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The welfare impacts of rising quinoa prices: evidence from Peru

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Riding on a wave of Western interest in "superfoods," quinoa–a grain that has been grown for centuries in the Andes–has gone in less than a decade from being largely unknown outside of Latin America to an upper-class staple in the US and Western Europe. Concurrent with this increased demand for quinoa, there has been a sharp rise in the price of quinoa over the last 10 years. We study the impacts of rising quinoa prices on the welfare of households in Peru. Using 10 years of a nationally representative, large-scale household survey, we combine pseudo-panel and difference-in-differences methods to estimate the relationship between quinoa production and household consumption. We find that conditional on baseline values, quinoa production is associated with higher consumption and lower variance of consumption expenditures, indicating that the production of quinoa has both first- and second-order positive effects on household welfare.

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The welfare impacts of rising quinoa prices: evidence from Peru

  1. 1. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks The Welfare Impacts of Rising Quinoa Prices: Evidence from Peru Marc F. Bellemare, Johanna Fajardo-Gonzalez, and Seth R. Gitter International Center for Tropical Agriculture – Cali, Colombia May 4, 2015 Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  2. 2. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Quinoa (Chenopodium quinoa) is an Andean grain that is relatively high in protein as well as in essential amino-acids. It was domesticated over 3,000 years ago in the Andes and has been grown in Bolivia, Ecuador, and Peru since then. As a consequence of quinoa being seen as some kind of “superfood” in the US, the UK, and other rich countries, there has been a sharp increase in the demand for quinoa since 2007. Peruvian exports of quinoa to the United States, for example, totaled $80 million in 2013–up from $5 million in 2008 (AgroVision, 2014). Similarly, the price of quinoa has tripled since 2007, and it shows no sign of falling back down. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  3. 3. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  4. 4. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Given the foregoing, one might reasonably want to know what this means for those who have traditionally relied on quinoa for their subsistence, viz. Andean peasants. And indeed, a few years ago, journalists made all kinds of contradictory statements about the welfare impacts of rising quinoa prices. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  5. 5. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Johanna Blythman, The Guardian (Manchester), January 16, 2013: [T]here is an unpalatable truth to face for those of us with a bag of quinoa in the larder. The appetite of countries such as ours for this grain has pushed up prices to such an extent that poorer people in Peru and Bolivia, for whom it was once a nourishing staple food, can no longer a¤ord to eat it. Imported junk food is cheaper. In Lima, quinoa now costs more than chicken. Outside the cities, and fueled by overseas demand, the pressure is on to turn land that once produced a portfolio of diverse crops into quinoa monoculture. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  6. 6. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Doug Saunders, The Globe and Mail (Toronto), January 19, 2013: The people of the Altiplano are indeed among the poorest in the Americas. But their economy is almost entirely agrarian. They are sellers –farmers or farm workers seeking the highest price and wage. The quinoa price rise is the greatest thing that has happened to them. And it is a deliberate strategy: Quinoa had all but died out as a staple in Bolivia, replaced by beans and potatoes, until farmers began planting it in the 1980s with exports to North America in mind. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  7. 7. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  8. 8. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction In my post, I highlighted three research questions one needs to answer before knowing what the welfare impacts of rising quinoa prices are: 1. Are most households in the Altiplano net buyers or net sellers of quinoa, or are they autarkic? 2. Do net seller households produce under contract, as part of a quinoa value chain, or do they sell to processors on the spot market? 3. Is it possible to store quinoa for a relatively long period? In this paper, we ask a question related to the …rst question above, and we ask: What e¤ects, if any, did rising quinoa prices have on the welfare of quinoa-cultivating households? Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  9. 9. