Potential impact of food inflation on households’ welfare: Evidence from Pakistan

Abstract

The global food price crises of 2007–2008 and the recent resurgence of food inflation have gained attention of the researchers about the causes and consequences of this volatility in food prices around the globe. This paper aims to examine the potential impact of food inflation on households’ welfare in Pakistan. For this purpose, the authors used a flexible Linear Approximate Almost Ideal demand System (LA/AIDS) to estimate the food demand pattern using the recently available Household Integrated Economic Survey of Pakistan for the year 2018–2019. Food products were categorized into thirteen food groups including milk, meat, fruits, vegetables, sugar, beverages, cereals, wheat, rice, oil & fats, tea, condiments and baked products. The estimated model was used to simulate different price increase scenarios in each of the currently own price. We found out that the estimated loss in the consumption was consistently high for milk, sugar, cereals, rice, wheat, meat and oil & fats. The issue of limited diversity in the dietary pattern and persistently food inflation will result in alarming food security in the country. The Effect of an increase in the general price level on food consumption could only be reduced by enhancing households’ purchasing power in the current scenario. The outcome of this research study will help policymakers in the agriculture sector to develop reliable and sound policy designs that will help control the implications of food inflation on household welfare loss.