J., Wodon, Q., 2002. Poverty Measurement and Analysis, in PRSP Sourcebook, World Bank, Washington D.C.

Deaton, A., 1988. Quality, Quantity, and Spatial Variation of Price. The American Economic Review 78(3), 418-430.

Deaton, A., 1997a. The analysis of household surveys: a microeconometric approach to development policy. Washington, D.C., The World Bank. The John Hopkins University Press. Deaton, A., 1997b. “Programs Used to Develop "The Analysis of Household Surveys: A Microeconometric Approach to Development Policy"” The World Bank. Living Standards Measurement Study. Available online at http://www.worldbank.org/LSMS/tools/deaton/index.htm. Diario Oficial, 2008. Decreto por el que se modifica la Tarifa de la ley de los Impuestos Generales de Importación y de Exportación y el Decreto por el que se establecen diversos Programas de Promoción Sectorial. Martes 27 de mayo de 2008, first section, 14-15.

FAO, 2008. Growing demand on agriculture and rising prices of commodities. Paper prepared for a round table discussion organized during the 31st Session of the Governing Council of the International Fund for Agricultural Development (IFAD), Rome, Feb. 14, 2008.

Ivanic, M., Martin, W., 2008. Implications of higher global food prices for poverty in low-income countries. Policy Research Working Paper 4594, April 2008. Development Research Group, The World Bank.

Leyva-Parra, G. 2001. Algunas limitaciones del ajuste a cuentas nacionales. Paper presented at the Fourth Meeting of the Expert Group on Poverty Statistics. Available at www.eclac.cl/povertystatistcs/documentos/leyvappt.pdf

Mundlak, Y., Larson, D., 1992. On the transmission of world agricultural prices. World Bank Economic Review 6(3), 399-422.

OECD, 2008. Directorate for Food, Agriculture and Fisheries. Agricultural Electronic Data Products. Producer and Consumer Support Estimates. OECD Database. 1986-2006.

OCED-FAO, 2008. OECD-FAO Agricultural Outlook 2008-2017. OECD/FAO 2008.

Tyner, W., Hurt, C., Abbot, P., 2008. What’s Driving Food Prices?, Issue Report, Farm Foundation: 80. Available at http://www.farmfoundation.org/news/articlefiles/404FINAL%20WDFP%20REPORT%207-28-08.pdf

USDA, 2008a. U.S. Tomato Statistics (92010). Economic Research Service. Economics, Statistics, and Market Information System. Table069.xls Fresh tomatoes: Monthly producer price index, 1960-2007. http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1210

USDA, 2008b. Vegetables and Melons Outlook/VGS-327/June 26, 2008. Economic Research Service, USDA.