In rural areas, most of the net food buying households are not farmers but are laborers or businessman. In regions where food production is the main activity, their incomes might depend on the demand from the food surplus households.<sup>7</sup> Half of net food buyers in rural areas in our sample of nine countries are not farmers (their incomes come primarily from wages and business). These household incomes are likely to depend on the expenditures of net food sellers, especially in rural areas where the primary economic activity is food production. Hence, lower food prices could lead to lower incomes of net food sellers, which in turn could lead to reduced demand for labor and services from net food buyer households. If this effect dominates, lower food prices, instead of increasing the real incomes (through consumption) of net food buyers in rural areas, might reduce them.

# **II. Data and Framework**

This study uses household income and expenditure data from nine low-income countries to estimate more detailed income sources and expenditure patterns for net food buyer and seller households (see data description in Annex IV). The countries studied were geographically diverse, with three low-income countries from Asia (Bangladesh, Cambodia, and Vietnam) three from Latin America (Bolivia, Nicaragua and Peru), and three from Africa (Ethiopia, Madagascar and Zambia).<sup>8</sup> All the selected countries were poor within the context of their continents (1998 PPP adjusted per capita incomes vary between $566 for Ethiopia and $4,180 for Peru.), and the household surveys were done between 1998 and 2003. All these countries had significant rural populations, with Peru the most urban, and Bangladesh the most rural.<sup>9</sup> For this study, net buyers (sellers) are defined as the households that have purchases (sales) of defined food products greater than the sales (purchases) of similar products.<sup>10</sup> Expenditures on food are obtained from the expenditures modules of household surveys while the sales are obtained from the incomes modules of the surveys. Expenditure and income levels are not identical in most of the surveys. Thus, there might be under or overestimation of net purchases and sales. In all the household surveys expenditures are believed to be more carefully measured than the incomes and provide greater detail<sup>11</sup> .

7 See Porto (2005); using a model that emphasizes second order agricultural wage effects and substitution in consumption, show that poor net food buyers might gain from maize price increases in rural Mexico. 8 The selection criterion was the availability and reliability of agricultural income data in the household surveys. This work initially started with 15 low income countries and six of them had to be dropped due to lack of detailed agricultural information. In most countries, surveys were undertaken over a year so that seasonality in food purchases and sales is minimized. Survey details are presented in Annex IV.

9 The definitions of rural and urban are different for different countries. That is why the information is presented separately for national averages in addition to rural and urban.

10 Of course, for modeling and simulations, whole distribution of food buyers and sellers should be used. But for the purposes of this paper, discrete variables are necessary to show the shares of different groups. 11 The number of food items listed in the expenditure module is much more numerous than the food items recorded in the income module. Sales of major staples are better recorded. That is the reason why the results with all food definition are presented in the annex rather than the main text— they are less reliable.

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