The effect of food price upsurges on income inequality: The richest win and the poorest lose

From a theoretical perspective, the ultimate effect that food price shocks may have on inequality is ambiguous. Food price shocks, indeed, generate both winners and losers and their overall impact on income distribution cannot be predicted a priori but depends on the relative magnitude of different effects. From the empirical perspective, however, the link between international food prices and income distribution is largely understudied. The present paper tries to fill the gap by analyzing a large sample of 126 developing and developed countries observed in the period 1990–2020 and studying how food price shocks are associated with changes in income distribution. The heterogeneity of the effect is investigated by means of interaction terms accounting for the food trade balance of countries and the structure of the agricultural sector, coming to three main conclusions. First, upsurging food prices increase inequality by affecting the relative income of the poorest 50 percent of the population to the advantage of richer people, especially of the richest among the rich. Second, this effect is relevant for developing countries while no clear findings emerge for high-income countries. Third, the disequalizing effect of soaring international food prices is not uniform in developing countries but largely depends on their food trade balance and some structural attributes of their agricultural sector. In this regard, food policy must reduce the domestic transmission of price shocks to poor consumers while strengthening farmers’ productive capacity and ability to cope with the shocks through better access to land, capital and productive resources.