poverty impacts of changes in the price of agricultural commodities recent evidence from argentina...

Poverty impacts of changes in the price of agricultural commodities Recent evidence

from Argentina

XI Arnoldshain Seminar

Antwerp, June 25-28

Pedro E. Moncarz

Universidad Nacional de Córdoba

In the last 10 years there has been and important increase in the world prices of most commodities

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50

100

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Jan-

92

Jan-

93

Jan-

94

Jan-

95

Jan-

96

Jan-

97

Jan-

98

Jan-

99

Jan-

00

Jan-

01

Jan-

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Jan-

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Jan-

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Jan-

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07

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Jan-

11

Jan-

12

Inde

x Ja

nuar

y 19

92=

100

Fuel

Metals

Agricultural Raw Materials

Agricultural Commodities(cereals and oilseeds)

Argentina benefited greatly from the increase in world commodity prices

Quantity and Price contributions to changes in export values

1992-2002 2002-2012

Price -9% 100%

Quantity 130% 58%

Price -9% 139%

Quantity 66% 55%

Price -19% 154%

Quantity 107% 33%

Price -12% 48%

Quantity 207% 146%

Price 18% 350%

Quantity 262% -69%

8% 42%Terms of trade

Agricultural primary products

All sectors

Manufactures of agricultural origin

Manufactures of industrial origin

Fuel and energy

However, it is necessary to look at some potentially harmful effects: How commodity prices affect consumption prices (mainly food goods)

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jun-9

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jun-9

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jun-9

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jun-9

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jun-0

0

jun-0

1

jun-0

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jun-0

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jun-0

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jun-0

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jun-0

6

Inde

x Ja

n-Ju

n 19

92 =

100

Agricultural Commodities (USD)

CPI Food and Beverages (LCU)

CPI Overall (LCU)

The increase in agricultural commodity prices may affect more to poorer households: foods goods weight more in household consumption

Food and Beverages

Clothing

HousingEquipment

Health

Transport and Communication

LeisureEducation

Others

0%

25%

50%

75%

100%

3.3 3.5 3.8 4.1 4.4 4.6 4.9 5.2 5.5 5.7 6.0 6.3 6.6 6.8 7.1 7.4 7.7

ln(household expenditure per capita)

Consumption shares and household expenditure per capita

Other effect, with a more ambiguous direction, works trough changes in factor princes, mainly labor

Theoretical framework

I follow Deaton (1989) and Benjamin and Deaton (1993): two relationships need to be established:

1. From world commodity prices to domestic prices (goods and factors)

2. From domestic prices (goods and factors) to welfare

From world commodity prices to welfare

Mix of HO model with monopolistic competition

A small open economy that produces and trades S primary commodities, of which SA S are agricultural commodities

If the number of factors is less or equal to the number of primary commodities factor rewards are fully determined by commodity prices:

DSW p P

Since our economy is small:

1*DS SP EP SW p P E *, ,


There are also M traded manufacturing sectors, of which MF M produce food goods

The M manufacturing sectors are monopolistically competitive.

In each M sector each producer, domestic or foreign, produces a differentiated variety under IRS, using all factors of production and primary commodities.

There are also N non-traded sectors, also monopolistically competitive and producing under IRS using only the production factors

Factors of production are perfectly mobile across all sectors the price, in local currency, of each domestic variety of the M and N sectors can be expressed as a function of world commodity prices, and other parameters such that nominal exchange rate, domestic taxes/subsidies, trade policy etc.


Finally, to calculate the welfare effects of changes in world commodity prices, I calculate the “compensating variation” as in Porto (2006)

From world commodity prices to domestic consumption prices:

dm t s s t t A t t m t

s S

P P E XD TREND u

*, , , ,ln ln ln ln

where:Pd

m,t: domestic price index for good m;P*s,t: world price of commodity s;Et: nominal exchange rate;XDA,t: export tax rate on exports of agricultural commodities;TREND: tendency;t: monthly fixed effect;um,t: error term.

From world commodity prices to wages

g t s s t t A t t m ts S

W P E XD TREND u

*, , , ,ln ln ln ln

where:Wg,t: average wage rate paid by sector g (primaries, manufactures, and services),P*s,t: world price of commodity s;Et: nominal exchange rate;XDA,t: export tax rate on exports of agricultural commodities;TREND: tendency;t: monthly fixed effect;um,t: error term.

From domestic prices (goods and factors) to welfare

where:eh: household h initial expenditure;sh

m: expenditure share in tradable good m, sh

n: expenditure share in non-tradable good n, h

j : labor income share of member j in household h total income, j

w,psA: wage elasticity with respect to world price of agricultural commodites.

0,

ln lnln

ln ln s AA

A A

hh h h jm nm n j w p sh

m M n N js s

dx P Ps s d p

p pe

Elasticities

Consumption pricesAgricultural

CommoditiesExport taxes

Food and beverage 0.2033 -0.0195

Clothing 0.1892 -0.0197

Housing 0.0752 0.0039

Equipment 0.1191 -0.0075

Health 0.0826 0.0044

Transport and communication 0.0447 -0.0315

Leisure 0.1153 -0.0108

Education 0.0028 -0.0078

Other 0.1175 -0.0042

Wages

Primary 0.0806 0.0011

Manufactures 0.1123 -0.0019

Services 0.0769 -0.0014

Consumption effect of a 100% increase in world agricultural commodity prices

-.12

-.1

-.08

-.06

-.04

3 4 5 6 7 8ln(Household expenditure per capita)

Sh

are

F&B goods

-.07

-.065

-.06

-.055

-.05

-.045


Sh

are

Non-F&B goods

-.12

-.11

-.1

-.09

-.08

-.07


Sh

are

Traded goods

-.045

-.04

-.035

-.03


Sh

are

Non-Traded goods

-.15

-.14

-.13

-.12


Sh

are

Total Consumption Effect

Consumption effect of a 100% increase in world agricultural commodity prices

Labor income effect of a 100% increase in world agricultural commodity prices

.04

.045

.05

.055


Sh

are

Total welfare effect of a 100% increase in world agricultural commodity prices

-.11

-.1

-.09

-.08

-.07


Sh

are

Welfare effect of a 20% export duties on agricultural commodities

.001

.0012

.0014

.0016

.0018

.002


Sh

are

F&B goods

.0005

.001

.0015

.002


Sh

are

Non-F&B goods

-.00018

-.00016

-.00014

-.00012

-.0001


Sh

are

Labor income

.0023

.0024

.0025

.0026

.0027

.0028


Sh

are

Total effect

Welfare effect of the elimination of the VAT on Food and Beverages

.03

.04

.05

.06

.07


Sh

are

Conclusions

• Ex-ante, an increase in the international price of agricultural commodities has a negative effect on poverty.

• This effect is channeled through the higher prices paid by consumers, especially of goods that constitute the food basket.

• This effect hurts the most to the poorest households.

• A less direct channel works through changes in wages more beneficial to high income households.

• The application of export duties has a limited effectiveness to counter the effects of rising international prices of agricultural commodities.

• The removal of VAT on the consumption of food and beverage would reach to compensate for about a half of the negative effect of rising world prices of agricultural commodities, as well as the elimination of export duties.

poverty impacts of changes in the price of agricultural commodities recent evidence from argentina...

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