Agriculture and Poverty Responses to High Agricultural Commodity Prices

Abstract

A rise in global agricultural commodity prices negatively affects the wellbeing of poor people, especially in developing countries and inversely for a decline in prices of these commodities. On the other hand, they may gain or lose from high or low prices especially those groups that work in production of these commodities. This study, by applying a computable general equilibrium approach, aims to investigate the impacts of high and low agricultural commodity prices on agricultural sector and poverty across nine household groups in an unemployment situation of factors of production. It is found that, as a whole, a 45% increase and decrease in agricultural commodity prices negatively influences the economic performance of Malaysia, in real terms, by 0.24 and 0.91%, respectively. While high agricultural price stimulates the investment and export of agricultural sectors and aggregate household consumption, lower agricultural commodity prices declines investment and export in these sectors and causes a decrease in aggregate household consumption. Although both high- and low-price scenarios increase the poverty level of all household groups, with greater magnitude for lower-price scenario, all rural household groups compared to urban groups experience more increase in their poverty.