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

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 povertyii 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