English abstract
Oman has experienced one of the highest domestic food inflation rates in the Middle East during the period from 2006 to 2008. The high food inflation prompted public discussions and debates over its effects on households and the policies required to insure the short term and long term food security.
The objective of this study is to analyze the household consumption patterns and evaluate the impact of high food prices during the 2006-2008 food crisis period on the welfare of households in the Sultanate of Oman.
The welfare impacts of price changes are estimated using the Hicksian Compensating Variation (CV) methodology. In a policy context, the CV represents the money transfer required to compensate households for the inflationary pressure that occurres during the food crisis period. The CV were estimated for 4 different income household groups as well as two location groups (urban-rural) so as to recognize that different groups are affected differently by the price change. The compensating variation computation required the need to estimate a full demand system, incorporating 9 food commodities, and in which detailed households characteristics are included. Data used in the analysis includes the year 2000 Household Expenditure and Income Survey conducted by the Ministry of National Economy as well as the summary data of the same survey in year 2008. The analyses of the household consumption patterns indicates that although food expenditure share has declined slightly over time due to increased income, the average Omani household still spends a large proportion of total expenditure on food (28%). The food basket of Omani households has been stable over time with meat, food from restaurants, cereals, and dairy as the items. The only exception is the significant increase in restaurant food expenditure share and the significant decrease in consumption share of food from "own production". The increased reliance on the market and food "away from home" increases the vulnerability of low income households to price increases and raises anutritional concern that the government has to address.
Results suggest that all household groups suffered welfare losses due to the food crisis. On average, Omani households need to be compensated about 10.3% of their income for the price increase they experienced during the 2006-2008 period. Rural households are more affected than urban households with a required compensation of 12.4% and 9.87% respectively. In all cases most of the impact is felt on the first round where no consumption adjustment is made; the second round effect is comparatively small compared to the first-order effect. The reason for this discrepancy is that little substitution occurred in consumption because the price increase has touched almost all food commodities that are important to the Omani household food basket.
Key Words: Food security, Food crisis, Welfare, Compensating Variation, Oman.
