Knowledge Note

"How can Mozambique reduce food prices volatility and its household welfare effects?"

Changes in food prices –triggered frequently by natural disasters, macroeconomic shocks or regional market disruptions– can lead to large household welfare effects. At over 60 and 40 percent, food budget shares remain high in rural and urban Mozambique, respectively. Furthermore, nearly 70 percent of the population depends on agriculture for their livelihoods.

To determine the net impact of food price changes on consumption and poverty, we performed incidence analysis combining household and farmer survey data with disaggregated, market-level price data on major staples (maize, rice, and cassava). Overall, we find evidence for a large net negative welfare effect of price rises in rural areas, and a small, negative effect in the urban areas. For instance, A 10 percent increase in maize prices is associated with an average reduction of 1.2 percent in consumption per capita in rural areas and 0.2 percent in urban areas. Not all households are affected equally. Overall, the negative impacts are larger for the bottom half of the distribution. As a result, the sharp food price spike observed in 2016–17 may have translated into a poverty increase of 4-6 percentage points, with some of the poorest provinces bearing much of the brunt.

These findings underscore the importance of improving the functioning of agricultural input and output markets, developing early food security warning systems, and increasing the availability of rapidly scalable safety nets.

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