Increasing food price volatility has led to renewed discussion of food price stabilization
among policy makers and international agencies. An often-cited concern in such
discussions is the widespread assumption that smallholders and the poor are hit harder by
food price volatility than are other demographic groups (FAO 2012). While intuitively
reasonable—i.e., one would expect volatile food prices to affect the real incomes of
households that allocate a majority of expenditures to food in significant ways—little
evidence is available to support the concern that this effect is necessarily negative. In
fact, recent analyses from Ethiopia and Zambia suggest that the benefits of food price
stabilization—the obverse of food price volatility—may actually accrue
disproportionately to wealthier households (Bellemare, Barrett, and Just 2013 and Mason
and Myers 2013). Given the growing interest in stabilization programs and the mixed
messages emerging from policy, theory, and empirical analyses, greater comprehension
of the effects of and demand for food price stabilization is critical.
To that end, this paper applies a model to estimate food price risk aversion over
multiple commodities, newly developed by Bellemare, Barrett, and Just (2013) (hereafter,
BBJ), to recent data from Tanzania to examine the extent to which poor households are
food price risk averse. Significantly, the BBJ model accommodates estimation of
multiple commodity price risk, allowing one to observe a more complete picture of how
price volatility and covolatility of food commodities affect households.