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Abstract

Food prices rose sharply on the international market between January 2005 and mid-2008, precipitating what has become known asthe “global food crisis”. Yet, how much of a crisis was it at the household level, and for whom was it a crisis? This paper analyzes the welfare effects of changes in prices over categories of households in Guatemala. We find three surprising results. The first is that there was no statistically significant transmission of international into domestic prices over the three and a half years that the crisis lasted. Most real staple food prices rose, but changes were modest and certainly far removed from full transmission as frequently assumed. Welfare effects were as a consequence small. The second surprising result
is that, given high food dependency for farmer households, including large farmers, most of these households lost from the rise in prices, especially of course the marginal, small, and medium farmers. Only if international prices had fully transmitted would half of the large farmers have gained, with the vast majority in the other categories still losing. Allowing for price responses in both production and consumption mitigates negative effects, but still leaves a vast majority of the farmer population losing. Finally, the third surprising result is that farmer households represent as many astwo-thirds of all poor householdslosing from rising food prices. Increasing the productivity of production for home consumption in smallholder farming can thus be an important instrument in combating the short run welfare losses of rising food prices among poor households.

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