Rising World Food Prices and Poverty in Fiji: A Developing Country Micro Perspective 1

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1 Contributed Paper Presented to 53 rd Annual Conference of the Australian Agricultural and Resource Economics Society, Cairns, Cairns International Hotel, 1 13 February 29. Rising World Food Prices and Poverty in Fiji: A Developing Country Micro Perspective 1 Henry Haszler 2, Tevita Natasiwai 3 and Waisiki Gonemaituba 2 Abstract Until the world financial crisis struck, commodity and food prices seemed to be on an inexorable uptrend. The increases caused widespread concern about the effects of higher food prices on poverty. These concerns are relevant to the poor people everywhere but are especially relevant to poor people in developing countries who must spend high proportions of their incomes on food. In this analysis we use data from the Fiji Islands Household Income and Expenditure Survey of to assess the likely effects of the increase in food prices in Fiji over 22 to mid 28 on the incidence of poverty in Fiji. We review and discuss the impacts of some of the Fiji Islands Government s responses designed to alleviate the impacts on the Fiji Islands community. Key Words Food prices, development, poverty, household survey, case study, Fiji 1 We are pleased to acknowledge the financial support towards the preparation of this paper from the Australian Centre for International Agricultural Research (ACIAR). We also wish to acknowledge the assistance from the Fiji Islands Bureau of Statistics, especially from Toga Raikoti and Epeli Waqavonovono who provided the HIES and CPI data essential to this research. We accept responsibility for any errors or omissions. 2 School of Accounting, Economics and Finance, Deakin University, 221 Burwood Highway, Burwood VIC 3125 Australia. haszler@bigpond.net.au 3 Ministry of Agriculture and Primary Industries, Robinson Complex, Raiwaqa Suva, Fiji Islands. tnatasiwai@govnet.gov.fj and waisiki.gonemaituba@govnet.gov.fj Haszler, Natasiwai, Gonemaituba: Fiji Food Prices

2 Rising World Food Prices & Poverty in Fiji: A Developing Country Micro Perspective (Preliminary) Research has involved: Deakin lead agency MAPI our Fiji counterpart Henry Haszler (Deakin University, Burwood) Tevita Natasiwai (Ministry of Agriculture & Primary Industries, Suva) Waisiki Gonemaituba (Ministry of Agriculture & Primary Industries, Suva) SPC statistical (survey) support FIBoS statistics (data) support Slide 1of 21 Slide 2of 21 Our objectives Assess the impacts of the world food crisis on poverty in Fiji Backdrop of the detailed analysis by Narsey (28) Use data from the FIBoS HIES of 22 23and from the CPI to estimate the implied impacts of food price increases on household incomes Model effects of a mid 28Government package We show the impact of the food price change on the 22 spending base with NO allowance for substitution A comparative static approach no demand elasticities! A Perspective on Fiji Covers a large area of ocean 3/ islands Middle income developing country Abundant natural resources especially relative to its population p of 837, Friendly people support the tourist industry But some problem areas: The EU sugar shock and sugar lease renewals High degree of poverty and possibly increasing But indicative, nevertheless Slide 3of 21 Slide 4of 21 Selected Development Indicators: 26 Real GDP growing, but too slowly Data Item High Income Fiji Middle Income Heavily Indebted Poor GNI per head, PPP ($) 34,579 4,37 5,391 1,57 Life expectancy at birth, (years) Adolescent fertility (per 1, women 15 19) Mortalityrate, under 5 (per 1,) Population (%) with Access to: Improved water source Improved sanitation (urban) Value Added in GDP (% of GDP) Agriculture Industry Services, etc Capital formation (% of GDP) Time to start a business (days) Phone subscribers (per ) Internet users (per ) GDP per Head $F 6, 5, 4, 3, 2, Nominal Real Real Slide 5of 21 Slide 6of 21 1

