Effects of Rising Food Prices on Households of Varying Incomes
Source: Flickr, Mathieu Schoutteten
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A paper published in Food Security investigates the effects of rising prices for different foods on food security across different household incomes in India. The production of food in India, including food grains, pulses, milk, and edible oils has grown consistently since independence, yet food security remains an important issue as per capita nutrient and calorie intakes remain low. Food security is related to agricultural production and in India is highly dependent on rain: a drought can further weaken food security by decreasing the availability of foods leading to food inflation.  This happened during 2009–2010, when only 30 percent of a total of 640 districts received normal precipitation, leading to a dramatic rise in food prices. Previous studies have illustrated how increases in food prices increase the food insecurity of the poor, as well as reduce the physical well-being of those who are barely consuming enough nutrition for sustenance. This study is placed within this context and amid a growing number of studies around the world that examine the effect of rising prices on food security.

The study uses the National Sample Survey Office (NSSO) data on household consumption expenditure from July 2009-June 2010. This year was chosen as it contains a large sample size covering all of India and because the country experienced a severe drought that year which raised food prices significantly, allowing for an analysis of the effects of these increases on households. The study distinguishes between urban and rural households due to the large urban-rural differences, in terms of incomes as well as the price and availability of foods in India. The NSSO data provides information on all food, fuel and consumer services purchased by households over a 30 day period for a year as well as infrequent purchases made during the entire year. The study divided households into four income groups in rural and urban areas:(Lower Income Group (LIG), Lower-Middle Income group (LMIG), Upper-Middle Income Group (UMIG), and Higher Income Group (HIG)). Prices paid by households for different food products were calculated by dividing the value of food products consumed by the quantity of food product consumed by the household. Analysis was done using separate regressions to estimate how different income groups respond to price changes. Food consumption was converted into nutrient equivalents for calories, proteins, and fats. As data on income were not available, expenditure data were taken as a proxy for income and the study develops a measurement of food security as a function of the price of wheat, monthly expenditures on durables, housing, and prices of kerosene, lamb, rice, and vegetable oil.

The study notes that though food expenditure was higher in urban areas, but the calories consumed were lower.  The authors note a possible explanation is that prices of food commodities were lower in rural areas than in urban areas, which can be attributed to rural areas being the production centres of food and also due to the fact that a large section of the rural population is employed in agriculture. Furthermore, more households in rural areas tend to buy food products from Fair Price Shops (FPS) through the public distribution program (PDS) at lower prices. According to the NSSO data, 38 percent  of households buy rice from FPS in rural areas as compared to 25 percent in urban areas. In the case of wheat, the corresponding figures are 24 and 18 percent.

Another finding the study highlights is that as expenditure (income) rises across the income groups, food prices also increase for most products for both rural and urban households though the price differential for all food products across different income groups is higher in urban India. The study suggests that this is because richer households buy foods of better quality.

Regarding caloric  intake, the study highlights that the average calorie and protein intake for LIG and LMIG groups for both rural and urban populations does not reach the recommend level of 2700 calories and 60 grams per day respectively. By contrast, the UMIG and HIG groups do on average achieve the recommended levels.  More specifically, the study highlights that the average calorie intake is alarmingly low for the rural and urban poor (LIG) as more than 50 percent of the population does not obtain 80 percent of the recommended level of 2700 kcal per day. Similarly, the study highlights that more than 50 percent of the LMIG and more than 25 percent of the HIG groups do not consume the recommended level of calories.

Regarding food security, the study finds that price increases for all food products have a negative impact on calorie intake, the extent of which varies per type of food. Wheat and rice prices have minimal effects across rural and urban areas, which may be due to the fact that these are staples with highly inelastic demand. When these prices rise, households try to cope by decreasing the consumption of non-staples thereby not affecting calorie intake significantly. The study finds that in general, the negative impact of price increases of these foods is greater on richer households as they have the capacity to cut caloric intake, whereas the poor are already malnourished and therefore cannot cut back further on calorie intake. In the event of a price rise, the study hypothesizes that the poor households decrease non-food expenditures but do not decrease food expenditures. On the other hand, there are significant negative impacts of the price rises on the consumption of proteins, milk and pulses, and these impacts are more or less constant across the rural and urban areas. The study finds that when prices rise for these products, the poorer  households reduce consumption to a greater extent, the paper suggests that this is due to the high prices generally of these more nutritious products.

The paper concludes with a number of policy implications. The paper highlights that rural and urban areas have differences in food prices and that policy needs to focus on bringing producers directly into contact with consumers which would help reduce higher prices in urban areas. The high levels of malnourishment, including increasing consumption of fats especially in urban regions, calls for government policies that focus on nutrition education. Additionally the paper suggests that the PDS often fails to target the poorest households and that the PDS and FPS need to be streamlined and focus on vulnerable localities as well as include pulses. Lastly, due to the effect of price increases on protein consumption, the study suggests that the government should play a larger role in keeping protein, especially milk prices, stable which would also contribute to combatting malnutrition.

The full paper can be accessed here.

By: Bas Paris

Photo credit:Flickr, Mathieu Schoutteten