<mark> The Estimation Methodology: Cost of Basic Needs (CBN) method</mark> The CBN method defines a poverty line as the cost of a basket of goods deemed to be sufficient for satisfying the basic food and non-food needs of the ‘reference’ population. It first determines the cost of basic food needs, aligns them to the normative minimum standard of well-being, and then adds a provision for basic non-food needs. This method is in most common use in a majority of the developing countries, and the application of CBN to EICV4 to arrive at the 2014 poverty line in Rwanda is detailed below.

# **_The food component_**

The food component of the poverty line is almost universally anchored to nutritional requirements for good health, as established by the Food and Agriculture Organization (FAO). This does not necessarily generate a unique monetary poverty line, since many bundles of food goods can potentially yield the same nutrition. In practice, a diet is chosen which accords with ‘prevailing’ consumption patterns of a certain reference group considered to be appropriate in defining poverty. Ravallion (1998) asserts that the idea of respecting consumer choice in the definition of a poverty line is extremely important to arrive at a more objective and relatable poverty measure. Early attempts to determine the minimum cost of achieving the basic-needs vector at given prices ignored preferences. In that case, the resulting poverty lines can sometimes be so alien to consumer behavior that their relevance as a basis for policy becomes doubtful. Instead, current practices aim to anchor the choice more firmly to existing demand behavior. Among the (infinite number of) consumption vectors that could yield any given set of basic needs, a vector is chosen which is consistent with choices **_actually made_** by some relevant reference group. Poverty is then measured by comparing actual expenditures to the CBN. A person is not deemed poor who consumes less food (say) than the stipulated basic needs but could consume it on rearranging her budget allocation. This helps in avoiding any possible disagreements that might arise when choosing the basket more normatively (Ravallion 1998).

Rwanda uses a semi-normative approach to compute the food component of the poverty line. For the poverty line based on EICV4 data, the estimation is done in three steps. In the first step, focusing on the consumption patterns of the reference group (bottom 40 percent), quantities consumed for all items are backed out using survey reported prices and total expenditure. These quantities are then converted to a common unit, quantities in kilograms—consumed per adult equivalent per day. Using the standard FAO calorie table, these quantities are then converted to calories consumed per adult equivalent per day to obtain the average calorie consumption in the reference group. This equates to 1,335 calories per adult equivalent per day, which corresponds to an average total quantity of 1 kilogram of uncooked food per adult equivalent per day (NISR 2015).

In the second step, NISR studies the resulting food basket, as determined by the actual consumption patterns of the reference group and finds that the basket is dominated by low calorie food items (sweet potatoes, Irish potatoes and cassava root), very little cereals, and some items that are not necessarily of relevance to the poor. This is where the normative part of the approach comes in. In a ‘revealed preference’ approach, the reference group’s food basket is taken as given and is converted to calories and then scaled up to arrive at the final food poverty line. In this case, any changes to the food poverty line can only come from changing the choice of the reference group or the caloric threshold. Once the reference group is fixed, the quantities of each item in the food basket are taken as is. In contrast, NISR takes a more normative approach and 6