The Welfare Impacts of Rising Quinoa Prices: Evidence from Peru

Chose promise, chose due. In the last installment of ‘Metrics Monday, I mentioned that my coauthors Johanna Fajardo-Gonzalez and Seth Gitter and I had just recently put the finishing to our paper on the welfare impacts of rising quinoa prices. At long last, after more than three years of thinking about this issue, here is the abstract:

Riding on a wave of interest in “superfoods” in rich countries, quinoa went in less than a decade from being largely unknown outside of South America to being an upper-class staple in the United States. As a consequence of that rapid rise in the popularity of quinoa, the price of quinoa tripled between 2006 and 2013. We study the impacts of rising quinoa prices on the welfare of Peruvian households. Using 10 years of a large-scale, nationally representative household survey, we combine pseudo-panel and difference-in-differences methods to look at the relationship between (i) the purchase price of quinoa and the value of household consumption, which we use here as a proxy for household welfare, and (ii) household quinoa production and household welfare. We find that increases in the purchase price of quinoa are associated with a significant increase in the welfare of the average household in areas where quinoa is consumed, which suggests that the quinoa price increase has had general equilibrium effects extending to non-producers. We also find that quinoa production is associated with a faster rate of growth of household welfare, but only at the height of the quinoa price boom. Our findings are robust to a number of different specifications.

And here is a link to the paper itself. But because an image is worth a thousand words, here is a striking image from the paper:

Quinoa

What is going on here is pretty simple: We split the population in three groups: (i) households who neither produce nor consume quinoa (in blue), (ii) households who produce quinoa (in orange), and (iii) households who consume but do not produce quinoa (in black).

As a proxy for welfare, we look at how the value of total household consumption evolves over time. In the picture above, we set each group’s welfare equal to 1 for 2004, and we look at the evolution of welfare over time. Note that quinoa producers seem to be experiencing a serious increase in the rate at which their welfare increased between 2012 and 2013, when the price of welfare spiked, whereas the welfare of the other two groups seems to be evolving in similar ways.

There is a lot more to the paper, but what we find, generally, is as follows:

  1. As the price of quinoa increases, the welfare of the average household in areas where quinoa is consumed increases as well, very modestly. For a 10% increase in the price of quinoa, the welfare of the average households in those areas increases by about 0.7%. That is, even though we would expect quinoa consumers to lose out from an increase in the price of quinoa, it looks as though there might be general equilibrium welfare effects extending from producers to consumers via some kind of multiplier.
  2. As the price of quinoa increases, the welfare of quinoa producers increases faster than that of the rest of the population, but only at the height of the quinoa price boom, as the picture above suggests.
  3. As the price of quinoa increases, the variability of the welfare of quinoa producers decreases, which suggests that the cultivation of quinoa might act as some kind of partial insurance mechanism.

If you are interested in our work, Johanna will be presenting it at PAA in Washington, DC between March 31st and April 2nd.

All in all, the bottom line is this: Back in 2013, some journalists were telling people in rich countries to stop eating quinoa, because it was bad for those populations who had traditionally grown and eaten it.

If you buy that the value of household consumption is a good proxy for welfare (and most economists do), we show that such statements were unfounded. In fact, according to our results, those households who have traditionally grown and eaten quinoa look like they should have been pretty happy with the quinoa price spike.

Indeed, whereas Joanna Blythman wrote the following in 2013 in the Guardian:

But there is an unpalatable truth to face for those of us with a bag of quinoa in the larder. The appetite of countries such as ours for this grain has pushed up prices to such an extent that poorer people in Peru and Bolivia, for whom it was once a nourishing staple food, can no longer afford to eat it. Imported junk food is cheaper. In Lima, quinoa now costs more than chicken. Outside the cities, and fuelled by overseas demand, the pressure is on to turn land that once produced a portfolio of diverse crops into quinoa monoculture.

Our response is that looks as though (i) poorer people in Peru did not traditionally eat quinoa unless they grew it themselves, in which case our estimates indicate that the price spike made them better off, and (ii) those who actually consume quinoa without growing it are well-off, typically urban households.

(As for “the pressure … to turn land that once produced a portfolio of diverse crops into quinoa monoculture,” you can’t have it both ways, and complain on the one hand about higher quinoa prices and on the other hand about a mechanism whereby prices will come back down. Besides, in separate work on quinoa, Seth Gitter and I find that quinoa producers would be perfectly to help biodiversity by growing more crops… provided someone provides them with the monetary incentives to do so.)

There are two important caveats to our findings. First, the notion of welfare we employ in this paper (“More consumption, more welfare”), although relatively uncontroversial among economists, fails to capture some important aspects of welfare, like nutrition, access to clean water, health, and so on. Development economists (those who care about agriculture, food, and nutrition, anyway) know that this matters a lot, because changes in income, consumption, etc., even though they translate into improvements in macronutrient (i.e., carbohydrates, fat, and protein) consumption, do not translate into improvements in micronutrient (e.g., vitamin A, iron, etc.) consumption. Unfortunately, the Peruvian data we use has little in the way of that kind of information.

Second, our results apply to all Peruvian households for the period 2004-2013, but they tell us nothing about what happened outside Peru (in Bolivia, for example), or about what happened before 2004 and after 2013.

But even with those caveats in place, it is probably safe to say that you can keep eating quinoa without fearing that you are threatening the food security of poor households in Peru, and possibly elsewhere in the Andes. And if you’re the kind of person who likes to agonize over those things, you should probably worry more about the fact that the price of quinoa has now gone back down to its pre-2010 levels, and that the farmers in survey data we recently collected are now holding on to their quinoa in the hopes that prices will go back up.

 

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