Quantifying the food insecurity needs from the price escalations among Mexican households

Abstract

AbstractPrice shocks create and exacerbate poverty. Being able to promptly predict their effect, instead of waiting for households to fall into poverty, to try to assist them later, may greatly reduce the severity of the shock’s damage. However, understanding shock severity and targeting those households most likely to be disrupted requires a level of data often unavailable in the developing world. This manuscript uses the Mexican National Household Survey of Incomes and Expenditure to quantify the household income needs resulting from the recent food price spikes. We estimate a complete food demand system that accounts for the substitution effects across food items to accurately calculate the cost of a poverty alleviation policy tailored to the recent price escalation. Our findings reveal that the price of food increased such that Mexican households require an additional 9% increase in their food budgets to keep a level of welfare like that of the beginning of the year. Demographic comparisons reveal that households led by women require additional monetary aid regardless of geographic location. We find that the cost of alleviating the food insecurity needs in México caused by the recent price escalation to be $48.6 billion pesos ($2.4 billion dollars).JEL codes: C31, D12, I32, Q18