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Rising Food Prices and Household Welfare: Evidence from Brazil in 2008

Authors

  • Francisco H. G. Ferreira,

  • Anna Fruttero,

  • Phillippe G. Leite,

  • Leonardo R. Lucchetti

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    • Ferreira is with the World Bank and the Institute for the Study of Labour (IZA). E-mail: fferreira@worldbank.org for correspondence. Fruttero, Leite and Lucchetti are with the World Bank. We are grateful to Ricardo Paes de Barros, Tito Cordella, Jed Friedman, Will Martin, Ambar Narayan, Martin Ravallion and Helena Ribe, as well as seminar participants at Georgetown University, George Washington University, the World Bank, the 31st Annual Meetings of the Brazilian Econometric Society, the 4th ECINEQ Meetings in Catania (Italy) and the IAMO Forum 2011 in Halle (Germany) for helpful comments on earlier versions. The usual disclaimer applies. The views expressed in this paper are those of the authors, and should not be attributed to the World Bank, its Executive Directors, or the countries they represent.


Abstract

Food price inflation in Brazil in the 12 months to June 2008 was 18%, whereas overall inflation was 7%. Using spatially disaggregated monthly data on consumer prices and two different household surveys, we estimate the welfare consequences of these food price increases, and their distribution across households. Because Brazil is a large food producer, with a predominantly wage-earning agricultural labour force, our estimates include general equilibrium effects on market and transfer incomes, as well as the standard estimates of changes in consumer surplus. Although the expenditure (or consumer surplus) effects were large, negative and markedly regressive everywhere, estimates of the market-income effect were positive and progressive, particularly in rural areas. Because of this effect on the rural poor, and of the partial protection afforded by increases in two large social assistance benefits, the overall impact of higher food prices in Brazil was U-shaped, with middle-income groups suffering larger proportional losses than the very poor. Nevertheless, as Brazil is 80% urban, higher food prices still led to a greater incidence and depth of poverty at the national level.

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