Annex 1


Assuming competitive market structures and liberal price formation, the rightwards shift of
the production/supply curve leads to a reduction in the market price from p to p' and to an
increase in the volume of production and supply from vs to vs., and a corresponding reduction
of the supply and demand deficits. If the price were fixed at p, food production/supply would
increase even further but demand remain the same, hence market surpluses would appear.

Fig. A-5: Impact of technology improvements on food production and supply

 nce requirements


 demand

 production
 /supply shift production
 old /supply
 Snew

 p ----_---------------- -- ------ --
 p .:--................
 I--------------------------- voum
 Vs s' > volume

Major factors inducing technological improvements are research and extension. Although
the impact on food production may be quite significant, it is typically of a long-run nature, as
the effects need a longer time to materialise than, for example, a response to changing input
prices.

Technological changes in both directions towards more or less efficient production may
also occur in connection with changing production systems, if there is for example a shift
from smallholder food production to large scale farming (or vice versa). It depends on the
country specifics of resource availability and forms of resource use whether such a shift
implies technological improvement or not. There is some evidence that small-holder
production can be more efficient than large scale farming.

Impact of food imports

Food imports increase food supplies over and above the level of domestic market production.
Fig. A-6 which is based on the open economy model demonstrates the effects on domestic
production and supplies, assuming that the imported food commodities are sold to the
consumers on the open market. The picture would look different, if imported food
commodities, stemming, say, from food aid supplies, bypassed the market and were directly
distributed to needy people.

The impacts of food imports on the structure of food deficits have already been discussed
under Section 2 in relation to the open economy model (Figure A-2). The increase of market
supplies and the lower price resulting from food imports induces a decline of domestic food


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