Food demand and the food security challenge with rapid economic growth in the emerging economies of India and China

Food Research International xxx (2014) xxx–xxx

FRIN-05131; No of Pages 17

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Food Research International

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Food demand and the food security challenge with rapid economicgrowth in the emerging economies of India and China

Vasant P. Gandhi a,⁎, Zhangyue Zhou b

a Indian Institute of Management, Ahmedabad, Indiab James Cook University, Townsville, Australia

⁎ Corresponding author.E-mail addresses: [email protected] (V.P. Gandh

(Z. Zhou).

http://dx.doi.org/10.1016/j.foodres.2014.03.0150963-9969/© 2014 Elsevier Ltd. All rights reserved.

Please cite this article as: Gandhi, V.P., & Zheconomies of India and China, Food Research

a b s t r a c t
a r t i c l e i n f o
Article history:Received 15 August 2013Received in revised form 6 March 2014Accepted 9 March 2014Available online xxxx

Keywords:Food demandFood securityFood policy

China and India, with their huge populations (37% of the world total), have been experiencing high economicgrowth rates of 7 to 12% in the last two decades. This has led to major changes in the levels and patterns oftheir food consumption and food buying behavior. This paper examines the rise and transformation of food de-mand in these two large emerging economies and the possible implications for the food security challenge. Datafrom the latest consumer surveys of the Government of India covering about 100,000 households and similardata from China are used. Tabulation and econometric analysis indicate that food demand is undergoing ahuge transformation andwill undergo further change. Consumers are rapidly increasing their consumption of an-imal products, vegetables and fruits, and reducing their consumption of cereals. Results show high income elas-ticities of demand formany foodproducts such as animal products, processed foods, and also eating-out-of-homein both rural and urban areas. In India, given the vegetarian diets, the biggest component emerges to be dairyproducts, but the consumption of vegetables, meat and eggs is also growing rapidly. Supply is frequently unableto keep pace with the demand, resulting in high food price inflation. In China, the demand for foods of highervalue, such as meats, dairy products and aquatic products is growing strongly. Urbanization is also having asignificant impact. The numerous challenges include not only managing the supply but also the food supplychain,marketing, food safety and food processing. The changes pose anopportunity aswell as a new food securitychallenge for these countries and the world.

© 2014 Elsevier Ltd. All rights reserved.

“If each Chinesewere ever to consume asmuch beef as today's aver-age American, and if the cattlewere to be raised largely on grain, thatwould require more grain than the entire U.S. grain harvest.”

[(Myers & Kent, 2004)]

Introduction

The food scenario in emerging economies such as India and China isundergoing a huge change and this would create major challenges forthese countries as well as the world economy. Over the past two de-cades, China and India, the two of the largest developing nations inthe world, have witnessed rapid economic growth rates of 7 to 12%.With large populations (together 37% of the world total) and growingincomes, their food demand is rapidly increasing, and more important-ly, the composition of food consumption is changing. Self-sufficiency isbecoming increasingly difficult to maintain in these countries. Even if

i), [email protected]

ou, Z., Food demand and theInternational (2014), http://d

demand for cereals seems somewhat manageable, there is a structuralshift and the demand for other foods appears to be growing rapidlyand posing a serious challenge. With continuing emphasis only onbasic staples for food security, the situation of animal products, vegeta-bles, fruits, edible oils and processed foods is often ignored and poorlyunderstood. The consequence is seen in recent years in terms of highfood price inflation, often causing general inflation andmacroeconomicproblems for growth, as well as food supply chain efficiency and foodsafety concerns.

The paper examines these issues for India and China.What is the im-pact of rapid economic growth on food demand?What are the changesin the nature and composition of food demand?Why do countries suchas India and China show high food price inflation? What are the impli-cations of these changes for national and global food security?

Even though there has been limited research with this perspective inrecent years, the broad topic has been a subject of research in the past.FAO (1972) had evaluated demand and income elasticities of majorfood products across countries for the 1960s, and it periodically does gen-eral evaluations for example FAO (2009), and OECD-FAO (2010). Sarmaand Yeung (1985) (IFPRI) had examined the growth in livestockproducts in third world countries between the early 1960s to mid-1970s. Sarma and Gandhi (1990) (IFPRI) had examined the growth of

food security challenge with rapid economic growth in the emergingx.doi.org/10.1016/j.foodres.2014.03.015

http://dx.doi.org/10.1016/j.foodres.2014.03.015

mailto:[email protected]

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2 V.P. Gandhi, Z. Zhou / Food Research International xxx (2014) xxx–xxx

food grain production and consumption in India up to the 1980s. Sinhaand Giri (1989) studied some aspects of food consumption for a fewIndian states: Gujarat, Punjab and Tripura using National Sample Surveydata. Gandhi and Mani (1995) examined food demand with a focus onlivestock product demand growth in India. Dastagiri (2004) has exam-ined some aspects of food demand in Indiawith data of 1993. Other stud-ies for China and India include Huang & Rozelle (1998), Abdulai, Jain, &Sharma (1999), Meenakshi & Ray (1999), Fuller, Hayes, & Smith (2000),Gould (2002), Ma, Huang, & Rozelle (2004), Wang and Zhou (2005),Rae (2008), Dong & Fuller (2010), Liu, Parton, Zhou, & Cox (2009),Gandhi and Zhou (2010), and Fu, Gandhi, Cao, Liu, and Zhou (2012).For China, Tian and Zhou (2005) have examined food demand. Regmiand Dyck (2001) examined food consumption changes across countries,Azzam (2003) estimated income elasticities of food demand in the US,and Pingali (2006) looked at westernization of diets in Asia. However,the situation is rapidly changing in China and India and most of thesestudies typically examined only some foods, or only data from earlier pe-riodswhich often cannot capture the recent dynamics and new emergingreality.

Data

Government sample survey data which is collected annually by theNational Sample Survey Office (NSSO) of the Government of India (NSSdata) is used for India. The surveys extensively focus on household con-sumption once every 5 to 6 years, collecting data from a huge sample ofabout 100,000 households. The data has high acceptance in research,planning and policy. The NSS, broadly based on the available budgetary

Table 1All India — rural: consumption expenditure — average per capita.Source: National Sample Survey Office (NSSO 1970-2012).

Item1

97

0/7

1

19

77

/78

19

83

19

87

/88

In Rs. p

Cereals 14.14 22.82 36.52 41.54

Pulses 1.56 2.92 4.25 6.65

Animal products 4.03 7.13 11.85 18.74

Edible oils 1.26 2.46 4.53 8.88

Vegetables and fruits 1.70 3.37 6.86 10.80

Other food items 3.27 5.63 9.71 15.21

Food total 25.98 44.33 73.73 100.82

Food total 25.98 44.33 73.73 100.82

Non–food total 9.33 24.56 38.71 57.28

Total cons. exp. 35.31 68.89 112.45 158.10

In US$

Food total 41.59 62.72 87.52 90.11

Non–food total 14.94 34.75 45.95 51.20

Total cons. exp. 56.53 97.47 133.49 141.31

No. of sample hhs 87593 99766 75911 83039

Conversion to US$ at official central bank exchange rates from fxtop.com (2014). Note that cur

Please cite this article as: Gandhi, V.P., & Zhou, Z., Food demand and theeconomies of India and China, Food Research International (2014), http://d

and manpower resources, determines the overall possible sample sizefor each survey round, and this is then allocated across the states and ter-ritories on the basis of the latest population data. This study draws upondata of NSS survey rounds from 1970/71 to 2009/10, NSSO (1970-2012).The survey methodologies have undergone some improvement but nomajor changes, making the data largely comparable over the years.

For China, thedata are primarily frompublications of China's Nation-al Bureau of Statistics (NBS), including: China Statistical Yearbook (NBS1982-2011), China Rural Household Survey Statistical Yearbook (NBS2000-2011a), and China Statistical Yearbook of Price and UrbanHousehold Income and Expenditure Survey (NBS 2000-2011b). Datafrom these sources are generally national or provincial aggregates. TheNBS data for food consumption are based on and cover only the quantityof food purchased (for urban consumers) and the quantity of foods pur-chased aswell as farm-produced (for rural residents) and do not includeaway-from-home consumption. Thus, they largely reflect at-home foodconsumption and not all consumption. Away-from-home consumptionis becoming significant in China today, especially in urban areas. Thisnon-inclusion may make the NBS data underestimates especially forfoods consumed away-from-home such as animal foods, and for urbanconsumers.

