The Impact of the 2005–2010 Rice Price Increase on Consumption in Rural Bangladesh

Abstract

This article studies the impact of the rice price increase between 2005 and 2010 on consumption in rural Bangladesh. Using the Household Income and Expenditure Survey (HIES) data, we compare net rice buyers and sellers to self-sufficient households. To identify the effect of rice price changes on household consumption of rice, nonrice food and nonfood items, we employ a difference-in-differences (DiD) technique. Our findings indicate that the surge in domestic rice prices between 2005 and 2010 reduced the nonrice food consumption of net rice buyer households by 7%, compared to the households who are self-sufficient in rice production. However, it did neither affect their rice nor their nonfood consumption. In contrast, while we find no significant effect of rice price increases on the rice consumption of net rice sellers, we observe a 9% increase in their nonrice food consumption. In such situation, a subsidy on low-quality rice may be effective in fulfilling the nutritional requirement of low-income households.

Keywords: Rice price increase; Difference-in-difference estimation; Food consumption; Bangladesh

JEL Classification: D12, I32, O13, O53, Q12