Adamon Mukasa is a PhD Candidate at the Department of Economics and Management of the University of Trento, Italy and a former Visiting Scholar at Cornell’s Dyson School. He is currently on the job market.
The majority of households in developing countries are located in rural areas and still depend on agriculture as their main income generating activity. Despite economic progress recently achieved by many of these countries at the macroeconomic level, welfare indicators remain at critical levels for a large proportion of their populations. The absence of well-functioning insurance and credit markets coupled with the prominence of different shocks (droughts, floods, inflation, conflicts, and health-related shocks) exacerbate the vulnerability of the poorest among these households.
Under these circumstances, a general consensus among development practitioners has been that policy interventions will only be effective if they help households prepare for and protect themselves against stressors and shocks, mitigate their potential losses, and reinforce their abilities to respond adequately to future threats to their well-being. This goal can only be achieved if we understand the deep causes that trigger these shocks and the ways in which they affect households with different initial conditions and characteristics. In particular, we are interested in understanding the processes through which some households are prevented from moving out of poverty or through which some are thrust into spirals of destitution and poverty.
In this mini-series, I focus on one particular type of shock: food price shocks. Indeed, the recent unprecedented shifts in global commodity prices observed between 2007-2008 and again from 2010-2011 have revived interest in and widespread concerns about the potential adverse consequences of food price variation on households, especially in developing countries. Indeed, between 2005-2007, international prices of many staple foods rose drastically: milk powder by 90 percent, maize by 80 percent, wheat by 70 percent, and rice by 20 percent (Ivanic and Martin, 2008). At the peak of the crisis in mid-2008, the international prices of some food commodities—such as wheat, maize, and rice—had more than doubled (von Braun, 2008).
This three-part series explores various issues related to our understanding of food price shocks in developing countries. The first post, out later this week, will examine the extent to which the econometric estimates of welfare effects of food price shocks are sensitive to modeling assumptions, in particular to the incorporation of both labor market frictions and households’ net positions in food markets. The second post investigates the potential link between poverty traps and households’differential exposure and vulnerability to food price shocks. Finally, the third post analyzes one type of response of agricultural households to changes in future food prices, namely crop selection and acreage allocation decisions.