Chapter 4


detrimental, insofar as it could discourage investment in productivity- enhancing capital, while
encouraging speculation in land.

Macroeconomic policy will also affect the availability of imported food. When there are tight
balance of payments constraints, then these constrain the country's capacity to import food to
relieve domestic shortages. Devaluation will increase the price of imported food, and if there is
no response from domestic agriculture, then the overall availability of food in the country may
fall. A country's access to concessionary food imports, or food aid, may be improved if it is
perceived to be following a stable and sustainable set of macroeconomic policies. This is
particularly true for non-emergency programme food aid.

1.4 Macroeconomic policy and access to food

Individual and household access to food is determined by the prices they have to face in the
market for food and other basic needs, their income from their own labour, either in the labour
market or through selling their own production and services, particularly in the informal sector,
and through entitlement to state benefits and subsidies. The demand for labour and the prices at
which labour, goods and services are exchanged are all dependent on the important
macroeconomic prices, the wage rate, the interest rate and the foreign exchange rate.

The foreign exchange rate affects the relative prices of tradable and non-tradable goods and
services. Increases in the price of food commodities (tradables) which benefit food producers
can reduce the food security of net food purchasers. Equally, other basic goods such as clothing
and fuel are also likely to rise with a devaluation, putting pressure on limited budgets. Trade
liberalisation may help reduce the price of goods which have benefited from protected
domestic markets, such as locally manufactured textiles, but in general a combination of trade
liberalization and exchange rate devaluation will tend to raise the price of most basic needs
commodities and reduce the price of labour-intensive services, a double blow to the urban
poor.

A tight monetary policy will raise interest rates and make credit less available. This will have
its major effect on the food insecure through its impact on the demand for labour. If a tighter
monetary policy has a contractionary effect on the economy, then this may affect the income
earning possibilities of the most vulnerable groups of the population. Also those who borrow to
meet their food requirements, for example in the pre-harvest season, may face higher implicit
interest rates in their borrowing arrangements.

Fiscal policy reforms can take a number of forms, most of which have the potential for a
negative impact on the poor. The most obvious is when governments feel they can no longer
afford to maintain existing consumer food subsidy programmes. The previous beneficiaries of
these programmes will suffer an immediate reduction in their access to food. There may also be
attempts to reduce government expenditure by shedding staff. Reductions on the payroll often
start with lower grade employees, such as cleaners and watchmen. The government budget can
also be brought closer to balance by increasing taxes and prices of government provided
services. Cost recovery initiatives can increase the cost of transport and water, affecting mainly
the urban poor.


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