Essays on Price Dynamics, Welfare Analysis, Household Food Insecurity in Mexico

Higher and more volatile food prices, as reported in recent years, have consequences on household welfare and potentially on public policy. Analysis of agricultural commodities price dynamics, welfare effects of increased food prices, and determinants of household food insecurity are discussed and presented in three separate essays.

In the first essay, the dynamic information flows among prices of important agricultural commodities in the United States (U.S.) and Mexico for the years 2000-2012 are analyzed. Error correction models and directed acyclical graphs are employed with observational data to identify the dynamic relationships among prices of grains and meats. Unlike previous studies, results here suggest the existence of long-run relationships among prices in both countries. U.S. grain prices have a consistently strong impact on price movements in Mexican agricultural markets in the long-run.

In the second essay, the impacts of rising food prices on poverty and welfare of Mexican households are examined by using a linearized version of the Exact Affine Stone Index (EASI) demand system. The distribution of monetary measures of welfare effects from food price changes is estimated as well as equivalence scales that allow inter-household comparison of welfare changes. After accounting for substitution effects, poverty related impacts are estimated. Findings indicate that the actual increase in prices of five food groups from 2006 to 2010 led to an increase of 1.8 percentage points in the proportion of households with income below the food poverty line.

The third essay uses an ordered probit model with a nationally representative dataset and a newly developed food security scale in Mexico to identify the demographic determinants of household food insecurity. The analysis is conducted for the general population first and then for a subpopulation group of rural lower-income households. It was found that households with younger, less-educated household heads were more likely to suffer from food insecurity. Other groups that were found to be vulnerable in terms of food insecurity include: households headed by a single, widowed or divorced mother, households with disabled family members, households with strong indigenous background, rural households, low-income households, non-agricultural households, and households with children.