3 Income Distribution is Unequal: 45 % get 8% of the income High Incidence of Poverty (22 23) BNPL method Group Average Annual Household Income (F$) Rural Urban All Fiji Percentage of House ehold Income Percentage of Population Fijians 11,82 16,539 12,972 Indo Fijians 9,653 13,593 11,92 Others 11,66 21,877 19,15 Average 1,559 15,267 12,753 Population Poverty Incidence (%) Fijians Indo Fijians Others Average Slide 7of 21 Slide 8of 21 The World Food Price Crisis World food prices increased dramatically over first half of 28 World commodity prices rising from March 23 but agricultural prices lag Widespread concern about impacts on poverty, especially in LDCs Many websites (AusAID, IFPRI, World Bank, etc) now feature food crisis pages Economist debate, slight majority for price increases good in the long run Increased aid flows to help the poor countries Mid 28 Interim Government introduces package Income tax threshold increased to $F15, Zero VAT (12,5%) on local eggs Reduced duties on rice (15% to ), canned fish and edible oils (27% to ) Particularly poignant due to MDGs poverty reduction is #1 target Commodity prices fallen with the GFC but domestic consumer prices still high Index: Mar rch 23 = RBA Rural RBA Other WTI Spot Oil WTI 21/3/3 Slide 9of 21 Slide 1 of 21 Fiji s domestic retail prices rising faster but not by much Cereals lag oil but the real culprits Wheat: US # 2 HRW Rice: Thai 5% Index: 2 5 = Food Non Food Index: Marc ch 23 = Dec 24 Jun 25 Dec 25 Jun 26 Dec 26 Jun 27 Dec 27 Jun 28 Dec 28 Slide 11 of 21 Slide 12 of 21 2

4 On measuring poverty I ll know it if I see it Huge literature, many facets so even the richest countries have their poor Various measures: Absolute Basic Needs approaches reliant on various Poverty Lines Calorie levels, $US 1 per day, food poverty line, other poverty lines Various relative measures based on income distributions Issue of Adult Equivalents Food, other items, household size economies of scale Sometimes estimated from household surveys Ours is a fairly simple approach: Basic Needs Poverty Line developed by FIBoS For AEs we use UN/Narsey system of children <14 =.5 Basic Needs Poverty Lines: Fiji ($F per week) FPL (4 AEs) FPL pae Other pae BNPL pae Fijian Rural Indo Fijian Rural Others Rural Fijian Urban Indo Fijian Rural Others Urban Slide 13 of 21 Slide 14 of 21 Analytical Method Combine individual household income and expenditure data from the HIES with price information collected for the CPI HIES combined rural and urban sample of scaled to 22 CPI data for 22 (average) & June 28 For the CPI HIES concordance we lose about half the HIES items and create some new CPI groups Adjust food expenditure & rural incomes to simulate income impact Slide 15 of 21 The HIES CPI concordance is the key CPI Item CPI Code HIES Item Bread long loaf 11.1 Long loaf Breakfast Crackers 11.3 Biscuits crackers Sweet Biscuit 11.4 Biscuits Other Flour, plain 12.2 Flour; cornflour; maize flour; rice flour All Pasta, incl canned 13.2; Macaroni, spaghetti, etc; noodles BeefHi 14.1; 14.2 Beef curry, roast etc; beef corned (not canned) Pork leg 14.7 Pork: curry, roasting etc; pork stewing or boiling Goat chop imported 14.9 Goat meat; live goat Chicken live 14.1 Live Chicken/Duck Chicken frozen Chicken, ducks, turkey whole, fresh/frozen Slide 16 of 21 Household Income Sources (HIES) 22 Income Source Place of Residence Ethnic Group All Fiji Urban Rural Fijian Indo Fijian % % % % % Crops Livestock Fishing Wages etc Business etc Transfers Other Income Total Income ($F m) 1, ,82 Note: All Fiji includes other ethnic groups; Other Income includes forestry. Slide 17 of 21 Spending Pattern: HIES Item Place of Residence Ethnic Group Urban Rural Fijian Indo Fijian All Cereals Fresh Meat & Preparations Fresh Fish, Seafood Canned Meat & Fish Fresh Vegetables Root Vegetables, incl spuds Fruit, Fresh, Dried, etc Dairy & Eggs Other Oils & Fats, not Butter Tea, Spices, Sugar Non Alcoholic Drinks Alcohol/Tobacco Food Share (%) Slide 18 of 21 3

5 Interim Results Post Tax Policy Gains $F per AE % Total Fiji Urban Residents Fijian Indo Fijian Other Rural Residents Fijian Indo Fijian Other Interim Conclusions Not everyone loses from food price increases Rural Fijians gain from farm sales But Indo Fijians lose on sugar Remember the Economist debate The tax changes may be the most important part of package and issue of equity Raises question of tax in poverty analysis difficult!!! Transfers from government included in income so why not tax liabilities? Overall, seemingly small impacts but issue of budget capacity Slide 19 of 21 Slide 2 of 21 Thank You Slide 21 of 21 4