metadata: authors: 0: author: Tsimpo Nkengne,Clarence
1: author: Wodon,Quentin T.
count: Liberia
docna: 0: docna: Rice prices and poverty in Liberia
docty: Policy Research Working Paper
subtopic: Climate Change and Agriculture,Crops and Crop Management Systems,Nutrition,Poverty Impact Evaluation,Poverty Monitoring & Analysis,Food Security,Inequality,Poverty Assessment,Poverty Diagnostics,Poverty Lines,Small Area Estimation Poverty Mapping
teratopic: Agriculture,Health, Nutrition and Population,Industry,Poverty Reduction
abstracts: cdata!: When assessing the impact of changes in
            food prices on poverty, it is important to consider food
            producers (who may benefit from an increase in prices) as
            well as consumers (who loose out when the price increases),
            with a focus on poor consumers and producers.  In the case
            of rice in Liberia however, the impact of a change in price
            is not ambiguous because a large share of the rice consumed
            is imported, while the rice locally produced is used mostly
            for auto-consumption.  An increase in the price of rice will
            result in higher poverty in the country as a whole (even if
            some local producers will gain from this increase), while a
            reduction in price will reduce poverty.  Furthermore,
            because rice represents a large share of food consumption,
            any change in its price is likely to have a large impact on
            poverty.  Using data from the 2007 CWIQ survey, the paper
            finds that an increase or decrease of 20 percent in the
            price of rice could lead to an increase or decrease of three
            to four percentage points in the share of the population in poverty.
geo_reg_key: 1927320,517191
repnme: repnme: Rice prices and poverty in Liberia
display_title: Rice prices and poverty in Liberia
listing_relative_url: /research/2008/10/9900866/rice-prices-poverty-liberia
topicv3: Agriculture and Food Security m1326205 435,Food Security m1326439 199,Crop Production m1326627 174,Poverty m1326687 695,Poverty Measurement and Analysis m1326941 707
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Agriculture,Health, Nutrition and Population,Industry,Poverty Reduction
no_of_pages: 19
author_keys: 0: author_key: 686209
1: author_key: 124543
model_extractions: WPS4742 Policy ReseaRch WoRking PaPeR 4742 Rice Prices and Poverty in Liberia _Clarence Tsimpo Quentin Wodon_ The World Bank Human Development Network Development Dialogue on Values and Ethics October 2008
Policy ReseaRch WoRking PaPeR 4742

# **Abstract**

When assessing the impact of changes in food prices on poverty, it is important to consider food producers (who may benefit from an increase in prices) as well as consumers (who loose out when the price increases), with a focus on poor consumers and producers. In the case of rice in Liberia however, the impact of a change in price is not ambiguous because a large share of the rice consumed is imported, while the rice locally produced is used mostly for auto-consumption. An increase in the price of rice will result in higher poverty in the country as a whole (even if some local producers will gain from this increase), while a reduction in price will reduce poverty. Furthermore, because rice represents a large share of food consumption, any change in its price is likely to have a large impact on poverty. Using data from the 2007 CWIQ survey, the paper finds that an increase or decrease of 20 percent in the price of rice could lead to an increase or decrease of three to four percentage points in the share of the population in poverty.

This paper—a product of the Development Dialogue on Values and Ethics, Human Development Network—is part of a larger study by the Africa Chief Economist Office and the Development Dialogue on Values and Ethics on the impact of the food price crisis in Africa and the policy responses available to governments. This research was started in the Africa PREM department and benefits from funding from the Africa Region Regional Studies Program as well as the Belgium and Luxemburg Poverty Reduction Partnerships. Policy Research Working Papers are also posted on the Web at http:// econ.worldbank.org. The author may be contacted at qwodon@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Rice Prices and Poverty in Liberia**<sup>1</sup>

Clarence Tsimpo and Quentin Wodon JEL codes: I32, D1, Q12 Key words: Food prices, poverty, Liberia

