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Food Consumption Demand Supply
A good knowledge of demand and supply structure and consumer behaviour is essential for a wide range of development policy questions like improvement in nutritional status, food subsidy, sectoral and macroeconomic policy analysis, etc. An analysis of food consumption patterns and how they are likely to shift with changes in income and relative price is required to assess the food security-related policy issues in the agricultural sector.
This issue of household food security has been one of the major concerns in India.
There is an on-going debate on welfare implications of the decline in foodgrain consumption. Over the last two decades there appears to have been a structural shift in consumption pattern away from cereals to high-value agricultural commodities both in the urban and rural areas. From the available evidences it seems that even the very poor have tended to change their consumption pattern towards non-cereal commodities. This is perhaps a direct outcome of changes in relative prices over the years and an expected result of rise in per capita income levels.
In the short run, with relatively inflexible production, changes in the structure of demand are the main determinants of observed changes in market prices for non-tradable goods and of imports and exports of tradable goods. In medium and long runs, the structure of final demand is an important element of more complete models that seek to explain the levels of production and consumption, price formulation, trade flows, income levels and government fiscal revenues.
It is not just food that is getting more expensive. The wholesale-price index (WPI), the most commonly used measure, rose to an annualised 6.6% in the week ending January 27th, a two-year high and sharply above the ceiling of 5.5% set by the Reserve Bank of India (RBI), the central bank. Having several times raised interest rates in recent months, the RBI on February 13th made another move to curb inflation, raising the proportion of banks' assets they have to hold as cash from 5.5% to 6%.
GOVT INTERVENTION
In the short term the RBI's modest monetary tightening is not going to bring down the price of vegetables or grain. Annual food-price inflation was last month 10%, compared with 7.6% a year earlier. Food prices have a weighting of only 15.4% in the WPI, but are of huge concern to poor Indians, who spend much of their income feeding their families. Prices have been pushed up by bad weather abroad, bringing a poor Australian wheat harvest, and by poor economic management at home. The price of wheat has risen by nearly 12% in a year. India's government is worried. On February 9th it banned wheat exports, though Indian wheat prices are already higher than world prices. To have cheaper flour, India's masses must hope for a decent wheat harvest next month. This has been predicted, after several days of gentle rain across northern India this week.
Edible-oil prices have been shooting up by as much as 43% in a year, obliging the government last month to cut excise duties. It also scrapped tariffs on maize imports until the end of the year. In the longer term, lower and steadier food prices depend on better roads and electricity. At present, about 40% of India's fruit and vegetable harvest rots before reaching markets. One hope is that the current enthusiasm for organised retailing from Indian firms such as Reliance will lead to huge improvements in supply chains. Hopes would be higher still if retailing were open to foreign giants, such as Wal-Mart, which are currently restricted to launching wholesale operations in India.
Yet the government's most pressing need, with GDP growth of 9.2% predicted this financial year (ending in March), is to prevent India's economy from boiling over. Prices for manufactured goods, which have a weighting of 64% in the WPI, have risen by 6.6% over the past year. Wages are soaring; property and financial-asset prices are bubbling; lending to companies and households has increased by 30% in the past 12 months. The RBI will probably have to tighten monetary policy further, in an effort to cool the overheating economy. To sustain India's current growth, longer-term measures, such as cutting subsidies and building infrastructure, are needed. But that takes too long to win the votes of those whose most pressing concern is the price of onions.
this decline indicates an increase in the
consumer's welfare. It has been argued that this sharp
decline in cereal consumption can be attributed to changes in consumer tastes--from
food to non-food items and, within the food group, from cereals to non-cereal food
items and from ‘coarse' to ‘fine' cereals. These issues are generally debated as having
a direct implication on poverty and increasing incidence of hunger in the country. Debates on the issue of
food security in terms of the country's self-sufficiency in production, future demand
for cereals and other food items as well as the ability of households to meet their
calorie requirements are of important policy relevance.
In India, although cereal continues to be the important constituent of a household's
food basket, its share in the total budget is declining. In the consumption food basket
high-value foods such as vegetables and fruits (V&F), milk, meat, fish and
eggs(MFE)3 are receiving increasing importance. These food items are rich in
protein, essential vitamins, minerals and micronutrients. The share of other food4 has
also shown an increase.
