The pass-through of agricultural commodity prices to consumer prices. A micro-simulation of the welfare and poverty effects for urban Mexico

Córdoba - La Cumbre

Congreso; XIV Arnoldshain Seminar; 2016

ISCES

for Mexico, with a large share of households with low and medium-low income, an increase in the prices of agricultural commodities has the potential to hurt a sizable part of the population through the rise in the cost of the consumption basket. Ex-ante this is the case. A less obvious channel, through changes in labor income would be more beneficial to low-income households. Overall, and assuming a 50% increase in international commodity prices, all households experience losses, around 5% of their initial expenditure. In terms of poverty, the increase would be 8%, with that of extreme-poverty even greater, 13%. The results show also that households in a situation of poverty would move in average further away from the thresholds lines. Approximately 2/3 of the long-run effect takes place in the first two years after the shock occurs. Surprisingly, the dynamics of poverty and extreme-poverty are very similar.