The economics of food production

Although world average food production per person is increasing there are many countries, particularly in sub-Saharan Africa, where production has fallen in recent decades. The economic analysis of the world food problem concerns the dynamics of production, income, growth, demand and trade. The 'law of diminishing returns' suggests that labour incomes fall as population density increases. Capital investment and technological change, particularly with a land-saving bias, can overcome this effect. Such land-saving innovations are less appropriate where population densities are lower, as in much of sub-Saharan Africa. Innovations which reduce risk, such as stress- and disease-resistant crop varieties, may be more attractive to farmers. Communal or government action is required to ensure sustainability of food production; to reduce risk, through price stabilization, possibly crop insurance and contingency plans for famine relief; to promote equity and to ensure competitive market conditions. Public funding of agricultural research is necessary to promote growth in food supplies. If increases in supply do not keep pace with growth in demand, food prices rise, attracting resources into food production. If supply grows faster, food prices and farm incomes fall, driving resources out of agriculture. Resources may not move fast enough to correct imbalances. Primary producers are likely to face deteriorating terms of trade. Linkages between food production and other sectors are weak, so primary exports are not a good basis for economic development. Import substitution strategies may damage agriculture. Structural adjustment regimes have been adopted in some countries to correct imbalances and provide an incentive for farmers to increase production. Associated reductions in public expenditure may have a contrary impact.