A framework for examining the impact of bio fuels on the poor in Brazil

To what extent will the recent rapid growth in bio fuels benefit the poor in Brazil? The answer depends on whether we examine the rural or the urban poor. The rural poor might benefit from increased demand for sugar cane through their farm production and through increased demand for their labor. Both the rural and urban poor will be negatively affected to the extent that bio fuels cause the prices of basic food commodities to increase. The poor spend a higher share of their income on food than the rich do. When food prices increase, poor families have to spend more to meet a minimum nutritional standard. Bio fuel subsidies lead to lower fuel costs for consumers. However, poor people spend a much smaller proportion of their income on transportation than they do on food in Brazil. This chapter presents a framework for estimating the impact of increased food prices on poverty rates in Brazil. The focus is on the poor who consume more food than they produce. Brazil is primarily an urban country, with 85 percent of the population located in urban areas, and the majority of the poor population lives in urban areas. Therefore, the negative impacts of food prices on households are likely to be stronger than the positive impacts of bio fuels for agricultural households. First, an overview of the framework is presented. Second, a discussion of the extent to which high world food prices are caused by bio fuels policy in the United States and the European Union is presented. The third section covers poverty measurement in Brazil and presents a consumption-based poverty measure. In the fourth section, food price data is combined with the poverty measure to explore how much the increase in food prices affected Brazilian poverty rates.