diff --git a/README.md b/README.md index 199699d..c7bafc0 100644 --- a/README.md +++ b/README.md @@ -24,7 +24,7 @@ This repository contains the code of the *SCL policy simulator tool.* Midway through 2022, food and commodity prices worldwide have been affected by the combination of the conflict between Russia and Ukraine and factors such as [increased demand from Asia](https://www.fas.usda.gov/data/ukraine-conflict-and-other-factors-contributing-high-commodity-prices-and-food-insecurity#:~:text=Russia's%20invasion%20of%20Ukraine%20comes,prices%20are%20up%2090%20percent.). [Russia and Ukraine represent 28.5 percent of the world’s wheat exports](https://oec.world/en/profile/hs92/wheat), and Russia is currently the world’s [third-largest oil producer](https://www.iea.org/reports/russian-supplies-to-global-energy-markets/oil-market-and-russian-supply-2) and the [leading exporter of fertilizer](https://oec.world/en/profile/bilateral-product/fertilizers/reporter/rus#:~:text=About,-%23permalink%20to%20section&text=Exports%20In%202020%2C%20Russia%20exported,most%20exported%20product%20in%20Russia). Therefore, the conflict between Russia and Ukraine is expected to continue to raise food prices and affect vulnerable populations, particularly households with low food basket substitution power. The most recent figures from the Food and Agriculture Organization (FAO) show about a 20 percent increase on the [Food Price Index](https://www.fao.org/worldfoodsituation/foodpricesindex/en/) and 15 percent increase on the Cereal Price Index since last year. The FAO also warns of the risk of further increments of food prices from 8 to 22 percent (FAO, 2022a). -**The Inter-American Development Bank (IDB) developed a [publicly available simulation tool](https://www.iadb.org/en/simulatorpublicpolicy.) that estimates the likely impacts in 2022 on poverty levels for 23 LAC countries from food price increases related to the war in Ukraine.** Because policy that mitigates the effects of exogenous shocks has to be designed and implemented with an understanding shocks’ impacts and location and the characteristics of the population most affected by them, the simulation tool allows the user to manipulate these factors. This policy brief explains how the simulation tool can be used to predict the likely impacts on LAC’s poverty levels by adjusting national poverty lines according to projected price increases of key food items (grains, breads, cereals, and meats). It also shows how the resulting simulations consider countries’ revised growth projections and account for the share of national producers of these essential food items. +**The Inter-American Development Bank (IDB) developed a [publicly available simulation tool](https://www.iadb.org/en/simulatorpublicpolicy) that estimates the likely impacts in 2022 on poverty levels for 23 LAC countries from food price increases related to the war in Ukraine.** Because policy that mitigates the effects of exogenous shocks has to be designed and implemented with an understanding shocks’ impacts and location and the characteristics of the population most affected by them, the simulation tool allows the user to manipulate these factors. This policy brief explains how the simulation tool can be used to predict the likely impacts on LAC’s poverty levels by adjusting national poverty lines according to projected price increases of key food items (grains, breads, cereals, and meats). It also shows how the resulting simulations consider countries’ revised growth projections and account for the share of national producers of these essential food items. **In the simulation we ran for the LAC region, we used as inputs the expected 20 percent price increase on all food items except meats and the revised growth projections from the International Monetary Fund (IMF) for all LAC countries. The results show average increases of 1.6 percentage points in moderate poverty and 1.8 percentage points in extreme poverty—resulting in an additional 9.8 (10.8) million moderate(extreme) poor people in LAC.** Some countries will be more affected than others because of four key factors: (a) the composition of the poverty basket in each country, (b) the income distribution of precrisis household income, (c) the impact of the crisis on growth prospects, and (d) the share of food producers in each country. In our simulations, the countries with the largest percentage point increase in extreme poverty will be Guatemala, Mexico and Nicaragua. diff --git a/app/README.md b/app/README.md index fce826e..00bfd9e 100644 --- a/app/README.md +++ b/app/README.md @@ -33,13 +33,13 @@ _Arias Lina; Bosch Mariano; Goyeneche Laura; Sanchez A. Roberto; Tejerina Luis; Midway through 2022, food and commodity prices worldwide have been affected by the combination of the conflict between Russia and Ukraine and factors such as [increased demand from Asia](https://www.fas.usda.gov/data/ukraine-conflict-and-other-factors-contributing-high-commodity-prices-and-food-insecurity#:~:text=Russia's%20invasion%20of%20Ukraine%20comes,prices%20are%20up%2090%20percent.). [Russia and Ukraine represent 28.5 percent of the world’s wheat exports](https://oec.world/en/profile/hs92/wheat), and Russia is currently the world’s [third-largest oil producer](https://www.iea.org/reports/russian-supplies-to-global-energy-markets/oil-market-and-russian-supply-2) and the [leading exporter of fertilizer](https://oec.world/en/profile/bilateral-product/fertilizers/reporter/rus#:~:text=About,-%23permalink%20to%20section&text=Exports%20In%202020%2C%20Russia%20exported,most%20exported%20product%20in%20Russia). Therefore, the conflict between Russia and Ukraine is expected to continue to raise food prices and affect vulnerable populations, particularly households with low food basket substitution power. The most recent figures from the Food and Agriculture Organization (FAO) show about a 20 percent increase on the [Food Price Index](https://www.fao.org/worldfoodsituation/foodpricesindex/en/) and 15 percent increase on the Cereal Price Index since last year. The FAO also warns of the risk of further increments of food prices from 8 to 22 percent (FAO, 2022a). -**The Inter-American Development Bank (IDB) developed a [publicly available simulation tool](https://www.iadb.org/en/simulatorpublicpolicy) that estimates the likely impacts in 2022 on poverty levels for 23 LAC countries from food price increases related to the war in Ukraine.