Annex I


production (from Vpr to vp,.), a corresponding increase of the production deficit (from R-vpr.to
R-vpr,) but a decrease of the supply deficit (from R-vpr to R-s). The possible disincentive
effect of food imports on local production is of special concern in the case of concessional
food aid imports when the low priced food items appear on the market and undercut
prevailing market prices.

 Fig. A-6: Impact of food imports on food production and supply

 price
 requirements


 demand production
 /domestic supply






 I -------------- total supply
 -----------------------
 ::impOrts: -

 'v > volume
 Vp Vp vr,

If world market prices are above domestic prices, the country may become a food exporter,
leading to declining domestic food supplies and a widening of existing supply and demand
deficits. We may get the paradoxical but nevertheless common situation of a country being a
food exporter while a substantial number of people go hungry.

4. Impact of demand based factors

The role of effective demand for food security is twofold:

* the expression of the ability to gain access to food (beyond subsistence production);
* a precondition to induce food production for the market.

The major determinants of the level of effective demand are income and prices. Box A-2
presents relevant features of the interaction between income, prices and effective demand.
Both income and prices are explicit objectives of and/or implicitly affected by a variety of
macro-economic and structural adjustment policies.

Income refers to the monetary income obtained by individual households from various
sources. Individual household incomes add, in aggregate terms, to national income which
may be more or less equally distributed. Low incomes and unequal income distribution
are a common feature in many developing countries and a major reason for chronic or latent
household food-insecurity. This issue will be addressed further below.


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