Impact of increases in food prices on consumer welfare in Lesotho

During 2015 and 2016, Lesotho experienced a large increase in the price of cereals, the main staple food in the country. This has led to an erosion of purchasing power and to a decrease in the consumption of staple foods. For the study, the authors used a demand system to simulate the effects of an increase in the price of staple foods. They based their analysis on data collected for the evaluation of the Child Grants Programme, which offers unconditional cash transfers to poor households with orphans and vulnerable children. They estimated the necessary increase in total income that is needed to counter the impacts of the current price hike and to maintain households’ utility unchanged. In particular, every percentage increase in the price of cereals would need to be matched by a 0.4% increase in income. As for the possible policy measures, the authors suggest the country’s social protection system as the source for the extra income.