3204 3 food demand
DESCRIPTION
AAEC 3204 George W.NortonTRANSCRIPT
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 1/33
Economics of FoodEconomics of Food
DemandDemand
Dr. George Norton
Agricultural and Applied
Economics,
College of Agriculture
& Life Sciences,
Virginia Tec
International Agricultural Development and Trade
AAEC 3204
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 2/33
!"#ecti$es Toda%!"#ecti$es Toda%
Identify determinants of food
demand
Begin discussion of income
elasticities and price elasticities ofdemand
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 3/33
Effectivedemand for food
Food NeedFood Need
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 4/33
Determinants of Food DemandDeterminants of Food Demand
Income
Price (own)
Price (substitutes + complements)
Population
Habits, customs, preferences
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 5/33
Figure ' Demand Cur$esFigure ' Demand Cur$es
0 500 1000 1500 2000 2500
200
150
100
50
B
A
Price ! per ton
"uantit# million ton$
per #ear
Demand curveat %ig%er income &D'(
Demand curveat lo) income &D(
B'
A'
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 6/33
Engel(s La) & *ennett(s La)Engel(s La) & *ennett(s La)
Engel’s Law !s income increases,people spend a smaller proportion oft"eir total income on food#
Bennett’s Law $"e ric"er one
becomes, t"e less "e or s"e spendson starc"y staples
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 7/33
+easure of ncome Gro)t on+easure of ncome Gro)t on
DemandDemand
Income ela$ticit# ofdemand*
2
1
2
3.01
3.0
%%
=
=
⋅∆∆=
∆∆
Q I
I Q
I Q
+o) do )e mea$ure t%e effect of income gro)t%on t%e demand for a commodit#,
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 8/33
Si-e of income elasticitiesSi-e of income elasticities
%ormal &oods'%ormal &oods'
ero to oneero to one
*uperior &oods'*uperior &oods'
&reater t"an one&reater t"an one
Inferior &oods'Inferior &oods'
%egatie%egatie
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 9/33
ncome elasticities of demandncome elasticities of demand
for agricultural commodities infor agricultural commodities inSu"Saaran AfricaSu"Saaran Africa
"eat #-.
/ice #-0
1ai2e #34
1illet #56
/oots 7 tubers #83
Pulses #53
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 10/33
ncome elasticitiesncome elasticities
differ "% countr%differ "% countr%
9ereals9ereals Beef Beef 1il:1il:
Bra2ilBra2il #56#56 #6;#6; #36#36
%igeria%igeria #5<#5< 5#.85#.8 5#.85#.8
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 11/33
!)n /rice Elasticit% of Demand!)n /rice Elasticit% of Demand
Q
P
P
Q
P
Q E p ⋅
∆
∆=
∆
∆=%
%
Ep = >5> Elastic
? 5 @nitary elasticity
A >5> Inelastic
Price
Quantit#
inelastic
elastic
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 12/33
ncome Effectncome Effect
f te price of a commodit% increases,
te real purcasing po)er of a gi$enamount of income is reduced, causing
demand to cange "ecause of an
0income effect1.
