Annex 1


If the market price fluctuates freely and falls to the new equilibrium price, the demand and
the supply deficits will increase from B-A at the outset to B-D. If the market price were
maintained at the higher level p (e.g. by official price regulations or other policy measures
already mentioned), the market supplies would be not affected but demand would fall even
further, and the demand deficit increase from B-A to B-C. In addition, a market surplus of A-
C would appear in the latter case. Specific market interventions would be required to absorb
this.


Fig. A-9: Impact of income distribution on food demand and supply


 price
 A market demand r en
 d"d d'

 /supply





 i d" (more equity)
 p -- "- '---" --

 ____ -_-___- d' (less equity) volume
 _- > volume
 CD A E B



The overall negative impact of worsening income distribution on food security is evident:


The ability of food insecure low-income households to express their needs as effective
demand is further constrained, aggregate demand is reduced, the overall demand deficit
expands, domestic food production goes down as well, hence the production deficit
increases. The decreasing effects on producer prices and the volume of domestic food
production further accelerates the downward trend and aggravates the food security
situation, as the large group of agricultural producers (representing the majority of
households in many developing countries) who depend on the sale of food as a major
source of income suffer further income losses.

This last issue can also be translated from the national to the international scene, posing the
question; how far have worsening terms of trade and growing international income
discrepancies contributed to the widening food gaps in many developing countries.

An increase in equity:

The effects of an opposite trend of income distribution towards higher equity (brought about,
for example, by public works programmes or other income generation measures for low
income groups) are easily deduced: The volume of food demand increases and the demand


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