Have Higher Food Prices Actually Helped the World's Poor?

A farmer prepares water channels in his maize field in Ngiresi near the Tanzanian town of Arusha. Karel Prinsloo/AP Photo

Food prices are rising in the U.S.—up 0.4 percent in March alone, another indicator the economy is showing new signs of life after the recession. Chipotle Mexican Grill announced last week it will raise prices, and many pizza chains, facing higher cheese bills, are following suit. Worldwide, food prices reached a 10-month high in March, a level about 50 percent higher before a series of price spikes began in 2005, prompting concerns about a world food crisis. Surprisingly, it turns out a lot of poor people seem to have benefited from higher prices; hunger appears to be no worse. In the long term, high food prices probably hurt efforts to reduce global poverty, but it’s good news that poor people haven’t suffered over the short term nearly as much as we feared.

For the last six years, many politicians (PDF), global leaders, analysts, and commentators (including me) have argued that higher food prices would push people worldwide into hunger and poverty. In 2010 the United Nations Food and Agriculture Organization suggested that rising prices had left more than 1 billion of the world’s population without enough food to meet daily dietary requirements. World Bank researchers estimated that price increases from June to December 2010 alone pushed 44 million people below the global, $1.25-per-day extreme poverty line. Those assumptions relied on the fact that although most of the world’s poorest people work in agriculture, they buy more than they grow on their own plots, so higher food prices surely would mean more hunger and poverty.

Data, however, pointed in the other direction: The number of people in developing countries who reported that there had been times in the past 12 months when they didn’t have enough money to buy the food their family needed fell by hundreds of millions (PDF) from 2005 to 2009. In 2013 improved FAO estimates backed up the earlier polling reports: The numbers suggested that 842 million people in the 2011-13 period were unable to meet their dietary energy requirements, down nearly 6 percent (PDF) from 893 million people in the 2005-07 period.

Now a paper by Derek Heady at the International Food Policy Research Institute credits the recent increases in food prices with speeding progress against poverty. Looking at the rate of poverty reduction across countries and its relationship to changing food prices, Heady finds that rising prices have been associated with more rapid reductions in poverty—both over the past 30 years and looking at data from the past 10 years. He estimates that higher food prices from the mid-2000s onwards may have reduced the number of people living in extreme poverty by from 87 to 127 million people.

Heady suggests the fundamental assumption of previous poverty prediction models—that because poor people eat more food than they grow, they’re hurt by higher prices—did not account for the impact of food prices on wages. In a lot of places, as the prices of food rose, poor people earned more money. Even though they were paying more for food, their increased incomes more than made up for that and they got a little richer. In Bangladesh, for example, rural wages adjusted for the price of food increased by about a third from the middle of 2006 to the end of 2010. (Urban wages remained essentially unchanged.)

There remain reasons for concern. As always, the aggregates hide a lot of variation. Many rural people and perhaps most urban workers didn’t see their wages buoyed by higher farm sales incomes, which helps to explain the outbreak of food riots in 2008. And there’s considerable uncertainty about exactly how far we have to go. The original estimates of the impact of the food crisis were so far off because they were based on flawed models rather than actual data. Even when we do have survey evidence about food intake, the errors can be large: Anyone who has tried to count calories as part of a diet knows how hard it can be. In a study in Tanzania, the estimates of hunger prevalence ranged from 19 percent to 68 percent, depending on the survey approach. The improved FAO numbers still rely on an inadequate number of these potentially misleading surveys, plus weak population and stature information, guesstimates of food losses, and poor data on total food supply.

The truth is there may be more than 800 million people going hungry worldwide, but there may be more—or a lot fewer. Until we have better data, our response to that problem will be based on guesswork and theories as much as on hard evidence of where there is a problem and what helps. And as far as we can tell, the global trend toward better nutrition and lower poverty continues unabated—despite rising costs for pizza and burritos.

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