Change in the levels and composition of food consumption in India

The per capita consumption of various food groups from 1970/71 to2009/10 survey years has been compiled and shown in Table 1 for ruralconsumers and Table 2 for urban. The rural results show that food con-tinues to dominate but the expenditure on food has dropped in share

19

93

/94

19

99

/00

20

04

/05

20

09

/10

Percentage

19

70

/71

20

09

/10

er month

68.13 107.75 100.65 144.44 54.4 24.1

10.72 18.50 17.18 33.60 6.0 5.6

36.09 58.70 65.91 130.44 15.5 21.7

12.43 18.16 25.72 38.92 4.8 6.5

21.90 38.34 44.49 112.90 6.5 18.8

28.50 47.35 53.65 138.06 12.6 23.0

177.77 288.80 307.60 600.36 100.0 100.0

177.77 288.80 307.60 600.36 73.6 57.0

103.63 197.36 251.18 453.29 26.4 43.0

281.40 486.16 558.78 1053.64 100.0 100.0

per year

68.08 78.63 82.65 153.15 73.6 57.0

39.69 53.73 67.49 115.64 26.4 43.0

107.76 132.36 150.14 268.79 100.0 100.0

69206 71385 79296 59119

rency devaluations may affect the US$ values such as seen in the nineties.



Table 2All India — urban: consumer expenditure — per capita average.Source: National Sample Survey Office (NSSO 1970-2012).

Item

19

70

/71

19

77

/78

19

83

19

87

/88

19

93

/94

19

99

/00

20

04

/05

20

09

/10

Percent1

97

0/7

1

20

09

/10

In Rs. per month

Cereals 12.12 19.76 31.98 37.14 64.27 105.57 105.82 161.17 35.6 18.3

Pulses 1.76 3.67 5.60 8.85 13.92 24.25 22.51 47.06 5.2 5.3

Livestock products 6.91 12.49 21.07 32.68 60.39 100.95 111.77 208.99 20.3 23.7

Edible oil 2.41 4.46 7.94 13.23 20.09 26.81 36.37 52.85 7.1 6.0

Vegetables and fruits 3.35 6.11 11.63 19.39 37.17 64.58 70.49 175.20 9.8 19.9

Other food items 7.49 11.18 18.75 28.46 54.48 88.68 100.45 232.56 22.0 26.4

Food total 34.04 57.67 96.97 139.75 250.32 410.84 447.41 880.83 100.0 100.0

Food total 34.04 57.67 96.97 139.75 250.32 410.84 447.41 880.83 64.4 44.4

Non–food total 18.81 38.48 67.06 110.18 207.72 444.08 604.95 1103.63 35.6 55.6

Total cons. exp. 52.85 96.15 164.03 249.93 458.04 854.92 1052.36 1984.46 100.0 100.0

In US$ per year

Food total 54.49 81.60 115.11 124.91 95.86 111.85 120.22 224.70 64.4 44.4

Non–food total 30.11 54.44 79.61 98.48 79.55 120.90 162.55 281.54 35.6 55.6

Total Cons. exp. 84.61 136.04 194.72 223.38 175.41 232.75 282.77 506.24 100.0 100.0

No.of sample hhs. 18930 58162 41983 45989 46148 48924 45346 41736

Conversion to US$ at official central bank exchange rates from fxtop.com (2014). Note that currency devaluations may affect the US$ values such as seen in the nineties.

3V.P. Gandhi, Z. Zhou / Food Research International xxx (2014) xxx–xxx

from 73.6% to 57.0% between 1970/71 and 2009/10. Further, the shareof cereals in food has dropped steeply from 54.4% in 1970/71 to only24.1% in 2009/10. Animal products grow in share from 15.5% to 21.7%to emerge as next in importance. Pulses and edible oils lag considerablybehind but vegetable & fruits grow tremendously in importance.

The results for urban areas in Table 2 indicate that share of food hasalso dropped considerably from 64.4% in 1970/71 but still remainssubstantial at 44.4% in 2009/10. Whereas the share of cereals fellsubstantially to 18.3%, the share of livestock products rose to 23.7%

Fig. 1. India: per capita food consump


and of vegetables & fruits to 19.9% in 2009/10 thus becoming larger/more important than that of cereals. Fig. 1 below depicts the changesin the per capita consumption of different food items in rural andurban areas over the years in India. It shows that though cereal con-sumption continues to dominate in rural areas, in recent years there isa sharp increase in the demand for livestock (animal) products as wellas vegetables and fruits to achieve a nearly equal status with the cerealsin rural areas. In urban areas cereals no longer hold a dominant position.The demand for livestock products surpassed the demand for cereals

tion over the years, in Rs./month.



Fig. 2. India: relationship of per capita consumption of food with income.


between 2000 and 2005. Further between 2005 and 2010 the demandfor fruits and vegetables has also surpassed the demand for cereals inconsumption share.

A principal factor behind this change in the food demand can beidentified by seeing the relationships between income and food de-mand shown in Fig. 2 below. At low income levels the demand for ce-reals dominates in both rural and urban areas. However, as incomesincrease the demand for livestock products rises to cross the demandfor cereals. Fig. 2 shows that the demand for vegetables and fruits alsorises substantially with an increase in the income levels. Thus, incomeincrease appears be amajor driving factor behind change in the food de-mand structure.

Fig. 3 shows that the share of food in the total consumer expenditureis huge but varies significantly from as high as 57% in rural areas to 44%in urban areas.

Using rural–urban population weighted averages, Fig. 4 depicts thechange in the share of food in the consumption expenditure nationallybetween 1999–2000 and 2009–2010. It indicates that the share offood was 55% in 1999–2000 and has reduced only slightly to 51% by2009–2010. Thus, food remains of enormous importance in consump-tion expenditure.

The composition of food demand acrossmajor food groups based onthe 1999–00 survey and the latest 2009–10 survey is shown in Table 3.The table gives the annual consumption for rural as well as urban con-sumers in quantity and value (converted to US$). It shows that cerealconsumption is higher in quantity and value in rural areas, but animalproduct consumption is higher in quantity and value in urban areas.Comparing 1999–00 and 2009–10, the cereal consumption shows afall in both rural and urban areas, but animal product consumptionrises in both areas, the values rising much more sharply. The

Fig. 3. India: food and non-fo


consumption of vegetables and fruits show a substantial rise, and fruitconsumption is significantly higher in urban areas compared to ruralareas. The consumption of beverages and other foods also shows a sub-stantial rise.What have been the changes in the composition of food de-mand with rapid economic growth between 1999–2000 and 2009–10?Fig. 5 shows the change in the demand (expenditure shares) acrossmajor food categories at the national level (population weightedrural–urban average). It indicates that the demand for cereals has re-duced substantially in share from 34% to 22% between 1999–2000 and2009–2010 showing the substantial decline in the importance of ce-reals. The demand for pulses, livestock products, edible oils and sugarhas remained more or less unchanged in share, but the demand shareof vegetables has increased substantially from 10% to 14%. The demandshare of fruits and spices has also increased, and that of beverages andother foods has increased very substantially from 9% to 15%. The find-ings indicate a substantial shift in demand away from cereals and to-wards vegetables, fruits, beverages and other foods.

In Fig. 6, further details about the change in the composition of thedemand for cereals are shown. Major cereals consumed remain riceand wheat. Whereas the demand for rice maintained a constant shareof 53%, the share of wheat has increased from 38% to 41%, indicatinggrowing importance of wheatwithin cereals. The share of coarse cerealssuch as sorghum has reduced indicating their declining demand witheconomic growth.

