26 February 2015
* Despite the potential of the food price crisis to undermine social inclusion--an important--priority in Brazil--the government's reaction was fairly muted
* Rising food prices did reduce household welfare, hitting the poorest the hardest. However the compensating effect of income from labour in agriculture, together with transfers from government social programmes, mitigated that impact considerably
* The pre existence of these mechanisms meant that when the food crisis hit, Brazil only had to make changes to the level of benefits, rather than having to set up a new programme
The impact of the 2007-08 food price crisis in Brazil was relatively subdued compared with what took place in many other developing countries. Because the crisis potentially undermined both social inclusion and price stability, both important priorities in Brazil, the absence of any great reaction by the government is something of a puzzle.
The focus on social inclusion, subject to a hard budget constraint, arose as a reaction to the country's historic inequality, the trauma of the 1964-85 authoritarian period, and 10 years of hyperinflation (1985-94). As a result Brazil has seen a marked drop in poverty and inequality since 1995. The changes in the past two decades have been part of a transformation affecting Brazil's society, economy, and polity. The country achieved investment grade status, solved its problems with foreign indebtedness, discovered extensive oil reserves, and witnessed a significant increase in the size of its middle class and the access of the poor to market goods and services. Dramatic changes in the organization of agriculture have paralleled those more general changes. Once inflation was tamed and the more intrusive government interventions in agricultural markets--such as subsidized credit and minimum prices--were removed, agricultural productivity soared practically without use of additional land. These changes have transformed Brazil into an agricultural powerhouse, among the top producers and/or exportesr of a long list of products and commodities.
Farmers and agricultural labour benefited
Because of these circumstances, only minor policy adjustments were needed when the food price crisis hit. Given that Brazil is now a major producer and exporter of agricultural goods, the price increases benefited not only large farmers, but also rural agricultural workers. Although rising food prices did reduce household...