Abstract:
Agricultural commodity price fluctuations pose a complex challenge for developing countries,
engendering a predicament akin to Timmer's policy conundrum - the confluence of desiring
lower prices to benefit consumers and higher prices to bolster production. This research
endeavours to untangle this dilemma by examining the impact of changes in agricultural
commodity prices on household welfare in Tanzania, employing a non-separable agricultural
model. Drawing on four waves of national panel survey data spanning from 2008 to 2015,
elasticities as the basis for analysis were calculated. Subsequently, these elasticities inform the
compensating variation framework, facilitating an assessment of both the static and dynamic
repercussions of shifts in agricultural commodity prices on household welfare. Notably, this
evaluation considers household net-market positions and strata. Our findings, derived from an
exploration of static and dynamic effects, demonstrate that households' welfare experienced
degradation owing to diminished prices of agricultural commodities in comparison to
scenarios featuring elevated agricultural prices. Evidently, the extent of these effects varies
among different household strata and net-market positions. These outcomes underscore the
adverse impact of modest fluctuations in agricultural commodity prices on the well-being of
household farmers. This, in turn, accentuates the policy imperative of fostering agricultural
growth and transformation. Thus, opting for reduced agricultural prices does not align with
households' preferences. The discoveries in this article advocate for policies centred on
augmenting market access and elevating agricultural product prices, potentially leading to
substantial enhancements in household welfare. Further exploration is warranted to delve into
areas such as the interconnectedness of welfare effects stemming from changes in agricultural
commodity prices with households, integrating considerations of consumption, production,
and shadow wages, particularly in the context of the Covid-19 pandemic.