Pulses (beans or legumes) are amajor source of protein in India. Fig. 7below shows the composition of demand for pulses. It shows that the de-mand for the most major pulse, pigeon pea has reduced in share from31% to 28%. The demand for the relatively inferior pulse of red lentilhas reduced in share sharply from 16% to 11%. Even the share of mungbeans has reduced somewhat from 13% to 12%. However, the demand

od expenditure 2009/10.



Fig. 4. India: change in the share of food in total consumption between 1999–2000 and 2009–2010.


for chickpea and peas has increased considerably, from 14 and 4% to 17and 7% in share, respectively. This indicates growing diversification inpulse demandwithin an unchanged overall share of 6% in food demand.

Edible oils are of equal importance to pulses in food demand inIndia — each constituting about 6% of the food expenditure. Fig. 8shows that there is a huge change in the composition of demand for ed-ible oils. The demand for mustard oil (canola) shows a considerable re-duction from 44% to 39% in share, and the demand for groundnut oilshows a sharp reduction from 26% to 11%. Even margarine/vanaspatishows a reduction from 8% to 5%. However, other edible oils show ahuge growth in demand share from 20% to 43%. Investigation showsthat, this includes more expensive oils such as sunflower oil and soy-bean oil, as well as cheaper oils such as palm oil. The results indicate alarge change in the composition of edible oil demandwith the rapid in-come growth.

Given the dominance of vegetarian diets, a huge number of vegeta-bles are consumed in India. The share of vegetables has grown from10 to 14% in the food demand between 1999–2000 and 2009–2010.Fig. 9 indicates that there are shifts in the composition of vegetable de-mand. The demand for basic vegetables such as potato, onion, tomatoand brinjal has either reduced or remained the same, and the sharesof “special” vegetables such as cauliflower, gourds and cucumber haveincreased. Thus, the main feature of vegetable demand with economic

Table 3India: per capita annual consumption quantity and value: rural and urban.Source: National Sample Survey Office (NSSO 1970-2012).

Item 1999–2000

Rural Urban

Quantity (kg) Value (US$) Quantity (kg) V

1 Cereals 152.64 29.33 125.042 Pulses 10.08 5.21 12.003 Animal products 52.22 15.98 72.134 Edible oils 6.00 4.94 8.645 Vegetables 64.58 8.16 70.996 Fruits 9.44 2.28 17.947 Sugar 10.08 3.15 12.008 Spices 2.95 3.63 3.369 Beverages & other 5.5510 Total food 78.63 111 Total non-food 53.71 112 Total 132.33 2

Conversion to US$ is at official central bank exchange rates from fxtop.com (2014). Number andweights.


growth is an overall rise in share from 10 to 14%, with change in thecomposition towards special vegetables.

The demand share of fruits has risen with economic growth butwhat is the impact on its composition? Fig. 10 suggests that there is asubstantial shift in the composition of the fruit demand. The demandof the temperate fruit apple has increased sharply from 6% to 19% inshare indicating a huge preference for apple. The demand for orangeshas also increased substantially in share from 2% to 6%, and of grapesfrom 3% to 7%. On the other hand, the shares of some of the traditionalfruits such as mango has declined from 15% to 12%, and banana from27% to 26%. The share of coconut has also declined substantially from24% to 11%. Thus, huge changes are seen in the composition and diver-sity of fruit demand with rapid economic growth, with apples, orangesand grapes showing huge increases, and mangoes and banana showingdeclines.

The demand for animal/livestock products has also been growing,though remaining constant in share at 22% between 1999–2000 and2009–2010. However, Fig. 11 shows that there is a substantial changein the composition.Milk andmilk products show a considerable declinein demand share from 73% to 63%. Other animal products show expan-sion in demand: the share of meat increases substantially from 12% to17%, the share of fish/prawn from 10% to 13%, and the share of eggsfrom 3 to 4%. Thus, even though milk and milk products still dominate

2009–2010

Rural Urban

alue (US$) Quantity (kg) Value (US$) Quantity (kg) Value (US$)

28.74 136.19 36.85 112.49 41.126.86 7.81 8.94 9.46 12.53

27.48 56.67 33.28 74.00 53.317.30 7.63 9.93 9.82 13.48

11.95 84.38 22.28 85.63 28.685.63 14.61 6.52 25.70 16.013.81 8.46 5.77 9.85 6.934.83 4.56 9.02 5.27 11.19

14.78 20.40 41.2511.86 153.15 224.7020.91 115.64 281.5432.76 268.79 506.24

volume units reported for some food items have been converted toweights using average



Fig. 5. India: change in share of different food items in demand for 1999–2000 and 2009–2010.


in India, there is a movement away from them and towards meat, fishand eggs with economic growth.

In animal product consumption, milk and milk products dominateand Fig. 12 shows the change in the compositionwithin these products.It shows that liquidmilk holds the dominant share of 90% in 1999–2000which increases to 91% in 2009–2010. “Ghee” (clarified butter) and but-ter show a reduction in share from 9% to 6%, perhaps reflecting increas-ing education, and health consciousness regarding saturated fats. Othermilk products show an increase in share from less than a percent to 2%.Thus, liquid milk continues to dominate but there is a movement to-wards milk products other than butter and ghee.

The demand for meat shows considerable expansion from 12 to 17%in share but what is the impact of economic growth on the compositionof meat demand? Details are shown in Fig. 13. It shows that there is ahuge change in the composition. The demand for chicken increasesvery substantially in share from 27% to 47% to become clearly the dom-inant meat in demand. On the other hand, goat meat/mutton demanddeclines from a dominant share of 58% to 38%. Even beef demand de-clines in share from 15% to 11%. However, pork demand rises fromless than a percent to 3% in share. Thus, economic growth in the last de-cade is accompanied by a huge change in meat demand compositionaway from goat meat and beef and towards chicken and pork.

Changes in the levels and compositionof food consumption in China

In China, the expenditure on food has been increasing (at currentprices) in both rural and urban areas, but its proportion in total con-sumption has decreased (see Table 4, local currency values are convert-ed to US$). In 1978, food expenditure accounted for 68% of total

Fig. 6. India: share of demand for major


consumption in rural areas. This share dropped to 49% in 2000, to 45%in 2005, and to 41% in 2010. The share for urban consumers droppedfrom 58% in 1978 to 39% in 2000, 37% in 2005 and 36% in 2010 (seeTable 4). Thus, the share of food in total consumption expenditure hasdeclined, but remains quite high, though somewhat lower than inIndia. The level and composition of various major foods consumed in2005 and 2010 are given in Table 5. The data are available only in quan-tity term for rural consumers and both quantity and value terms forurban. The data show that the quantity of foodgrains consumed ismuch higher in rural areas compared to urban (2–3 times), and be-tween 2005 and 2010 there is a fall in the foodgrain in rural areas buta slight rise in the urban areas.

On the other hand, the quantity of animal products consumed ismuch higher in urban areas than rural (2 times), but there is a slightrise in the rural and a slight fall in the urban consumption between2005 and 2010. In value terms, the expenditure on animal products issignificantly higher than that on foodgrains (US$ 227 vis-à-vis 57 in2010), and it rises more sharply between 2005 and 2010. If the urbanprices are used as a reference, and foodgrain quantities are convertedto processed at a ratio of 0.75, the rural expenditure on foodgrains andanimal products comes to US$ 95 and 115 in 2010 respectively, whichindicates that rural consumers spend similar amounts on foodgrainsand animal products. However relatively, expenditure on foodgrains ismuch higher in rural areas, and the expenditure on animal products isalmost double in urban areas. Over time between 1978 and 2010,there has been a substantial drop in foodgrain consumption in bothrural and urban areas but a substantial rise in the consumption ofmeat, eggs, aquatic products, and milk and dairy products betweenthe early 1980s and 2010 (see Table 6). In other than foodgrains, meat

cereals, 1999–2000 and 2009–2010.



Fig. 7. India: share of major pulses in demand for 1999–2000 and 2009–2010.


is the largest in quantity consumed, and its consumption has risen rap-idly in both rural and urban areas. Even consumption of milk and dairyproducts has risen rapidly.

