GRM 2010 GRM 2011

Abstract Details

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Economic Analysis on the Impact of Food Prices and Policies on
Paper Proposal Text :
Food security is a strategically important national development issue for the Sultanate of Oman, given the high dependence on food imports. This paper presents an analysis of the short-term impact of the surge in food prices since 2007 on household food security and an analysis of the impact of economic policy on food security in the Sultanate of Oman. The policy variables considered are household income and its distribution as determinants of food security.
The data on household food consumption and preferences, income and its distribution and food prices were obtained from Household Expenditure and Income Survey published by Ministry of National Economy of the Sultanate of Oman. The Nutrisurvey software was used to estimate nutritional composition of food consumed by Omani households and compared with nutritional requirement for a healthy life recommended by the Ministry of Health of the Sultanate of Oman. The threshold of household food security was defined as access to a Nutritionally Adequate and Preferred Least Cost (NAPLC) diet. NAPLC was estimated using a Linear Programming Model of household food consumption that minimized cost of food, constrained to nutritional requirement and food preferences. Food Security Head Count (F0: percentage of population unable to access NAPLC diet) and Food Security Gap (F1: a measure of amount of income that is required to bring all household that are food insecure to the food security threshold) were estimated using Software Platform for Automated Economic Analysis (The World Bank, 2010).
It was found that the average Omani household diet fulfills more than 100% of the recommended nutrient intake, except for fat, vitamin B1, vitamin B2,iron among the nutrients considered in the analysis. The prices of food in Oman have increased by 21.60% between years 2003 to 2008. The significant increases in prices of more than 40% are of food groups; oil and fats, cereals and products, following with price increases of more than 20% in milk and milk products, eggs, fish, meat and poultry. The estimated value of the NAPLCD for year 2007 was 168.654 OR/Month/Household as compared to the actual expenditure of 175.967 OR/Month/Household (MNEA, 2010). This indicates the average food expenditure by a household in year 2007 had been about 7.313 OR above the value of NAPLCD. It was found that given the stability of food prices from 2003 to 2006 the food budget (NAPLCD) has changed only by about 6 OR/Month/Household. However since 2006 the food budget has drastically increased with increased food prices by 43.198 OR/Month/Household. The NAPLCD for year 2008 was estimated as 213.093 OR/Month/Household. To the base year of 2003 the NAPLCD has increased by 26.48% implying a substantial impact of increased food prices on food security.
The average household income has increased from 638.000 to 913.00 OR/Month/Household and the income distribution has significantly improved towards equality with the Gini coefficient changing from 46.49 to 36.35 from year 2000 to 2008, respectively, in the Sultanate of Oman. It was estimated that the Food Security Head Count (F0), in year 2003 was 24.0%. Had the prices of 2003 prevailed, F0 would have decreased to 9.7% with the 2008 income and its distribution. Thus food security would have improved by nearly 14.3%. However due to the increase food prices in year 2008, even with increased income and more equal income distribution F0 had increased to 29.3%. The average food security gap was estimated as 50.680 OR/Month/Household in year 2008. The total annual cost of an income transfer to cover the food security gap was estimated to be about 1.75% of the GDP of year 2008. The results of the decomposition analysis revealed that food security would have improved by 14.32% bringing down food insecurity to 9.7% had the food prices not increased between years 2003 and 2008. The improvement in food security would have been caused by almost equally through increased income (6.31%) and improvements in the distribution of income (6.92%).
The analysis indicates that food security in Oman has significantly improved due to policies that have increased the per capita income and improvements in the distribution of income towards equality up to 2007. However the drastic increase in food prices since 2007 has increased food insecurity. Short term interventions by the government and assistance to vulnerable low income households would alleviate the situation. Continuing the implementation of egalitarian economic policies on investments in regional rural development, education, health etc, will revert and further improve the food security situation in the Sultanate of Oman, in the long term.