Food Price Change and its Welfare Impact on Iranian Households

Subject Areas : Environmental policy and management

Mohammad Ghahremanzadeh ¹ , Mohammad Bagher Ziaei ²

1 - Associate Professor, Department of Agricultural Economics, Faculty of Agriculture, University of Tabriz.
2 - Graduated Master of Agricultural Economics, University of Tabriz, Iran.

Received: 2014-03-14 Accepted : 2014-05-01 Published : 2014-12-01

Keywords: Welfare Effects, Food price change, QUAIDS demand system, Compensated Variation(CV),

Abstract :

Iran has experienced high food prices in recent years. This paper examines the welfare impacts of rising major food groups' prices on Iranian urban households using Quadratic Almost Ideal Demand System (QUAIDS) approach. The elasticity coefficients derived from QUAIDS are used to estimate Compensated Variations (CV).The study uses Iranian Household Expenditure and Income Survey (HEIS) raw data, encompassing both low and high price periods. Prices of all food and agricultural products increased during the entire survey period of 2004 to 2012. Based on our estimates, the food groups of cereals, dairy products, vegetable and pulses, Potables and Spices are necessary goods, as their budget elasticity is positive and below one at the same time. Meat, edible oils, fruits and dried fruits and Sugary products are luxury goods, with income elasticity above one. We find that the remarkable increases in food prices resulted in severe erosion of purchasing power for the Iranian urban households and they need to be compensated on average about 48% of their initial income for the food price changes they faced during the 2004 and 2012. In addition the high share of cereals in year 2012 implies that urban households shift their consumption to cheaper calorie source. This figure is confirmed with the decline in the share of meat, dairy Products, fruits and dried fruits, vegetables and pulses and potables expenditure.

References:

1-Abdulai, A. (2002). Household demand for food in Switzerland. A quadratic almost ideal demand system, Swiss Journal of Economic Statistics, 138, 1-18.

2-Abdulai, A., & Aubert, D. (2004). A cross-section analysis of household demand for food and nutrients in Tanzania, Agricultural Economics, 3 (1), 67-79. [DOI via Crossref]

3-Ackah, C., & S. Appleton. (2005). Food price changes and consumer welfare in Ghana in the 1990s. CREDIT Research Paper No. 07/ 03. Nottingham, UK.

4-Alem, Y. (2011). Household-Level Consumption in Urban Ethiopia: The Effects of a Large Food Price Shock. World Development, 40(1), 146-162. [DOI via Crossref]

5- Blanks, J., Blundell, R., & Lewbel, A. (1997). Quadratic Engel curves and consumer demand. Review of Economics and Statistics, 69, 527-539. [DOI via Crossref]

6-Blundell, R.W., & Robin, J.M. (1999). Estimation in Large and Disaggregated Demand Systems: An Estimator for Conditionally Linear Systems, Journal of Applied Econometrics, 14, 209-232. [DOI via Crossref]

7- Central Bank of the Islamic Republic of Iran. 2012. Consumer Price Index for Goods and Services: retrieved, from: http://www.cbi.ir/category/1611.aspx.

8-Deaton, A., & Muellbauer, J. (1980). Economics and Consumer Behavior, Cambridge University Press, New York. [DOI via Crossref]

9- FAO (2011). Food Price Index retrieved 2011, 15 August from http://www.fao.org/worldfoodsituation/FoodPricesIndex/en/

10-Fisher, D., Fleissig, A.R., & Serletis, A. (2001). An empirical comparison of flexible demand system functional forms, Journal of Applied Econometrics, 16(1), 59-80. [DOI via Crossref]

11- Friedman, J., & J. A. Levinsohn. (2002). The Distributional Impact of Indonesia's Financial Crisis on Household Welfare: A "Rapid Response" Methodology, World Bank Economic Review, 16(3), 397-423. [DOI via Crossref]

12- Gould, W., & Villarreal, H.J. (2006). An Assessment of the Current Structure of Food Demand in Urban China, Agricultural Economics, 34, 1-16. [DOI via Crossref]

13-Hashemi Bonab, S., & Ghahremanzadeh, M. (2005). Evaluation food consumption behavior in Iran by using separability test. The 8th biennial Congress of Iranian Agricultural Economics, Zahedan, 29-30 August 2005, (In Persian).

