Introducing new Cost-of-Basic-Needs
poverty lines for South Africa
JOSH BUDLENDER
(FROM A FORTHCOMING PAPER WITH MURRAY
LEIBBRANDT AND INGRID WOOLARD)
PRESENTATION FOR THE NATIONAL MINIMUM
WAGE RESEARCH INITIATIVE AT WITS
Context of this presentation
 South Africa doesn’t have a legislated poverty line, and
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no consensus view amongst policymakers or academics
Stats SA recently released a line but potentially some
methodological concerns
While at SALDRU we undertook a review, which led to
development of new lines
Have been helped immensely by StatsSA and others
Focus of this presentation: explaining what our new
poverty lines mean, and a few methodological decisions
which distinguish our lines
Unless otherwise stated, values are monthly per capita
2011 Rands (primary dataset is 2010/2011 IES).
Introducing poverty lines
 What we’ll be discussing are what are called
“Absolute money-metric” lines.
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This means: we calculate an amount of money which is the
minimum a person needs per month to be “non-poor”
This monthly amount of money is linked to “basket” of goods
and services, which remain fixed
While monetary value of basket may change across time and
space (prices), the “real value” – what you can buy with the
money – stays constant
 Absolute money-metric lines are not only (or
necessarily best) way to measure poverty. But are
important.
Methods of setting absolute poverty lines
 Setting a poverty line is always somewhat arbitrary –
how do you even define poverty? But can attempt to
make the process as scientific as possible
 Before mid-2000s, SA methods resulted in very
arbitrary lines
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Researchers decided what goods and services they thought
were needed to be non-poor, and costed these goods. Very
prescriptive, unscientific, often based on racial prejudices
 Now: try to have a method which uses as little
subjective prescription by researchers as possible:
Ravallion’s “Cost of Basic Needs” method
Cost of Basic Needs methodology
 The Cost of Basic Needs method developed in 1994, and is a
predominant method for setting absolute poverty lines. Basis
of the line is the minimum cost of sufficient caloric intake.
 Gives us 3 lines, which include non-food needs to varying
extents
 Food poverty line
 Minimum cost of sufficient calories, based on existing consumption
habits
 Lower-bound poverty line
 Food line + non-food expenditure of households with total expenditure
at the food line
 Upper-bound poverty line
 Food line + non-food expenditure of households with food expenditure
at the food line
 Easier to understand with an example (next slide)
CoBN lines example (2011 Rands)
 Caloric requirement: 2100 kcal per person per day
 Reference group: households in deciles 3,4,5
 Food poverty line: R337 per person per month
 Households whose total expenditure is similar to
R337 per person per month, have (on average) non-food
expenditure of R197
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Lower bound = R337 + R197 =R534 per person per month
 Households whose food expenditure is similar to R337
per person per month, have (on average), non-food
expenditure of R705
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Upper bound = R337 + R705 = R1042 per person per month
Clearer interpretation of CoBN lines?
 Food line: minimum cost of “sufficient food”, if all
money is spent on the purchase of food
 Upper bound either:
1.
2.
Minimum cost of “sufficient” food and non-food (assumes those
with sufficient food expenditure have sufficient non-food
expenditure)
The level of expenditure at which people tend to purchase sufficient
food
 Lower bound: conceptually unclear. We argue that it is
not a defensible poverty line.
 Following Stats SA, we suggest that upper bound be seen
as standard poverty line, while food line be seen as
“extreme poverty” line.
Existing CoBN lines in South Africa
 Essentially 2 existing iterations of the CoBN method in
SA before our research:
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Hoogeveen and Ozler (2006), the first CoBN line
Stats SA 2015, which updated Stats SA 2008 lines
 As we go through some of the methodological decisions
made in the construction of the SALDRU line, I will
highlight differences between our and the existing
methodology
 While I will discuss the Stats SA methodology quite a lot,
the primary advancement our paper has over the
Hoogeveen and Ozler method is that we use new data
(though there are some methodological differences)
Potentially contentious methodological decisions
 Cannot look at all the discussable decisions in one
presentation, so I focus on:
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The minimum sufficient caloric requirement
Discussion of the StatsSA food basket methodology
Truncating the upper-bound line
 Other significant issues from the paper not discussed
here:
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choice of dataset, construction of the consumption aggregate, the
(very messy) process of converting food expenditures into calories,
using expenditure patterns of households or individuals, defining a
reference group of the poor, identifying the correct non-food
expenditures
Food line Q1: How many calories?
