FOOD SECURITYConcepts, Basic

Facts,and Measurement

Issues

June 26 to July 7, 2006Dhaka, Bangladesh

Rao 4a:Factors in Food

Security 1: The Food Chain, and

Sources of Its Instability

Learning: The learning goal is to understand the nature and role of the food chain in determining FS and the most common problems of supply and price instability.

Brief Contents• definition and aspects of the food chain• general and special food chain

dependency• physical versus financial flows along

the food chain• functions of the marketing system:

information, physical and social access• the concept of food entitlements;

direct or exchange entitlement failures• seasonal variations in operations of the

food chain• supply instability

The Food Chain

• Recall 3 aspects of FS (other than utilization): availability, access, stability

• We now examine their determinants and how they might become sources of vulnerability.

• We do so by looking at the features of the "food chain" & entitlements

• Food chain refers to the sequence and steps from planting to final consumption.

Figure 4.1

General and SpecialFood Chain Dependency

• We all are dependent on many different commodity chains

• The complexity of "our" food chains depends on what we consume.

• To access the food we need food entitlements.

• For many HH, their food entitlement results directly from the food chain.

• Such HH are doubly dependent on the food chain, for both access and availability.

• The size of this doubly dependent group depends on the population dependent on agriculture

Physical Flows Along a Food Chain

• Agents (producers, transporters, processors, wholesalers, retailers, consumers) are linked by physical and financial flows

• Physical flows can be shown in a supply utilisation account as at right:

Large farmers Harvest

  14163.9

Seed Waste Village traders Local traders Co-operative

traders

424.9 424.9

2832.8 9489.8

991.5

  14163.9   14163.9

Village traders Small farmers Large farmers

  2015.0 2832.8

Local traders Private millers Waste

969.6 3830.1

48.1

  4847.8   4847.8

Local traders Small farmers Large farmers

Local traders

  2127.4 9489.8

969.6

Private millers Waste

12461.0 125.9

  12586.9   12586.9

Financial Flows Along a Food Chain• Financial flows correspond to the physical

flows• They go in reverse direction - from final

consumer to primary producer• Financial & physical flows determine

income distribution in the chain• At each stage, Revenues = Cost of

purchased inputs + Value added

• In turn, Value added = Return to factors

+ Taxes/subsidies + Profits/losses

• So VA entitlements go to labor, capitalists, landowners, etc. and to government

• Commodity chain analysis helps us analyze how entitlements arise

Functions of the Marketing System

• Marketing systems have 3 broad functions: – logistical function – informational function– distributional function.

• Logistical function subdivided into 3 aspects: – transformation over space (transportation)– transformation over time (storage, seasonal or

long-term)– processing (e.g., milling, canning, etc.)

• marketing and VA in marketing rises with economic development

Information

• Markets channel price signals and so help allocate food

• Market failures produce information failures and so coordination failures

• In regulated markets, prices may be fixed and so cannot be information signals

Distribution

• Markets and prices also help distribution the benefits of the division of labor

• The distribution role is politically sensitive and invites government interventions.

The Food Chain andHousehold Food

Entitlement• Typical HH has "multiple" sources of food entitlement

• Own-production, exchange, labor, land rent, profits are all examples

• Are the poor more dependent on exchange than rich? No generalization possible

• Well-known U-shaped marketed surplus share• Growing specialization and long-distance trade

produce greater all-round dependence on markets

• Evolution of complex food chains can be good for national FS: due to gains of specialization. But it can lead to more instability, especially under scarcity and more so for poorer regions

• The same can be said for household FS: there are gains but also threats, especially to the poor

Key Determinants of Entitlement• Employment opportunities and the terms of

employment;• Access to productive physical assets, and the

terms of that access, whether agricultural or non-agricultural, whether privately owned, borrowed or rented

• Access to productive public goods & services supplied with or without subsidies

• Access to skills/knowledge helpful in getting and using resources and opportunities

• Rates of return on productive assets owned or operated by the household

• Terms of consumption• Access to public consumption goods &

services supplied with or without subsidies• Access to transfers, from government, non-

government groups or other households

The Entitlements Argument:

Supply Shortfalls or Entitlement Failures?• The argument that food insecurity has much

more to do with insufficient access to food (due to entitlement failures) rather than a general shortage in production or supplies is really quite central.

• A precondition for food security is, therefore, not only the availability of adequate and reliable food supplies but also sufficient access to food supplies for the household to meet their requirements.

• The importance of access to food as the other essential precondition of food security was emphasized at the World Food Summit and reflected in its Commitment number two "We will implement policies aimed at eradicating poverty and inequality and improving physical and economic access by all, at all times, to sufficient, nutritionally adequate and safe food and its effective utilisation".

Entitlements Concept and Argument Applies to HH AND

National Levels, Too.• At national level, entitlements means

availability of foreign exchange to pay for imports.

• When poor countries get low prices for what they sell and pay high prices for what they buy, this is a kind of national entitlements failure of the market. Other factors include:– tendency for declining international terms

of trade– running into external debt traps– over-dependence on foreign capital leading to

financial crisis e.g., Indonesia– international rules of the game that may

actually impoverish the poor further

Seasonal Variations in the Operation of the Food

Chain• Seasonal variation arises in many

parts of the food chain

• Food cultivation and harvests are obviously seasonal

• But so can food marketing on account of storage and transport constraints

Seasonal Rural-Urban Price Differentials in Indonesia

Supply Instability

• Supply instability is a principal cause of temporary food insecurity

• Caused by unfavorable weather, regular seasonality or other temporary or regular supply disruptions

• Supply instability may affect particular groups or regions more than others

• HH with no credit, usually the poor, may be especially hard-hit