Cap and Food Security

Abstract

Although the food security discussion has given more emphasis to the individual (household) level as the proper unit of analysis, it still suffers from applying inappropriate indicators, which are mostly quantity oriented, instead of relying on more recent results of the literature that it is purchasing power or real income that matters. In addition, it has not been made clear so far how food security corresponds to the welfare status of agents. Since food security can more or less be associated with an uncertain world, this should at least be reflected in the value function of individuals who are generally risk averse. Therefore, it is proposed in the paper that the measurement of both food security and welfare should be based on the probability distribution of adjusted real household income over time on a daily basis. Food security can then be defined as the probability of any agent's real income exceeding a critical level, whereas the welfare status is measured as the agent's expected utility of this real income. Special formulas are developed in this context which allow one to calculate producer's and consumer's welfare under price uncertainty and risk aversion separating the risk response effect from the mean income moving effect of price fluctuations. In addition, an alternative measurement of protection in a stochastic world, the so called real protection rate, is proposed which simultaneously covers protection against low prices and volatile prices. All these indicators should be used when comparing and evaluating food security or food insecurity of any agent in whatever region. In the paper the concept is utilized to answer the raised question of how the EU contributes to worldwide food security.