The Impact of Rising Food Prices on Household Welfare in India

Food prices have more than doubled between mid-2006 and mid-2008, creating major istress among the poor across the world, but also gainers among farm producers. While transmission was largely averted in India, increasingly open food markets indicate the need to anticipate the welfare implications of a repetition of such events in the future. This paper simulates the welfare effects of the rise in the international price of cereals and edible oils on a comprehensive typology of Indian households. Results show that large farmers (with farm size of one hectare and more) would have gained as a group, and that the average gain is large for those who gain, but that 59% of them in fact lose. The main category of poor households negatively affected by the rise in prices is rural (representing 77% of all losing poor households), both farmers and non-farmers. This is contrary to conventional wisdom that looks at the urban poor as the main category to be sheltered from rising prices through safety net measures, and expects most farmers to gain. These rural households account for 79% of the aggregate welfare loss among the poor. This makes a forceful case for the need to look beyond the urban poor when food prices rise.