Poverty Effects of Higher Food Prices: A Global Perspective

Abstract The spike in international food prices between 2005 and the first half of 2008 drew much attention to the vulnerability of the poor to such shocks. This paper provides a formal assessment of the direct and indirect impacts of higher prices of agricultural goods on global poverty using a representative sample of 63–93% of the developing world's population. To assess the direct effects, the paper uses domestic food price data between January 2005 and December 2007—when the relative price of food staples rose by an average of 5.6%—to find that the number of individuals living under the extreme poverty line increased by 155 million, with almost three‐quarters of this increase taking place in East Asia. To take the second‐order effects into account, the paper links household survey data with a global general equilibrium model, finding that the same increase in consumer prices of agricultural goods (modeled by increasing demand for first‐generation biofuels) would raise the number of individuals living under extreme poverty by 32 million, with nearly the entire increase occurring in South Asia and Sub‐Saharan Africa.