This paper examines the welfare impacts of food price inflation in Uganda between 2005 and 2011
under non-separability. A normalized restricted profit function is estimated for agricultural
households and the recursivity hypothesis is rejected. On the consumption side, a Quadratic Almost
Ideal Demand System (QUAIDS) is estimated controlling for endogeneity of expenditure and shadow
wage, and censoring due to zero purchases. By means of compensating variations, we found that
welfare effects of price changes were systematically lower in the non-separable model, implying a
high degree of labor market imperfections. Furthermore, the results suggest that the welfare effects
were unevenly distributed both within and between household groups. Within the same group,
households in the richest expenditure deciles gained the most and those at the lowest suffered the
most. Between household groups, non-agricultural and poor households, significant and marginal net
buyers were the biggest welfare losers of food price increases. Finally, the households’ willingness to
pay for price stabilization revealed that households who suffered more from high price volatility were
willing to sacrifice a non-negligible fraction of their real income to let prices be stabilized, while
significant net sellers, and to a marginal extent insignificant net sellers, would require positive
transfers to accept price stabilization.