> 1 This paper and the broader research project it is part of have benefitted from discussions with and/or comments from among others Douglas Addison, Harold Alderman, Antonella Bassani, Shanta Devarajan, Hinh Dinh, Wilfried Engelke, Louise Fox, Delfin Go, Ana Revenga, Sudhir Shetty, Kenneth Simler, Linda Van Gelder, Jan Walliser, Vera Wilhelm, and Hassan Zaman. All potential mistakes or omissions remain obviously ours.  The paper was presented at a workshop organized by Liberia’s core PRSP team in Monrovia on December 10-11, 2007.  The analysis is based on the 2007 CWIQ (Core Welfare Questionnaire Indicator) data collected by Liberia Institute of Statistics and Geo-Information Services under the leadership of Dr Liberty.  The survey benefited from generous support from UNDP and DFID.  At the World Bank, Ghislaine Delaine and Emmanuel Fiadzo also provided extensive support for the implementation of the survey.  Rebecca Simson was especially helpful in giving us with access to previous work on the topic of food production and food security in Liberia.
# **1. Introduction**

Food security remains a major issue in Liberia as well as a number of other developing countries, and the recent increase in food prices is likely to have a strong negative impact on the poor (on the impact of the recent food price crisis, see among others Ivanic and Martin, 2007; International Monetary Fund, 2008; Wodon and Zaman, 2008; and World Bank, 2008a and 2008b). As noted in the Comprehensive Assessment of the Agriculture Sector prepared by Liberia’s Ministry of Agriculture (2007), improving rural incomes, food production, food security, safety nets and nutrition remains a key priority for the country. In part because rice production has fallen substantially during the period of conflict, a large majority of the population today is a net buyer of food, with much of food consumption coming from rice imports. There have been numerous accounts in the press over the years related to the price of rice in the country, including on issues regarding the awarding of import licenses for rice. The issues related to rice are not new in Liberia. Already in 1980, riots about the price of rice led to a coup.

Any solutions to the country’s rice and cereal deficit, and more generally lack of food security, will have to be multiple (see the analysis of the Comprehensive food security and nutrition survey in Republic of Liberia, 2006; see also Ejigu, 2006). High on the agenda is the fact that improved technologies must be used by farmers to increase their yields. To this end, the government and its partners are implementing a variety of programs that aim to provide better and more seeds as well as tools to farmers. As part of the 150-day action plan of the new government that took office in January 2006, one of the actions for economic revitalization consisted in distributing 20.5 million tons of seed rice to farmers, as well as 41,500 tools. In the medium term, substantial progress is expected from improved rice varieties (e.g., NERICA) and the expansion of small-scale mechanization. But for the immediate years to come, rice imports are likely to continue to remain large, with potential fluctuations in the price for consumers of rice likely also to have a major impact on the poor.

In this paper, our objective is not to advocate a particular policy for increasing local rice production (which should help in the medium term for reducing prices paid by consumers), or for reducing the price of imported rice paid by consumers through import and VAT tax reform or through further regulatory reforms (the country has already liberalized rice imports, so that there is no more monopoly on rice imports). Instead, our objective simply consists in using the 2007 CWIQ (Core Welfare Indicator Questionnaire) survey to make an assessment of the patterns of consumption and production of rice in the country, and to assess the potential impact on poverty of changes in the price of rice.
There is a substantial literature on the link between rice and other cereal prices and poverty. The key in this literature is to assess the double impact that a change in the price of rice can have through producers (who benefit from an increase in prices) and consumers (who loose out when the price increases). Early work was conducted by Deaton (1989) using data from Thailand (see also Singh et al., 1986). Similar methods have been used in sub-Saharan Africa among others by Barrett and Dorosh (1996) for Madagascar and Budd (1993) for Cote d’Ivoire. Most of these studies have found that food price increases tend to lead to an increase in poverty because the consumption effects dominate the production effects as many countries are net importers of food, at least in sub-Saharan Africa<sup>2</sup> .

In Liberia however, at least under the current conditions, the impact of a change in the price of rice is not ambiguous. This is because a large share of the rice that is consumed is imported, while the rice that is locally produced is used mostly for auto-consumption rather than for sale on the market. In such circumstances, an increase in the price of rice, whether imported or locally produced, will tend to result in higher poverty in the country as a whole (even if some local producers will gain from this increase), while a reduction in price will lead to a reduction in poverty. Furthermore, because rice represents such a large share of the food consumption of households, any change in the price of rice is likely to have a rather large effect on poverty measures.

The paper is structured as follows. Section 2 presents basic data on rice production and consumption in Liberia based on two main sources of information: the Comprehensive Assessment of the Agriculture Sector prepared by Liberia’s Ministry of Agriculture (2007), and the results from the Comprehensive Food Security and Nutrition Survey (CFSNS) completed from March to April 2006 with data for 5,409 households. Our own analysis of patterns of rice consumption and production using the 2007 CWIQ survey (which is based on a sample of 3,600 households) is provided in Section 3. In section 4, we assess the potential impact on poverty of changes in the price of rice. A brief conclusion follows.

