seven surveyed countries (Bolivia, Ethiopia, Bangladesh and Zambia) the poor are net consumers, while in three others (Cambodia, Madagascar and Vietnam) they are net producers. Most other empirical analyses suggest that the poor are net consumers (e.g., Poulten et al. 2006; Christiansen and Demery 2007) and therefore would be hurt from an increase in food prices. The urban poor are clearly in most cases net consumers and are likely to be adversely affected by an increase in food prices. Urban wage rates are also unlikely to adjust to increases in food prices, at least in the short run. Effects on the rural poor are likely to be more country-specific but on average they are worse off when prices rise. This is due to the fact that the poor in rural areas are often constrained by small landholdings, input costs and distance to markets, and hence are generally unable to produce the marketable surplus required to exceed their food expenditures.

Ivanic and Martin (2007) use household survey data for several countries and apply the Deaton framework to estimate the poverty impact of global price changes for seven key staples between 2005 and 2007. They also use a CGE model to simulate the increase in wages for unskilled agricultural labor that would follow from the food price increase under various assumptions. Their results show that the effects of rising commodity prices on poverty differ considerably between countries and commodities, but that poverty increases are considerably more frequent and larger than poverty reductions. Urban households are typically hit harder than rural households, though many in rural areas are also net consumers of food and therefore adversely affected by price rises. The average impact of a 10% increase for seven key food items is to raise the poverty headcount ratio by 0.4 percentage point.

In addition to the simulated 10% price shock, the authors also produce rough estimates of the poverty impact of the global food price increases between 2005 and 2007. The variations across countries are clear – with large poverty increases in Nicaragua, Zambia, Pakistan, and Madagascar and poverty reduction in Peru and Vietnam (where a significant number of poor households are net rice producers). Moreover they show that the effect of a relatively small 10% change in prices can be a first order approximation for the impact of a larger change but some results vary significantly depending on the extent of clustering of households around the poverty line. In rural Peru, for instance, the impact of a 20% price rise on the poverty headcount is five times greater than that of a 10% rise. If one were to derive global estimates of the poverty impact of rising food prices by generalizing the results from these eight countries the results would depend significantly on assumptions of the extent to which global prices are passed through to domestic consumers. A pass-through rate of 0.66, for example, translates into a 4.5 percentage point increase in the $1/day poverty headcount ratio, or an additional 105 million people in poverty. On the other hand, if we assume the pass-through rate is only 0.33 there would be an additional 45 million poor people. Clearly, there are caveats to this analysis. Aside from price pass-through rates which generate vastly different estimates global estimates are based on the somewhat heroic assumption that these eight countries are representative of the world population.