Grain Prices Are Rising. Blame it on the Middle Class?

Can the growth of the middle class lower living standards for those who stay poor? The answer might be yes if people use their increased income to buy more of a good important to the poor, such as food or housing; prices may increase as a result, decreasing what the poor can afford to buy. In the case of rising grain prices, which had previously been in decline for decades, demand for biofuels has gotten most of the rap; but a recent Newsweek article, "Blame it on Biofuels", suggested the growing middle class in emerging markets like China may be a more important reason:

Perhaps the most significant factor is rising wealth, particularly in the developing world. Since 2002, the combined GDP of the 24 largest emerging markets has doubled...As families get richer, they can more regularly indulge in meat and dairy products ...The good news may be that more poor people will get rich enough to buy corn anyway.

The article quoted CGD non-resident fellow Peter Timmer as saying that weather and a falling dollar explain much of the increase. I asked Peter about the article's middle class theory; he agreed with Newsweek's assessment. He said that older projections by experts at IFPRI, which suggested that despite the "livestock revolution" there was enough global capacity to plant more land with grains and keep the real price steady, have been overtaken by new trends, including faster income growth worldwide.Of course, the emergence of a middle class in some developing countries is cause for celebration, not only for the individuals who escape poverty but also because a solid middle class is important for stability and effective institutions, ultimately enabling the growth that helps the poor in the long run (an issue that Nancy Birdsall has highlighted in her work on the missing middle in Africa).But if rising middle class consumption of meat and dairy products really is raising the price of grain for the poor, that clearly is a cause for concern, both within those same emerging market countries and in the rest of the world. The middle class will have much more of an effect than a rise in the income or numbers of the rich, because the well-off are already well-fed and won't increase food consumption much. And as the price of grain increases, households that are net buyers of food will see living standards decline, all else equal. For Paul Collier's "bottom billion", those people in the world's poorest countries that have failed to grow, these distributional impacts will be an issue as successful development in China and India allows a middle class to emerge, regardless of what happens with biofuels.With grain prices it's the global income distribution that matters for the poor; on a national or local level, goods like housing may be affected by a changed income distribution. But we don't know much about whether and how this is the case. In the U.S., economic studies of gentrification by Matlack and Vigdor have shown that the impact of rich neighbors moving in depends on the state of the housing market; but there is little evidence about these issues from poor countries.What evidence is there that changing income distributions affect the real income of the poor in this way? And what policy solutions could promote the growth of the middle class while maintaining living standards for the poor?