> 2 Work has also been done on the issue of the impact of changes in food prices using CGE and other general equilibrium models, especially on Indonesia.  This is a country that used to import substantial amounts of rice, but where restrictions were progressively placed on imports in order to help local producers, with imports of rice actually banned after 2004.  Warr (2005) find that the ban on rice imports raised the price of domestically produced rice, and that this led to an increase in poverty by almost one percentage point (on the Indonesia story as well as for a more general discussion on the experience of governments in Asia to stabilize the price of rice, see Timmer and Dawe, 2007).  Another paper on Indonesia by (Sumarto et al., 2005) using panel data suggests that the practice of subsidizing rice as part of a social safety net led to a reduction in the risk for household to be poor.  Papers on Vietnam by Niimi et al. (2004) and Minot and Goletti (1998) suggest that the liberalization of rice exports probably led to a reduction in poverty despite an increase in the price of rice in the country, thanks essentially to increased rice production of rice.
# **2. Rice production and consumption in Liberia: A brief review**

The Comprehensive Assessment of the Agriculture Sector prepared by Liberia’s Ministry of Agriculture (2007) suggests that Liberia’s agriculture can be characterized as comprising of three different production systems. First are large plantations which focus on export crops (rubber, palm oil, coffee and cocoa). Most of the production originates from plantations that are privately owned, but there are also a number of smaller state owned plantations operated by the Liberian Palm Products Corporation and the Liberian Cocoa and Coffee Corporation. A second component of Liberia’s agriculture sector consists of privately owned commercial farms of medium size which also focus on industrial crops for export and to a lesser extent on livestock for the local market. Finally, the bulk of the population engaged in agriculture belongs to small household farms which rely on traditional production techniques that generated low yields due among others to a lack of inputs, and thereby focus on subsistence production. These household farms are small, with most of them being of around one hectare in size or even less (Republic of Liberia, 2006).<sup>3</sup> In terms of consumption, rice is the main staple food, followed by cassava and other food crops. Production data are scarce, but some estimates are available from the FAO. According to these estimates (table 1), cassava production has better resisted to the conflict than rice production, which has fallen from about 180,000 tons at the start of the conflict to 110,000 tons today, while the population has increased substantially over the same period. By contrast, cassava production appears to have increased from 380,000 tons to 490,000 tons.

Two different systems of rice cultivation co-exist in Liberia. Upland rice cultivation is more prevalent, with 63 percent of producing households using this method of cultivation, as compared to 17 percent of households using and swamp rice cultivation methods (the rest, 21 percent of producers, combine both techniques). Upland cultivation is prevalent in River Cess, Grand Kru and Nimba, while swamp rice is found in Lofa County thanks in part to donor funding for agricultural development projects (Republic of Liberia, 2006). Even in swamp or lowland areas, productivity or yields per hectare are often low, and well below that of neighbouring countries, and in the country as a whole, locally produced rice is used mainly for auto-consumption and subsistence. Among the constraints tom productivity, households have identified the following: lack of seeds and tools (mentioned by 50% of households), lack of financial capital to purchase agricultural inputs (31 percent), lack of household labour

> 3 In fact, 53.6% of rice farms were between 0.2ha – 1.19ha with a further one-quarter of rice farms from 1.2ha – 1.69ha. For cassava, 70% of farms are of less than 0.69ha (Republic of Liberia, 2006).
(28 percent), and groundhog (pesticide) attacks as well as bird attacks (each cited by 19 percent of households in the CFSNS survey).

The inability of the country to produce enough rice and other cereals to feed the population has led to massive imports and has been one of the (many) factors that have led to high levels of food insecurity. The FAO typically describes food insecurity as a situation under which some people lack access to enough food of good quality to meet their nutrition needs in order to be able to lead an active and healthy life. According to the results of the CFSNS survey, most rural households are suffering from some forms of food insecurity: As described in Ministry of Agriculture (2007: 15): “ _Nationally 80% of the rural population is either moderately vulnerable (41%), or highly vulnerable to food insecurity (40%), while only 9% of the rural population is food secure, and 11% are food insecure... Chronic malnutrition rates reach 39% for children under five, and only 32 % of households had access to improved water sources, and other basic services were limited... The most food insecure and highly vulnerable groups [are] involved in palm oil producing and selling (64%) followed by hunters and contract labourers (respectively 61% and 58%). The more food secure and moderately vulnerable groups are among the cash and food crop producers (37%), the petty traders and the employees (44% each)_ ” (see table 2).