 2015 StatsSA report used a required caloric intake of
2100 kilocalories per person per day
 This was different to the 2261 kcal used in the earlier
2008 report, and attracted some criticism
 Both measures come from tables of recommended
caloric intakes, differentiated by age and sex
 Tables used to create average requirement per
person in the population, depending on demographic
characteristics
2261 kcal: Recommended Dietary Allowances (US Food and
Nutrition Board, NRC: 1989)
• “Light to moderate physical
activity”
• Assumes median heights and
weights as of US population prior
to 1989
Leads to 2261 per capita per day
requirement with 2000 IES
 We calculate 2257 with 2011 IES
2100 kcal: Management of Nutrition in Major Emergencies
(WHO: 2000)
• “Light physical activity”
• Anthropometric profile of the
“typical developing country”
For demographic profile of “typical
developing country”, WHO calculates
average requirement of 2080 kcal per
capita per day
 We calculate 2078 kcal per person
per day for SA with 2011 IES
2261 or 2100 kilocalories?
 Not at all clear to us which is preferable, but until
more work is done it seems best to use 2100 kcal
measure
 2100 kcal is as defensible as any other measure, and
has the advantage of being common practice in the
international poverty line literature
 Is also based on more recent calculations
 The choice does effect poverty line estimates though
– not insubstantial
Food line Q2: Costing 2100 kilocalories
 Want “cost-per-cal” of the reference group
 Hoogeveen and Ozler approach: calculate caloric intake
from all foods, calculate the cost of this intake, scale up
cost to derive the cost of 2100 kcal
 StatsSA approach: derive a “representative basket” of
food items which are somewhat representative of
national and poor people’s consumption patterns
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Calculate caloric intake from basket items, calculate cost of this
intake, scale up to derive cost of a basket which will give 2100 kcal.
This is the food line.
StatsSA representative basket
 Decision to use food basket rather than all food items
is justified by StatSA on grounds of representativity
 But raises some potential problems:
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National criteria disqualify some foods which poor people
consume significantly, thus distorting the poor cost-per-calorie
(e.g. samp)
Makes poverty line vulnerable to changes in food classification
(e.g. eggs, tea)
 We therefore prefer to use expenditure on all food
items which we have data for
All-food vs basket-food expenditure
Share of food expenditure covered
Decile StatsSA basket SALDRU method
1
77%
96%
2
76%
96%
3
74%
96%
4
72%
96%
5
70%
95%
6
70%
95%
7
68%
95%
8
65%
95%
9
57%
93%
10
51%
90%
*each household's expenditure share
weighted equally
Ultimately, basket vs “all food” makes little difference:
Using reference deciles 2-4:
 StatsSA:
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food line = R335
cost-per-cal = 0.5313 cents
 SALDRU:
 food line = R309
 cost-per-cal = 0.4845 cents
 Despite some methodological differences, our food
line in practical terms ends up being quite similar to
the Stats SA measure. Not the case for upper-bound.
Issues with the Stats SA upper bound
 Upper-bound created by calculating non-food
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expenditure of households which have food
expenditure similar to FPL
StatsSA calculated a food line of R335 p/m
By the above method, they calculate an upper-bound of
R959 p/m
However this upper-bound was judged to be
implausibly high, and steps were taken to adjust it
StatsSA reduces upper-bound by only looking at nonfood consumption of houses in deciles 2-7 →
New upper-bound = R779
Is the concern justified?
 Useful to look at implied Engel coefficients
 Engel coefficients? – percentage of total expenditure which is
spent on food
 Unadjusted upper bound: R959 upper, R335 food
 Suggests poor people spend 35% of their income on food
 Adjusted: R779 upper, R335 food
 Suggests poor people spend 43% of their income on food
Implied vs actual Engel coefficients
The Stats SA truncation has a material effect
 We ultimately calculate an upper bound of R1042
 After our efforts to directly move outliers, and some other
methodological changes
 This is actually quite similar to the untruncated Stats
SA figure of R959
 The truncation, which reduces the upper bound,
serves to artificially lower the upper bound to R779
 While there is a real data quality issue, which Stats
SA identify, we argue that truncation as above is not
a good way to correct for that.
SALDRU lines in comparison with existing lines
Some last thoughts
 The SALDRU paper discussed here is an to “get under the
hood” of the CoBN measure and review the different
methodological decisions which must be made. We propose
our new measure based on discussion of these issues – will
hopefully be convincing!
 The big difference between our and the Stats SA lines is in the
upper bound. Otherwise similar, but this is a substantial
difference.
 For poverty measurement: absolute money-metric lines
measure just one dimension of poverty. Must be combined
with others for comprehensive understanding of poverty.
 Poverty lines are a subsistence measure. Not the same as
“decent living level”. Being on the cusp of poverty should
surely not be seen as desirable. In March 2015:
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Upper = R1307 per person per month  R43 per day
Food = R444 per person per day  R15 per day