** Because policy that mitigates the effects of exogenous shocks has to be designed and implemented with an understanding shocks’ impacts and location and the characteristics of the population most affected by them, the simulation tool allows the user to manipulate these factors. This policy brief explains how the simulation tool can be used to predict the likely impacts on LAC’s poverty levels by adjusting national poverty lines according to projected price increases of key food items (grains, breads, cereals, and meats). It also shows how the resulting simulations consider countries’ revised growth projections and account for the share of national producers of these essential food items. +**The Inter-American Development Bank (IDB) developed this simulation tool that estimates the likely impacts in 2022 on poverty levels for 23 LAC countries from food price increases related to the war in Ukraine (tab "Simulator").** Because policy that mitigates the effects of exogenous shocks has to be designed and implemented with an understanding shocks’ impacts and location and the characteristics of the population most affected by them, the simulation tool allows the user to manipulate these factors. This policy brief explains how the simulation tool can be used to predict the likely impacts on LAC’s poverty levels by adjusting national poverty lines according to projected price increases of key food items (grains, breads, cereals, and meats). It also shows how the resulting simulations consider countries’ revised growth projections and account for the share of national producers of these essential food items. **In the simulation we ran for the LAC region, we used as inputs the expected 20 percent price increase on all food items except meats and the revised growth projections from the International Monetary Fund (IMF) for all LAC countries. The results show average increases of 1.6 percentage points in moderate poverty and 1.8 percentage points in extreme poverty—resulting in an additional 9.8 (10.8) million moderate(extreme) poor people in LAC.** Some countries will be more affected than others because of four key factors: (a) the composition of the poverty basket in each country, (b) the income distribution of precrisis household income, (c) the impact of the crisis on growth prospects, and (d) the share of food producers in each country. In our simulations, the countries with the largest percentage point increase in extreme poverty will be Guatemala, Mexico and Nicaragua. **The regional simulation also makes it evident that compensating families in LAC for the loss of purchasing power could be costly, so we provide lessons learned from past food price hikes and the COVID pandemic as well as policy options for the current crisis.** Notably, we find that a naive transfer large enough to return all families below the moderate poverty line to their precrisis income levels (and therefore, to precrisis moderate poverty levels) would cost the region 0.41 percent of GDP. -*This policy brief is laid out as follows:** Section 1 explains the simulation tool’s purpose and provides a basic overview of its operations so that anyone can use the tool to run their own scenarios. Section 2 explains the results of the simulation we ran to determine how poverty levels in 23 LAC countries will be affected by food price increases in 2022. Section 3 discusses some policy lessons learned from the 2008 food price crisis and the COVID-19 pandemic that can inform current policy decisions, and section 4 proposes policy options for the present crisis. Finally, note that appendix A fully explains the simulation tool’s methodology so other scenarios can be run. +*This policy brief is laid out as follows:* Section 1 explains the simulation tool’s purpose and provides a basic overview of its operations so that anyone can use the tool to run their own scenarios. Section 2 explains the results of the simulation we ran to determine how poverty levels in 23 LAC countries will be affected by food price increases in 2022. Section 3 discusses some policy lessons learned from the 2008 food price crisis and the COVID-19 pandemic that can inform current policy decisions, and section 4 proposes policy options for the present crisis. Finally, note that appendix A fully explains the simulation tool’s methodology so other scenarios can be run. ## 1. How the Simulation Tool Estimates the Effects of Higher Food Prices on Poverty @@ -56,7 +56,7 @@ Midway through 2022, food and commodity prices worldwide have been affected by t **This tool is designed to simulate several scenarios.** Our baseline scenario considers an increase of 20 percent in the prices of all food items except for meat, in line with the most recent forecasts from the FAO (see appendix A) and the April 2022 IMF growth projections, and we assume that local producers are shielded from price increases. We allow for changes in the goods that are affected by price inflation (all products; all but meat; grains, bread, and cereals; and only grains) as well as the size of the shock, from a 10 percent to a 50 percent increase in prices. We also allow the user to turn off the impact of growth on poverty and indicate whether producers are affected by the price increases. By turning off the checkbox on these two factors, the simulations reflect the direct impact of increases in prices on poverty lines. -**We invite you to run your own scenarios using the simulation tool developed by the IDB:** https://www.iadb.org/en/simulatorpublicpolicy. +**We invite you to run your own scenarios using this simulation tool developed by the IDB (Tab "Simulator")** . ## 2. Results of the LAC Simulation