Importantly, even cash and/or food crop producers are considered likely to be food insecure (indeed, this group of households is considered as likely as many other groups to be food insecure in table 2), suggesting that food production for auto-consumption often still does not enable many households to meet their food needs.

# **3. Rice production and consumption in the 2007 CWIQ survey**

In this section, the nationally representative 2007 CWIQ survey is used to estimate rice production and consumption, and separate consumption into locally produced rice and imported rice. Table 3 provides summary data on rice consumption and production for autoconsumption, as well as a comparison with a number of other food items commonly consumed in Liberia. The total value of food consumption for the items listed in table 3 accounts for 87 percent of the total food consumption of households (these items were used for estimating a food poverty line in Liberia using the cost of basic needs method, as discussed in Backiny-Yetna et al., 2007). The following comments are worth pointing out:

- Rice (imported and locally produced) is by far the largest food consumption item, accounting for more than a third of the value of total food consumption.  The value of
imported rice is estimated at Liberian $6.5 billion (about $100 million at the current exchange rate of Liberian $62 per US$), while that of locally produced rice is estimated at Liberian $ 4.7 billion (this includes the imputed value of locally produced rice for auto-consumption). In total, rice thus accounts for Liberian $10.2 billion in total consumption, a figure that can be compared to the total food consumption in table 3 estimated at Liberian $30.2 billion.

- The total value of rice imports in 2007, estimated in the survey at about US$ 100 million, is probably an overestimation of true imports, which is not surprising given that the 2007 CWIQ survey tends to overestimate consumption a bit (Backiny-Yetna et al., 2007).  At the same time, the order of magnitude of the estimation of imports is not unreasonable, since according to data from the International Monetary Fund, imports of rice were estimated at US$57 million in 2006 (the exchange rate between 2006 and 2007 has not changed dramatically), and it is quite possible that not all rice imports are reported in the government’s official statistics.

- The total production of local rice is estimated at approximately 103,000 tons, which may be on the low side, but is also of an appropriate order of magnitude given that according to table 1, production was estimated at 11,000 tons in 2004, and production has probably not increased dramatically since then.

- Locally produced rice is used mostly for auto-consumption, since only slightly more than one fourth of the locally producer rice is actually purchased.  This finding echoes similar results obtained from the 2006 Comprehensive Food Security and Nutrition Survey.

- The share of rice consumption in terms of the total estimated caloric intake per adult equivalents of households, at 50 percent, is even larger than the share of rice in total consumption, at about a third.  This underscores even more the fundamental role played by rice, including through imports, in the issue of food security in the country. Table 4 provides additional data on rice consumption as estimated in monetary terms

- using the CWIQ 2007 survey.  As expected, locally produced rice is consumed mostly by households in rural areas, and the capital of Monrovia is the area that is the most dependent on imported rice.  At the same time, an overwhelming majority of households outside of the capital also consume imported rice, so that for most households, local production is apparently not large enough to meet their own needs.
There are also interesting differences in terms of the value of consumption according to the level of well-being of households, as measured by their level of total monetary consumption per equivalent adult. For imported rice, the consumption pattern is similar for all households except those located in the bottom quintile of the distribution of consumption, as these households consume only about half of what other households consume. For imported rice, there is a more traditional pattern according to which the richer a household is, the higher the expenditure of that household is as well. Still, while richer households tend to consume much more imported rice than poorer households, the consumption of imported rice among the poor is far from being negligible, so that changes in the price for consumers of imported rice can be expected to have a major impact on the measures of poverty obtained for the population as a whole, the issue to which we turn in the next section.

# **4. Simulating the impact on poverty of changes in the price of rice**

In this section, we provide estimates of the impact of changes in the price of rice (whether imported or locally produced) on the headcount index of poverty, which is simply a measure of the share of the population in poverty (i.e., with a level of consumption per equivalent adult below the poverty line; for an introduction to the concepts and techniques of poverty measurement, see Coudouel et al., 2002).

