Higher food prices reduce poverty

It's a general assumption that higher food prices are bad for the poor. Clearly, it must be: the poor, the truly poor that is, spend some 80% of their incomes on food, if the price rises then obviously they must be getting poorer. Thus all that nonsense from the World Development Movement, Oxfam et al, about how food speculation in 2008 drove up food prices, impoverished more and thus we must ban capitalism etc.

Except that's not actually true. Poverty declined in the wake of that 2008 rise in food prices. Which leads us to, via Dani Rodrik, this paper:

Standard microeconomic methods consistently suggest that, in the short run, higher food prices increase poverty in developing countries. In contrast, macroeconomic models that allow for an agricultural supply response and consequent wage adjustments suggest that the poor ultimately benefit from higher food prices. In this paper we use international data to systematically test the relationship between changes in domestic food prices and changes in poverty. We find robust evidence that in the long run (one to five years) higher food prices reduce poverty and inequality. The magnitudes of these effects vary across specifications and are not precisely estimated, but they are large enough to suggest that the recent increase in global food prices has significantly accelerated the rate of global poverty reduction. The policy implications of these findings are therefore nuanced: short-run social protection is justified in the face of high food price volatility, but passing on higher prices to producers in the long run is an important means of reducing poverty in the poorest countries.

The most important word there is that "producers" in that last sentence. The poor in developing countries are the peasant farmers. They're also food producers: thus a rise in food prices benefits them. The mistake being made by those who insist that higher food prices impoverishes further the very poor is to assume that they are net food consumers. But, being peasant farmers, they're not: a peasant household is a net food producer. So of course higher prices will benefit them.

The situation is quiite different for the urban poor, of course, for they are net consumers. But given that the urban poor are richer than those stuck in the idiocy or rural life higher food prices are still poverty and inequality reducing.

All of which leads to an interesting conclusion. Assume that WDM and Oxfam are correct about the effects of food speculation (they're not), also that they both truly desire to reduce poverty and inequality (your options on that are open) then both organisations should be campaigning for there to be more speculation in food commodity markets.

I look forward to the new campaigns.