Agriculture Reference
In-Depth Information
they have access to only small amounts of land or are landless, their incomes and
ability to earn money play a large role in determining their food security.
Economists measure the impact of changes in income on the amount of food
demanded with the concept of the income elasticity of demand.
Income elasticity of
food demand
is defined as
%
Change in quantity of food demanded
Change in income
E
i
=
(23.3)
%
Here,
E
i
denotes the income elasticity of demand. An income elasticity of 0.8 for
food means that as income goes up by 10%, the quantity of food demanded by the
consumer will increase by 8%. Of course, if the income elasticity is less than 1,
then the proportion of the budget allocated to food will decrease as income rises.
Figure 23.3 shows the income elasticities for the commodity groups food, housing,
medical care, and education across countries by gross domestic product (GDP; a
measure of income per person) per capita (plotted data from Seale et al., 2003). As
can be seen, the income elasticity of food decreases from a measure of about 0.8
to a low of 0.15 as countries move from low levels of GDP per capita to higher lev-
els. The income elasticities for food pertain to aggregate data at the country level.
Nevertheless, a similar pattern holds at the individual or household level within
a country. This variation in food-purchasing behavior, along with the fact that in
poor settings people spend a high percentage of their overall income on food, helps
explain the differential impact across the income spectrum of an income shock, such
as a drought or a decline of a fishery, on household food insecurity.
Figure 23.4, Figure 23.5, and Figure 23.6 illustrate that as incomes increase, the
proportion of the total household budget allocated to food declines, and the mix of
food products purchased changes. The composition of the food basket changes from
low-value food goods, such as rice and low-cost sources of carbohydrates (cassava,
corn, etc.), to higher-value foods such as meat, fruit, vegetables, and prepared or fast
foods. This general pattern of change has implications for both food producers and
consumers, as well as for the overall food security situation in developing countries.
With real incomes rising in countries such as China and India at a rate of between
5 and 9% per year in recent years, as well as in many other developing countries
in Africa, Asia, and Latin America, rapid changes in the nature of food demanded
occurs. In addition, as Seale et al. (2003) reported, lower-income countries have
higher-income elasticities for high-value foods (meat, dairy, and fruit and vegetables)
compared to higher-income countries. This implies that as income growth continues,
poorer consumers will demand more of these goods.
This pattern of moving toward a diet that increasingly includes high-value foods is
accentuated by the simultaneous demographic shift of population from rural to urban
areas. As people move from rural to urban areas, we observe a shift in preferences
toward Western-style foods (e.g., breads from rice, takeout food and fast food, pack-
aged foods from global brands or in imitation of global brands) and high-value foods.
These demand factors drive growth in agriculture in developing countries, where