Following standard practice in the literature, we carry the simulations in a very simple way. First, for rice producers, we measure the additional income or the loss in income obtained from the net sales of rice by households due to an increase or reduction in the price of rice. We assume that this difference in income translates into an equivalent difference in the consumption per equivalent adult of households used to measure poverty. We then recomputed the poverty measures keeping the poverty line intact. For consumers, we do essentially the same: we estimate the increase or decrease in the net purchases of rice following a change in price, taking into account the quantities actually consumed by each household. In the case of a reduction in price, we then add to the consumption aggregate the reduction in the total cost of rice for the household, since this reduction in cost means that the household can actually consume other goods (this is thus as if the household consumption had increased.) In the case of an increase in the price of rice, we subtract from the consumption aggregate the value of this increase, since the household will have to give up other consumption goods in order to be able to purchase the rice it needs. Whatever rice is
produced for auto-consumption is not included in the simulations. For either an increase or a decrease in the price of rice, we then compute poverty with the adjusted consumption level<sup>4</sup> .

This procedure does not take into account potential medium term effects (such as the likely impact of higher food prices on wages for agricultural laborers), but it has the merit of being simple. More sophisticated methods could be used to measure the “general equilibrium” effect of a change in the price of rice, but such simulations require a much larger number of assumptions which are the subject of debate. The estimations given here thus provide “first round” likely poverty effects from lower or higher rice prices paid to producing households or paid by consuming households, assuming that households don’t change their consumption patterns for rice after the change in price.

Key results from the simulations are provided in tables 5 and 6. The headcount index of poverty is the share of the population with a level of consumption per equivalent adult below the poverty line. The poverty gap takes in addition into account the distance separating the poor from the poverty line (while giving a zero distance to the non-poor). The squared poverty gap takes in addition into account the square of that distance (and thus inequality among the poor).

Consider first table 5, which is based only on data on the consumption of rice. At the time of the survey, the share of the population in poverty was 63.8 percent. If the price of rice could be reduced by 20 percent, and if we look only at the impact on the consumer side, poverty would fall to 60.4 percent. If the price of rice were to increase by 20 percent, poverty would increase to 68.0 percent. If we look at the producer prices, the impacts is much lower, since only locally produced rice that is actually sold must be taken into account for the simulations (for rice auto-consumed, changes in producer prices do not affect household welfare of producers). If the price of rice is reduced by 20 percent, and if we look only at the impact on the producer side, poverty would increase only to 63.9 percent, while if the price of rice for producers were to increase by 20 percent, poverty would decrease to 63.4 percent in the overall population.

> 4 A difficult question is whether increases in consumer prices do translate into increases in producer prices.  At least two factors may dilute the impact of rising food prices on the incomes of farmers.  First, production costs for farmers as well as transport costs are likely to be rising due to higher costs for oil-related products.  Second, market intermediaries may be able in some cases to keep a large share of the increase in consumer prices for themselves without paying farmers much more for their crops.  Because it is difficult to assess whether producers will benefit substantially from higher food prices, especially in the short term, we could consider our estimates obtained when considering only the impact on consumers as an upper bound of the impact of the rise in prices on poverty, and interpret the results obtained when factoring in a proportional increase in incomes for net sellers or producers as a lower bound of the impact.  In the case of Liberia however, this issue is less important given that most of the rice that is produced locally is used for auto-consumption.
The total impact of changes in the price of rice on poverty is obtained by taking both consumers and producers into account, and the results are given in table 6. If the price of rice is reduced by 20 percent, poverty is reduced in the population as a whole to 60.5 percent, while if the price of rice increases by 20 percent, poverty would increase to 67.7 percent. These are relatively large effects for a single commodity, and they underscore why the population’s feelings about the price of rice run high in Liberia.

# **5. Conclusion**

When assessing the potential impact of a change in the price of cereals on poverty, it is important to consider both the impact on producers (who tend to benefit from an increase in prices) and consumers (who tend to loose out when the price increases). If producers tend to be poor and if consumers live in urban areas and are better off, an increase in the price of rice, despite its impact on the cost of food, may very well be poverty reducing.

In Liberia however, the impact of a change in the price of rice is not ambiguous. A majority of the rice consumed is imported, and a majority of the rice that is locally produced is used by farmers for their auto-consumption. Therefore, any increase (decrease) in the price of rice, whether imported or locally produced, will clearly result in an increase (decrease) in poverty, and this impact is likely to be large given the important share of food consumption allocated to rice in the country. Using data from the 2007 CWIQ survey implemented by Liberia’s Institute of Statistics, we find that a change in the price of rice of 20 percent could lead to an increase or decrease of three to four percentage points in the share of the population in poverty, which is indeed very large for a single commodity.