The importance of food in the total consumption expenditure andthe change in its share are shown in Fig. 14 below. The figure showsthat the share has reduced from 45% to 41% between 2005 and 2010but still remains very high. In the urban areas this reduces slightlyfrom 37 to 36% but remains quite high.

The change in the composition of food demand in rural China be-tween 2005 and 2010 in terms of quantity is shown in Fig. 15 (note:data on expenditure for individual food products are not available forrural areas). Foodgrains have a dominant share of 56% in 2005 andthis reduced slightly to 54% in 2010. Vegetables are another dominantcomponent of food demand and its share changed from 28% to 27%.The share of animal products increases from 9% to 11% and the shareof fruits increases from 5% to 6%. Thus, there is a change away fromfoodgrains and vegetables and towards animal products and fruits.

The change in the composition of food demand in urban China be-tween 2005 and 2010 in quantity terms is shown in Fig. 16 (note thatshares in expenditure terms would be different but expenditure datafor rural consumers are not available). Foodgrains have a much smallershare in demand compared to rural areas, and this stands at 23% in 2005and increases slightly to 25% in 2010 (Fig. 16). The share of animal prod-ucts is substantially higher than rural areas at 22%. The share of vegeta-bles remains at a dominant 35% with little change, whereas the share offruits is also substantial at 17% in 2005 and reduces slightly to 16% in2010.

Fig. 8. India: share of major edible oils in the


Impact of further growth in income on food demand

Fast economic growth in India and China has led to significantchanges in food demand in these two populous countries. Howwill fur-ther growth in income affect food demand? Theory indicates that thiswould depend largely on two factors: the rate of growth in income,and the income elasticity of demand. The elasticity differs from food tofood. The income elasticity of demand of a food is defined as:

Income elasticity of demand ¼ Percentage change in demand of the foodPercentage change in income

:

Other things being the equal, the greater the income elasticity of de-mand, the greater the change in demandof the foodwith a change in in-come. Using the latest NSS data, income elasticities of demand forvarious foods for India were calculated (the details of theory, procedureand results are given in Appendix A).

The results indicate that the income elasticity of demand is very lowfor a number of cereals including rice, wheat and all-cereals (rural:0.022, 0.188, 0.091 respectively). Thus, per capita cereal demand willrise very littlewith future income increase. For urban areas the elasticityis negative for rice, other cereals and all-cereals, indicating that the de-mandwould reducewith further income growth. The elasticity is some-what high for pulses (rural: 0.50, urban: 0.39) indicating that thedemand would grow for pulses. The elasticity is very high for liquidmilk (rural: 1.371, urban: 0.777) and even more for milk products(rural: 2.034, urban: 1.319) indicating that the demand for milk and

demand, for 1999–2000 and 2009–2010.



Fig. 9. India: share of various vegetables demand for 1999–2000 and 2009–2010.


milk products will grow rapidly, especially in rural areas. The elasticitiesare also very high formeat (rural: 1.265, urban0.626) indicating a buoy-ant demand for meat with economic growth. The elasticities are higherfor fruits than for vegetables indicating a highly buoyant fruit demandwith income growth. Beverages, confectionaries and sweets also showvery high elasticities (rural: 1.079, 0.933, 1.738 respectively), and theelasticities for purchased cooked meals (eating-out) are extremelyhigh for both rural and urban (value: 2.692, 2.458 respectively) indicat-ing a steep rise in eating-out with higher incomes. The overall incomeelasticity of food demand (expenditure) are found to be quite high(rural: 0.805, urban: 0.706) indicating that food demand will continueto rise substantially with income growth.

A similar pattern exists for China. The income elasticities of demandfor 16major food items are calculated by Zhou, Tian,Wang, Liu, and Cao(2012) (see Table A2 in Appendix A). The same parameters are calculat-ed through a somewhat different method which is sound but not asrigorous as that used for India due to data limitations. As in India, the in-come elasticities of demand are found to be low or negative formost ce-reals, especially barley, wheat and rice (−0.0596, −0.2565, −0.2057respectively in 2010) indicating that the per capita consumptionwould fall as incomes increase. The table shows that most elasticitieswere higher and positive in the earlier years and show a fall over theyears. Out of the 16 food items, 13 have declining income elasticitiesover time and 3 have constant or rising elasticities. The elasticity formaize is higher than for other cereals and is relatively constant showingamore buoyant demand. Soybean andmilk show increasing elasticities.The income elasticities for animal products are generally positive andlarge. It is relatively low for pig meat — pork (0.2366), but high forbeef, mutton and chicken (0.6183, 0.9524, and 0.7088 respectively —

2010), and extremely high for milk (1.6536). Elasticities are also quitehigh for vegetables and fruits (0.5893 and 0.6660 respectively). The

Fig. 10. India: share of various fresh fruits in


results indicate a buoyant demand for these foods with future incomegrowth.

Thus, in China, as in India, further income increase will lead to a ris-ing demand for animal products, vegetables and fruit and reduced de-mand for food grains. With income growth rates of about 4 to 7% ormore per year expected in India and China, the food demand is likelyto grow and also rapidly transform away from food grains and towardsvegetables, fruits, and particularly, animal products.

Regional differences and consumption convergence

In both India and China, there are substantial differences in food con-sumption across regions and states. The people are mainly wheat con-sumers in India's north and west, whereas in the south and east theyare mainly rice consumers (Gandhi & Koshy, 2006). There is also ahuge variation in the per capita consumption of livestock productsacross states and regions (Gandhi & Zhou, 2010). The annual per capitamilk consumption was found to be as high as 146.2 l in the Haryanastate in the north and as low as 2.5 l in the Manipur state in the east.Andaman & Nicobar Islands showed the highest chicken consumptionat 3.21 kg whereas the Rajasthan state in the north-west has the lowestat 0.014 kg. Fish consumption is the highest at 44.2 kg per capita forLakshadweep Island in the Indian Ocean and the lowest at only0.03 kg per capita in the northern state of Punjab.

In China, a pattern similar to India exists in terms of wheat and riceconsumption. Wheat is the dominant cereal in China's north, especiallyin the northwest region such as in Xinjiang, Gansu and Qinghai, buthardly consumed in the south and southeast (e.g., Hainan, Guangxiand Guangdong). On the other hand, rice is the dominant staple foodin China's south and southeast (Hunan, Jiangxi and Hainan) but littleconsumed in China's north and northwest (Qinghai, Shandong and

demand for 1999–2000 and 2009–2010.



Fig. 11. India: share of major animal products in demand for 1999–2000 and 2009–2010.


Gansu). In animal products, pork iswidely consumed in China, butmoresubstantially in the south and southwest (Yunnan, Sichuang, Guizhouand Guangdong) which are also major pork producers. Pork consump-tion is the lowest in Xinjiang Province where there is a large populationof Muslims. Beef and mutton are chiefly consumed in China's north andnorthwest (Tibet, Xingjiang, Ninxia and Inner Mongolia) and its con-sumption is very low in China's south. Fish consumption is high inChina's south and southeast which have a coast and low in thenorthwest.

In recent years, however, with travel, media exposure and bet-ter marketing, there is increasing convergence of food consumptionpatterns across regions. For example, in India a sizable number inthe south and east are beginning to consume wheat; and rice con-sumption is becoming more common in the north. In China, eatingbeef and lamb has been widely accepted by people in the south andeast. Dairy product consumption has also become more widespreadin China today. This is also changing the food demand structure. Be-sides this, international exposure, travel and spreading food avail-ability are also having a large influence with a change towardsinternational food habits.

Urbanization and food away from home

Lam, Remais, Fung, Xu, and Sun (2013) indicate that China's unprec-edented population migration is fundamentally reshaping rural andurban populations. China's urbanization level was very low at lessthan 20% in the late 70s, but industrialization and economic growthhave substantially accelerated the pace of urbanization. By 2003, urban-ization had doubled to 40%. By 2010, it reached almost 50%, and by the

Fig. 12. India: share of major dairy products in


end of 2012, the percentage of urban population reached 52.6%. That is,719 million Chinese now live in urban areas and 642 million live inrural areas – more Chinese people now live in urban than in ruralareas – a huge transformation.

