Global food, fuel, and fertilizer prices have risen rapidly in recent months, raising concerns about how this will affect economic stability, food security, and poverty in developing countries. We used IFPRI’s economywide model – known as RIAPA – to simulate the impacts of the global crises on Malawi’s economy and population. The model allows us to track the direct and indirect effects of rising world prices, taking account of key considerations that will determine the overall impact. These include, for example: the share of imports in total product supply; the importance of different sectors and products for households’ employment, income, and consumption levels; and farmers’ responses to rising fertilizer prices and the knock-on effect this could have on next season’s agricultural production.
Our analysis indicates that the global crises cause GDP and employment in Malawi to contract. Most of the GDP losses are driven by rising fuel and fertilizer prices, rather than higher food prices. This is because, although the import prices of wheat and edibles oils are rising, these products are not typically large items within household consumption baskets. To some extent, rural farmers also benefit from higher prices for agricultural products, although the net effect on their welfare is negative once we account for the effects of higher fertilizer prices, reduced fertilizer use, and lower agricultural productivity.
Overall, national household consumption falls in Malawi. Impacts are larger for poorer and rural households, leading to an increase in inequality. That said, all households are adversely affected by the crises. Falling household consumption also leads to greater poverty, particularly in rural areas. Finally, there is a widening gap between household consumption levels and what is required to achieve a healthy diet, with rising food prices the most important factor behind the deterioration in diet quality. While the global crises will cause a modest slowdown in Malawi’s economic growth, the adverse impacts on poverty and food insecurity are likely to be more pronounced, especially in rural areas.
Authors: Xinshen Diao, Paul Dorosh, Jan Duchoslav, Karl Pauw, Jenny Smart, and James Thurlow
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