Effects on welfare and poverty of the increase in international prices of agricultural commodities. A simulation exercise for Argentina, México and Uruguay

Abstract

With a large share of households with low and medium-low income, the increase in agricultural commodity prices has the potential to hurt a sizable part of the population through a rise in the price of the consumption basket. Ex-ante this is the case. A less obvious channel, through changes in labor income would be more beneficial to middle-income households in Argentina and Uruguay, and to low income ones in Mexico. Overall, in Argentina and Mexico all households experience losses, between 3% and 7.5% of their initial expenditure in the former case, and between 10% and 12% in the latter. In both cases, poorer households are the most affected. In Uruguay, instead, households at the upper end of the distribution would benefit with the increase in the international price of agricultural commodities, with low-income households losing as much as 7.5%. In terms of poverty, the increases would be between 19% and 34%, with Uruguay being the most affected and Argentina the least. Increases in indigence would be even greater, between 29% (Argentina) and 52% (Mexico). Also, the results show that households in a situation of indigence and/or poverty, would move in average further away from the threshold lines, meaning that within each category, poor and indigent households become more homogeneous among them.