In the case of India too substantial urbanization is underway but at aslower pace. In 1971, 20% of the population was urban but by 199125.7% of the people lived in urban areas. By 2001, urbanization reached27.8, and by 2011, 31.2% of the population lived in urban areas. Eventhough the change is slower than in China, the number of people urban-izing compared to other countries is huge.

According to Huang and Rozelle (1998), urbanization affects notonly the quantity of foods consumed, but also the composition of thediet. The change in incomes and exposure to urban lifestyle influencesthe diets. The consumption of food grains tends to decrease, and thatof other foods including animal products tends to increase. Gandhi,Zhou, and Mullen (2004) find that cereal consumption per capita inIndia falls considerably with urbanization, but whereas coarse cerealconsumption falls sharply and rice consumption also falls, wheat con-sumption increases. Urbanization also results in a shift towards value-added processed foods, convenience foods and use of food services.Given the differing pace of urbanization, the impact of urbanization onfood consumption will be larger in China than in India.

Eating-out or food away from home is another major trend in Indiaand China. In urban areas of China in 2000, the lowest income decileconsumer spent about 9% of the total food expenditure on away forhome food, but the highest income decile consumers spent 20%. By2011, these percentages had jumped to 12% and 33% respectively. Thehighest income decile consumer spent US$ 496 on away-from-homefood and the lowest income group spent US$ 53 in 2011. In India the

the demand 1999–2000 and 2009–2010.



Fig. 13. India: share of different kinds of meat consumed in the demand for 1999–2000 and 2009–2010.


NSS data indicate that the average number of meals away from homereached 4.2 meals per year in the rural areas and 16.8 meals per yearin the urban areas in 2009–10. The annual expenditure on meals awayfrom home rose substantially from US$ 0.74 to 1.91 in the rural areas,and US$ 3.02 to 9.10 in the urban areas between 1999–2000 and2009–2010. Eating-out increases the food expenditure but also changesthe composition away from staples and towards more animal foods,vegetables, and edible oils.

Another factor that is affecting food consumption in China andIndia is the substantial spread of refrigerators at the household level es-pecially in urban areas, but also moving to rural areas. United Nations(2007) indicates that refrigerators were found in over 70% of urbanhouseholds in China. Refrigerator availability affects food demand, par-ticularly by facilitating consumption of highly perishable foods such asanimal products vegetables and fruits. Similar changes are seen in India.

Ability of China and India to meet the food security challenge

The huge magnitude of the growth and transformation in food de-mand poses a serious food security challenge for China and India. FAO(2010) indicates that two-thirds of the world's undernourished live injust seven countries, and over 40% live in China and India alone. DoIndia and China have the capacity to meet the food security challenge?In this context, FAO (2008) has defined food security in four critical di-mensions: the physical availability of food, the economic and physical

Table 4China: per capita annual consumption expenditure (1978–2010).Source: NBS (1982-2011).

Value (US$)

19

78

19

85

19

90

19

95

Rural

Food total 47 62 72 92

Non–food total 22 46 50 65

Total cons. exp. 69 108 122 157

Urban

Food total 185 229 145 211

Non–food total 137 200 122 212

Total cons. exp. 321 429 267 423

Conversion to US$ is at official central bank exchange rates from fxtop.com (2014).


access to food, food utilization, and the stability of these three dimen-sions. Examining the ability to meet the food security challengewould, therefore, need taking a look at: the capacity to produce the re-quired food (including meeting the feed demand for animal products),the capacity to import if necessary, having incomes in the hands of thepeople, the arrangements for physical distribution including an effectivefood supply chain, improved food processing, and issues of food safetyand health affecting food utilization. The stability dimension wouldmean the reliability of all these arrangements. Several of these factorsare examined below.

Food availability

For China, Lam et al. (2013) indicate that food is of huge importanceand an integral part of Chinese culture - as highlighted by the Chinesesaying “To people, food is heaven”. Food supply issues have been atthe foundation of social stability in China. Historically, food securitywas a huge problem before 1980. Food was frequently in short supplyand people could not buy enough even if they had money (not to talkof people who did not). After 1980, food availability has improved dra-matically and most people today are able to purchase a diversified foodbasket. The keydrivers of this changewere themajor reforms after 1978involving the removal of controls over farmers on what they produceand how they produce. By the end of 1984, almost all farmers movedback to a household-based farming system, called the household

Share (%)

20

00

20

05

20

10

19

78

20

00

20

10

99 142 266 67.7 49.2 41.0

103 170 381 32.3 50.8 59.0

202 312 647 100 100 100

237 356 710 57.5 39.2 35.7

368 614 1281 42.5 60.8 64.3

604 970 1990 100 100 100



Table 5China: per capita annual consumption of food in China (2005 and 2010).Source: NBS (2000-2011a,b).

Rural Urban

2005 2010 2005 2010

Quantity (kg) Value (US$) Quantity (kg) Value (US$) Quantity (kg) Value (US$) Quantity (kg) Value (US$)

Foodgrains 208.85a – 181.44a – 76.98b 30 81.53b 57Animal products 34.93 – 35.97 – 73.70 118 71.25c 227Edible oils 6.01 – 6.31 – 9.25 10 8.84 19Vegetables 102.28 – 93.28 – 118.58 34 116.11 74Fruits 17.99d – 20.59d – 56.69e 54.23e

Sugar 1.13 – 1.03 – – 4 – 6Total food – 142 – 266 356 710Total non-food – 170 – 381 614 1281Total – 312 – 647 970 1990

– Data not available.Conversion to US$ is at official central bank exchange rates from fxtop.com (2014).

a Unprocessed.b Processed.c Estimates.d Fresh and dry fruits.e Fresh fruits only.


production responsibility system (HPRS). Collective farming andpeople's communes were abandoned and farmers reverted back to theearlier farming arrangements.

Consequently, after 1978, there has been a huge increase in food out-put: the output of many foods doubled, and for many more than dou-bled. Increases in sugar crops, vegetables, fruits, meats, poultry andpoultry eggs, milk and aquatic product output were very impressive.Apart from the reforms, other factors which contributed were: deregu-lation of agricultural markets from 1985, increased agricultural R&D,

Table 6China: per capita annual food consumption in rural and urban areas (1978–2010, US$, kg).Source: NBS (1982-2011).

Year Per capitaincome (US$)

Foodgrainsa

Meattotalb

Poultryeggs

Aquaticproducts

Milk anddairy products

Rural1978 80 248 6.01 0.80 0.84 –

1980 123 257 8.41 1.20 1.10 –

1985 135 257 12.00 2.05 1.64 –

1990 143 262 12.60 2.41 2.13 –

1995 189 259 13.12 3.22 3.36 0.642000 272 250 17.22 4.77 3.92 1.222005 397 209 20.76 4.71 4.94 4.082006 450 206 20.54 5.00 5.01 4.572007 544 199 18.74 4.72 5.36 5.142008 685 199 18.30 5.43 5.25 4.812009 754 189 19.58 5.32 5.27 4.992010 875 181 19.97 5.12 5.15 4.99c

Urban1982 282 145 20.93 5.88 7.67 –

1985 251 135 22.56 6.84 7.08 –

1990 315 131 25.16 7.25 7.69 4.601995 512 97 23.65 9.74 9.20 4.602000 759 82 25.50 11.21 11.74 11.552005 1281 77 32.83 10.40 12.55 21.672006 1475 76 32.12 10.41 12.95 22.542007 1812 78 31.80 10.33 14.20 22.172008 2271 – 30.70 10.74 14.00 19.302009 2514 81 34.67 10.57 14.30 19.272010 2824 82 34.72 10.00 – 19.27c

– Data not available.Conversion to US$ is at official central bank exchange rates from fxtop.com (2014).

a Rural foodgrains are unprocessed, while urban foodgrains are processed.b Meat includes pork, beef, mutton/lamb and poultry.c Estimates.


floor prices for major food crops such as rice, wheat and maize from1997, and more recently increase in agricultural subsidies. But it wasmainly the “reform” which simply allowed farmers to revert back tothe old farming arrangement that was the main driver, and much ofthe impact of this has already been realized.

