The Poverty and Welfare Effects of the 2008 Food Price Crisis in Vietnam: A Decomposition Analysis

Published date01 September 2014
Date01 September 2014
World Food Policy - Volume 1, Number 2 - Fall 2014
From September 2006 to June 2008 the
international prices of food commodi-
ties increased dramatically, driving the
food price index to a much higher peak than
that reached during the food price crisis of
1995 (see Figure 1). During this same period,
the food price index increased by about 80%,
driven mainly by increasing cereal prices,
which increased by 230% while meat prices
increased by only 12%. e main reasons for
these price increases include both supply-side
and demand-side factors: (i) an agriculture
production shortfall due to bad weather; (ii)
an increase in agricultural production costs
because of high energy and fertilizer prices as
well as high transportation costs; (iii) export
bans and speculative activities by India and
Vietnam; (iv) the recent increasing demand
from India and China due to their economic
booms; (v) the panic of the Philippines gov-
ernment and individuals stockpiling food
(Ivanic and Martin 2008); (vi) soaring pe-
troleum prices which increased the demand
for biofuels produced from food grains and
oilseeds (Collins 2008); and (vii) the weak
U.S. dollars compared to other major curren-
cies and lower interest rates by Federal Re-
serve (Frankel 2006; Calvo 2008). Derek and
Shenggen (2008) conclude that traders’ reac-
tions, hoarding by key rice exporters, the low
stocks of the four main staple foods (corn,
wheat, rice, and soybeans), and the large in-
crease in production of biofuels are the main
factors driving the increase in food prices.
e sharp increase in food prices
during this time was a major concern of gov-
ernments and international organizations
because of fear it could lead to social and
political instability in developing countries,
especially in poor net-food-importing coun-
tries. Ivanic and Martin (2008) estimated
that an additional 100 million people could
fall into poverty. e World Bank (World
Bank 2008a, 2008b) expected an increase in
the number of malnourished people by 4.8%.
erefore, at a meeting in Rome (June 2008)
Using panel data from the Vietnam Household Living Standard Surveys (VHLSS),
this paper examines the impacts of food price increases on welfare and poverty in Viet-
nam. It is found that on average the rise in food prices increased household welfare
by 7.5 percentage points. However, the percentage of households who gained from the
increase in food prices is much smaller than of those who lost. e absolute number of
people living in poverty increased by about 2.5 percentage points and the poverty gap
deepened, but these eects varied greatly across regions. Producers’ supply reactions
were moderate and on the demand side only poor consumers showed strong reactions.
JEL classications: D12, I32
Keywords: food price crisis, welfare, poverty, Vietnam
Tung Duc Phung,1 Hermann Waibel2
1 Mekong Development Research Institute, Hanoi-Vietnam.
2 Leibniz University Hannover, Faculty of Economics and Management, Institute of Development and Agri-
cultural Economics, Hannover, Germany.
e Poverty and Welfare Eects of the 2008 Food Price
Crisis in Vietnam: A Decomposition Analysis
e Poverty and Welfare Eects of the 2008 Food Price Crisis in Vietnam
the representatives of 180 countries urged
the international community “to take urgent
and coordinated action to combat the neg-
ative impacts of soaring food prices on the
world’s most vulnerable countries and popu-
lations” (Food and Agriculture Organization
Rising food prices have macro- and
micro-economic impacts. While the mac-
roeconmic impacts are fairly clear, less is
known about the impacts at the household
level (Derek and Shenggen 2008). Most cur-
rent papers (Zezza et al. 2008; Dessus, Herre-
ra, and Hoyos 2008; Wodon et al. 2008; Arndt
et al. 2008) use simulation methods that are
based on Deaton’s (1987) approach. ese
papers show that rising food prices generally
lead to higher poverty because net negative
impacts on poor consumers dominate net
positive impacts on poor producers. ese
papers are instrumental for identifying vul-
nerabilies to price changes across countries
and sub-national groups like urban/rural or
Several studies have examined the ef-
fects of food price and poverty in Vietnam.
e study of Minot and Goletti (2000), us-
ing data from the Vietnam Household Liv-
ing Standard Survey (VHLSS), showed that a
rise in rice prices would increase the average
real income of households in Vietnam albe-
it with a negative distributional impact, i.e.,
poverty would increase. In constrast, Ivanic
and Martin (2008) used Vietnam Household
Living Standard Survey collected in 1998 and
2004, and found that increasing rice prices
would reduce poverty in Vietnam. Using
2006 VHLSS data, Vu and Glewwe (2011)
found that rising food prices increased over-
all welfare of Vietnamese households be-
cause the welfare gain of net sellers exceed-
ed those of the net buyers. But the majority
of people were worse o because there net
buyers outnumber net sellers and threrefore
the poverty rate increased by 1.1 percentage
Figure 1: e food price index 1990–2008

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