Poverty Effects of Fuel and Food Price Changes in Tanzania

Abstract

Among the recent major welfare shocks in Tanzania and globally is the 2007-2010 food and fuel prices surge. While sharp increases in food prices have the potential of increasing real production in agriculture, higher fuel prices increase production costs that affect all sectors in the economy negatively. The increase in both fuel and food prices therefore negatively affects real consumption. Simulation analysis using the 2007 Tanzania Household Budget Survey shows that both the poverty incidence and the poverty gap increased following the increase in fuel and food prices. Agricultural, rural and poor and middle income households are identified to have suffered more than the others. Policy implications on substitution for less costing and domestically available fuels, and the increase of food crops productivity are suggested.