Lam et al. (2013) indicate that China has only 7 to 9% of the world'sarable land, but about 20% of the world's population. The country'sarable land per person is well below the global average. Despite thispressure, agriculture productivity growth has helped to close the gapbetween global average and Chinese average per person productionof cereals. However, arable land area has been reducing for the past50 years due to factors such as soil erosion and conversion for urbaniza-tion and industrialization. Apart from land, Lam et al. (2013) indicatethat water availability is a major constraint limiting the extent of arableland and agricultural production in China. Water scarcity is especiallysevere in northwest China, which comprises more than 40% of China'stotal land area. Besides, intensive farming of productive land has createddeficiencies in soils including that of micronutrients which are affectingagricultural productivity in China. Some of these also create dietary mi-cronutrient deficiencies contributing to additional food security issuesthrough iron-deficiency anemia and zinc-deficiency stunting. Overall,land and water limitations and soil fertility issues would seriously con-strain food availability in China.

The rising incomes, the growing demand for animal products, andthe resulting need for animal feeds will put enormous pressure onfood supplies, forcing China to import food for animal feed on amassivescale, Lam et al. (2013). In 2012, China produced 590 mt of grains andnet imports were about 70 mt (chiefly soybean due to feed demand),accounting for 12% of total output. By themid-2030s, China's populationwill peak at about 1450 million. If China produces 600mt grains domes-tically, then imports of around 17% of the grain output will be requiredto give a per capita availability of 500 kg of grain comparable to the early2010s. Thus, food security will be under stress and significant food im-ports will be required. It is estimated that by 2020, China may need toimport 5–15 mt of maize and 70–80 mt of soyabean.

For India, Banerjee (2013) indicates that agriculture in India is facinginnumerable problems such as increasing pressure of population onland, decline in soil fertility, migration from the rural to the urbanareas which is reducing the availability of manpower in agriculture,and lack of credit and marketing facilities in the rural areas. As a result,the agriculture sector growth rate during 2007 to 2012 was only 3.6%,and the foodgrain production growth was only 1.8%, indicating the in-ability of the agriculture production to keep up with the demand.



Fig. 14. China: share of food in consumption expenditure.


Brahmananda et al. (2013) indicate that because of tightening supplyand rapid expansion in demand, freshwater is expected to emerge as akey constraint to future agricultural growth and food security. Thiswill make raising food production in India increasingly difficult.

An IFPRI study on India by Ganesh-Kumar et al. (2012) based oneconometric models indicates that the production of rice and wheat in2025 will be in the range of 135.5–165.6 and 93.6–114.6 mt. They findthat unless production trends change, the country may have a surplusin rice of 15.5–30.8 mt in 2015, and 26.9–60.9 mt in 2025. For wheatthere may be a surplus of 5.0–20.4 mt in 2015, and a deficit of 8.1 mtto a surplus of 28.3 mt in 2025. However, the study does not takeother cereals or feed demand into account. Another IFPRI study onIndia by Bhalla, Hazell, and Kerr (1999) covering all cereals and typesof demand indicates that if per capita incomes grow at 3.7 to 6% thenthe feed demand for cereals may be as high as 50 to 108 mt by 2020which will change the situation to substantial deficits in grains andneed for imports.

For animal products in India, results of Gandhi and Zhou (2010) in-dicate a rapidly rising demand for animal products. Milk demand maygrow at about 10.6% per year, egg demand at 7.4% and meat demandat 8.4%. Against this, the production is growing at a much slower pace:

Fig. 15. China: composition of food demand (q


milk production is growing at 3.7%, egg production at 5.9%, and meatproduction at 3.1%. Except for chicken in which production growthsomewhat exceeds the demand growth, large gaps are likely to emergefor most animal products as economic development proceeds. This willalso create feed grain demand, which would be substantial as indicatedabove. Thus, India is likely to find it difficult to meet its food demand toachieve food security.

Food safety concerns

FAO (2008) indicates that food utilization is a major dimension offood security and this makes food safety particularly important. Foodsafety is the assurance that food will not cause harm or disease to theconsumer. Lam et al. (2013) indicate that with economic growth,there has been a gradual shift in focus from food supply to food safetyin China. Several incidents of illegal activities have occurred affectingpublic trust in food safety. The concerns and incidents include foodborne diseases, chemical pollution as well as adulteration of food.In 2012, for example, 6685 incidents were reported, most attributableto microbial agents (56.1%), followed by toxic plants or animals (14.8%),and chemical contamination (5.9%). The rapid development of industrial

uantity) and change 2005 to 2010 — rural.



Fig. 16. China: composition of food demand (quantity) and change 2005 to 2010— urban impact of further growth in income on food demand.


facilities in rural areas, often immediately adjacent to agricultural land, isescalating the food safety problem because fields are being contaminat-ed by industrial wastes such as heavy metals. Wu and Chen (2013) in-dicate that food safety has become one of the most challenging issuesin China. A large number incidents have occurred including foodborne diseases, adulteration with illegal materials and chemicals, anda nation-wide case in 2008 involving melamine-tainted milk and pow-dered infant formula causing urinary tract stones in more than 290,000children.

Lam et al. (2013) indicate that a comprehensive food safety lawwas adopted in 2009 and a China Food and Drug Administrationhas been established to undertake the regulatory function. However,the efforts are complicated by the sheer size of the food sector, whichincludes 450 thousand food production and processing establish-ments, 350 thousand of which are small enterprises, and becausefood safety regulatory responsibilities are shared by as many as 14different agencies, Wu and Chen (2013). There is a need to movefrom end point controls to process food safety controls which canhelp introduce good practices in the food sector and improve foodsafety through responsibility, accountability and traceability.Ortega, Wang, Wu, and Olynk (2011) in a study of consumer prefer-ences in China through a choice experiment find that despite the ap-parent mistrust of the government, consumers prefer governmentfood safety certification over others such as private accreditation,traceability, and food labeling.

Yang, Qian, Chen, andWang (2012) find that although the local gov-ernments had signed responsibility contracts for agro food safety control,local laws and regulations are rarely enacted and agro food safety serviceswere rarely established; however there is regional variation. A solution tofood safety and environmental concerns is organic food, and Yin,Wu, Du,and Chen (2010) find that though organic agriculture has reached3.5 million hectares in China, becoming second largest in the world afterAustralia, the industry is largely export-oriented and organic food ac-counts for only 0.08% of food consumption even in large cities. The highprice is found to be themain negative factor, followed by the lack of trust.

Food safety situation and concerns are similar in India if not worse.The issue made national news in 2003 when French scientists detectedtraces of Sudan 1, a banned carcinogenic dye, in a British food product,and investigation revealed that the source of Sudan 1was red chili pow-der exported from India, Bandyopadhyay & Raghuram, 2007. Existenceof millions of small food production and processing establishmentsmake controls very difficult. A Food Safety and Standards Act waspassed in 2006, and under this a statutory body called the Food Safetyand Standards Authority of India has been established. The objective islaying down science based standards for articles of food, and regulatingmanufacturing, processing, distribution, sale and import of food so as toensure safe and wholesome food for human consumption. However,implementation has been slow.


Food supply chain, cold chain, markets and food processing

Research of Nobel laureate Sen (1981) has strongly shown that it isoften not the lack of overall food availability, but the failure of exchangeand supply chain networks to work which cause food insecurity andfamines. The Rabobank study of Sjauw-Koen-Fa (2010) also showsthat foodmarkets and trade play a crucial role in achieving food securi-ty. A well-functioning exchange and supply chain network allows foodto flow from areas of surplus to areas of deficit in local, national andglobal markets. The network also transmits price signals that make itpossible for changes in demand to be met by supply. Stakeholders ofthis kind of a “Farm to Fork” chain include, among others, farm inputsuppliers, farmers, collectors, intermediaries, processors, transporters,shipping companies, retailers, food service providers, bankers/investorsand the governments.

