Measuring the effects of food price increases and agricultural commercialization on poverty and nutrition

Wood, Benjamin

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Description

Title

Measuring the effects of food price increases and agricultural commercialization on poverty and nutrition

Author(s)

Wood, Benjamin

Issue Date

2012-09-18T21:24:44Z

Director of Research (if dissertation) or Advisor (if thesis)

Nelson, Charles H.

Doctoral Committee Chair(s)

Nelson, Charles H.

Committee Member(s)

• Arends-Kuenning, Mary P.
• Gundersen, Craig
• Kilic, Talip
• Nogueira, Lia

Department of Study

Agr & Consumer Economics

Discipline

Agricultural & Applied Econ

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Food price
• Demand system
• Economic welfare
• Poverty
• Substitution
• Cash crops
• Tobacco

Abstract

My three paper dissertation evaluates the economic welfare effects of food price increases and agricultural commercialization on households in Malawi and Mexico. Issues of poverty measurement and poverty alleviation are examined in the context of recent increases in commodity prices. By analyzing these concepts together, my research helps to more accurately address poverty in this volatile time in food price history, with a specific eye toward future policy interventions. My first paper focuses on the impact of food price increases on welfare in the Mexico. My second paper expands the theme of food price increases to incorporate agricultural commercialization during this time period. Due to somewhat surprising results concerning the negative relationship between agricultural commercialization and children's nutrition, my final paper explores this topic in more detail by examining some of the correlations between commercialized households and nutritional outcomes. Taken as a whole, the findings support continued research into the influence of food price variability and agricultural risk management on children in the developing world. The incorporation of geographic diversity, with research in both Mexico and Malawi, provides some acknowledgment of the global nature of recent food price increases. Examining the two very different kinds of poverty present in these countries broadens the scope of my work. Food price spikes have occurred around the globe, and policymakers have responded through different means. These two countries have approached poverty alleviation from different directions, with Mexico focusing on conditional cash transfer programs and Malawi spending more on agricultural encouragement through fertilizer subsidies. My research examines the affects of food price increases on welfare, and provides insights into future policy decision for the next price spike. In addition to their geographic diversity, these two countries are in different stages of the development process. The income diversity of these countries further strengthens the poverty-related findings, as results will incorporate large variations in the relative wealth of the populations being studied. As countries proceed through the structural transformation process, they may respond differently to food price shocks. The Mexico paper looks at how Mexican households responded to significant food price shocks. Recent food price increases reportedly caused significant numbers of households to fall into poverty, particularly in the developing world. Most research into the welfare effects of these food price changes assumes constant demand or approximates second order substitution effects. Poverty forecasts with these assumptions may overestimate or underestimate the effect of food price increases in a nation where most households consume diverse food baskets. I account for full substitution by calculating a theoretically consistent food demand system, accounting for household responses to food price changes by decreasing some food purchases and increasing other food purchases. I use Mexican data to confirm the mitigation of adverse welfare effects from food price increases after accounting for country-specific dietary preferences in modeling demand. In comparison to previous literature, my welfare measures predict theoretically consistent numbers of Mexican households entering poverty due to recent food price changes. My Malawian paper refines the food price increase discussion to look specifically at agriculturally commercialized households. Agricultural commercialization, or the transition from food to cash crops, has gained increasing attention over the past few decades. Plans for developing world farmers to focus on labor-intensive cash crops, to exploit their natural comparative advantage, typically depend on stable food markets to supply these formerly subsistence households. The trade-off between cash and food crop production requires reevaluation in the context of numerous food price spikes and general food price increases experienced globally over the last decade. Discovery of a correlation between Malawian cash crop production and low nutritional health outcomes creates questions of the traditional development path. This paper clarifies the causal effect behind that negative relationship. A nationally representative data set and the 2002-2003 Malawian domestic food crisis allow for time-specific comparisons between the health of children in utero during stable and increasing food price markets. Identifying children exposed to in utero food shocks is the first step to explaining the recent changes in the nutritional outcomes of cash crop producers. Estimates of the effects of Malawian crop adoption on children's health are obtained using robust inference techniques. The causal effects of cash crop production are identified by instrumenting endogenous adoption decisions with predetermined variables. The findings show children of cash crop farmers experienced disproportionately negative effects if they were in utero during the food price shock. The results support the argument that food price shocks negatively influence those more reliant on the market for food purchases, suggesting the need for targeting small scale commercial farmers during times of staple food price spikes. My second Malawi paper examines the somewhat surprising negative relationship agricultural commercialization and children's nutritional outcomes. Building on previous research that identified a causal negative relationship between nutritional health and agricultural commercialization in Malawi, this paper explores differences in the tobacco-producing households. By analyzing the characteristics of agriculturally commercialized households in Malawi, I identify some of the factors that influence the negative correlation between tobacco crop adoption and nutritional deficiencies in the children of smallholders. Nationally representative 2010-2011 data allow for a more preliminary assessment of programs designed to promote better childhood nutritional outcomes. In that context, Malawi's push toward formal market integration and road infrastructure projects is contextualized in terms of its benefits to children's nutritional health. In the end, the non-random observational nature of the data make causality claims difficult to support. I contend that the characteristics of households and communities associated with formal market participation tend to also positively influence the health of children. Future research may allow for a causality argument to be developed, with current positive correlation results from this research supporting general development contentions that higher education, improved family planning and reductions in transportation costs tend to benefit children's nutritional health. Increases in commodity prices have influenced each of these countries differently. I use nationally representation household surveys to determine more wide-scale effects of food price increases. The Mexican paper calculates a food demand system in an attempt to more accurately measure the number of impoverished households due to increasing food prices. The first Malawian paper analyzes smallholder cash crop adoption in the face of recent staple food price spikes. The second Malawian paper examines some of the correlations behind the negative nutritional outcomes discovered in the first paper and individual, household and community level variables. Both of Malawi papers are specifically focused on smallholder agricultural households, with commercialization defined as being a producer of tobacco, Malawi largest export. Each of these situations presents a unique set of circumstances that, when taken together, should provide a greater appreciation for the effect of recent food price volatility on the poor and vulnerable.

Graduation Semester

2012-08

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Copyright 2012 Benjamin Wood

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