Chapter 4


With the removal of consumer subsidies, all purchasers of food will be worse off. If the
subsidies have been depressing the producer price of food commodities, then farmers could
benefit from their removal in the medium term. If the removal of subsidies puts pressure on
employers to raise wages then they could be worse off.

The next step is to identify which vulnerable groups are worst hit, and to examine whether or
not the policy could be modified or a targeted intervention introduced. The specific population
groups to be considered and the precise impact of policy will vary from country to country, but
the process of analysis is fundamental to protecting the food security of the most vulnerable
during a period of major policy change.

After having established the framework of macro-meso-micro-linkages in respect to the food
economy, we are now in the position to trace the main lines of impact of macro-economic
policies (or any economic parameter changes on the macro-level) through the meso-economy
down to the demand and supply factors determining food entitlement and food security at the
micro level. We will do this consecutively for each policy sphere which plays an important
role in policy reform packages in many countries and is supposed to have significant impacts
on food security.

The further analysis draws repeatedly on the "Conceptual Framework for the Analysis of
Policy Impacts on the Food Economy and Food Security", attached as Annex 1. A prior
review of the annex will facilitate comprehension of the further analytical steps.


3. Impact of Exchange Rate Policies

3.1 Introduction

The exchange rate represents the major link between the national economy and the outside
world, and exchange rate policies play a prominent role in most economic adjustment
programmes. By determining the domestic prices of tradables (see Annexes 2A and 2B for
explanations), the exchange rate affects, directly or indirectly, the prices, supply and demand
of almost all goods and services produced and marketed in an economy, and, as a further
consequence, the overall performance and state of equilibrium of the national economy. The
principles of the exchange rate-price-market mechanism, as presented in Annex 2B, provide
the basis on which to appraise the impact of alternative exchange rate policies on the food
economy and on food security. This will be done in the subsequent sections.


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