Gilmour and Cheng (2004), studying China's agri-food value chain,suggest that primary agriculture on the one hand, and the retail sectoron the other, are now fairly competitive, efficient and responsive to in-centives in China. This is attributable to the large number of participantsand limited curbs on competition among participants. But the in-between value chain intermediaries appear to be less responsive and ef-ficient. The study suggests that farmers as well as retailers have beenhandicapped by non-competitive intermediaries, perverse incentivesin the value chain, and transportation bottlenecks. These they indicateact like a tax on producers as well as retailers and consumers, reducingwhat producers receive and raising consumer prices, while also reduc-ing choice.

Gilmour and Cheng (2004) indicate that China's growth since 1978has shown the gains that accrue when prices, policies and institutionsget closer to “Right”. For example, China's food retail sector that wasopened-out was transformed during the 1990s by the rapid rise of su-permarkets, including large domestic chains, such as Lianhua, Hualian,and Nong-gong-shang. Several foreign supermarket operators also en-tered the market, but later found it difficult to compete with domesticfirms. However, domestic incumbents have recently been challengedby foreign hypermarket retailers that offer low prices and a large arrayof goods and services under one roof. They have attracted shoppers byoffering convenience, comfort, and low prices through efficient supplychain management. Gilmour and Cheng (2004) indicate that transpor-tation and handling infrastructure remain critical to the developmentof China's economy and agri-food sector. If markets are to serve asgood scarcity indicators for allocation of resources, the goods and ser-vices should be able to move efficiently across geographic boundaries.Failure to reduce transport and intermediary costs increases inefficien-cies and regional inequalities. When such costs are high, it becomes dif-ficult for farmers in interior areas to compete with suppliers elsewhere.

Wang, Jaeger, Li, Wang, and Zhang (2013) further indicate that dueto the inadequate refrigeration facilities and unsound cold-chain




systems, fruits and vegetables suffer losses up to 20% to 30%, meat 12%,and aquatic products 15%, in the transportation processes and othersteps. Up to 90% of meat products, 80% of aquatic products, and the ma-jority of dairy and bean products are transported and soldwithout cold-chain systems. There is a great need to invest in and upgrade these sys-tems tomake the supply chainsworkmore efficiently and reducewast-age and losses.

Gandhi and Jain (2011) indicate that food supply chains are verycrucial in India too but face a number of challenges and bottlenecks in-cluding problems of raw material quality, rural market imperfections,transportation inefficiencies, investment constraints, and product mar-keting challenges. Quantity, quality, reach and viability constraints indi-cate that there is a major need to improve the linkages between smallfarm producers and the consumers in the food sector. A range of differ-ent supply chainmodels have been tried including government, cooper-ative and private business initiatives, which span many foodcommodities including dairy, fruits, vegetables, grains, oilseeds, horti-culture and poultry. An examination of these models indicates that co-operative chains are very efficient in the dairy industry, and modernprivate chains, small and large, work well in vegetables, fruits, oilseedsas well animal products such as poultry. The study indicates that thereis a great need to open out and experiment with different supplychain institutionalmodels, and the government should play a conduciverole especially for those models which are efficient and contribute tosmall farmer productivity and incomes.

Jayaram, Dixit, and Motwani (2014) indicate that supply chainmanagement (SCM) has emerged as a crucial capability for operationalexcellence in Indian firms, but SCM is challenging since 70% of businessesare small and family owned. They find that having professional manage-ment, which leads to investment in information systems and technology,is closely associated with improved SCM performance. In another study,Gómez and Ricketts (2013) examine the nutritional implications of thefood value chain transformation in developing countries. They find thatmodern food value chains (FVCs) promote over-nutrition but also reducemicronutrient deficiencies among urbanmiddle and upper classes. How-ever, they have little effect on the urban poor and rural residents, forwhom efficient traditional FVCs can play a crucial role.

Apart from improving the food supply chain, the development andmodernization of food processing is also of great importance for foodsecurity in developing countries. Food processing can not only savefood by reducing wastage, which is often very large, but also contributeto distribution efficiency, value-addition, quality and safety. Rais,Acharya, and Sharma (2013) indicate that the food processing industryin India is under-developed, highly fragmented and dominated by theunorganized sector. They indicate that there is a great need to transformthis industry, improve the science and technology capability in the in-dustry, and triple the size of this industry in the next few years.Gandhi and Jain (2011) indicate that large parts of this industry inIndia suffer fromoutdated and inefficient technology, and the successfulmodels in the industry all show investment in up-to-date modern tech-nology to achieve high efficiency and quality. ASA andAssociates (2013)indicate that the Indian food processing industry stands at $135 billionand is estimated to grow with a CAGR of 10% to reach $200 billion by2015. The food processing industry contributes 7% to India's GDP. It islarge in size but still in a nascent stage of development. Value additionof food products is expected to increase from the current 8% to 35% bythe end of 2025. Fruit and vegetable processing, which is currentlyaround 2% of total production will increase to 25% by 2025. The highestshare of processed food is in the dairy sector, where 37% of the total pro-duce is processed, and only 15% of this is processed by the organizedsector. The food processing industry in the country is on track to growand ensure profitability in the coming decades. The sector is expectedto attract huge investments of about Rs. 1400 billion in the next decade,ASA and Associates (2013).

Sjauw-Koen-Fa (2010) suggests that businesses in the food supplychain and food processing in India and China should take the lead in


exploring new opportunities and methods and implement them intotheir business models as a means of transforming supply chains intovalue chains. They should play a leading role in anticipating tomorrow'sfood andagribusinesses needs in order tomeet the long-term food secu-rity challenge. However, he also indicates farmers are often the leastpowerful in the chain and that methods and institutions are requiredto assure appropriate prices for farmers' output in order to enablethem to produce, earn enough to improve/grow their business/outputand to make a living. Governments in turn should play a proactive rolein creating and facilitating the conditions for sustainable food systemsand monitoring the results.

India, China and the global food security challenge

With rapid economic and income growth, urbanization and globali-zation, the food consumption in Asian countries appears to be converg-ing towards a western diet, according to Pingali (2006). This is creatinga new challenge for these nations and the world. He indicates that thegrowing diet diversity cannot be met solely by the traditional food sup-ply chains and will require modernization of the food retail sector, andvertical integration of the food supply chain, linking the consumers'plate to the farmers' plow. It will also require changes in research andat the farm level, including commercialization and diversification ofsmall farm agriculture.

Sjauw-Koen-Fa (2010) in the Rabobank study states that approxi-mately one-third of the world population lives in China and India, andthese countries are scarce in suitable land and clean water for growingadditional food commodities. The economic growth and dynamism ofemerging economies, particularly China and India, in the coming de-cades, will lead to new balances in the global food landscape. China, inparticular, will play a driving role on the demand side in the global foodmarket. Given various constraints, the study indicates that the world an-nual crop production growth may slow down from 2.2% per annum(1997–2007) to 1.3% per annum during the period 2005/07–2030 and0.8% per annum during the period 2030–2050. In developing countries,the growth will fall from 2.9 to 1.5 and 0.9% per annum during these re-spective periods (Bruinsma, 2009). The greatest challengewill be the ex-pected steep rise in the demand for animal proteins, including dairy, eggsand fish. Amultiple of quantity of plant food is required to produce a unitquantity of animal food. For example, the production of 1 kg of poultrymeat requires 2–4 kg of grain, 1 kg of pork requires 3.4–6 kg of grain,and 1 kg of beef requires 7–10 kg of grain, depending on the productionsystem and the country (Sjauw-Koen-Fa, 2010).

The study indicates that the per capita demand for meat in Chinawould increase by 60% (or 29 kg per capita) during the period 2000–2050, while demand for meat in developing countries as a whole willgrow by 20% (or 6 kg per capita) in the period (IFPRI, 2009). The con-sumption of dairy products (excluding butter) in the form of freshmilk in developing countries may also rise substantially by more than70% (or 33 kg per capita) in the period 2000–2050 (FAO, 2006). The de-mographic change and economic growth and a shift to an animal pro-tein diet will lead to approximately 70% increase in food demand in2050 in comparison to 2005/07 levels. The food demand of emergingeconomies, particularly China, may grow exponentially. Current food-importing countries may need to expand their food imports becausethey lack the natural resources (additional suitable land and water) re-quired to expand their food production.

