Annex 1


demand will be met by increased supplies. At the new equilibrium price, the overall demand
and supply deficit will be smaller than at the outset (B-D compared to B-A) and no market
deficit appears.


Fig. A-8: Impact of an overall income growth/decline on food demand and supply


price


requirements


volume


The effects of a linear income decline on food supply and demand are self-explanatory.

Impact of income distribution on aggregate food demand and supply

Figure A-9 illustrates, again in a stylised manner, the likely effects of a change in income
distribution on aggregate food demand. Less income equity pushes the right end of the
aggregate demand curve downwards (towards d'), while higher equity pushes the right end
upwards (towards d"). The switch of the demand curves leads to changes in the volume of
food demand as well as to different demand elasticities. Such changes have a significant
impact on the level of aggregate food demand and supply, the food deficit structure of
country and the overall state of food security. The effects are discussed in detail below.

A reduction in equity:

If income tends to be less equally distributed, aggregate food demand will decrease. The
small demand increases of high-income households who gain additional income (but have a
low income elasticity of demand) are by far outweighed by demand shortfalls of low income
households who lose, as their response of food demand to income changes is much stronger.
Due to decreasing aggregate food demand, the market equilibrium price will fall. The extent
of the price decline is determined by the shape (elasticity) of the supply curve.

Less income equity, hence a switch of the demand curve from d to d', has the following
effects on the volume and structure of the food deficits:


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