The impact of rising food prices on household welfare in Zambia

Abstract

Given the global food price spike experienced in 2007/8, the core question of this research is, ‘what was the impact of the rising food prices on household welfare in Zambia’? Taking an empirical approach and using micro-economic methods, four welfare outcomes are assessed: consumption, equality of income distribution, poverty and nutrition. The 2006 and 2010 cross-section household surveys - Living Conditions Monitoring Surveys (LCMS) - are primarily used to answer the question. The thesis first assesses the changes in consumption patterns across time, geographical locations and quintiles. The short-term distribution of income from the rise in prices is then analysed using non-parametric methods to show the likely winners and losers from the price spike and the subsequent impact on poverty. These results are supplemented by a supply response as an attempt to understand longer-term poverty effects. The final empirical exercise focuses on nutrition outcomes. The thesis confirms the hypothesis that on average, urban households may suffer a welfare loss but rural households may gain. In the case of maize grain, the results suggest that the highest gain may accrue to rural households clustered around the poverty line. Furthermore, the findings suggest that, while overall poverty may increase in the short-run, the long-run impacts of rising food prices (once supply response are accounted for) may lead to a marginal decline in poverty. Finally, we observe that the slight increase in income, from selling maize, among some rural households may not necessarily lead to an improvement in nutrition outcomes. In particular, while rural households exhibit a small net rise in income from an increase in maize prices, the impact on stunting levels among children below five years appears to be regressive in both urban and rural areas. The overall results of this research strengthen the case for contextual impact analysis of covariate shocks and also highlight the policy challenges arising from such conflicting results.