Analysis Methods for Poverty at Pacific Regional Conference

Presenter name: Jean-Paul ZOYEM Presenter title: SPC consultant Welfare Economist Pacific Regional Conference on Poverty analysis methods 03 to 06 April 2023 Tanoa International Hotel, Nadi, Fiji PACSTAT project (P169122): Statistical Innovation and Capacity Building in the Pacific Island Countries

Agenda The Cost of Basic Needs (CBN) approach Process chart of the CBN Well-being Consumption adjusted for spatial and temporal cost (deflators) Consumption adjusted for household composition (per capita & per adult equivalent) Poverty line Reference households Food basket Food poverty line (FPL) Non-food poverty line (NFPL) Basic Need Poverty Line (BNPL) Poverty indexes Poverty rate Poverty gap Square poverty gap

Process chart of the CBN approach Main pillars of the CBN approach Consumption aggregate Poverty line

Cost of Basic Needs : process chart Non food expenditure: - Non food products eligible for expenditure aggregate - include imputed rent and use of durables Food expenditure: - Food products eligible for expenditure aggregate Expenditure aggregate= Food + Non-food expenditure : - Calculate expenditure per capita - Generate the distribution of expenditure per capita (deciles, etc) Food basket : - Calculate food expenditure for the reference households using food products eligible for food basket; - Calculate the total food expenditure per product; - Calculate product share in total; - Rank products by share, - Select bigest expenditures with cumulated value of 90% of total Reference households: - Exclude extreme values of expenditure (example: decile 1 & 10) Non-Food Poverty Line: - Choose among different approaches including: - Regression method basd on an Engel curve; - Ravallion non-parametric methods using spending patterns of households around poverty line Basic Need Poverty Line= Food Poverty line + Non-food Poverty line

Well-being Adjustment of the consumption aggregate Definitions Capita=number of individuals in the household AE= Adult equivalent Consumption adjusted for price differences Consumption deflated= Consumption / Deflator Consumption adjusted for household size and composition Consumption per capita= Consumption (deflated) / Capita Consumption per adult equivalent= Consumption (deflated) / AE

Definition of Poverty line Poverty line is defined as the level of consumption under which an individual is considered poor. Poverty line in the CBN approach Poverty line is The minimum consumption necessary for the satisfaction of basic needs Food poverty line (FPL) = Minimum food consumption necessary to be alive and conduct physical activity Non-food poverty line (NFPL) = Minimum money necessary to satisfy non-food basic needs (clothing, housing, health, education, transport, leisure, etc) Basic needs poverty line (BNPL)= Food poverty line + Non-food poverty line Challenge of poverty line computation = estimate the minimum needs

Food poverty line computation What is the monetary value of the needed minimum food consumption? What is the needed minimum food consumption? Which foods do poor consume? (food basket of the poor) At which price? (cost of a kcal) Poor population is not known A proxi= Reference population Food basket of reference population= A proxi of those of the poor in terms of structure and items prices

Food poverty line computation The needed minimum food consumption Defined as the minimum dietary energy requirements (kcal) Nutritional value and healthiness of the food are not taken into account Minimum energy requirements in the PICTs Most of the time poverty analyses in the PICTs fixe the threshold at 2100 kcal/capita/day Minimum energy requirements in Tonga 2021 Not enough information to estimate the national minimum calorie intake The threshold of 2100 kcal was used

Food poverty line computation Reference population Select households that are in the deciles of consumption distribution around the poverty line Refer to the poverty lines of previous periods Iterate the process to fix a robust reference population Reference population in the PICTS TBD: Tabulate selected cases

Food poverty line computation Reference population Tonga 2021 Previous poverty rate estimated at 22,5% in 2009 Reference population for Tonga 2021 [11,35] Iteration on intervals of consumption per AE distributions o [06, 30], [06, 35], [06, 40], o [11, 30], [11, 35], [11, 40]

Food poverty line computation Food basket The Food basket describes the composition of the consumption of the reference population Amount of the total food consumption Share of each food item in the total consumption All the food items are potentially included in the food basket: Except those that do not have enough data for the calculation of the cost of calorie consumed by the household FAFH may not have some useful data for the calculation of the cost of calorie (quantity, price per unit, etc); PSMB recommends to allow special treatment to FAFH

Food poverty line computation Food basket In practice, only the most important consumptions are included in the food basket The biggest consumption represented 90% of the total amount are generally considered as representative of the whole food consumption using the following process: Calculate the total consumption of the reference households, Calculate the share of each item in the total Rank items by decreasing share Select the items that represent the 90% biggest shares Tonga 2021 Food basket= 59 products representing he biggest consumption represented 90% of the total amount are generally considered as representative of the whole food consumption using the following process:

Food poverty line computation Food basket coicop total food consumption lunch away from home Chicken meat (fresh or frozen) Beef meat (fresh or frozen) Lamb meat (fresh or frozen) local bread Cassava bottled water away from home Biscuits cracker (cabin) Noodles/pasta Yam dinner away from home breakfast away from home Milk liquid Leaves - taro Taro - Tonga Herbivorous reef fish (parrotfish, rabbitfish, surgeonfish, etc) Other canned or processed fish (e.g. dried fish) butter (any type) sausage, hot dog eggs Ripe banana Orange Pork meat (fresh or frozen) sugar Flour - Plain Carnivorous reef fish (emperor/sifisifi, snapper/palu, jacks etc) non-alcoholic drinks away from home Lagoon and sand flat fish (silver biddy/matu, mullet/kanahe, bonefish, milkfish etc) kentucky Chicken Breadfruit Item consump tion ($TOP) 61528256 6984582 5158102 2343082 2282962 1878383 1752124 1705635 1700843 1606497 1505913 1418609 1291646 1203762 1137749 1067584 1037580 987397 940184 928831 770605 770351 716375 699635 698021 693753 654228 622389 617014 616823 610758 Item share (%) Cumulati ve share (%) Item rank Section 23_Fafh 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 23_Fafh 21-foodrecall 21-foodrecall 21-foodrecall 23_Fafh 23_Fafh 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 23_Fafh 21-foodrecall 21-foodrecall 21-foodrecall 11,4 8,4 3,8 3,7 3,1 2,8 2,8 2,8 2,6 2,4 2,3 2,1 2,0 1,8 1,7 1,7 1,6 1,5 1,5 1,3 1,3 1,2 1,1 1,1 1,1 1,1 1,0 1,0 1,0 1,0 11 20 24 27 30 33 36 39 41 44 46 48 50 52 54 55 57 59 60 61 63 64 65 66 67 68 69 70 71 72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

Food poverty line computation Food basket (continued) Item consump tion ($TOP) 61528256 590890 582086 572162 562608 537882 520426 511258 493321 478244 462336 451611 441173 413941 403000 387222 382016 363842 287122 283645 283296 276633 266031 264920 242707 240875 218867 218335 215588 209806 Item share (%) Cumulati ve share (%) Item rank coicop total food consumption Taro - Futuna cooking oil Rice ice cream snacks away from home Montain apples Pele leaves Kumala Snacks (pop corns, twisties, bongoes....) powder condensed milk canned cornbeef Onion round Brown coconut Tomatoe Other oceanic fish (wahoo/valu, mahimahi, rainbow runner, billfish/hakula) Papaya/pawpaw hot drinks away from home Bottled water/spring green banana Watermelon Biscuit sweet (chocolate ) Cakes Breakfast cereals Carrot Kape Capsicum Tuna (Skipjack,'Atu yellow fin, kahikahi etc) Beverage, chocolate flavour, from base (Milo) coconut cream Section 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 23_Fafh 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 23_Fafh 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 21-foodrecall 1,0 0,9 0,9 0,9 0,9 0,8 0,8 0,8 0,8 0,8 0,7 0,7 0,7 0,7 0,6 0,6 0,6 0,5 0,5 0,5 0,4 0,4 0,4 0,4 0,4 0,4 0,4 0,4 0,3 73 74 75 76 77 78 78 79 80 81 82 82 83 84 84 85 85 86 86 87 87 88 88 89 89 89 90 90 90 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59

Food poverty line computation Food basket: FAFH Two main approaches to converting the amount of FAFH into calorie equivalent Incorporate a food establishment survey into the HIES data collection. Collect the composition of common restaurant and street vendor meals by location, which are then converted into calories. Use information from food prepared and consumed at home Calculate the per-calorie cost of food prepared and consumed at home and apply a multiplier, Making assumption that the per-calorie cost of FAFH is the same as or a multiple of the per-calorie cost of food prepared and consumed at home, and that the composition of food eaten in restaurants is similar to that prepared at home PSMB recommends to adopt a multiplier of 1.25

Food poverty line computation Calculation of the cost of kcal of in-house food consumption Limit the food basket to in-house food consumption Calculate the kcal equivalent of each item using: Kcal per 100 grammes Quantity (grammes) Adjust for non-edible share of the product Derive the cost of a kcal of in-house food consumption (kcal_inh)using: Money amount, and Kcal equivalent Tonga 2021: kcal_inh_cost =0.00282522 Calculate the kcal cost of FAFH using the multiplier: Kcal_FAFH_cost=1,25*0.00282522= 0,0035315