The annual per capita consumption5 of foodgrains has declined between 1983 and
2000. The per capita consumption of cereals declined by 16.26 per cent while the per
capita consumption of pulses increased marginally (Table 2). The consumption of
vegetables and fruits, milk,, meat, fish and eggs edible oil and sugar has shown an
increase.
The concern about the decline in cereal consumption by the very poor can be shown
as misplaced in the light of the structural change in their consumption basket towards
non-cereal commodities. The increase in per capita income and the decline in the
prices of food items which are substitutes for cereals play a key role in this
diversification even for very poor income groups.
The demand for cereals, pulses and high-value commodities is increasing due to
population growth, changing tastes and consumption patterns. Will we be able to
sustain our food security in the long run?
Foodsecurity issues depend on several factors such as growth trends in population, per
capita income, urbanization, changes in taste in the era of globalization and future
growth of the bottom-most section of the population. Food security is defined as
economic access to food along with food production and food availability. Food
security is a situation in which both food supply and effective demand are sufficient to
cover nutritional requirements. Indicators of food security are household food
availability, household food consumption and nutritional status. But the question of
food security has a number of dimensions that go beyond the production, availability
and demand for food. It is the ability of all people to access food at the same time for
a healthy life. At the household level, food security refers to the ability of a household
to secure adequate food to meet the dietary needs of all the members of the household.
Looking into the supply and demand balance for cereals, it appears that demand will
be met in future with a surplus of cereals. Projected demand for cereals is 175.9 mt in
2010 and 216.7 mt in 2020, while the projected supply of cereals (Kumar and Mittal
2003) is 236.8 mt in 2010 and 274.0 mt in 2020. These figures are quite reassuring for
the period up to 2020 for national food security. But when we talk about the issues of
household food security then per capita net availability is a better measure.
Figure 6 illustrates the per capita availability, per capita demand and per capita
production projected12 for 2005, 2010, 2015 and 2020. The graph shows that the per
Figure 6: Projected Foodgrain Availability and Demand in India
capita production will decline during the next two decades. But the per capita
availability, which is net of stocks and trade, will take care of the increasing per capita
demand of foodgrains in the country. However, if the per capita production shows a
decline it remains an issue of concern. To improve food security at the national level
we need to either increase agricultural production or increase imports. Since
agricultural growth is limited, imports can act as a commercial means to improve the
country's food security. Primarily, for domestic agricultural growth we need to lay
emphasis on productivity improvement, public investment in irrigation, infrastructure
development, efficient use of water and plant nutrition. We also need to put in
resources for research and development (Kumar 1998; Fan et al 1999; Evenson et al
1999). The scope of area expansion and livestock population increase is minimal; also
some area has to shift from foodgrains to non-foodgrains to meet their increasing
demand. While domestic production is still the most important source of food
security, developing countries are gradually increasing their dependence on food
imports. Thus, food security in developing countries will be boosted if they gain
12 These are forecasts based on the time series information available in the 2005 Economic Survey,
Government of India. The underlining assumption is that the past growth trend continues.
18
increased access to developed markets through trade liberalization (Trueblood and
Shapouri 2001). Thus, these policies will help in maintaining yield growth that will
enable the country to maintain a balance between domestic production and demand.
Advances in crop production techniques in the post-green revolution period
significantly helped in expanding food output and stocks of major cereals (rice and
wheat) in India. This period also witnessed higher economic growth, population
growth and increase in food demand. The shift in dietary patterns across regions and
income classes is also observed. This brings a change in supply and demand prospects
for food in the country in coming decades. Long-term food security demands that
research in production technology of non-cereal food, through technology access to
the poor small producers, should be promoted. Improvement in the quality of food
items and reduction in transaction costs associated with their market access need to
policy priorities.
Thus a major challenge to household food security comes from the dietary
diversification of the poor. On the production side, if cereal pricing is left to the
market forces playing the facilitating role, land will be released from rice and wheat
cultivation to meet the growing demand for non-cereal crops such as oilseeds, fruits
and vegetables in accordance with diet diversification. This policy would facilitate
agricultural diversification in tune with the emerging demand patterns. Higher value
of future demand for these crops may justify extra research spending on crops whose
demand will not respond strongly to rising urban incomes. The growing demand for
livestock products gives an opportunity to increase incomes and employment and to
reduce poverty in rural areas. If flexibility on the supply side is facilitated, production
will adjust to the market forces and generate higher incomes in the rural areas.
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