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction To answer this question, we use ten rounds of the Peruvian Encuesta Nacional de Hogares (ENAHO), a nationally representative, large-scale household survey conducted annually. Because the ENAHO is not longitudinal (i.e., it is a repeated cross-section in that it surveys a new sample of households every year), we construct a pseudo-panel (Antman and McKenzie, 2007) by using geographical units (districts, provinces, and departments) instead of households as our units of observation, and by looking at geographical unit-level averages instead of household-speci…c measures of welfare and quinoa cultivation. We combine this with a di¤erence-in-di¤erences (DiD) approach to assess the causal impact of quinoa cultivation on household welfare. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  10. 10. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Introduction Our results suggest that rising quinoa prices have had positive e¤ects on the welfare of quinoa-producing households through two channels: I First, the average level of consumption (our proxy for income, and thus for welfare) of quinoa-producing households increased at a higher rate than that of households that did not produce quinoa in 2012 and 2013, after the sharp increase in quinoa prices. I Second, the variance of consumption of quinoa-producing households decreased at a higher rate than that of households that did not produce quinoa in 2012 and 2013. Thus, it looks as though quinoa production has both …rst- and second-order e¤ects on household welfare. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  11. 11. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Outline 1. Introduction 2. Conceptual Framework 3. Data 4. Empirical Framework I Estimation Strategy I Identi…cation Strategy 5. Results 6. Summary and Concluding Remarks Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  12. 12. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Conceptual Framework In order to investigate the welfare e¤ects of a change in the price of good i on a household’s welfare, Deaton (1989) de…ned the concept of net bene…t ratio as follows: NBRi = pi qi m , (1) where pi denotes the price of good i, qi denotes the household’s net purchases of good i (net sales if qi < 0), and m denotes the household’s income. Obviously, the sign of NBRi depends directly on the sign of qi . With qi > 0, NBRi < 0 and the household loses out from a price increase. With qi < 0, NBRi > 0 and the household bene…ts from a price increase. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  13. 13. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Conceptual Framework The idea of the NBR has found much support in the empirical literature (Budd 1993; Barrett and Dorosh 1996; Lasco et al. 2008). One also needs to realize that the presence of transactions costs will also drive whether some households will be net buyers (q > 0) or net sellers (q < 0). See for example de Janvry et al., 1991; Goetz, 1992; Key et al., 2001; Bellemare and Barrett, 2006; etc. So as the price of quinoa goes up, theory suggests those households who are net sellers will bene…t, and those who are net buyers will lose out. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  14. 14. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Data We use the Peruvian ENAHO Condiciones de Vida y Pobreza for the period 2004-2013. We have ten years worth of nationally representative data on 227,400 households across 1,401 districts in 194 provinces in 25 departments. The data cover 8,216 quinoa-producing households household-year observations, or about 3.5% of the sample. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  15. 15. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Welfare Measure For our welfare measure, we use total household consumption, which the Peruvian INEI imputed based on a two-week recall of consumption at the household level. If you are not an economist, treating household consumption as “welfare” might seem strange. Ideally, one would want to use a measure of income to capture welfare— for economists, welfare is increasing in income— but as Deaton (1997) points out, collecting data on income is both tedious and di¢ cult. Consumption is a good proxy measure for income, and so it is our proxy measure for welfare here. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  16. 16. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Welfare Measure In order to avoid obvious endogeneity issues, we subtract the consumption of quinoa from our consumption measure (we include it as part of robustness checks later). Our consumption measure also includes the consumption of goods produced by the household— for quinoa growers, this represents about 40% of their total consumption. All data is expressed in 2004 PEN using in‡ation data obtained from the Central Reserve Bank of Peru. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  17. 17. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Welfare Measure Quinoa producers have total consumption that is about one third that of households that do not grow quinoa. In other words, they start out much poorer than households that do not produce quinoa. The NBR for quinoa is much larger (in absolute value) for quinoa sellers than it is for quinoa buyers. In other words, the budget share of quinoa for sellers exceeds the budget share of quinoa for buyers. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  18. 18. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Welfare Measure But we are also interested in second-order e¤ects. In other words, we are interested in knowing whether the variability of consumption is di¤erent for those households that produce quinoa. In an expected utility theory sense, assuming people are risk averse (which is not unlikely for households in a country such as Peru), it would be interesting to know if the production of quinoa is associated with a more stable household consumption. So we use the variance of total household consumption as an additional measure of welfare. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  19. 19. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Welfare Measure 0.2.4.6 Density 4 6 8 10 12 14 Ln(Real Annual Expenditure) Growers of quinoa Non-growers of quinoa Data source: ENAHO Figure: Distribution of Welfare by Quinoa Production Status. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  20. 20. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Data Source Welfare Measure Net Buyers and Net Sellers Net Buyers and Net Sellers Most quinoa-producing households produce quinoa for their own consumption. In 2013, only 17% of them sold any quinoa, up from roughly 8% for the period 2004-2010. Less than 0.5% of quinoa producers reported having purchased quinoa over the last two weeks. Roughly 30% of all Peruvian households consumed quinoa over the last two weeks. This …gure was the same in 2004 and 2013, with some variation in between. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  21. 21. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Strategy Identi…cation Strategy Estimation Strategy As I mentioned above, the ENAHO is a repeated cross-section, i.e., it does not follow households over time, and so it is not possible to use standard panel techniques (e.g., household …xed e¤ects) to identify the potential causal relationship ‡owing from quinoa production to welfare. What we can do, however, is to treat geographical units (i.e., districts, provinces, and departments) as our unit of observation. Because households are randomly selected in each community in each round, this is akin to matching households across rounds along both their observable and unobservable characteristics. It is this random sampling (as well as the use of controls for the time period) on which our identi…cation strategy hinges— more on that in a minute. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  22. 22. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Strategy Identi…cation Strategy Estimation Strategy So to be clear: We treat a geographical unit as our unit of observation. For each unit, we take the average of household consumption, and the proportion (i.e., average) of households who grow quinoa and regress the former on the latter. We do this for three di¤erent geographical units (i.e., district, province, and department, with varying sample sizes) so as to ensure that our results are robust. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  23. 23. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Strategy Identi…cation Strategy Estimation Strategy The equation we estimate is thus ln cgt = α0 + β0Dgt + 2013 ∑ t=2005 αt Tt + 2013 ∑ t=2005 βt Dgt xTt + G ∑ g =2 γg dg + gt , (2) where cgt is average household consumption in region g in year t, Dgt is the proportion of households who produce quinoa in geographical unit g in year t, T are …xed e¤ects for each year t, dg are …xed e¤ects for each geographical unit g, and gt is an error term with mean zero Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  24. 24. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Strategy Identi…cation Strategy Identi…cation Strategy Might this not only capture a correlation between household consumption and quinoa cultivation instead of the causal e¤ect of quinoa cultivation on household consumption? We argue that our combined use of (i) pseudo-panel techniques, and (ii) a di¤erence-in-di¤erences design yield the causal e¤ect of quinoa production on household welfare. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  25. 25. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Strategy Identi…cation Strategy Identi…cation Strategy This is because 1. The fact that households are randomly selected each year in each community means they are matched along both observables and unobservables, and the inclusion of time …xed e¤ect corrects for changes over time in their characteristics. 