14- Hicks, .J. (1939). Value and Capital, Clarendon Press, Oxford.

15- Ivanic, M., & Martin W. (2008). Implications of Higher Global Food Prices for poverty in Low Income Countries, Agricultural Economics, 39, 405-416. [DOI via Crossref]

16- Minot, N., & Goletti, F. (2000). Rice Market Liberalization and Poverty in Vietnam, Research Report 114, International Food Policy Research Institute, Washington. [Pubmed]

17- Mital, S. (2010). Application of the QUAIDS model to the food sector in India, Journal of Quantitative Economics, 8(1), 42-54.

18-Mitchell, D. (2008). A Note on Rising Food Prices; Policy Research Working Paper; No. 4682, the World Bank, Washington DC.

19-Mohammadzadeh, M. (2011). Effects of Changes in Food Subsidies on Iranian Households Demand., unpublished thesis, Tabriz University, Faculty of Agricultural Economics, Iran (In Persian).

20- Mojaver Hosseini, F. (2007). Estimation price and income elasticities for food and none-food groups by using an almost ideal demand system, Agricultural Economics and Development, 15 (2), 87-96 (In persian).

21- Molina, J.S., & Gil, A.I. (2005). The Demand Behavior of Consumers in Peru: A Demographic Analysis using the QUAIDS, Journal of Developing Areas, 39(1), 191-206. [DOI via Crossref]

22- Niimi, Y. (2005). An Analysis of Household Reponses to Price Shocks in Vietnam: Can Unit Values Substitute for Market Prices? Poverty Research Unit Working Paper no. 30, University of Sussex.

23-Pangaribowo, E. H., & Tsegai, D. (2011). Food demand analysis of Indonesian households with particular attention to the poorest. ZEF-Discussion Papers on Development Policy, (151).

24-Poi, B. P. (2008). Demand-system estimation: Update. The Stata Journal, 8(4), 554-556.

25-Seraj, M. and Ahmadian, M (2003). Estimation an almost ideal demand system for urban households with emphasis on food groups. Nameyeh-ye-Mofid, 11(38), 193 -225 (In persian).

26-Sohrabi Athar, F. (2009). Application of Systemic Models in Analysis of Edible Commodities Demand Structure in Iran., unpublished thesis, Tabriz University, Faculty of Agricultural Economics, Iran (In Persian).

27-Statistical Center of Iran (2004). Household Expenditure and Income Survey, Government of Iran, Tehran, Iran.

28-Statistical Center of Iran (2012). Household Expenditure and Income Survey, Government of Iran, Tehran, Iran.

29-Tefera, N. (2012). Welfare Impacts of Rising Food Prices in Rural Ethiopia: a Quadratic Almost Ideal Demand System Approach, paper presented at the International Association of Agricultural Economists (IAAE) Triennial Conference, Foz do Iguaçu, Brazil, 18-24 August, 2012.

30-Tokoyama, Y. (2007). Three essays on Japanese household food consumption (Doctoral dissertation, The Ohio State University).

31- Von Braun, J. (2008). Food and Financial Crises: Implications for Agricultural and the poor. International Food policy Research Institute, Food Policy Report, Washington DC.

32-Vu, L., & Glewwe, P. (2010). Impact of rising food prices on poverty and welfare in Vietnam. Development and Policies Research Center Working Paper 13, University of Minnesota, St Paul.

33-Wood, B., Nelson, C., & Nogueira, L. (2009, June). Food price crisis: welfare impact on Mexican households. In International agricultural trade research consortium analytic symposium, Seattle, Washington (pp. 22-23).