Chapter 3


This table could be extended to cover all stages in the commodity chain, and would account
for the movement of every single unit of rice in the system.

Corresponding financial flows take place upstream, from final consumer all the way through
to primary producer. These financial and physical flows determine the distribution of income
in the chain, and the overall wealth created by the activities of the chain, in terms of value.
added to the economy as a whole. At each stage, the following identity holds:

 Revenues = Cost of purchased inputs + Value added

 In turn, value added can be divided as follows:

 Value added = Return to factors + Taxes/subsidies + Profits/losses

 Thus value added shows the income or entitlement accruing to wage labour, owners of
 capital and entrepreneurs, at different stages in the food chain, plus the net amount available
 to government to fund its various programmes and policies.

 Commodity chain analysis is a useful tool to show how entitlements arise out of the
 operation of the food chain, and how changing prices, in particular changing world prices,
 affect flows within the chain, and thus income and entitlements. It is one way of developing
 a framework for analysing both availability of food and access to that food.

 1.2 Production and food entitlements

' Domestic food production is the most important quantitative component in national food
security for almost all countries, with the exception of city states such as Singapore and
Hong Kong. Domestic food production, particularly of staple food crops in non-pastoral
societies, as well as comprising much of the food available in the country, also forms the
basis of food entitlement for much of the farming community, in terms of direct
consumption of production. The surplus is sold on through the commodity chain to provide
 additional income for the farming community, which in turn pays for agricultural labour.
 The marketed surplus becomes available for distribution to non-farming members of rural
 communities and the urban population. As with other stages in the food chain, the food
 production sector gives rise to a physical flow of food and receives financial flows ultimately
 from consumers. What determines the size of these flows?

 The physical level of food production is determined, at the national level, by factors such as
 area planted to food crops, soil fertility and climate, technology available and use of inputs
 such as high quality seed, fertilizer, labour and mechanical equipment. Some of these factors
 are given, and outwith the control of individual or government, such as climate. Others are
 to some extent under the control of individual farmers, but the farmer's decision is made in
 response to the structure of price and non-price incentives he or she faces, which are, in turn,
 determined by government policy decisions. For example, how much improved seed a
 farmer plants will depend on the price of the seed, the availability of the seed, the price and
 availability of any complementary inputs such as fertilizer and pesticides, and the expected
 price in the market for the final commodity.


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