REGIONAL POVERTY ANALYSIS TECHNICAL WORKSHOP Estimating Non-Food Expenditure and the Basic Needs Poverty Line David Abbott (Regional Macroeconomic and Poverty Reduction Advisor UNDP Pacific Centre) REF: Working Paper 3.3

Issue The Basic Needs Poverty Line (BNPL) is derived from the Food Poverty Line (FPL) plus a component that reflects the cost of the “non-food basic needs” of a minimum standard of living. Thee will be associated with such things as housing, utilities, clothing, education, health, transport and communications, gifts and donations to family, community or church. The issue is how best to measure these non-food essential costs in the context of developing a non-food “basic needs” component for the national poverty line.

Main Approaches FPL based on semi-normative nutrition anchor of 2100 kcal per adult per day No similar anchor for non-food expenditure; every household is different in its non-food essential needs Significant differences between urban/rural households Engel-coefficient; proportion of expenditure devoted to food; inverse gives “non-food” factor

Engel Coefficient Use of a single value “non-food factor” for total non-food expenditures or different values for each non-food category. Use of the same (or other) reference group for estimation of “non-food factor” as for the selection of the food basket. Many researchers have identified weaknesses in this approach – but no better method has been identified. Method is widely used in practice; basic premise is that households with total income/expenditure close to food poverty line will carefully choose which non-food items to “trade” for food

Estimation of Non-food Factor Basic ratio of food:non-food expenditure of reference group Non-food factor is entirely dependent on food:non-food ratio Estimated amount of non-food expenditure in BNPL will depend on level set for FPL Average actual expenditure for reference group as determined from HIES Non-food factor is set as monetary value not dependent on FPL; weaker connection to Engel

Recommendation the Engel coefficient based on the food/non-food relationship of the reference group used to estimate the food poverty line be the basis for calculation of the non-food basic needs factor. Wherever possible this should be validated by a comparison with the actual average level of non-food expenditure observed in the same reference group. Where a significant difference between the non-food component indicated by the Engel coefficient, and that indicated by an analysis of the actual expenditure is observed, then the lower of the two values should be taken as the basis for the non-food factor