Agricultural Households Vulnerability to Macroeconomic Shocks: Evidence from Mexico Gloria M. Rubio & Isidro Soloaga Rome, Italy October 2003

Peso Crisis 1994 Real GDP falls 9.1% Inflation rate increases from single digit levels to more than 50% Urban unemployment raises from 3.7 to 6.3% Differential impact across sectors and subsectors Primary –3.8% Industry –8% Services –6.8% (commerce, restaurants, hotels –14%)

1994 Crisis

Methodology Data: national cross-section household level data (ENIGH ). Good consumption data but limited information on farm characteristics and production. Examined the differential impact of the crisis by assessing changes in income and consumption for different groups. Analyzed households’ crisis response using pseudo-panel data (McKenzie 2002) and the ‘risk chain’ approach.

Changes in Log Per capita Income and Consumption by Group

‘Risk Chain’ Approach Mitigation Event Ocurrence (Crisis) Welfare Changes Coping EX­ANTE EX­POST Risk (Prob. distr of uncertain events) Exposure Adapted from Heitzmann, et. al.

Labor supply’s response

Other coping mechanisms Inter-household transfers Overall, rural households rely more on transfers, specially foreign remittances Asset sales Few assets sales, mostly vehicles and used appliances; some real state sales Emergency Loans Some reliance on emergency loans, both urban and rural

Conclusions Rural hh and those whose head is employed in the primary sector are among the groups who fared better during the 1994 macro crisis. Differential impact within agricultural households, self-consumption farmers had smaller declines in income and consumption. Higher reliance on inter-household transfers and emergency loans, some assets sales Lower exposure to the crisis (subsistence and export-oriented farmers) may also explain differences