An ex-ante analysis of the welfare effects of changes in world prices of agricultural commodities: the case of Uruguay

Frankfurt and Arnoldshain / Taunus

Seminario; Arnoldshain Semminar; 2015

ISCES

With a large share of households with low and medium-low income, anincrease in agricultural commodity prices has the potential to hurt a sizable part of thepopulation through the rise in the cost of the consumption basket. Ex-ante this is thecase. A less obvious channel, through changes in labor income would be more beneficialto middle-income households in Argentina and Uruguay, and to low-income ones inMexico. 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 thelatter. 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 of theinternational prices of agricultural commodities, with low-income households losing asmuch as 7.5%. In terms of poverty, the increases would be between 19% and 34%, withUruguay being the most affected and Argentina the least. Increases in indigence wouldbe even greater, between 29% (Argentina) and 52% (Mexico). Also, the results show thathouseholds in a situation of indigence and/or poverty, would move in average furtheraway from the threshold lines, meaning that within each category, poor and indigenthouseholds become more homogeneous among them.