In developing countries, all too often policies formulated in response to high food prices are inspired by ideology instead of evidence-based policy research. We look at the immediate effects of these shocks faced by households in Uganda on their poverty and well-being. In addition, we look at the economywide impact in the long run when all markets have settled at a new equilibrium. We find that in the short run, poverty has increased substantially. However, in the longer run, we find welfare levels of rural farm households in particular to rise sharply, primarily as a result of increased returns to farm labor and agricultural land coupled with improved market prices for output sold. These results call for policies that aim to protect the most vulnerable against high food prices and extreme volatility in the short run, without eliminating the incentives of steadily rising commodity prices for longer-run structural agricultural development.

This book examines the effects of high and volatile food prices during 2007-08 on low-income farmers and consumers in developing, transition, and industrialized countries. Previous studies of this crisis have mostly used models to estimate the likely impacts. This volume includes actual evidence from the field as to how higher prices affected access to food and farm income among poor people. In addition to country and regional case studies, the book presents discussions of cross-cutting themes, including gender, risk management, violence, the importance of subsistence farming as a coping strategy, and the role of governments and markets in addressing higher prices. With 2011 witnessing an unprecedentedly high level of food prices, the findings and policy recommendations presented here should prove useful to both scholars and policy makers in understanding the causes and consequences, as well as the policies needed to ensure food security in light of the skyrocketing cost of food. This book was published as a special double issue of Development in Practice.

Abstract: Policies and external shocks affecting agriculture, the main source of income for rural households, can be expected to have a significant impact on poverty. The authors study the case of Uganda. Throughout the 1990s, more than 90 percent of its poor lived in rural areas and, during the same period, large international price fluctuations as well as an extensive domestic deregulation affected the coffee sector, its main source of export revenues. Using data from three household surveys covering the 1990s, the authors confirm a strong correlation between changes in coffee prices (in a liberalized market) and poverty reduction. This is highlighted by comparing the performance of different households grouped according to their dependence on coffee farming. Regression analysis (based on pooled data from the three surveys) of consumption expenditure on coffee-related variables, other controls, and time-fixed effects corroborates that the mentioned correlation is not spurious. The authors also find that while both poor and rich farmers enter the coffee sector, the price boom benefits the poorer households relatively more, whereas the liberalization seems to create more opportunities for richer farmers. Finally, notwithstanding the importance of the coffee price boom, the agricultural policy framework and the thorough structural reforms in which the coffee market liberalization was embedded have certainly played a role in triggering overall agricultural growth. These factors appear to matter especially in the second half of the 1990s when prices went down but poverty reduction continued.

Global food, fuel, and fertilizer prices have risen rapidly in recent months, driven in large part by the fallout from the ongoing war in Ukraine and the sanctions imposed on Russia. Other factors, such as export bans, have also contributed to rising prices. Palm oil and wheat prices increased by 56 and 100 percent in real terms, respectively, between June 2021 and April 2022, with most of the in-crease occurring since February (Figure 1).

The Selected Issues paper for Uganda and Rwanda discusses the impact of rising international food and fuel prices on inflation. Unlike in the case of fuel-producing countries, the East African Community countries are major agricultural producers, with agriculture accounting for 20 percent to 40 percent of their GDP. The two most important factors limiting the pass-through of world food commodities are therefore the high degree of self-sufficiency in the production of main tradable food commodities and their relative insulation from international markets.

Households in developing countries use a variety of mechanisms to cope with shocks, such as selling assets, accessing capital markets, reallocating labor, and receiving private or public transfers. Among these responses, selling assets is often a last resort because irreversible asset losses may put the household at risk of future poverty. This policy note summarizes research focusing on the extent to which various kinds of adverse events (that is, shocks) affect men’s and women’s behavior in relation to asset accumulation and divestiture and whether the different types of shocks result in men’s and women’s changing their stock of assets in different ways.