1. Economics Text extracted from The World Food Problem Leathers and Foster, 2004

2. Supply and Demand Supply curve –If a product sells at a low price, producers make little of it –As the price rises, producers are willing to make more of the product –The supply curve thus slopes upward

3. Supply and Demand Demand curve –When the price of a product is high, consumers don’t buy much of it –When the price of a product drops, consumers are willing to buy more –Thus the demand curve slopes downward

4. Supply and Demand Price reaches an equilibrium at the intersection of the supply curve and the demand curve. If price is higher than this point: –Producers will want to produce more –Customers will want to pay less –Thus price drops back to equilibrium

5. Supply and Demand Consumers are pursuing their own best interest Producers are pursuing their own best interest “Invisible Hand” matches supply with demand –Adam Smith

6. Supply and Demand Works for –Individual consumers and producers –Aggregate of all consumers and all producers Aggregate Supply Aggregate Demand

7. Shift in Demand Curve Demand curve may shift to the left –Not willing to pay as much –Thus price drops –Due to drop in income Demand curve may shift to the right –willing to pay more for product –Due to: Increased population Increased income Changes in taste Demand curve shift to the left

8. Shift in Supply Curve If it becomes easier to produce a product, supply curve will shift to right –More farmland –More children for labor –Fertilizer available –Water available –Technology available Price drops

9. Engel’s Law The proportion of household budget spent on food decreases as income increases –Wealthy spend less % of their wealth on food

10. Bennett’s Law The ratio of starchy foods in the diet falls as income rises Poor eat more starchy foods –Grains –Root crops Wealthy eat more meat, fruit, vegetables

11. Income Elasticity of Demand How much increase in demand for food is there with a 1% increase in income? –Elasticity =1 if is 1% increase in demand –Elasticity lower if is lower than 1% increase in demand –Ex: East Java income elasticity for food = 0.58 East Java market

12. Income Elasticity of Demand Depends on income Brazil study –Low income elasticity for rice = 2 –High income elasticity for rice = 0.2 Low income people bought 2% more rice with 1% more income High income people bought nearly same amount of rice regardless of income

13. Price Elasticity of Demand Price elasticity –Change in consumption with a 1% change in the price As price increases, consumption decreases Thus price elasticity for a product is usually negative Ex: Indonesia –Rice: -.63 –Livestock: -1.73 Price elasticity less magnitude at high incomes: –don’t care if price rises Costa Rica Livestock

14. Price Elasticity of Supply The change in supply in response to a 1% change of price Less response to food price in developing world –Farmers less involved in market economy –Lower inputs, therefore adjustments easier –More risk adverse Ecuador Farmer

15. Food Security Food security: –“Access by all people at all times to enough food for an active, healthy life” Lack of food security is caused by lack of purchasing power

16. Food Security Equation Amount of food need is less than or equal to money available to purchase food If household produces more food, will need to buy less

17. Food Security Depends on –Number in household –Ages –Sex –Working status –Health status –Pregnancy –Lactation

18. Household Food Production Depends on –Amount of land –Education of farmer –Technology available –Capital available –Input prices –Subsidies –Taxes India farmers http://www.idrc.ca/openebooks/337-9/f0068-02.jpg

19. Price of Food Depends on –Quantity produced –Population demand –Income demand –Taste preference demand –Government Price controls Tariffs Subsidies Taxes