The Role of Income Growth in Mitigating Food Insecurity Despite Inflation Pressures

The IMF paper explores how economic growth significantly reduces food insecurity, while food inflation plays a smaller yet still impactful role. Income growth is found to be a stronger driver in improving food security, especially in low-income countries, with rural and urban areas experiencing different effects.

A working paper by Christian Bogmans, Andrea Pescatori, and Ervin Prifti, published by the IMF in September 2024, explores the complex interplay between economic growth, food inflation, and food insecurity. The research carried out under the auspices of the IMF’s Research Department, draws on data spanning 142 countries from 2001 to 2021, employing a model that incorporates income inequality. The paper specifically examines how real income growth and rising food prices affect the prevalence of undernourishment, a key indicator of food insecurity. The authors used a heterogeneous-agent model, which considers the impact of income disparities, and employed external instruments to isolate exogenous variations in domestic income growth and food inflation. These external instruments include changes in commodity terms of trade, global economic growth, and harvest shocks, allowing the researchers to estimate causal effects more accurately. The findings highlight that income growth plays a significantly larger role in reducing food insecurity than food inflation, although both factors are influential.

Pandemic-Induced Recession and the Food Crisis

During the global recession of 2020, caused by the COVID-19 pandemic, the number of undernourished individuals worldwide increased by 126 million, prompting international organizations like the IMF and the Food and Agriculture Organization (FAO) to declare a food security crisis. Global GDP contracted by 2.9%, leading to a sharp rise in the prevalence of undernourishment (PoU). However, once the economic recovery began in 2021, food insecurity began to stabilize, even as food prices continued to rise. The global average increase in food prices during 2021 and 2022 was around 19%, driven in part by supply chain disruptions and the Russian invasion of Ukraine, yet the global PoU did not worsen significantly. This stabilization occurred alongside a 10% cumulative growth in real world GDP over the same period, suggesting that income growth exerted a stronger influence on food insecurity than inflation did.

Income Growth vs. Food Inflation: The Key Drivers

The research model used by the authors helps clarify the relationship between these macroeconomic factors and food insecurity. In particular, it predicts that income growth will have a larger effect on reducing food insecurity than food inflation will have on increasing it. The findings reveal that a 1% increase in economic growth leads to a 0.11 percentage point reduction in the PoU, while a 1% rise in food inflation increases the PoU by about 0.06 percentage points. This suggests that income growth not only improves people's ability to access food but also mitigates the impact of rising prices, especially for low-income households. However, the paper notes that while food inflation does contribute to worsening food insecurity, its overall impact is smaller compared to the positive effects of economic growth.

Rural vs. Urban Effects of Rising Food Prices

One of the study's key insights is the differentiation between urban and rural areas in terms of how food inflation and income growth affect food insecurity. In rural areas, higher food prices can sometimes benefit farmers, as they can sell their products at higher prices, potentially reducing poverty in these regions. However, this income effect does not necessarily translate into better food security. On the contrary, the model predicts that higher food prices could slightly increase food insecurity in rural areas, even as they reduce poverty. This is because while farmers may earn more, the higher cost of food impacts other households who rely on purchasing food rather than growing it. In urban areas, the situation is more straightforward higher food prices typically lead to higher levels of food insecurity, as urban dwellers do not benefit from the income gains that rural farmers do. Thus, while rural households might experience a mix of effects, urban populations are more directly harmed by food inflation.

Inequality’s Role in Food Security

The research also emphasizes the role of income inequality in shaping food insecurity. The authors found that in countries with higher levels of income inequality, the benefits of economic growth in reducing food insecurity are less pronounced. This is because income growth tends to benefit wealthier households more, leaving poorer households still vulnerable to food insecurity. In contrast, countries with lower levels of inequality see more substantial improvements in food security as a result of economic growth. The paper thus underscores the importance of inclusive economic growth in addressing food insecurity, particularly in developing countries.

Policy Recommendations for a Balanced Approach

Finally, the authors offer policy recommendations based on their findings. They suggest that policymakers should prioritize fostering inclusive economic growth and managing food price inflation to tackle food insecurity effectively. Additionally, targeted social protection programs aimed at the most vulnerable populations, especially in urban areas, could help mitigate the negative effects of rising food prices. Overall, the paper provides valuable insights for governments and international organizations working to achieve food security, particularly in the wake of global crises like the COVID-19 pandemic and ongoing geopolitical tensions. The findings demonstrate the critical need for a balanced approach that promotes economic growth while controlling inflation and protecting the most vulnerable populations from food insecurity.