Question 1Food crisis refers to a situation where a nation, a region or the world is unable to meet the food demands of its people using the available land and production means. Several factors may contribute to this problem, among them population explosion, adverse climatic changes, poor implementation of agricultural policies, outbreak of crop diseases among others. (i) Some of the effects of food crisis include soaring food prices, starvation, malnutrition, very high exports and over-reliance on food aid from donors. As illustrated in the graph below when the demand increases while supply remains the same, the demand curve shifts and this leads to a higher equilibrium price which is passed onto the citizens.
Figure 1: Price vs quantity demanded and supplied graph when demand curve shiftsAs the population grows, food demand to feed that population likewise increases. In a free market, increase in demand leads to a parallel increase in food prices as food is an essential commodity. However, during food crisis, food prices go beyond what the poor population can afford since the income levels remain stagnant. Figure 2: Price Vs quantity supplied graph when supply curve shifts(ii) Outbreak of wheat diseaseWheat is one of the commonly used food crops.
It is produced in wide scale in most countries for their own consumption and the excess is exported. When there is an outbreak of wheat disease production goes down and this lowers the quantity supplied. When this happens the amount sold by the sellers will decrease and the supply curve will shift to the left as the demand curve remains static. The overall effect will be a change in supply and a similar change in the quantity demanded resulting in equilibrium with a lower quantity and a higher price.
When supply decreases and demand is the same prices go up. These prices reach to a point where the poor can no longer afford calling for government’s intervention. Quantity of commodity Figure 3: Price vs quantity of commodityQuestion 2The macroeconomic impacts of rising prices of foodHigh food prices have adverse effects on an individual nation and the world at large. Slow growth paceWhen the food prices are very high much of individual and government spending is directed to meeting food expenses leaving little or nothing for investment.
When the rate of investment reduces the growth rate reduces. Inflation Increase in food prices may also lead to a rise in the prices of other goods and services. This in return erodes money’s purchasing power as each unit of money buys fewer commodities. Although inflation has both advantages and disadvantages. In actually compounds the problem of growth rate as the loss in stability in money value and monetary items discourages savings and subsequently investments.
The extremes of this problem occur when consumers begin hoarding goods in anticipation to future price increases leading to a further artificial shortage of goods in the market. Poor terms of trade Under ordinary circumstances a country will be pleased when it pays less for its imports with respect to the exports it makes to another country. However, when the there is food crisis a country has no option but to rely on food imports to feed its citizens (Krueger et al, 1967). This in turn leads to unfavorable terms of trade as imports exceed the exports at a particular period of time.