Differential Effects of Food Security Policies on
Subsistence Farmers and the Urban Poor
Francis M. Mulangu
Mario J. Miranda
Don F. Larson
Katie Farrin
African Center for Economic Transformation, The Ohio State University, The World Bank,
US Department of Agriculture Economic Research Service
Presented at African Economic Conference, Abuja, Nigeria
December 6, 2016
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Introduction
High, volatile food prices in recent years have
... heightened food security concerns
... led to export restrictions among food exporters
... revived interest among food importers in buffer stock programs
Recent World Bank research has examined MENA region, Senegal.
Wish to extend research to compare welfare implications of:
buffer stock reserves (rural and urban)
temporary export bans
domestic transportation infrastructure enhancements
port infrastructure enhancements
agricultural index insurance
direct cash transfers
Specific interest in effects on rural v. urban poor.
Specific interest in effects on exporting v. importing countries.
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Model
Stylized dynamic heterogeneous agent model of developing country.
Country exposed to food production and world food price risk.
Country divided into a rural “interior” and urban “port”.
Country includes poor, food-insecure rural “farmers”.
Country includes poor, food-insecure urban “laborers”.
Food-insecure subsist on staple food commodity “grain”.
Suffer “malnutrition” if resources cannot meet grain needs.
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Markets
Groups
Poor Farmers
Interior
Commercial Farmers
Rural Non−Poor Consumers
Out−Shipments
In−Shipments
Poor Laborers
Port
Imports
Urban Non−Poor Consumers
Exports
World
Figure: Flow of Grain Among Markets, Producers, and Consumers.
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Rural Interior
Inhabited by poor farmers, commercial farmers, non-poor consumers.
Typical poor farmer must consume q ∗ to be well-nourished.
Farmer begins with pre-determined production qf and savings sf .
If on-farm grain production exceeds needs, farmer sells surplus.
If production falls short, farmer uses savings to purchase grain.
Farmer malnourished if production+savings cannot meet requirement.
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Let pr denote grain price in rural interior.
Farmer malnourished if
qf + sf /pr < q ∗
Farmer effective demand is
df = min{q ∗ , qf + sf /pr }
Farmer net change is cash holdings is
∆sf = max{pr (qf − q ∗ ), −sf }.
Fixed marginal propensity to save from cash holdings.
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Poor farmers experience distinct, idiosyncratic production shocks:
qf = q · ǫ f
where q is per-capita grain production and ǫf is idiosyncratic shock.
Number of farmers large, idiosyncratic shocks fully diversifiable.
If Ff (s) is distribution of savings among poor farmers, then
Z
Df (pr ) = Eǫ min{q ∗ , qǫ + s/pr }dFf (s),
is aggregate demand for grain among poor farmers.
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Price
q∗
Typical
Low Production
No Savings
Quantity Demanded
Figure: Poor Farmer Per-Capita Demand
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Typical
Low Production
No Savings
Malnutrition Rate
1
0
Price
Figure: Price and Poor Farmer Malnutrition
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Urban Port
Inhabited by food-insecure laborers and food-secure consumers.
Typical laborer must consume q ∗ to be well-nourished.
Laborer begins with pre-determined income yl and savings sl .
Laborer uses income and savings to purchase grain.
Laborer malnourished if income+savings cannot meet requirement.
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Let pu denote grain price in urban port.
Laborer malnourished if
yl + s l < pu q ∗
Laborer effective demand is
dl = min{q ∗ ,
yl + s l
}
pu
Laborer net change is cash holdings is
∆sl = max{yl − pu q ∗ , −sl }.
Fixed marginal propensity to save from cash holdings.
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Poor laborers experience distinct, idiosyncratic income shocks:
yl = y ǫ l
where y is per-capita income and ǫl is idiosyncratic shock.
Number of laborers large, idiosyncratic shocks fully diversifiable.
If Fl (s) is distribution of savings among poor laborers, then
Z
yǫ + s
Dl (pu ) = Eǫ min{q ∗ ,
}dFl (s),
pu
is aggregate demand for grain among poor laborers.
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Price
q∗
High Income/Savings
Low Income/Savings
Quantity Demanded
Figure: Poor Laborer Per-Capita Demand
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Malnutrition Rate
1
High Income/Savings
Low Income/Savings
0
Price
Figure: Price and Poor Laborer Malnutrition
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Market Equilibrium
Urban port linked to rural interior and world markets via a
capacitated transportation network with fixed unit costs.
Equilibrium requires absence of spatial arbitrage profit opportunities
and material balance.
Framework allows us to examine
enhancement of domestic transportation infrastructure
expansion of port facilities
import and export tariffs and quotas.
