Agricultural Commodity price changes, food security and households’ welfare in Tanzania

Abstract

Agricultural commodity prices remain inherently volatile and have attracted great attention from both policymakers and governments in developing countries. There is an unresolved empirical question of whether the Government prefers low price of agricultural produce to smoothen households’ consumption or high price of agricultural produce to encourage production, trade, and export earnings. This study aimed at uncovering this dilemma by investigating the effects of experienced low and high agricultural commodity prices on households’ welfare. This was undertaken using a behavioural approach that accommodates consumption, production, and labour market imperfection. The study used the advantages of the available Tanzania National Panel Survey Data, ranging from 2008 to 2015, in the context of the compensating variation framework. The finding shows that regardless of the price scenario, households’ welfare gains deteriorated less under imperfect markets as compared to the perfect market. Nevertheless, the dynamics effect is associated with higher households’ welfare gains compared to static effects. Generally, lower prices of agricultural products are not the desired choices of the agricultural households since they tend to lower their welfare gains when compared to higher agricultural prices. Households’ welfare gains are observed to be higher when they can sell their produces at higher prices. It is worthy to note that households are both the producers and consumers of agricultural commodities. High agricultural prices, especially those of cereal products, are of importance in stimulating agricultural production and preserving employment opportunities in the agricultural sector. Clearly, income from agricultural sales is liable in financing education, health services, water, better houses, better meals as well as financing small business activities within the households. In addition, a typical rural household has different mechanisms to cope with the effects of agricultural price rises. Thus, apart from keeping some surplus for smoothening consumption, rural households could also diversify to other sources of income or receive more benefits arising from high prices of other commodities, such as pulses, maize, rice, fruits, vegetables, and animals. Households are also able to diversify to other income generating activities, such as paid wage jobs, self-employment and inter and intra-household transfers. This finding highlights the desire to search for access to higher prices for households’ agricultural products. This is only possible through increasing commercialisation of agricultural produces along the supply chain, within and in the regional markets. Doing so, high production, food security, stable income and effective labour utilisation are assured in the agriculture sector in Tanzania.