Demand elasticities for food products in Brazil: a two-stage budgeting system

Abstract

The object of this article is to estimate demand elasticities for a basket of staple food important for providing the caloric needs of Brazilian households. These elasticities are useful in the measurement of the impact of structural reforms on poverty. A two-stage demand system was constructed, based on data from Household Expenditure Surveys (POF) produced by IBGE (The Brazilian Bureau of Statistics) in 1987/88 and 1995/96. We have used panel data to estimate the model, and have calculated income, own-price, and cross-price elasticities for eight groups of goods and services and, in the second stage, for 11 sub groups of staple food products. We estimated those elasticities for the whole sample of consumers and for two income groups.

Accommodating multiple constraints in the multiple discrete–continuous extreme value (MDCEV) choice model

“…The first stage entails allocation between a limited number of broad groups of consumption items, followed by the incomplete demand system allocation of the group expenditure to elementary commodities/services within the broad consumption group of primary interest to the analyst (the elementary commodities/services in the broad group of primary interest are referred to as "inside" goods). The plausibility of such a two stage budgeting approach requires strong homothetic preferences within each broad group and strong separability of preferences, or the less restrictive conditions of weak separability of preferences and the price index for each broad group not being too sensitive to changes in the utility function (see Menezes et al, 2005). In the Hicksian composite commodity approach, one needs to assume that the prices of elementary goods within each broad group of consumption items vary proportionally.…”

Demand Growth in Developing Countries

“…For Brazil, the two estimates in Table 11 of the income elasticity of demand for fluid milk from Coelho and de Aguiar (2007) and Menezes et al (2008) are nearly identical. Similarly, the estimates of the income elasticity of demand for dairy products in Table 13 from Chatterjee et al (2007) and Meenakshi and Ray (1999) are nearly the same, and not too far from the estimate for fluid milk in Mittal (2006).…”

“…In Brazil, per capita domestic consumption of rice and wheat, net of feed use, has essentially been flat since 2000, while real per capita GDP has risen by about 1.7% annually. The study in Table 1 that comes closest to being consistent with these trends is Menezes et al (2008), who estimated an income elasticity of demand in urban areas for wheat of 0.24 and for rice and beans of 0.09. In Russia, per capita domestic consumption of wheat, net of feed use, has basically been flat since 2000, while real per capita GDP has risen by about 5.5% annually.…”

“…Five studies estimate the income elasticity of demand for cereals in urban areas, with a simple average of their estimates being 0.26. For Brazil, the lowest estimated income elasticity of demand for rice is from a study using urban data (Menezes et al 2008), the highest is from a study using rural data (Gould and Villarreal, 2006), and a middle estimate is from a study using both rural and urban data (PintosPayeras, 2009). For Russia, the estimated income elasticity of demand for bread is 0.13 from Shiptsova et al (2004), who used urban data, and 0.51 from Elsner (1999), who used both rural and urban data.…”

“…The range of income elasticity estimates for cereals as a whole for China is even greater, from -0.09 (urban areas; Gale and Huang 2007) to 0.97 (rural areas;Yan and Chern 2005). For Brazil, the estimated income elasticity of demand for rice ranges from 0.09 (rice and beans; Menezes et al 2008) to 1.26 (Coelho and de Aguiar 2007).…”