Abstract
This paper surveys the theoretical literature on the relationship between income distribution and food demand, and identifies main gaps of current food modelling techniques that affect the accuracy of food demand projections. At the heart of the relationship between income distribution and food demand is Engel's law. Engel's law establishes that as income increases, households' demand for food increases less than proportionally. A consequence of this law is that the particular shape of the distribution of income across individuals and countries affects the rate of growth of food demand. Our review of the literature suggests that existing models of food demand fail to incorporate the required Engel flexibility when (i) aggregating different food budget shares among households; and (ii) changing budget shares as income grows. We perform simple simulations to predict growth in food demand under alternative income distribution scenarios taking into account nonlinearity of food demand. Results suggest that (i) distributional effects are to be expected from changes in between-countries inequality, rather than within-country inequality; and (ii) simulations of an optimistic and a pessimistic scenario of income inequality suggest that world food demand in 2050 would be 2.7 per cent higher and 5.4 per cent lower than distributional-neutral growth, respectively.
Highlights
This paper focuses on the impact of income distribution on food demand, an issue that has been significantly overlooked by a large proportion of studies projecting future food demand
(b) Between-country inequality and food demand Since data are available on food consumption and per capita gross domestic product (GDP) for most countries of the world, it is tempting to proceed to the estimation of a world food Engel curve and to perform a world-scale simulation of a change in the world income distribution
One implication of Engel’s law is that any accurate prediction of future food demand needs to deal with two main issues when considering income distribution: aggregation across households and Engel flexibility. The former refers to the fact that considering only mean income growth to determine aggregate food demand can be misleading when income growth is different across income groups with different income elasticities
Summary
At the heart of the relationship between income distribution and food demand is Engel’s law. A consequence of this law is that the particular shape of the distribution of income across individuals and countries affects the rate of growth of food demand. Our review of the literature suggests that existing models of food demand fail to incorporate the required Engel flexibility when (i) aggregating different food budget shares among households; and (ii) changing budget shares as income grows. Results suggest that (i) distributional effects are to be expected from changes in between-countries inequality, rather than within-country inequality; and (ii) simulations of an optimistic and a pessimistic scenario of income inequality suggest that world food demand in 2050 would be 2.7 per cent higher and 5.4 per cent lower than distributional-neutral growth, respectively
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