Simulating the Poverty Impact of Rising Food Prices on Rural Household Poverty in Ghana

Abstract

This paper contributes to the debate on the impact of rising food prices on poverty by estimating the potential impact of rising food prices on rural households' poverty in Ghana. Data for the estimation were drawn from the Ghana Living Standards Survey round 6. We used a methodology that allows us to compare rural household poverty before and after a stimulated food price increases using the concept of compensating variation. The results indicate that a uniform increase in the prices of nine food groups by 10% increases absolute rural poverty and poverty gap by 3.1 and 1.4 percentage points respectively. Furthermore, it is found that the impact of rising food prices varies according to region, ecological zones and expenditure quintiles of households. Specifically, the findings show that the increase in poverty associated with rising food prices was highest in both the region and ecological zone with the lowest poverty headcounts suggesting the vulnerability of people in these geographical areas. These findings offer implications for social policy targeting to mitigate the effects of current or future food price shocks on poverty reduction in rural Ghana.