# **IV. Net Food Buyers: A More Detailed Look**

As previously mentioned, an important dimension in measuring the full impact of food price changes is the relationships between net buyers and sellers in rural areas. Studies that focus on the first round effects of these relationships generally assume that the incomes of buyers and sellers are independent of each other (for example, the case studies in Hoekman and Olarreaga, 2007). In rural areas and even in small towns, many non-farm jobs depend on links with farm activities. Non-agricultural households supply agricultural inputs and consumer goods to the agriculturalists; and more importantly they supply diverse services for the rural (and more specifically agricultural) community.<sup>26</sup> These local linkages and multipliers have been discussed in the literature and they have been found to be important (Mellor 1976; Hagglade and Hazell 1989; Delgado et al 1998; Block 1999; Datt and Ravallion 1998; Rock 2002; Foster and Rosenzweig 2004, also see Haggblade, Hazel and Dorosh, 2007, for an extensive survey). In rural areas where there is little cash crop income and little income independent of farm activity, most of the income of net food buyers might depend on the activities related to food production. Net buyers’ incomes would be mainly business income earned through supplying services and labor to predominantly food producing households. In such cases, changes in food prices might have a stronger indirect impact on food buying rural household incomes through both labor markets and consumption and input and output trade linkages.

On the other hand, some non-farm jobs might be independent of the rural economy, such as workers in industries located in rural areas that only hire labor from the local community; jobs that owe their origin to incomes that originate outside the local area such as remittances; income from urban jobs, etc. However, in rural areas of most low income countries, independent manufacturing jobs are limited. An important nonfood income source within agriculture is cash crops. Thus, if the net food buyers receive a significant part of their income from cash crops, or from wage income earned from working on cash crop farms, or receive their income from outside i.e. remittances and transfers, then the income effect of changes in food prices will have little impact on the incomes of the net food buyers. Under these circumstances, first round consumption effects through food prices will be dominant.

To observe these broad relationships, sources of income are derived for net food buyers in rural areas and are compared to the income sources for rural net food sellers. For simplicity, incomes are separated into the following categories, income from food including subsistence production, income form livestock, income from cash crops, wage income which is further separated into wage income from agriculture and nonagriculture, income from business, and other income.<sup>27</sup> We separated the livestock income because the net staple food buyers might be pastoralists that earn livestock income. Finally, we use the occupation of the household head to roughly separate the households into agricultural and non-agricultural households. Table 6 shows the structure

> 26 Since food is defined as main staples in this study, they might be producing other food crops.

> 27 Ideally this analysis should be carried out at the local community level. It might be possible to undertake such a study in countries with better regional and community level information as a follow up this study.

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