High food prices affect poor populations in a variety of ways. While households that only consume food suffer as a result of rising food prices, households that also produce food can actually benefit from price increases. But there is another, less recognized avenue through which high food prices can impact the poor: rural wages. The lion's share of the world's poor relies on agricultural jobs to make a living; whether or not agricultural wages increase as a result of rising food prices therefore has significant implications for how those price increases will help or hurt.
Food Prices, Wages, and Welfare in Rural India, a new World Bank working paper by Hanan G. Jacoby, examines how rural wages in India respond to food price increases and what impact that response has on the welfare of the country's rural population. The study finds that rural agricultural wages rose hand-in-hand with agricultural prices from 2004-2009. The rise in agricultural wages also spilled over into non-agricultural sectors, meaning that rural wages increased across the board as a result of higher agricultural prices. Such wage increases can significantly improve the welfare of the rural poor - in fact, the study finds that higher agricultural wages play a greater role in protecting people's welfare than the Public Distribution System, India's extensive food-rationing program.
These results have several policy implications, the most important being the link between global trade and poverty. In response to global 2007-2008 food price spikes, India imposed export bans on several major crops. While this policy was intended to protect domestic consumers from the impact of rising global food prices, as the study's results show, such a move would also restrain domestic producers' prices and thus rural wages. And since rural wages support the vast majority of India's population, the outcome would be an actual reduction in welfare for a significant portion of the country's poor. Thus, the author concludes by suggesting that lowering barriers to agricultural trade could go a long way in reducing poverty.