2. Given that, the di¤erence-in-di¤erences estimator (with clustered standard errors) should yield an estimate of the e¤ect of quinoa production on household welfare. that is plausibly causal. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  26. 26. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Results: Household Consumption Variables District Province Department Year 2005*Quinoa -0.155* -0.093 -0.091 (0.084) (0.127) (0.141) Year 2006*Quinoa -0.004 0.092 0.191 (0.085) (0.106) (0.223) Year 2007*Quinoa 0.005 0.098 0.207 (0.093) (0.163) (0.308) Year 2008*Quinoa 0.06 0.033 0.107 (0.098) (0.195) (0.413) Year 2009*Quinoa 0.079 0.129 0.228 (0.084) (0.161) (0.378) Year 2010*Quinoa 0.061 0.082 0.369 (0.09) (0.157) (0.233) Year 2011*Quinoa 0.022 0.029 0.278 (0.09) (0.144) (0.292) Year 2012*Quinoa 0.161* 0.257* 0.474 (0.085) (0.146) (0.336) Year 2013*Quinoa 0.377*** 0.562*** 1.050** (0.092) (0.164) (0.502) N 9613 1919 250 R2 0.217 0.426 0.778 Number of districts 1401 Number of provinces 194 Number of departments 25 Signi…cant at: *** p<0.01, ** p<0.05, * p<0.1 Robust standard errors in parentheses clustered at regional level Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  27. 27. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Results: Household Consumption How should you interpret those …ndings? Here, the marginal e¤ects are complicated by the semi-logarithmic speci…cation of the equation of interest. In order to recover a marginal e¤ect, the estimates need to be transformed as per the formula given by Kennedy (1980). So for Year 2013*Quinoa, for example, the marginal e¤ect is 46 percentage points. That is, for a community whose proportion of quinoa growers increases by 10%, households would see an increase in their consumption that is 4.6% faster on average. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  28. 28. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Results: Household Consumption We conduct a number of robustness checks: I We use only quinoa-producing regions. I We control for baseline (i.e., 2004) quinoa production I We include quinoa purchases as part of overall household consumption I We did the analysis at the household level (with all the endogeneity problems that this entails) By and large, our …ndings are preserved: Signi…cant positive welfare impacts of quinoa production, but only in most recent years (i.e., 2012 and 2013). Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  29. 29. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Results: Variance of Household Consumption Variables District Province Department Year 2005*Quinoa 0.021 0.081 0.314 (0.075) (0.122) (0.19) Year 2006*Quinoa 0.015 0.014 0.138 (0.065) (0.13) (0.217) Year 2007*Quinoa -0.159** -0.143 -0.198 (0.072) (0.115) (0.197) Year 2008*Quinoa -0.125 -0.151 -0.083 (0.08) (0.124) (0.25) Year 2009*Quinoa -0.064 -0.061 -0.12 (0.084) (0.125) (0.162) Year 2010*Quinoa -0.072 0.083 -0.099 (0.082) (0.142) (0.156) Year 2011*Quinoa -0.106 -0.033 0.032 (0.082) (0.115) (0.254) Year 2012*Quinoa -0.183** -0.264** -0.363** (0.079) (0.121) (0.155) Year 2013*Quinoa -0.079 -0.198 -0.356** (0.082) (0.121) (0.149) Intercept 0.368*** 0.460*** 0.563*** -0.008 -0.013 -0.017 N 9613 1919 250 R2 0.008 0.032 0.239 Signi…cant at: *** p<0.01, ** p<0.05, * p<0.1 Robust standard errors in parentheses clustered at regional level Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  30. 30. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Estimation Results: Variance of Household Consumption Our results indicate that over time, within district variance of consumption has been increasing. It was only in 2012, however, that the production of quinoa consistently led to a decrease in the variance of consumption. The same might be true for 2013, although the result here is much less robust. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  31. 31. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Summary and Concluding Remarks Given our empirical results, it looks as though the dramatic increase in quinoa prices translated into improved welfare outcomes for quinoa-producing households in Peru, but only in 2012 and 2013, after the quinoa price spike. Before the price spike, quinoa-producing households had consumption growth rates similar to the rest of the country. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices
  32. 32. Introduction Conceptual Framework Data Empirical Framework Estimation Results Summary and Concluding Remarks Summary and Concluding Remarks Our next steps are to conduct additional robustness checks to make sure that our …ndings robust to various speci…cations of our equation of interest. Two of us are currently doing …eldwork in Peru, surveying a sample of 150 households every four months, in an e¤ort to study seasonal patterns of production and consumption, and truly get at the welfare e¤ects of rising quinoa prices. Bellemare, Fajardo-Gonzalez, and Gitter The Welfare Impacts of Rising Quinoa Prices

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