This analysis uses measures of Compensating Variation (CV) and Net Benefit Ratios
(NBR) to assess the short-run effects of higher prices on different income groups in rural and
urban areas of Malawi. Compensating Variation analysis indicates that urban households,
particularly the poorest are the most severely affected both in the aggregate consumption and
also in terms of food consumption. In rural areas, relatively better off households are more
negatively affected by overall price increases, but the poorest are the group that suffers the most
with food price shocks. A fifty percent supply response of agricultural production would result in
significant positive effects on rural household welfare. A significantly larger response would be
required in maize production to yield significant benefits among households. Results are
translated into tangible policy and programmatic recommendations to inform the design of
interventions aimed at mitigating those effects and promoting economic growth and poverty
reduction. This analysis suggest that policies should be oriented towards facilitating a supply
response by households resulting in a significant increase in maize, other staple food and nonfood
production, supporting household livelihoods diversification, while putting in place
programs to assist the most vulnerable groups.