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CONSEQUENCES OF THE CRISIS 55


security. This chapter does not remotely attempt to fill in all the gaps, but it does provide some conceptual analysis and a review of existing findings and key data.


From International Markets to Household Welfare: An Analytical Framework


The effect of rising international food prices on the welfare of individuals is complex and highly heterogeneous across both household types and countries. Figure 3.1 depicts eight steps through which international prices influence household welfare. Pertinent policy questions are listed outside each box. Although surprisingly complex, Figure 3.1 is still a simplification of the pro- cess by which rising international prices affect individual welfare. Our aim is to flesh out some of the additional complications in the discussion below. In the figure boxes 1–4 largely refer to macroeconomic effects, whereas boxes 5–8 mostly refer to microeconomic responses that depend on the endow- ments and behavior of individual producers and consumers. Most macro- economic studies focus on the areas listed in boxes 1–4 (a few focus on the substitution effects of box 5), and most microeconomic studies focus on boxes 6–8. This dichotomy is unfortunate, because it is by no means clear that countries that are vulnerable in a microeconomic sense (that is, those with high rates of poverty and hunger) are automatically vulnerable in a macroeconomic sense (having high import bills, low reserves, and high rates of transmission) and vice versa. Identifying the most vulnerable countries, which we do later in this chapter, necessitates an examination of both the micro and macro sides of the food-security equation.


Macroeconomic Impacts


Many recent impact studies refer solely to food prices, but any comprehen- sive assessment of current poverty trends needs to incorporate changes in a range of prices, including fuel costs and fertilizers. Oil prices in particular will have a pervasive effect on a country’s vulnerability to the current crisis through their effect on exchange rates, foreign reserves, transport costs, and domestic inflation. For these reasons the most relevant macroeconomic assessments of the crisis incorporate the effects of rising oil prices. Particu- larly useful in this regard is a recent IMF (2008a) assessment of oil and food price increases.


Import Bills


The first question to ask is how changes in all commodity prices will affect a country’s macroeconomy. We therefore need to distinguish each country’s position vis-à-vis their net import position with respect to food, oil, and other


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