Food poverty line computation Calculation of the value of 2100 kcal Come back to the full food basket including FAFH Calculate the kcal equivalent of FAFH using Money amount of FAFH items, and the Kcal cost of FAFH (kcal_fafh) Deduce the kcal structure of the food basket by: Calculating the item kcal Share in the food basket (kcal_share) Deduce the kcal contribution of an item to the 2100 kcal (item_kcal2100= kcal_share*2100) by applying to 2100 kcal the item kcal share; Deduce the cost of 2100 kcal as the sum of kcal contribution of items weighted by their kcal cost : Val_kcal2100=sum(item_kcal2100 * kcal_cost) Annual Food poverty line (FPL)=365*Val_kcal2100 Tonga 2021: FPL= TOP2,881

Nonfood poverty line computation Computation approaches Non-food poverty line is constructed using the relationship between food and non-food spending of the reference population. This construction is supported by the main idea that the non-food component of poverty line is the non-food share of total spending by households whose food spending is close to the food poverty line. Several approaches are used to calculate the non-food component of the poverty line, among which: Regression method based on an Engel curve. It uses econometrics models to predict the shape of the curve describing the relationship between food spending and consumption. Ravallion non-parametric approaches: they use the spending patterns of the households around the food poverty line to estimate the non-food share of the poverty line. It is not rare that different approaches come to different values of poverty line,

Nonfood poverty line computation Non-food component of the poverty line: Ravallion non-parametric approaches Ravallion upper bound poverty line that uses per adult equivalent food consumption around the food poverty line and proceed as follows: Step 1: Obtain average total per adult equivalent consumption for households whose per adult equivalent food consumption is +/- 1% of the food poverty line. Step 2: Repeat for households around +/- 2%, continuing up to +/- 10%. Step 3: Take average of all averages as the estimate of the non-food component of the total poverty line. Ravallion lower bound poverty line that uses per adult equivalent total consumption around the food poverty line and proceed as follows: Step 1: Obtain average total per adult equivalent consumption for households whose per adult equivalent total consumption is +/- 1% of the food poverty line. Step 2: Repeat for households around +/- 2%, continuing up to +/- 10%. Step 3: Take average of all averages as the estimate of the non-food component of the total poverty line.

Nonfood poverty line computation Food poverty line (FPL) is at the vertical dash black line ($2881) HHs with food consumption around the FPL are at crossing point with food consumption distribution (around the 20th percentile poorest) Used for Ravallion upper bound HHs with food consumption around the FPL are at crossing point with total consumption distribution (around the one percentile poorest) Used for Ravallion lower bound NFPL is expected to be higher with Ravallion upper bound.

Nonfood poverty line computation Tonga 2021 Basic Need Poverty Line (Tonga 2021) Reference population 11 to 35 percentile Regression method Ravallion Upper bound Ravallion Lower bound Food poverty line No household fit the criteria Poverty line 2881 4743 6256 Poverty rate 1,03% 6,14% 20,71%

Poverty indexes Monetary poverty measures commonly include a set of three measures: Poverty Headcount that is the proportion of the population living below the poverty line. Poverty Gap that is the average shortfall, as expressed as a percentage of the poverty line. Squared Poverty Gap that measures the gap to poverty line in giving more weight to those living farer to poverty line. Poverty indexes in the family of FGT measures Foster, Greer & Thorbecke (1984) defined the formula : ? 1 ? ?=1 ? ?? ? ? ?????,? = where z is the poverty line, ?? is the ?? lowest consumption (or other standard of living indicator), n is the total population, q is the number of persons who are poor, and is a povertyaversion parameter.

Poverty indexes FGT measures Defined the most common set of measures used in poverty analysis (Foster, Greer & Thorbecke in 1984). ? 1 ? ?=1 ? ?? ? ? ?????,? = where z is the poverty line, ?? is the ?? lowest consumption (or other standard of living indicator), n is the total population, q is the number of persons who are poor, and is a povertyaversion parameter.

Poverty indexes FGT are a family of measures as the takes different values (? ? 0) value FGT poverty indexes Naming of the measure Poverty rate Characteristic of the measure Incidence of poverty ?0=? = 0 ? ? Poverty gap Depth / Intensity of poverty = 1 ?1=1 ? ?? ? ? ?=1 (? ?? Severity of poverty 1 ? ?=1 ?)* (? ?? = 2 ? Squared Poverty gap ?) ?2=

Poverty indexes of Tonga by region Poverty indexes by region in Tonga Poverty indices by region Poverty rate Poverty gap Poverty square gap 20,7% 4,3% National 1,4% Tongatapu Urban Tongatapu Rural Tongatapu 18,6% 13,3% 20,9% 3,8% 2,3% 4,4% 1,2% 0,6% 1,4% Rural Vava'u Rural Ha'apai Rural 'Eua Rural Ongo Niua 26,4% 22,7% 33,5% 27,8% 5,6% 5,0% 7,2% 6,1% 1,8% 1,7% 2,2% 2,4%

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