1. Introduction
The issue of the increase in food prices has received renewed attention in recent months as the increase in prices worldwide has had large negative impacts on households (e.g., Ivanic and Martin, 2007; World Bank, 2008a and 2008b; IMF, 2008; Wodon and Zaman, 2008; Wodon et al, 2008). In Mali, prices for several commodities such as rice, millet and sorghum are today about 25 percent higher than they were a year ago. This has led the authorities as well as development partners to consider a range of compensatory measures that could help offset part of the negative impact on the poor of this increase in prices. However, at least from a conceptual point of view, the net impact of an increase in food prices on the poor is not obvious. Indeed, when discussing the link between rice and other cereal prices and poverty, a key issue is to assess the double and opposite impact that a change in prices can have through producers (who benefit from an increase in prices) and consumers (who lose out when the price increases).
The techniques for the analysis of the short term producer and consumer impacts of food commodity price changes are well developed in the literature. Early work in this area was conducted by Deaton (1989) using data from Thailand (see also Singh et al., 1986). Similar methods have been used in sub-Saharan Africa among others by Barrett and Dorosh (1996) for Madagascar and Budd (1993) for Cote d'Ivoire, among others. These are also the methods that we use in this paper. Most of these studies have found that food price increases tend to lead to an increase in poverty because the consumption effects dominate the production effects as many countries are net importers of food, at least in sub-Saharan Africa.
There has also been a literature on assessing whether in the medium to long term, the increase in prices is compensated by an increase in wages, among others for those workers who contribute to the production of food crops (see for example Ravallion, 1990; Boyce and Ravallion, 1991, Rashid, 2002; Christaensen and Demery 2006; and Ivanic and Martin, 2007). The findings from these studies suggest that wage offset compensate only in a limited way for the initial increase in food prices. Finally, there has also been a substantial amount of work looking at the impact of various policies to deal with food production and prices. This can be illustrated with the case of rice. Indonesia is a country that used to import substantial amounts of rice, but where restrictions were progressively placed on imports in order to help local producers, with imports of rice actually banned after 2004. Using a general equilibrium model, Warr (2005) find that the ban on rice imports raised the price of domestically produced rice, and that this led to an increase in poverty by almost one percentage point (on the Indonesia story as well as for a more general discussion on the experience of governments in Asia to stabilize the price of rice, see Timmer and Dawe, 2007).. Another paper on Indonesia by (Sumarto et al., 2005) using panel data suggests that the practice of subsidizing rice as part of a social safety net led to a reduction in the risk for household to be poor. Papers on Vietnam by Niimi et al. (2004) and Minot and Goletti (1998) suggest that the liberalization of rice exports probably led to a reduction in poverty despite an increase in the price of rice in the country, thanks essentially to increased rice production of rice.
In this paper, our objective is to assess what could be the short-term impact on poverty of the increase in the price of cereals in Mali (for a dynamic analysis of the medium term impact of higher rice prices in Mali, see Nouve and Wodon, 2008). The impact of a change in the price of rice is not ambiguous because about half of the rice consumed in the country is imported. In the case of wheat and bread as well, the impact is also not ambiguous since wheat is imported and bread is produced from imported wheat. For these goods, an increase in price will tend to result in higher poverty in the country as a whole (even if some local producers will gain from this increase in the case of rice). For millet and sorghum, as well as for corn by contrast, the impact on poverty is less obvious as these are commodities that are produced for the most part in the country for local consumption. Overall, when considering the various cereals together, the impact of the price increase is likely to be an increase in poverty, but whether this increase will be severe depends on a number of parameters, including who consumes and produces what, and in what amounts. It is thus an empirical question to assess what might be the impact on poverty of higher cereals price in a country such as Mali.
For the sake of simplicity, we will use a number of assumptions to provide estimates of the impact on poverty of higher food prices. First, we will assume that the cost of an increase in food prices for a household translates into an equivalent reduction of its consumption in real terms. This means that we do not take into account the price elasticity of demand which may lead to substitution effects and thereby help offset part of the negative effect of higher prices for certain food items. Similarly, an increase for producers in the value of their net sales of food translates into an increase of their consumption of equivalent size, and we again do not take into account the role that the price elasticity of supply may play here. As for food auto-consumed by producers (which represents a large share of total consumption), it is not taken into account in the simulations since changes in prices do not affect households when food is auto-consumed. Poverty measures obtained after the increase in prices are then compared to baseline poverty measures to assess impacts. This implicitly means that we do not take into account the potential spill-over effects of the increase in food prices for the food items included in the analysis on the prices for items not included.
A difficult question is whether increases in consumer prices do translate into increases in producer prices. At least two factors may dilute the impact of rising food prices on the incomes of farmers. First, production costs for farmers as well as transport costs are likely to be rising due to higher costs for oil-related products. Second, market intermediaries may be able in some cases to keep a large share of the increase in consumer prices for themselves without paying farmers much more for their crops. Because it is difficult to assess whether producers will benefit substantially from higher food prices, especially in the short term, we could consider our estimates obtained when considering only the impact on consumers as an upper bound of the impact of the rise in prices on poverty, and interpret the results obtained when factoring in a proportional increase in incomes for net sellers or producers as a lower bound of the impact. The rest of the paper is structured as follows. Section 2 presents basic data on cereals production and consumption in Mali based on an analysis of food consumption and production using the 2006 ELIM survey for a number of food categories. In section 3, we provide estimates of the overall impact of higher food prices on poverty. A brief conclusion follows.
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