The Causes Of Food-price Inflation And Its’ Welfare Effects On The Urban Residents

Food safety is the most basic livelihood issues. Changes in food prices, especially the substantial changes, touch the hearts of government and people at all times. China had 4 big prices-rises in food-price since 1994. The urban residents are net food consumers. Food-price inflation leads to the rising of living cost for urban residents, and finally affects the welfare of these people. So, the following questions play a key role in firming up food-price and assuring urban residents’ standard of living especially “the vulnerable group” facing food-price inflation: Firstly, it is to analyze the reason of food-price inflation. The second is to choose typical and representative reference households according to the household’s characteristics as research subjects, and to study the impact of food-price inflation on the consumer behavior including consumption quantities consumption structure and the degree of welfare effect. Thirdly, which household characteristics except for the family income are based on when the government determines rescue objects to improve the accuracy and pertinence of the salvation.Therefore, based on the domestic and foreign related researches the basic theory and related concepts, this paper mainly carried out the research on the reason of food-price inflation and its’ welfare effects on the urban residents.In the study of the causes of food-price inflation, we firstly sorted out the influence factors of food-price from supply and demand perspectives. Then, we selected the excess money supply and meat-egg-milk consumption growth rate(reflecting the demand), then selected the year-on-year growth rate of the agricultural means of production price and the change rate of the disaster area(reflecting the supply), and selected the year-on-year growth rate of CPI as the dependent variable. We established SV-TVP model to make a dynamic analysis on Chinese food-price inflation. The results showed that: Chinese food-price inflation not only has been mainly determined by the increasing of the cost of agricultural production since 1994, but also is occasionally associated with the natural disasters. Demand factors do not cause rapid increases of food-price in the short term, it can only cause food-price rising slowly in the long term; the impact of excess currency on food-price is significant in statistical sense, but the degree of influence is really very little.We studied the welfare effects of food-price like this: Firstly, on the basis of Chinese urban residents’ real living conditions and using CHNS— household survey data, we classified the urban residents’ daily food as five categories—grain 、vegetables、animal-food、edible oil and regulation food. We screened out 7 household characteristic variables, such as the household income、household dependency ratio、whether household has difficulties subsidy etc., and chose the household, that the head is graduated from high school or technical secondary school in middle age, the household size is 3, the dependency ratio is 1.5, the household is without subsidy and with middle-income level, as a reference household. Then we estimated the parameters using the Exact Affine Stone Index implicit Marshallian demand system(EASI model). At last, we analyzed the welfare effects of all kinds of food-price on the six kinds of typical household reference households(the difficult household、the lowest income household, lower income household, low income household, middle income household, high income household), especially low income level reference household.The conclusions of the study are: 1. The animal-food and grain have the greatest welfare influence on the six kinds of typical household reference households. Among them, for the lowest income reference household and the difficult reference one, the grain price occupies first place the animal-food comes second. For above the lower income reference a household, the animal-food price occupies first place the grain comes second. So, the two kinds of food(defined “the vital food” in this paper) are the lifeline of urban households in China. 2. What demand price elasticity and expenditure elasticity all showed a decreasing with the increase in income implies the lowest income reference household especially the difficult have the obvious sensitivity and vulnerability to income and food-price. 3. The less of the household size, the higher of the education level of the household’s head, the greater of the dependency ratio, the older of the household’s head, the closer to the remote western areas, the more serious welfare losses. So, those with these characteristics among the lowest and difficult reference household, are the “vulnerable groups” facing food-price inflation. They are those who the government really should rescue. 4. The household’s welfare situation which has subsidy has not been improved obviously. So, to cope with the problem that the rising food-price led to urban residents’ welfare loss, the government should focus on the “vulnerable groups”, and narrow the price monitoring objects to “the vital food”.At the end of the paper, this paper summarized experiences of the domestic and external farm subsidy policies and the social security system for low-income groups, from two aspects of food supply and food consumption. Then learning from foreign experiences aiming at the shortcomings in domestic policies, and combining with the results of earlier empirical researches, this paper put forward the policy suggestions. The main suggestions areas follows:(1)In the perfecting farm subsidy policies, we should to improve the efficiency of the circulation of agricultural products to reduce the cost of circulation, and focus on the stability in effective supply of grain animal-food(especially pork) in short term. In the long term, we should raise the efficiency of agricultural production, reduce the cost of agricultural production by developing agricultural mechanization etc. To prevent the risk of natural disasters, and enhance the effectiveness of the implementation of farm subsidy policies, we should perfect the farm insurance subsidy policy and the laws and regulations construction.(2)From food consumption perspective, on the basis of perfecting minimum wage and social security system of the city, leaning from USA, we should set up a multi-level social assistance system by introducing EITC and the appropriate food and nutrition assistance programs(FNS). We should perfect the dynamic adjustment mechanism of the assistance standard improve the salvation accuracy for targeting to the “vulnerable groups” facing the rising food-prices.(3)We should reform the wage system of state-owned enterprises and institutions to make the wage reflect the value of the education level in general.