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 13/33
Cross /rice Elasticit% of DemandCross /rice Elasticit% of Demand
2
1
1
2
1
2
%
%2,1
Q
P
P
Q
P
Q E p ⋅
∆
∆=
∆
∆=
+ *ubstitutes
8 unrelated
complements
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 14/33
2o) are elasticit%2o) are elasticit%
estimates o"tained3estimates o"tained3
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 15/33
ePOP dI cP bP aQ wr r ++++=
Pr
"r
Q
P b
P
Q
Q
P
r
r =∂
∂⋅
Q
P
P
Q⋅
∆
∆
b P
Q=
∂
∂
ln
ln&if in log$(
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 16/33
2omogeneit% Condition2omogeneit% Condition
02,11=∑++ p p E E η
o)n price
ela$ticit#
income
ela$ticit#
Cro$$
priceela$ticitie$
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 17/33
E4ample of usingE4ample of using
omogeneit% conditionomogeneit% condition9ommodity 9rossprice elasticity
/ice 7 beans #06
/ice 7 w"eat #48
/ice 7 c"ic:en #58
/ice 7 mil: #86
/ice 7 ot"er goods 8
Income elasticity of
demand for rice#3
+o) muc% )ould t%e rice price %ave to decrea$e in
order to increa$e rice con$umption -# ./,
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 18/33
5at appens to aggregate food5at appens to aggregate food
demand as income gro)s3demand as income gro)s3
D = P + ng
? rate of growt" of demand
P ? rate of population growt"
n ? income elasticity of demandg ? rate of growt" of per capita
income
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 19/33
D P ng
Eample*
D 30 &3( 3D 25 .&3(
46
Cange in Aggregate FoodCange in Aggregate Food
DemandDemand
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 20/33
7evel ofincome
8ate ofpopulatio
n gro)t%
8ate ofper
capitaincomegro)t%
Incomeela$ticit#
ofdemand
8ate ofgro)t% in
demand
9er# lo) 25 05 10 30
7o) 30 10 0 3
:edium 25 40 0. 53
+ig% 20 40 05 40
Cery"ig"
5#8 0#8 8#. 5#4
D P ng
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 21/33
Commodit% Trends andCommodit% Trends and
/ro#ections/ro#ections Cereal demand &food feed( :eat demand
;rain production in 7DC$ ;rain import$ in 7DC$ <= grain eport$
>ood price$ Per capita food availa-ilit# in 7DC$ C%ild malnutrition
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 22/33
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 23/33
Cereal mports "% 6egionCereal mports "% 6egion
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 24/33
Net Trade "% 6egionNet Trade "% 6egion
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 25/33
Gro)t in Cereal /roduction
C l 7i ld " 6 iC l 7i ld " 6 i
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 26/33
Cereal 7ields "% 6egionCereal 7ields "% 6egion
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 27/33
Factors Affecting 6eal /riceFactors Affecting 6eal /rice
*upply factors'*upply factors'
emand factors'factors'
"at are some of t"e factors t"at will"at are some of t"e factors t"at will
affect t"e real price of food oer t"eaffect t"e real price of food oer t"e
neDt 58 .8 years'neDt 58 .8 years'
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 28/33
Factors affecting location ofFactors affecting location of
te suppl% cur$ete suppl% cur$e Tec%nolog# ?um-er of $eller$ =u-$titute$ in
production Input co$t
Price
"uantit#
S1
S2
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 29/33
8sing Suppl% & Demand Cur$es8sing Suppl% & Demand Cur$es
5# For a commodity'
.# For groups of commodities'
How can one use supply and demandcurves to predict future price changes?
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 30/33
Price
Quantity
P1
Q1
Supply
Demand
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 31/33
6ate of Gro)t of Agricultural /rices6ate of Gro)t of Agricultural /rices
/ c%ange P / c%ange > / c%ange "price ela$ticit# of demand
P ? price
F ? productionG ? uantitydemanded
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 32/33
2o) do agricultural prices2o) do agricultural prices
affect te poor affect te poor Farmers'
9onsumers'
Indirect effects' if
7/21/2019 3204 3 Food Demand
http://slidepdf.com/reader/full/3204-3-food-demand 33/33
ConclusionsConclusions
1 Income increa$e$ for t%e poor can %ave alarge effect on nutrition -ecau$e poor $penda %ig% proportion of t%eir -udget on food
2 ?eed to increa$e $uppl# for commoditie$)it% %ig% income ela$ticit# of demand &n(@t%er)i$e price$ )ill ri$e
3 If n i$ lo) -ut countr# )ant$ to increa$e
con$umption of a good need education or a$u-$id#
4 At )orld level* $%ift to feed grain$ a$ income ri$e$