World Food Policy Volume 1, Number 2, Fall 2014 | Page 69

World Food Policy - Volume 1, Number 2 - Fall 2014

The Poverty and Welfare Effects of the 2008 Food Price
Crisis in Vietnam: A Decomposition Analysis
Tung Duc Phung,1 Hermann Waibel2

Using panel data from the Vietnam Household Living Standard Surveys (VHLSS),
this paper examines the impacts of food price increases on welfare and poverty in Vietnam. It is found that on average the rise in food prices increased household welfare
by 7.5 percentage points. However, the percentage of households who gained from the
increase in food prices is much smaller than of those who lost. The absolute number of
people living in poverty increased by about 2.5 percentage points and the poverty gap
deepened, but these effects varied greatly across regions. Producers’ supply reactions
were moderate and on the demand side only poor consumers showed strong reactions.
JEL classifications: D12, I32
Keywords: food price crisis, welfare, poverty, Vietnam

Introduction

troleum prices which increased the demand
for biofuels produced from food grains and
oilseeds (Collins 2008); and (vii) the weak
U.S. dollars compared to other major currencies and lower interest rates by Federal Reserve (Frankel 2006; Calvo 2008). Derek and
Shenggen (2008) conclude that traders’ reactions, hoarding by key rice exporters, the low
stocks of the four main staple foods (corn,
wheat, rice, and soybeans), and the large increase in production of biofuels are the main
factors driving the increase in food prices.

The sharp increase in food prices
during this time was a major concern of governments and international organizations
because of fear it could lead to social and
political instability in developing countries,
especially in poor net-food-importing countries. Ivanic and Martin (2008) estimated
that an additional 100 million people could
fall into poverty. The World Bank (World
Bank 2008a, 2008b) expected an increase in
the number of malnourished people by 4.8%.
Therefore, at a meeting in Rome (June 2008)

F

rom September 2006 to June 2008 the
international prices of food commodities increased dramatically, driving the
food price index to a much higher peak than
that reached during the food price crisis of
1995 (see Figure 1). During this same period,
the food price index increased by about 80%,
driven mainly by increasing cereal prices,
which increased by 230% while meat prices
increased by only 12%. The main reasons for
these price increases include both supply-side
and demand-side factors: (i) an agriculture
production shortfall due to bad weather; (ii)
an increase in agricultural production costs
because of high energy and fertilizer prices as
well as high transportation costs; (iii) export
bans and speculative activities by India and
Vietnam; (iv) the recent increasing demand
from India and China due to their economic
booms; (v) the panic of the Philippines government and individuals stockpiling food
(Ivanic and Martin 2008); (vi) soaring pe-

Mekong Development Research Institute, Hanoi-Vietnam.
Leibniz University Hannover, Faculty of Economics and Management, Institute of Development and Agricultural Economics, Hannover, Germany.
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