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 15.95%, 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.JEL classification: H21, I32, I38, Q11, Q18

Distributive impacts of the food price crisis in the Andean region

“…Empirical results from studies such as Aksoy and Isik‐Dikmelik (2008); Arndt et al (2008); Ivanic and Martin (2008); Valero‐Gil and Valero (2008) and Zezza et al (2009) substantiate the difficulties of predicting a priori an aggregate distributive impact. Those studies report both increases and decreases in poverty following price increases in selected foodstuffs and both worsening and improving poverty conditions in rural households relative to their urban counterparts.…”

“…Estimates in the present paper show similar mixed effects but different magnitudes: 9.7 versus 0.2 in urban and rural Bolivian households and 3.6 and 1.5 per cent in urban and rural Peruvian households, respectively. Given that Ivanic and Martin (2008) do not single out the effects of price and income effects, the results herein are compared with the results of Valero‐Gil and Valero (2008) for Mexico—after simulating the effect of average international prices of 11 basic foodstuffs between 2006 and 2007. The results in Mexico are reassuringly similar to those for the Andean region regarding sign but remain lower in magnitude: in Mexico, poverty incidence before the price change increases from 25 per cent points to 27.91 per cent points by virtue of the price effect and down to 27.77 per cent points when the income effect is considered.…”

A Qualitative Analysis of Policymaking on the Food Price Crisis in the Andean Region: Preparing for the Next Crisis

“…Here, the analysis proposes two distinct angles: one, the extent to which those expected effects fare in terms of achieving desirable properties (see Tables 4 and 5); and two, whether or not they strike a balance between short-and long-term desirable effects (see Table 6). Needless to say, this qualitative exercise is susceptible to being complemented with alternative quantitative methodologies, such as micro-econometric analysis, as in Robles and Torero (in press), which estimates pass-through price transmission and consumption substitution effects; distributive simulations as in Cuesta et al (2010), estimating the price and income effects of price increases in the poverty incidence, and Computational General Equilibrium models estimating several macroeconomic impacts (on GDP growth, inflation, production, exports and employment) associated with food price increases, as in Arndt et al (2008) and Valero-Gil and Valero (2008). A first advantage of this taxonomy methodology is that it enables an early assessment of how interventions adopted in each country resemble a 'desirable' policy package.…”

Household Consumption Response to Food Price Shocks and the Vulnerability of the Poor in Mexico

“…In one of the earliest studies looking at the food price surge of 2006–2008, Valero‐Gil and Valero () find for Mexico a substantial poverty rate increase from 25 to 33.5%, while the extreme poverty rate rose from 10.58 to 15.95%. The results are significant given that the calculations take into account the mitigating impact of the public polices implemented, including subsidies to the extremely poor as well as reduced taxes and tariffs on various food items.…”

“…This result resonates with the findings of Chávez‐Martin del Campo, Villarreal Páez, Cantú Calderón, and González Sánchez (), who argue that the substitution capacity of households helps to cushion the welfare loss of the poorest. Both the Valero‐Gil and Valero () and Woods et al (2012) studies, however, employ household data from 2006, a year that predates the first food price shock of 2006–2008 and thus fail to capture the consumption composition adjustment that took place as a response to mitigate its negative welfare impacts.…”