Household Consumption Response to Food Price Shocks and the Vulnerability of the Poor in Mexico

Using Mexican household level data, this paper examines the consumption response to the world food price shocks of 2006-2008 and 2010-2012 and assesses the vulnerability of poor rural and urban households. The analysis allows for substitution among food and non-food consumption groups, rather than substitution only within food consumption groups as most of the current literature has done it. Evidence shows that poor households made adjustments in their budget shares beyond the theoretically predicted as they tried to mitigate the negative welfare impacts of the food price shocks. Findings also show that most urban and rural poor households are net food buyers and thus vulnerable to food price hikes. Copyright (c) 2015 John Wiley & Sons, Ltd.