Annex I


1. Introduction

In this Annex, some basic economic concepts are presented which will help the participant to
follow the analysis of the impact of macro-economic and structural adjustment policies on the
food situation as discussed in Chapter 4 of the Manual and to assess the effects of policies
designed to improve food security as discussed in the subsequent Chapters. Although reality
is much more complex than can be expressed in simple economic models, the concepts serve
to reveal important linkages between the macro and the micro spheres of the economy and to
disclose the role of economic key factors which act as determinants of the levels and structure
of food supply and demand. This provides the basic framework for an analysis of the food
situation of a specific country and for the assessment of the likely effects of economic
parameter changes on food security. Parameter changes occur continuously during the
process of economic development, as the result of a changing economic environment and/or
as the explicit or implicit consequence of certain policy reform measures, such as stabilisation
and structural adjustment policies.

2. Model for analysing the food economy structure of food deficits

Food security has three dimensions: availability, access, and stability. Food availability is
determined by the level of food supplies, composed of subsistence production and market
supplies stemming from domestic production, food stocks and food imports. Access to food
is the result of the ability to express food needs (beyond subsistence production) as effective
demand. Stability refers to variations and the risk of shortfalls in food production, supplies
and/or demand over time.

Food security is defined as a situation where both food supply and demand are sufficient to
cover food requirements on a continuous and stable basis. This general definition of food
security applies, in principle, to individual household as well as to aggregate national food
security. (See Chapter 1 of the Manual 1 for a detailed discussion of the concepts of food
security). Food insecurity prevails if, at any time (occasionally, repeatedly, or permanently),
either the volume of food supply, or food demand, or both fall short of requirements.

In order to analyse the food situation of a country and the effects of economic parameter
changes on food security we use a graphic model as presented in Figures A-1 and A-2.

Figure A-1 refers to the case of a closed economy without trade links (neither food imports
nor exports) to neighboring countries or the outside world. Figure A-2 to an open economy
with food imports. In reality, neither a completely closed economy (an economy without any
trade relations to the outside world) nor a completely open economy (a situation without any
restrictions on foreign trade, e.g. no import or export regulations, no import or export taxes,
no foreign exchange restrictions) can be found. Reality is somewhere in between these two
extreme cases. Depending on the relevant factors and nature of the effects to be studied, we
either use the model of a closed or an open economy. A further restriction of the model
consists in the fact that it deals with national aggregates of food production, supply, demand
and average prices. Such restrictions are necessary to provide a basis for analysing the role
and impact of relevant factors determining the food situation of a country. When applying
this to a specific country case, to arrive at valid results the assumptions of the model would


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