Annex 1


demand curves, and the level of prevailing market prices, the following types of food deficits
can be distinguished:

* A production deficit emerges if the food production of a country is insufficient to meet
 the aggregate food requirements. Referring to an average year, this situation is sometimes
 called a 'structural deficit' (Terminology is not always clear in this point: sometimes
 structural deficits are also understood as a situation where effective demand, rather than
 the requirements, exceeds domestic food production). A production deficit is not
 necessarily an indication of food insecurity, as the balance between domestic production
 and requirements may be imported.
 In our model, a production deficit appears in all cases (at all price levels) where the
 production curve runs to the left of the requirements line, as shown in Figure A-3a) below.
 In Figure A-l, the production deficit amounts to R-A (at the price level po). In the open
 economy case reflected in Figure A-2, the production deficit is larger and amounts to R-C.
 This is due to the fact that the lower internal market price (pm) induced by the lower world
 market price has a depressing effect on the local food production. The significance of this
 effect depends on the elasticity of domestic food production (see Section 3 and Box A-1
 below).

* A supply deficit emerges if total food supplies (comprising total food production, food
 stocks plus imports/minus exports) are insufficient to meet the food requirements. This
 situation always implies a state of food insecurity and is sometimes called 'food supply
 insecurity' or 'national aggregate insecurity'.
 In our model, a supply deficit appears at all points (at all price levels) where the supply
 curve runs to the left of the requirements line (see Figure A-3a) for a closed and Figure A-
 3b) for an open economy). In a closed economy without food stocks to draw on,
 production and supply curves, hence the production and supply deficits, are identical (R-A
 in Figure A-1). In an open economy with food imports, the supply deficit is smaller (R-B
 in Figure A-2), if, as assumed, the supplies from domestic production are complemented
 by food imports. This, however, only applies if a country has the means to pay for the food
 imports. If this were not the case, the supply deficit would (partly) manifest as market
 deficit (see below).

* A demand deficit emerges if, due to insufficient income and purchasing power, there are
 people who are unable to express their food requirements as effective market demand. A
 demand deficit is the result of poverty and, referring to the individual household level,
 sometimes called 'food consumption insecurity' or 'individual food insecurity'.
 In our model, a demand deficit appears in all cases (at all price levels) where the demand
 curve runs left from the requirements line (see Figure A-3c below). In Figure A-1 the
 demand deficit amounts to R-A. In the open economy case of Figure A-2, the demand
 deficit is smaller, amounting to R-B. The lower market price in the latter case implies a
 positive real income effect leading to an increased volume of aggregate food demand. (The
 size of this effects depends on the elasticity of the demand curve in the relevant range, see
 Section 4 and Box A-2 below).


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