Beneath The Surface
When poverty is propelled by high prices
THERE is a significant saying in economics that the answer to high prices is high prices. It means, only higher prices could contain demand and augment supply. In consequence, the prices could go down.
However, as far as staple commodities are concerned (e.g. rice, wheat, etc), the hypothesis so postulated has been rejected outright by economists and policy makers on the grounds that demand for such goods is inelastic and that high prices of such commodities pinch the poor.
Besides this, the supply of a commodity like rice is said to be not as price-responsive as other non-rice commodities because the staple foods are mostly grown for home consumption. Only about one-tenth of world production of rice (and roughly one-third of Bangladesh production) enters into the respective markets.
At the country level, higher food prices hit the net importers most. At the household level, surging and volatile food prices hit those who can afford it the least -- the poor and food insecure. As Joachim von Braun (IFPRI) has rightly remarked, at the household level, for a five-person household living on $5 a day and spending 50%-60% of their overall budget on food, a 50% increase in food prices removes up to $1.50.
Growing energy costs also add to their adjustment burden. Therefore, we can possibly say that a rise in food price could cause a rise in income poverty. And impacting upon nutrition and education, in the face of reduced real income, it could also lead to non-income poverty. The question today is: to what extent has that happened in Bangladesh?
Up, down and up
We all know that Bangladesh witnessed a decline in poverty levels for a pretty long time. This has been revealed by macro data released from the documents of the government and the donors. Particular mention may be made of the decline in rural poverty as observed by a repeated sample survey of households in 62 villages in Bangladesh for three time periods: 1988, 2000, and 2004. Mahabub Hossain and I have empirically shown that, on average, rural poverty declined annually by one plus percent between 1988 and 2004. Be it head-count index, poverty-gap and squared poverty gap, the trend talked of a reduced poverty level within that time span. Surely, it is a news of comfort, if not of complacency. But it seems that the days of comforts are over; the nights of nightmares began. The recent data (post-2004) tend to show that poverty level in Bangladesh went up almost by the same magnitude between 2004 and 2008 as it declined before. Let us then look at hard facts. The Brac-backed survey of 2010 households in 62 villages show that rural poverty level perked at 55% in 2008 compared to about 49% in 2004. That is, within the last four years or so, poverty has increased by 1.5 per cent per year. At a disaggregated level, extreme poverty rose from 15% to 20% and moderate poverty from 34% to 35%. We see that among the poor, the share of the extreme poor has increased at a faster rate than that of the moderate poor. This could be due to the fact that, compared to the extreme poor, the moderates have more mobility and malleability for the labour market to smoothen income and consumption. By and large, the bad news is that 55% of the rural population in Bangladesh lies below the poverty line. The level was 68%, 54%, and 49%, respectively in 1988, 2000, and 2004. After a monotonic decline for about two decades, poverty levels picked up again in recent years to cast a hostile horizon. Price-led poverty
At the moment I have no econometric tool at hand to trace the causal factors that propelled poverty. Poverty is a multi-dimensional concept and has multi-faceted roots of origin. But I would like to correlate the rise in poverty with the rise in rice prices. The results are tentative but persuasive. From the recent survey (2007), we notice that the rural price of rice reported by sample households was Tk 9.19/kg in 1988, Tk 11.59/kg in 2000, Tk. 13.18/kg in 2004, and Tk. 24/kg in 2008. In other words, rice price increased by 2.2% per year between 1988 and 2000, by 3.5% between 2000 and 2004, and by about 21% between 2004 and 2008! Needless to mention that increased rice prices also go to push up prices of other commodities. We reckon that such a substantial rise in rice price might have pushed a larger proportion of people below the poverty line as they spend half of their budget on rice and they are mostly $5 a day households. If the estimated poverty line is Tk.6, 244 per household per month, suffice it to say, a 20% rise in rice price has removed up to Tk. 2,500 from the kitty of the poor households. That means, real income went substantially lower than before, thus fueling a fall in food consumption, nutrition, productivity, and hence in income. Allow me to call it a price-led poverty. Most of the poor households tend to postpone expenses on productive pursuits to divert money to buy food. Income and non-income poverty gripe these households. Policy actions
Quite obviously, the policy implication of this trend is to arrest the upward movement of rice prices. The formidable option to this effect is to make food cheaper to the deficit-poor who constitute roughly 70% of rural households. That is, to augment rice supply in the market either from domestic or from foreign sources. The crisis seemingly teaches us that we should change our mind-set from being "self-reliant" to becoming "self-sufficient." This emerging new situation calls for policy actions in three areas: (a) comprehensive social protection and food nutrition initiatives for the poor (short and medium term solutions); (b) augmenting supplies through investment in agriculture particularly in agricultural sciences and technology and market access (long-term solutions) and (c) a revision of the developed countries' bio-fuel and agricultural trade policies. As far as (a) and (b) are concerned, Bangladesh government should see that positive steps are taken with commitments to implement them. Mere allocation of resources may not serve the purpose unless materialised through proper utilisation at the quickest possible time.
