The Global Pain of Rising Food Prices

We found some excellent data from a March 2010 USDA report on cross-country food expenditures and to no surprise lower income countries are getting slammed by the recent price spike.  The table is fairly self-explanatory showing the proportion of expenditures allocated to food ranked by per capita real income relative to the United States.  For example, Tanzania’s income is 2.04 percent of the U.S. and allocates 73.24 percent of expenditures to food.

The chart is also very interesting and illustrates how a marginal increase of one dollar in income would be allocated to various expenditures across  the 114 countries listed in the table.  The authors write the chart,

measures how consumers would allocate, say, an additional dollar of income across consumption goods, in our case, across nine broad categories of goods. They are also plotted in figure 1, which illustrates how the calculated marginal shares for the aggregate consumption categories vary across countries based on country income levels. The pattern is quite striking, with low-income countries allocating an additional unit of income for necessities (luxuries) at a higher (lower) relative share than high- and middle-income countries. For example, if incomes go up by $1 across all countries, the expenditures on food would increase by 54 cents in Tanzania and by 2 cents in the United States.

In further contrast, an additional $1 of income in Tanzania would increase expenditures on other, recreation, and medical care by 5 cents, 3 cents, and 4 cents, respectively, while the same additional dollar in the United States would increase expenditure on these three goods by 18 cents, 9 cents, and 13 cents, respectively (a difference in magnitude of 3 to 4 times). The difference in the magnitude of marginal spending by consumers in the two countries is about double for clothing and footwear, gross rent, fuel and power, housing operations, and transportation, while it is only about 1.3 times for education.

(click here if chart and table are not observable)

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This entry was posted in Commodities, Economics, Geopolitical, Policy, Politics and tagged , , . Bookmark the permalink.

3 Responses to The Global Pain of Rising Food Prices

  1. sextisfaction says:

    more food riots to come, more political changes

  2. David Jones says:

    This is a verification of the well known Giffen effect; as the price of food rises the income effect on low income countries outweighs the substitution effect so the response to a price rise is a rise in demand for food. It would also be true for the low income groups in high income countries which may help explain the growing populism in our country.

  3. Pingback: Commodinflation Linkfest « Pregaming the Market

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