Chapter 4


changes in price levels and employment levels. The next two sections examine in more detail
the impact of changes in macroeconomic parameters on the availability of and access to food.

1.3 Macroeconomic parameters and food availability

This section gives a brief overview of the major macroeconomic policy areas. These will be
presented in greater detail later in the chapter.

Macroeconomic policy and the decision to change certain crucial macroeconomic parameters
can have both a direct impact on a country's food supply and an impact on the price incentives
facing domestic producers. Direct effects are most likely to take place through changes in fiscal
policy. Attempts to cut public expenditure may affect various agricultural support services,
such as the provision of extension services, or the financing of public sector research
initiatives, which could lead to improved crop varieties or more effective production
techniques. Changes in the foreign exchange rate, usually a devaluation, can also have an
effect on the provision of government services, to the extent that these services use imported
goods, such as fuel, or imported capital equipment. This may be particularly important for the
upkeep of state-owned infrastructure, such as roads and market places, all important in the
decision to provide food products to the market, rather than keep them for household
consumption.

The prices farmers face are very important, both for the quantity of food produced
domestically, but also for the amount offered on to the market, to meet the food demands of
both urban and rural food-deficit households. These prices affect which commodities are
produced, whether they are food or non-food crops, and the overall level of resources, land,
labour and capital, invested in the agricultural sector.

The foreign exchange rate determines the relative prices of traded goods versus non-traded
goods (see Annexes 2A and 2B). An overvalued exchange rate tends to lead to higher prices for
non-traded goods, relative to traded goods. Most agricultural commodities, whether food or
non-food, are internationally traded goods, the only possible exception being very bulky, low
value root crops, such as yams. However, a devaluation of the exchange rate will only improve
the domestic supply of food commodities if two conditions hold. Firstly, producers must
receive the benefit of the increased border price, rather than the increases accruing to traders or
state marketing boards. Secondly, non-price factors in the agricultural sector must be conducive
to increasing production.

The foreign exchange rate will also influence the price of agricultural inputs such as fertilizer,
pesticides and fuel for tractors. In addition the domestic price of internationally traded
agricultural inputs and outputs can be distorted not just by an overvalued exchange rate but also
by taxes, excise duties and trade controls imposed by national governments to raise revenue or
protect certain domestic industries. Changes in these will affect the incentives facing producers
and traders in the food sector, as will changes in the regulations affecting domestic markets.

Monetary policy can affect the availability of credit to finance both the production of food and
the purchase and storage of the annual harvest. A tight monetary policy can severely limit
access to credit in the agricultural sector. However, if monetary policy is so lax that it fuels
high levels of inflation, the longer-term impact on domestic food supply could also be


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