This article examines the relationship between the 2007-2008 rise of food prices and the welfare gain or loss in Brazil´s economy. That being said, the author argues that Brazil is characterized as a large food producer with a predominantly wage-earning agricultural labor force. The paper focuses then in analyzing if increments in the salary of agricultural workers, as a consequence of higher food prices, can offset their loss as net food buyers. In order to assess their claim, the authors employ an econometric model based on a Hicksian compensating variation model using data from the National Consumer Price Index (INPC); the Household Budget Survey (POF); and the National Household Income Survey (PNAD).
The paper is organized as follows. After a brief introduction, section two contains a brief and selective literature review. Afterwards, chapter three describes the three sources of data used in the analysis, whereas section four presents the analytical framework and describes the simple methods used to estimate welfare impacts of price changes. Subsequently, section five presents separately the results for Brazil’s large urban areas, for its rural areas, and for the whole country. Finally, section six delivers the conclusions.
The authors conclude that:
the overall effect of price increments was to raise both extreme and moderate poverty in Brazil despite the country´s position as food exporter
higher incomes arising from incremental food prices reduced every measure of poverty in rural areas
in large urban areas, the standard expenditure effect dominated and since Brazil is 80% urban the general outcome was diminished welfare
the response by the Brazilian government was mixed, although overall increases in benefits were well targeted, their volume appear to have been insufficient