We all know that Bangladesh witnessed a decline in poverty levels for a pretty long time. This has been revealed by macro data released from the documents of the government and the donors. Particular mention may be made of the decline in rural poverty as observed by a repeated sample survey of households in 62 villages in Bangladesh for three time periods: 1988, 2000, and 2004. Mahabub Hossain and I have empirically shown that, on average, rural poverty declined annually by one plus percent between 1988 and 2004. Be it head-count index, poverty-gap and squared poverty gap, the trend talked of a reduced poverty level within that time span. Surely, it is a news of comfort, if not of complacency. But it seems that the days of comforts are over; the nights of nightmares began. The recent data (post-2004) tend to show that poverty level in Bangladesh went up almost by the same magnitude between 2004 and 2008 as it declined before. Let us then look at hard facts. The Brac-backed survey of 2010 households in 62 villages show that rural poverty level perked at 55% in 2008 compared to about 49% in 2004. That is, within the last four years or so, poverty has increased by 1.5 per cent per year. At a disaggregated level, extreme poverty rose from 15% to 20% and moderate poverty from 34% to 35%. We see that among the poor, the share of the extreme poor has increased at a faster rate than that of the moderate poor. This could be due to the fact that, compared to the extreme poor, the moderates have more mobility and malleability for the labour market to smoothen income and consumption. By and large, the bad news is that 55% of the rural population in Bangladesh lies below the poverty line. The level was 68%, 54%, and 49%, respectively in 1988, 2000, and 2004. After a monotonic decline for about two decades, poverty levels picked up again in recent years to cast a hostile horizon. Price-led poverty
At the moment I have no econometric tool at hand to trace the causal factors that propelled poverty. Poverty is a multi-dimensional concept and has multi-faceted roots of origin. But I would like to correlate the rise in poverty with the rise in rice prices. The results are tentative but persuasive. From the recent survey (2007), we notice that the rural price of rice reported by sample households was Tk 9.19/kg in 1988, Tk 11.59/kg in 2000, Tk. 13.18/kg in 2004, and Tk. 24/kg in 2008. In other words, rice price increased by 2.2% per year between 1988 and 2000, by 3.5% between 2000 and 2004, and by about 21% between 2004 and 2008! Needless to mention that increased rice prices also go to push up prices of other commodities. We reckon that such a substantial rise in rice price might have pushed a larger proportion of people below the poverty line as they spend half of their budget on rice and they are mostly $5 a day households. If the estimated poverty line is Tk.6, 244 per household per month, suffice it to say, a 20% rise in rice price has removed up to Tk. 2,500 from the kitty of the poor households. That means, real income went substantially lower than before, thus fueling a fall in food consumption, nutrition, productivity, and hence in income. Allow me to call it a price-led poverty. Most of the poor households tend to postpone expenses on productive pursuits to divert money to buy food. Income and non-income poverty gripe these households. Policy actions
Quite obviously, the policy implication of this trend is to arrest the upward movement of rice prices. The formidable option to this effect is to make food cheaper to the deficit-poor who constitute roughly 70% of rural households. That is, to augment rice supply in the market either from domestic or from foreign sources. The crisis seemingly teaches us that we should change our mind-set from being "self-reliant" to becoming "self-sufficient." This emerging new situation calls for policy actions in three areas: (a) comprehensive social protection and food nutrition initiatives for the poor (short and medium term solutions); (b) augmenting supplies through investment in agriculture particularly in agricultural sciences and technology and market access (long-term solutions) and (c) a revision of the developed countries' bio-fuel and agricultural trade policies. As far as (a) and (b) are concerned, Bangladesh government should see that positive steps are taken with commitments to implement them. Mere allocation of resources may not serve the purpose unless materialised through proper utilisation at the quickest possible time.
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