Appendix to Chapter 6


* The overall structural deficit (R-A), amounting to some 70,000 MT of cereals in an
 average year, is mainly composed of a market supply deficit (B-A) of about 60,000 MT
 and an effective demand deficit (R-B) of some 10,000 MT.

* The market supply deficit has mainly been covered by programme food aid deliveries in
 the past (about 80%) and to a lesser extent by commercial food grain imports (about
 20%).

* The effective demand deficit, resulting from poverty and insufficient purchasing power to
 satisfy minimum food requirements, refers to the 5000 poorest and most vulnerable
 households who depend on targeted food assistance by the WFP.

* In order to make food affordable for the poorer sections of the population, the
 Government has fixed the local market prices of basic food items (mpi) below the import
 parity prices (ippi, based on cif. world market prices).

The model allows conclusions to be drawn for the Cape Verdean food situation and the role
of food aid in various important aspects:

* Programme food aid has enabled the Government to pursue its food security objective, to
 ensure food supply to the population at stable and relatively low prices.

* A change in the pricing policy and/or a reduction in programme food aid deliveries would
 lead to a change of the food deficit structure and have substantial implications for the
 food security situation:

 If the market prices for basic food items were liberalized they would rise to import
 parity price levels (from mpi to ippl). Due to the inelasticity of the domestic production
 function, the volume of domestic production and supplies would hardly be affected
 (remain around A). As a result, the overall structural deficit would remain about the
 same (R-A).

 There would, however, be a significant change in the composition of the structural
 deficit. Due to the increased market prices, the volume of effective market demand
 would diminish, as a significantly higher proportion of the population would fall under
 the poverty line and not be able to purchase what they need to satisfy minimum food
 requirements. In our model, the market supply deficit would diminish from B-A to C-A,
 while the effective demand deficit would increase (from R-B to R-C).

 As to future food aid requirements, this would imply that the volume of programme
 food aid to be monetised would diminish, but would have to be replaced by emergency
 food aid. In order to compensate for the diminishing effective demand, there would be a
 need for more emergency food aid and targeted assistance to an increased number of
 vulnerable people.

Another interesting conclusion can be derived from the model analysis as to the use of
Counterpart Funds (CPFs) generated through the sale of programme food aid. As the CPFs


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