Annex 1


substantial fiscal implications), or by specific food subsidies for selected consumer groups,
e.g. poor urban households. The latter implies a lower budgetary burden but special
administrative provisions in order to ensure proper targeting.

We have already seen that household income represents, apart from the price, the other
major economic parameter determining the level of demand. Income comprises the composite
monetary household income from all sources, excluding subsistence production (see note on
subsistence production). The income of individual households sum, in aggregate terms, to
national income which may be more or less equally distributed among the members of
society. The effects of changes of income and income distribution on food demand and
the state of food security deserve special attention in our analysis, as the various sources of
household income (e.g. profits from agricultural and other formal or informal sector
activities, income from rural and urban, formal and informal, wage employment, subsidies
and transfer payments, etc. )may be severely and often diversely affected by macro-economic
and structural adjustment policies.


Note on subsistence production:
Subsistence production often constitutes a substantial part of the 'real household income' and has a significant
impact on household food supply, demand, and hence overall household food entitlement and food security. In
the case of subsistence production, availability of and access to food are directly linked. Therefore, households
with subsistence production do not depend or depend less on the market, and their effective market demand for
food will be less or, if a household produces all the food it needs (a rather rare case), zero. Transferred to the
national level this means that, the larger the share of subsistence food production is in an economy, the lower is
effective market demand. This does, however, not necessarily mean that there is a demand deficit the contrary
may be true.


Figures A-8 and A-9 depict the impact of income growth/decline and income distribution on
the levels of food demand and the resulting food deficits. While price changes lead, in our
graphic model, to a movement along the aggregate demand curve, income and income
distribution determine the position and shape of the aggregate demand curve. Varying
incomes lead to a shift of the demand curve to the right or left, changes of income distribution
will induce a change in shape (see also the discussion of disaggregated demand functions
above). For the sake of clarity, both effects are treated separately, although, in practice,
income changes are usually associated with changing patterns of income distribution, hence
both effects are superimposed on each other.

Impact of income growth/decline on aggregate food demand and supply

Income growth (at constant income distribution) leads to a shift of the aggregate demand
curve to the right, hence to an increase in the volume of demand at a given price level (from
A to C) and a corresponding reduction of the demand deficit (from B-A to B-C). If the market
price is fixed at p, a market deficit will appear (C-A). If the market price is allowed to move
freely, the increasing demand will induce a higher market price and increased food
production and supply.

Due to the higher market price, the volume of demand increases (and the demand deficit
decreases) less than in the first case (A to D instead of A to C), however the increased


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