Sugar Prices, Labor Income, and Poverty in Brazil

Abstract

Brazil is the largest producer and exporter of sugar in the world, accounting for 28% of world sugar cane production and 25% of world sugar exports. This paper investigates how changes in the world price of sugar could affect individuals within different segments of the income distribution by focusing on the relationship between sugar prices, wages, and employment. The authors first estimate the extent of price transmission from world markets to eleven Brazilian states. Some states are more isolated than others, preventing a full price transmission from world markets to sugar producers. Empirical results suggest that long-run price transmission across states is somewhat heterogeneous. Second, they simultaneously estimate the impact of changes in local sugar prices on regional wages and employment for workers with different characteristics. Finally, they use the estimates of the first and second stages to simulate the impact of a 10% increase in world sugar prices on household labor income and poverty.