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Model Parameters
Table: Base-Case Parameter Values
Parameter Description
Normalized Parameters
q∗
Per-capita grain consumption requirement
P̄
Mean world grain price
Farmer Production Distribution
q̄
Mean per-capita grain production, poor farmer
σq
Volatility, idiosyncratic production shock
Laborer Income Distribution
ȳ
Mean per-capita income, poor laborer
σy
Volatility, idiosyncratic income shock
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Table: Base-Case Parameter Values
Parameter Description
Aggregate Supply and Demand
Q̄
Mean total grain production
C̄f
Mean total grain consumption, poor farmers
Mean total grain consumption, non-poor rural
C̄r
C̄l
Mean total grain consumption, poor laborers
C̄u
Mean total grain consumption, non-poor urban
Non-Poor Demand
αr
Rural non-poor excess demand scale factor
αu
Urban non-poor excess demand scale factor
βr
Rural non-poor demand elasticity
βu
Urban non-poor demand elasticity
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Table: Base-Case Parameter Values
Parameter Description
Savings
ρf
Marginal propensity to save, poor farmer
ρl
Marginal propensity to save, poor laborer
Transportation and Trade
X̄ru
Maximum shipments, rural to urban
X̄ur
Maximum shipments, urban to rural
X̄uw
Maximum shipments, urban to world
X̄wu
Maximum shipments, world to urban
τru
Unit shipment cost, rural to urban
τur
Unit shipment cost, urban to rural
τuw
Unit shipment cost, urban to world
τwu
Unit shipment cost, world to urban
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Simulation Results
1
Farmers
Laborers
0.9
0.8
Rate
0.7
0.6
0.5
0.4
0.3
0.2
150
160
170
180
190
200
210
Domestic Production
220
230
240
250
Figure: Effects of Aggregate Domestic Grain Production on Malnutrition
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1
Farmers
Laborers
0.9
0.8
0.7
Rate
0.6
0.5
0.4
0.3
0.2
0.1
0
0.5
0.6
0.7
0.8
0.9
1
World Price
1.1
1.2
1.3
1.4
1.5
Figure: Effects of World Grain Price on Malnutrition
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1
Farmers
Laborers
0.9
0.8
0.7
Rate
0.6
0.5
0.4
0.3
0.2
0.1
0
0.5
1
1.5
Poor Urban Laborer Per−Capita Income
2
Figure: Effects of Per-Capita Urban Laborer Income on Malnutrition
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0.35
0.8
Farmers
Laborers
Farmers
Laborers
0.7
0.3
0.6
0.25
0.5
Rate
Amount
0.2
0.4
0.15
0.3
0.1
0.2
0.05
0
0.5
0.1
0.6
0.7
0.8
0.9
1
World Price
1.1
1.2
1.3
1.4
1.5
0
0.5
0.6
0.7
0.8
0.9
1
World Price
1.1
1.2
1.3
1.4
1.5
Figure: Effects of World Grain Price on Financial Aid and Malnutrition
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0.6
0.18
Farmers
Laborers
Farmers
Laborers
0.55
0.16
0.5
0.14
0.45
0.12
Rate
Amount
0.4
0.1
0.35
0.08
0.3
0.06
0.25
0.04
0.2
0.02
0
150
0.15
160
170
180
190
200
210
Domestic Production
220
230
240
250
0.1
150
160
170
180
190
200
210
Domestic Production
220
230
240
250
Figure: Effects of Domestic Grain Production on Financial Aid and Malnutrition
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0.9
0.25
Farmers
Laborers
Farmers
Laborers
0.8
0.2
0.7
0.6
0.15
Rate
Amount
0.5
0.4
0.1
0.3
0.2
0.05
0.1
0
0.5
1
1.5
Poor Urban Laborer Per−Capita Income
2
0
0.5
1
1.5
Poor Urban Laborer Per−Capita Income
2
Figure: Effects of Urban Laborer Income on Financial Aid and Malnutrition
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0.25
0.7
Farmers
Laborers
Farmers
Laborers
0.6
0.2
0.4
Rate
Quantity of Grain
0.5
0.15
0.3
0.1
0.2
0.05
0.1
0
0.5
0.6
0.7
0.8
0.9
1
World Price
1.1
1.2
1.3
1.4
1.5
0
0.5
0.6
0.7
0.8
0.9
1
World Price
1.1
1.2
1.3
1.4
1.5
Figure: Effects of World Grain Price on Food Aid and Malnutrition
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0.8
0.16
Farmers
Laborers
Farmers
Laborers
0.14
0.7
0.12
0.6
0.5
Rate
Quantity of Grain
0.1
0.08
0.4
0.06
0.3
0.04
0.2
0.02
0
150
160
170
180
190
200
210
Domestic Production
220
230
240
250
0.1
150
160
170
180
190
200
210
Domestic Production
220
230
240
250
Figure: Effects of Domestic Grain Production on Food Aid and Malnutrition
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0.7
0.35
Farmers
Laborers
0.3
0.6
0.25
0.5
0.2
0.4
Rate
Quantity of Grain
Farmers
Laborers
0.15
0.3
0.1
0.2
0.05
0.1
0
0.5
1
1.5
Poor Urban Laborer Per−Capita Income
2
0
0.5
1
1.5
Poor Urban Laborer Per−Capita Income
2
Figure: Effects of Urban Laborer Income on Food Aid and Malnutrition
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Next Steps
Basic model implemented numerically.
Next will simulate generic model under different policy regimes.
Focus on effects of policy on malnutrition in urban and rural poor.
Parameterize model to fit specific case (MENA, Senegal, Ghana?).
Draw empirical implications and put model to empirical tests.
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