Food Price Crisis: Welfare Impact on Mexican Households

Abstract Staple food price increases in recent years resulted in social unrest, par- ticularly in the developing world. Political responses to these food shocks varied, with countries like China restricting trade in certain foods, and others like Russia and Mexico capping prices on select staple commodities. We use a nationally representative, cross-sectional, Mexican household survey to es- timate consumer,welfare losses due to the recent staple food price increases from 2006 to 2009. While previous articles on Mexico mainly examined,the effect of the corn tortilla price shock on poor consumers, the derived demand elasticities in this article more accurately predict changes in Mexican con- sumption patterns as they allow for substitution within consumer,food bud- gets. Furthermore, we analyze staple commodities aggregated in six groups: tortillas, cereal, dairy, meat, fruits and vegetables and other commodities to obtain a more complete representation of the Mexican diet. Regional and income heterogeneity in demand,are accounted for to mea- sure the impact of staple food price increases on low-income consumers,in a developing country. We quantify the welfare effects of staple food price in- creases on low-income households who most depend on these goods for their