Chapter 2


These parameters can be used to predict changes in the market demand for food commodities
over time. (For greater detail, see Annex 1)

Although there are many factors which can affect the demand for a commodity over time,
particularly at national level, such as changing tastes, urbanisation and changes in a country's
internal income distribution, there are three major factors which are included in most
estimations of future demand for a commodity. These are:

 the rate of growth of the population (n)
 the rate of growth of real per capital income (y)
 the rate of change of real prices (p)

The rate of growth of demand for a given commodity (g) is then given by the following
equation:
 g = n + (tCdY + PEdP)


In other words, the rate of growth of demand for a commodity can be decomposed into the
rate of growth of population plus the rate of growth per capital demand. If real prices are
stable, then the equation simplifies to:


 g = n + tEdY


Thus, if a government planner wished to know what increase would be necessary in maize
production to meet demand in five years time, he would have to know the predicted rate of
growth of the population, say 3% per annum, the rate of growth of per capital income, say
2%, and the income elasticity of demand for maize, say 0.15. Then the rate of growth of
demand for maize in one year would be


 g = 3 + (0.15x2) = 3.3%


 Over five years the increase in demand, using the compound growth rate, would be 17.6%.
 Of course it is unlikely that the price of maize would remain constant in real terms over five
 years. This could vary according to changes in world prices, in price policy and in the prices
 of other food commodities which were regarded as substitutes for maize. The more complex
 model could be used to assess what an appropriate price policy would be, with regard to
 concerns for food security.

 The same model can be used to predict the impact of price and income changes on specific
 groups of the population, rather than the level of national demand. Once the impact of
 population growth and income changes has identified the overall change in demand, and any
 likely resulting changes in price, this can be translated into the impact on food consumption
 of groups who were perceived to be particularly vulnerable to changes in market prices.


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