Annex 1


 Figures A-7 a) b): Income, prices and food demand (a disaggregated view)

 a) Food demand at different income levels b) Food demand of different income classes

household
income price
 household food requirements A household food requirements
 d'
 household d
 food
 demand
 (at varying
 income levels,
 food price given


 P- -V high
 P medium income class food dema
 po lOW (at varying food prices)
 volum 0 --B -- -> volume
 0 A D C B A

 The above example shows that the concept of demand deficits, used in our model, can also be
 applied to determine individual household food security. In fact, the aggregate demand curve
 is the result of adding the individual household demand functions together as presented in
 Figure A-7 b). The problem of food (in-)security arises with those households whose income
 level is below 'i' in Figure A-7 a) and whose effective demand function runs below 'd' in
 Figure A-7 b). If aggregate food demand is insufficient to meet food requirements, it means
 the people belonging to this category of households are the ones who suffer food insecurity.

 The aggregate demand curve represents the locus of the volume of the composite effective
 demand of all households at varying prices and at a given level of income and income
 distribution (changes of income and/or income distribution would lead to a change of the
 position and shape of the demand curve, see below). The typical downward slope of the
 aggregate demand curve results from the income effect of price changes (as we treat food as
 one single group of commodity, the substitution effect is ruled out). At decreasing food
 prices, the real income increases and a growing number of poorer households are in a position
 to articulate their food needs as effective demand (and vice versa). The stronger income effect
 and demand response of low-income households to food price changes is reflected by higher
 elasticities of the aggregate demand curve at lower food price levels.

 Our model illustrates, in very broad terms, the interaction between food prices and demand
 and the way in which the volume of demand and an existing demand deficit are affected by
 food price changes. Price changes occur permanently, as a result of changing natural and
 economic conditions and the many factors determining the levels of supply and demand. The
 level of food prices may also be the explicit objective of price policy measures.

 Policy measures to lower consumer prices of food are aimed at enabling the poorer sections
 of the population to gain access to the food they need, hence to reduce what we call the
 demand deficit. This may be done by official food price regulations (with probable adverse
 effects on production and supply as discussed above), by general consumer subsidies (with


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