Sjauw-Koen-Fa (2010) estimates that producing the additional foodneeded to feed more than 9 billion people in 2050 may require a 9%expansion of arable land, a 14% increase in cropping intensity and a77% increase in yields. This will call for new agricultural technology,and substantially better management of natural resources including ad-dressing environmental concerns. The related figures for developingcountries are 21%, 8% and 71%, respectively. As a consequence of geo-graphical inequalities on both the supply and demand side, the food



Table A1India: regression results of income elasticities of demand for different foods in rural andurban areas, 2009–2010.

Rural Urban

Quantityelasticity

Valueelasticity

Quantityelasticity

Valueelasticity

Rice 0.022 0.307 −0.039 0.360Rice products 0.495 0.580 0.339 0.405Wheat 0.188 0.357 0.006 0.243Wheat products 1.300 1.405 0.858 0.997Other cereals 0.079 0.208 −0.436 −0.193Cereals 0.091 0.320 −0.032 0.294Pulses 0.504 0.676 0.391 0.495Foodgrains 0.114 0.389 0.001 0.339Liquid milk 1.371 1.472 0.777 0.878Milk products 2.034 2.111 1.319 1.476Milk & milk products 1.502 0.941Sugar 0.792 0.842 0.334 0.389Edible oils 0.616 0.605 0.391 0.485Eggs 0.861 0.872 0.606 0.615Fish 0.983 1.018 0.561 0.824Meat 1.265 1.466 0.626 0.813Potato 0.016 0.158 0.038 0.155Onion 0.536 0.601 0.356 0.420Green vegetables 0.455 0.702 0.372 0.589Vegetables 0.582 0.507Fruits 1.769 1.365Beverages & juices 1.079 0.956Confectionaries 0.933 0.874Prepared sweets 1.738 1.444Cooked meals purchased 2.369 2.692 2.103 2.458Food 0.805 0.706


gap between countries/regions may grow, and international food tradewould need to expand substantially in the future.

Conclusions and implications

China and India together account for 37% of the world populationand they have been experiencing high income growth rates of 7 to12% in the last two decades. What are the implications of this forfood demand? In this context, the study has examined the changesand behavior of food consumption using large sample NSS surveydata from the 70s to the latest available 2009–10 survey for India,and similar NBS survey data for China. The results show substantialchanges in the quantum and composition of food demand withrapid economic growth. In India, the share of food expenditure intotal consumer expenditure has fallen but still remains as high as50% in 2009–10 showing the continuing high importance of food.Within food however, cereals have fallen substantially in importanceandmay fall further as incomes grow. Other food groups, particularlyvegetables, fruits and animal products show substantial growth andwill grow further. The estimates of income elasticity of demand ex-plain these conclusions and show a trend away from cereals and to-wards milk, milk products, fruits, vegetables, eggs, fish and meatwith income growth. This would put substantial strain on the sup-plies, causing sharp food price inflation and posing a new challengeto food security.

In China, the share of food in consumer expenditure has fallen fur-ther but still remains at a substantial 36-41% in 2010. Evidence fromChina also shows that as incomes rise, the demand for food grainsdrops, and the demand for meat, aquatic and dairy products expandsrapidly. Rising urbanization is another major driver of change inChina. Within animal products, meat is the preferred item in China,whereas milk is by far the major item for Indians. Currently, meat,eggs, and fish consumption is relatively low in India, but will growrapidly with income increase. The composition within meats ismarkedly different in India and China, and there are also substantial re-gional differences in food demand. Increases in animal product demandwill also lead to a substantial increase in feed grain demand since mul-tiple units of plant food are required to produce a unit of animal food.But both countries are strongly constrained in expanding food produc-tion by limited agricultural resources which will result in significantfood security concerns and imports.

Beyond food availability, food safety concerns are becomingincreasingly important in both countries as a number of serious inci-dents of contamination and adulteration have been reported. Newsafety measures are being taken but implementation remains diffi-cult. Weaknesses in the food supply chain pose another major threatand overcoming these is critical not only to efficiently meet demandbut also to effectively transmit price signals and incentives to theproducers. Food processing also requires substantial improvementand modernization. With high income growth rates, huge popula-tions, and high income elasticities of demand for many foods inChina and India, the management of the food economy and food se-curity would be highly challenging in the years to come for thesecountries as well as the world.

Appendix A

Income is a major driver of food demand and the impact of incomeon food demand is typically measured through the demand function.The demand for a food can be expressed as follows:

Da ¼ ƒ Pa;Y;Pb;Pn;Tð Þ

where:

Pa price of A


Y IncomePb price of competitive (or substitute good)Pn price of complementary goodT Tastes of consumers (sometimes represented by a time

trend).

If cross-section data is being used which is considered at a givenpoint in time, the other determinant can be considered to hold constantand therefore the function reduces to:

Da ¼ ƒ Y jother variables constantð Þ:

Through this function the income elasticity of demand for the foodcan be estimated. A functional form which is extensively used for thispurpose is the double-logarithmic function which takes the form:

log y ¼ αþ β log x

where,

y quantity consumed = Da

x income level.

It can be shown by differentiation that the income elasticity ofdemand (η) given this function would be:

η ¼ β:

The expression was used to estimate income elasticities of demandfor a range of foods through regression analysis using 2009–2010 NSSdata for India. The results are given in Table A1. The t-statistics andR-square of different estimates are available but not shown here forwant of space. If a food's elasticity is close to zero its demand is consid-ered inelastic i.e. does not changemuchwith income growth. If it is pos-itive and close to or above one, its demand is considered elastic i.e.would increase substantially with income growth. The difference



Table A2Income elasticity of main food items in China (1978 to 2010).Source: Zhou et al. (2012) Food Consumption Trends in China, research report submitted to the Australian Department of Agriculture, Fisheries and Forestry in Canberra, May 2012.

Year Barley Wheat Rice Maize Soybeans Sugarcane Vegetables Fruits Rapeseeds Pig meat Beef Mutton Poultry Eggs Milk Fish

1980 1.1497 0.7461 −0.0328 0.3862 −0.1384 0.8524 0.8275 1.3667 1.6886 1.3812 2.8760 1.7381 1.9830 1.8628 −1.0474 1.91681990 0.4638 0.1775 −0.1308 0.3845 0.4972 0.5114 0.6924 0.9693 0.7051 0.7320 1.5955 1.2925 1.2603 0.8914 0.4845 0.90922000 0.0971 −0.1266 −0.1833 0.3837 0.8371 0.3290 0.6202 0.7568 0.1792 0.3849 0.9108 1.0542 0.8739 0.3720 1.3037 0.37052005 0.0066 −0.2016 −0.1962 0.3834 0.9209 0.2840 0.6023 0.7043 0.0494 0.2992 0.7419 0.9954 0.7785 0.2438 1.5058 0.23752006 −0.0113 −0.2165 −0.1988 0.3834 0.9376 0.2751 0.5988 0.6939 0.0237 0.2823 0.7084 0.9837 0.7596 0.2184 1.5459 0.21122007 −0.0291 −0.2313 −0.2013 0.3834 0.9540 0.2663 0.5953 0.6836 −0.0018 0.2654 0.6752 0.9722 0.7409 0.1932 1.5856 0.18502008 −0.0400 −0.2403 −0.2029 0.3833 0.9642 0.2609 0.5931 0.6773 −0.0174 0.2551 0.6548 0.9651 0.7294 0.1778 1.6100 0.16902009 −0.0496 −0.2482 −0.2042 0.3833 0.9730 0.2561 0.5912 0.6717 −0.0312 0.2460 0.6369 0.9589 0.7193 0.1642 1.6314 0.15492010 −0.0596 −0.2565 −0.2057 0.3833 0.9823 0.2511 0.5893 0.6660 −0.0455 0.2366 0.6183 0.9524 0.7088 0.1501 1.6536 0.1403


between the quantity and value elasticities indicates a quality differen-tial within the product.

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Food demand and the food security challenge with rapid economic growth in the emerging economies of India and China