The Impact of Food Inflation on Poverty in

the Philippines

Submitted by:
NOBLE, MARIANE JOY E.
BPA-1
Submitted to:
DR. RUFO N. BUEZA
Background
 The recent global food crisis has affected many, including the poor, across the

globe. In the Philippines, many have been adversely affected by the food inflation. For

example, it was reported that garbage scavengers in the impoverished Manila area of

Tondo were increasingly looking for food to feed their families among rubbish (Cabrera,

2008).

The overall impact of the inflation, however, is not obvious, because the increased food

prices may benefit net sellers of food, some of who are poor. Hence, it is likely that the

inflation of food prices has benefited at least some of the rural farmers whereas most of the

urban poor have been adversely affected. Given that poor people often take inflation as

one of the top concerns (Easterly and Fischer, 2001), understanding the heterogeneity of

impacts of inflation is very important as different types of poor households would require

different types of policies to cope with inflation. In this study, therefore, we simulate the

extent of the heterogeneity of the impacts of inflation in the Philippines.

Main Issue

The skyrocketing consumer prices will not only drag down the country’s economic

growth, but also keep many Filipino families trapped in poverty even if they earn more, the

National Economic and Development Authority (NEDA) said.

Poverty in the Philippines?

According to the estimates in World Bank (2008), the poverty rate using the

international poverty line of one dollar per day per capita in purchasing power parity

dropped from 13.5 percent in 2000 only to 13.4 percent in 2006 in the Philippines. In

comparison, the proportion of people living under the same poverty line dropped during the

same period from 15.4 percent to 7.7 percent in China, 9.9 percent to 8.5 percent in
Indonesia, 5.2 percent to 1.8 percent in Thailand, and 15.2 percent to 4.9 percent in

Vietnam. In these countries, the number of poor people also diminished. However, it

increased in the Philippines because the population grew as much as 14 percent between

2000 and 2006—about three times higher than the regional average of East Asia and the

Pacific—during the period of time when poverty rate declined very little.

Why is poverty not reducing while the economy is growing?

Addressing extreme poverty is a challenge that many countries are still

grappling with today, more so, when it comes to rural populations. While most approaches,

including by the World Bank Group and other development institutions, tend to focus on

growth as a vehicle for poverty reduction, there is a growing consensus that a strong

concern for inclusion is also needed.

To answer this question, the researhers estimated the growth elasticity of poverty using the

method used by Besley and Burgess (2003). They constructed a data set from the World

Development Indicators for the period between 1980 and 1998, and regressed the

logarithmic head count index of dollar-a-day poverty on the real logarithmic per capita

income. With country-level fixed effects, they estimated that the growth elasticity of poverty

is -0.73 as replicated in Table 1. This result Data Years World E. Asia CHN IDN PHL THA

VNM Varies by country -0.73 -1.06 -0.60 -1.12 -0.70 -1.72 (1980-1998) (0.24) (0.25) (0.14)

(0.38) (0.12) (0.48) -2.12 -1.20 -2.60 -1.85 -5.15 -2.13 (0.42) (0.14) (0.74) (0.21) (0.46)

(0.10) -2.19 -1.29 -1.85 -1.27 -4.55 -3.04 (0.34) (0.07) (0.36) (0.45) (0.81) (0.18) Table 1:

Estimates of growth elasticity of poverty. The results show that the growth elasticity of

poverty in the Philippines is lower than Indonesia and Thailand as well as the world
average. On the other hand, the growth elasticity of poverty in China is even lower than

that of the Philippines.

Discussion

The Philippines witnessed the highest annual GDP growth in 31 years in

2007. With the annual GDP growth of 7.3 percent, the Philippines outperformed Indonesia,

Malaysia and Thailand for the first time since 1998. While the Philippines were growing at

a rate significantly lower than its neighbors in the early 1990s, it kept up with the healthy

growth in the region in more recent years. Yet, the Philippines appear to have made only

marginal gains in poverty reduction in recent years.

This study is different from the conventional poverty analysis, in which the

treatment of price variations is often naïve at best. That is, the prices for a reference

bundle of goods are calculated for various years, and they are normalized so that the

base-year index is equal to unity. The nominal consumption is then deflated by this price

index, and compared against the poverty line to calculate poverty statistics. Spatial price

variations are also treated in a similar manner. While this approach is straightforward, it is

problematic especially when we are interested in how different segments of the population

are affected by the food inflation. This is because the actual consumption bundle is

heterogeneous across households, which in turn means the actual impact of price changes

is also heterogeneous. Since the conventional approach often assumes away such

heterogeneity, it is not useful when we want to identify the groups that are vulnerable to

food inflation. In this paper, we explicitly incorporate the heterogeneity of consumption

patterns into the analysis. We also incorporate the heterogeneity in food production
patterns into the analysis to accurately reflect the vulnerability of households to food

inflation. In addition, we use spatially disaggregated price data to reflect the spatial

heterogeneity in food inflation.

In year 2021, poverty rose to 18.1 percent despite large government assistance. The

economy has begun to rebound but signs are emerging that the recovery will be uneven.

Prolonged loss of income has taken a heavy toll on the poorest households. Citing its

Family Income and Expenditure Survey, the PSA said the country has 19.99 million

individuals living below the poverty threshold. This represents 18.1 percent of the

population.

Conclusion

In conclusion ,it is simulated the impact of global food inflation on poverty in

the Philippines. It is shown that the overall impact has been sizable and that the magnitude

of the impact varies across locations and income levels. One important finding of this case

study is that the poorest of the poor are particularly vulnerable to food inflation. Therefore,

it is not sufficient to just look at the head count index of poverty because the poverty gap

and poverty severity may substantially worsen even when the head count index is

improving. This study underscores the importance of carefully examining the impacts of

food inflation to formulate effective anti-poverty programs, because they vary according to

the location and income level, among other factors.

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