Annex I


Fig. A-12: Path towards a reduction and final elimination of food deficits

 price requirements
 demand
 old
 production
 old \ new /supply
 new







 o -------- volume



Unfortunately, reality is not as simple as indicated in our model, and there is no magic
formula to induce all relevant factors to work in the same direction towards higher food
security. Numerous other policy issues need to be solved, and a policy serving one purpose
(e.g. consumer and/or producer subsidies to reduce existing food deficits) may be in conflict
with another (e.g. fiscal measures to reduce a budget deficit).

There are also conflicts within the food economy, as the following examples show:

* Increasing food prices stimulate production, supply and agricultural income, but reduce
 the real. income, effective demand, and food security of consumers who depend on the
 market for their food supplies (e.g. low income urban consumers).

* Wages for agricultural labour represent, on the one hand, an important cost component
 of food production, on the other hand an important source of income for many
 households. A factor inducing a fall in the real or nominal wage reduces production costs
 which may stimulate food production, while, on the demand side, the income of
 households who depend on wage labour is reduced. Their food demand will drop and
 increase the demand deficit. The drop in demand is likely to affect food production in a
 negative sense, offsetting the positive effects resulting from lower production costs.

* Food imports mean an expansion of food supplies which will reduce the supply deficit,
 in consequence also the demand deficit, but may, through a drop in demand for locally
 produced food, induce lower domestic food production and increase the production
 deficit. This applies especially to the case of low-cost concessional food imports. Even
 where provisions are made to target food aid to the most needy (which theoretically
 would not reduce effective demand for local food as those people do not have purchasing
 power), the leakage of food aid items on to the market, with the associated risk of
 disincentive effects on local production, cannot be excluded.


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