Abstract

LUGO, María Ana; GARRIGA, Santiago  and  PUIG, Jorge. Effects of food prices on poverty: The case of Paraguay, a food exporter and a non-fully urbanized country. rlde [online]. 2022, n.37, pp.7-43.  Epub May 01, 2022. ISSN 2074-4706.

Agriculture in Paraguay plays a key role in economic development and economic growth. Fluctuations in commodity prices have been added to the inherent sector's volatility linked to climate conditions. Since a vast share of households in developing countries like Paraguay are both consumers and producers of food the welfare effects of commodity prices fluctuations are not obvious: higher prices hurt consumption but benefit production. In this paper we simulate the welfare effects of a potential hike in food prices. We use the traditional agricultural model, households' survey data and monthly price data for 127 food items. Our main results suggest that the expenditure effect is negative and regressive for all households, but larger in rural than urban areas. The income effect is positive and progressive in rural areas and negligible in urban ones. Therefore, we find that the potential overall impact of a potential increase in food prices in Paraguay has a very flat U-shaped curve effect. We conclude with a policy response simulation in order to help those affected by the initial increase in food prices.

Keywords : Food prices; distribution; poverty; policy response; Paraguay.

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