income and price elasticities of demand for foods consumed ... · price elasticity for prepared...

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Section 6

Income and Price Elasticities of Demand for Foods Consumed in the Home Valerie Lechene

Introduction

This part of the report presents the results of an analysis of the responsiveness of home consumption of a variety of foods to variations in incomes and prices over the period 1988 to 2000. It provides information on the way in which food expenditures and quantities vary with income across households and through time; as well as on the way in which they vary through time with prices, controlling for relevant household characteristics.

Until 1989 the reports of the National Food Survey provided estimates of price and income elasticities of demand. The price elasticities were obtained using a constant elasticity model of demand which was, by 1989, felt to be inappropriate both from an economic theoretic viewpoint and because of the inability of that model to explain significant variation evident in the NFS data.

Most of the elasticities were obtained by analysing each food in isolation, without attention to the issues that arise when choice among closely related foods is considered, for example, the impact of cross price effects on demand.

The results presented here come from a new research effort designed to address these issues. An initial analysis, presented in the 1999 Report of the National Food Survey, focused on demand for meat and fish. This report presents the results of an extension of this analysis to a wider variety of foods. It also updates the estimates for meat and fish presented in the 1999 Report using data from the year 2000.

Three sets of results are presented1.

• Estimates of own and cross price elasticities of demand for particular food groups and more narrowly defined foods, obtained using monthly aggregate information on food expenditures, prices and incomes.

• Estimates of income elasticities of demands for most food groups of the NFS and a number of more narrowly defined foods, obtained using information contained in household level variation in food expenditures and income.

• Revised estimates of income and price elasticities for meat, meat products and fish consumed at home, obtained using monthly aggregate data and information pertaining to the prices facing producers of food over the period of interest.

___________________________________________________________________________________ 1 Only a selection of charts produced in this project are provided in this publication. All charts can be found at www.defra.gov.uk (under statistics).

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The results are obtained using the Almost Ideal Demand System (AIDS) model described in the next sub-section. This is followed by the analysis of the price and income elasticities. The penultimate sub-section presents the analysis of the demands for meats, meat products and fish. The last sub-section concludes.

The demand model

Demand equations are estimated using the Almost Ideal Demand System, described in detail in the 1999 Report of the National Food Survey, and summarised now.

The Almost Ideal Demand System (AIDS) model2, as implemented here, relates the proportions of net family income spent on the foods of interest to the logarithm of net family income, the logarithm of prices, (income and prices both deflated by the retail price index3), and to household characteristics. The model takes the following form:

wi = αi + βi log(Y/m) + ΣTj=1 γijlog(pj) + ε

Here, wi is weekly expenditure on food i as a proportion of net family income per week. Y is net weekly family income inclusive of benefits, deflated by the retail price index and m is the number of household members. The pj are measures of prices of the foods, deflated by the retail price index, and T is the number of foods. The term ε is an unobserved component, capturing recording errors and transitory variations around long run rates of expenditures.

Price elasticities

Methodology

In order to estimate the price elasticities, the NFS data for the period 1988–2000 are aggregated to the monthly level, producing 156 monthly records for analysis. Each monthly aggregate is based on information from around 600 households (92,930 households over the whole period).

The expenditure shares used in this analysis are ratios of average expenditure per head across all households to average income per head across all households.

In calculating average expenditure per head (total expenditure by households in a survey month divided by the total number of household members in the month), households making zero expenditures are included since they tend to be offset by households who make expenditures which may be larger than average weekly expenditures. This expenditure measure is an unbiased estimate of the long run rate of weekly expenditure by households.

___________________________________________________________________________________ 2 “An Almost Ideal Demand System” A. Deaton and J Muellbauer, American Economic Review, Vol 70, 312-326, 1980. 3 Here and below, the retail price index is the All Items index covering all goods and services (source: Office for National Statistics).

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The average income per head employed in calculating expenditure shares is total recorded income in the survey month, divided by the total number of members in income recording households4.

The “prices” used in this aggregate analysis are “average real unit values”, calculated as ratios of total expenditure across all households in each month to total quantity entering the home food supply, deflated by the RPI.

In the price elasticity analysis, for each food (i), the term αi is a linear combination of average household characteristics and other variables, identifying:

• which of the 12 months the data refers to, intended to capture seasonal variation in expenditures,

• the proportion of households in a month in each of 11 household composition types5, and the average age of the head of household, to capture changes in the expenditure patterns that are linked with changes in the demographic composition of the population,

• the Press Stories Index, an indicator of the media coverage of meat related health issues, and a measure of public exposure to knowledge of the risk attached to various sorts of meat consumption6,

• a quadratic trend, intended to capture systematic changes in demand arising from changes in tastes and factors not captured by the variables included in the estimation.

The results presented here are obtained imposing the homogeneity and symmetry restrictions7, which follow from conventional consumer demand theory. These restrictions could only hold approximately for aggregate responses of the sort studied here and indeed there is some evidence that they fail to hold in the data. However, imposition of these restrictions did not result in large changes in the estimated price effects but did result in substantial increase in the precision of estimation.

Prior to the main analysis, each expenditure share, relative price and real log income series was examined for non-stationarity using standard time series methods. There was little evidence of non-stationarity. Accordingly, conventional methods for the analysis of stationary series were employed.

Own and cross price elasticities measure the proportionate rate of change in the quantity of a food demanded attendant on a unit proportionate change in the price of a food. Own price elasticities give this measure of responsiveness

___________________________________________________________________________________ 4 There is some non response on income questions in the NFS so the estimate of average income per head is based on a smaller sample than the estimate of average expenditure per head. Over the years 1988-2000, approximately 75% of households reported income, though the proportion is higher towards the end of the period. 5 The household composition types are: 1) 1 adult, 2) 1 adult + 1 or more children, 3) 2 adults, 4) 2 adults + 1 child, 5) 2 adults + 2 children, 6) 2 adults + 3 children, 7) 2 adults + 4 or more children, 8) 3 adults only, 9) 4 or more adults only, 10) 3 adults + 1 or 2 children, 11) 3 or more adults + 3 or more children. 6 The index measures media coverage of abattoir hygiene, E Coli 157, and BSE (Source Euro PA & Associates). 7 The homogeneity restriction imposes the requirement that equal proportionate changes in all prices and income should leave demand unchanged. The symmetry restriction imposes the requirement that the utility compensated cross price responses of demand for good i with respect to changes in the price of good j and of demand for good j with respect to changes in the price of good i should be equal.

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for changes in the price of the food under consideration. Cross price elasticities measure the responsiveness of demand for one food to changes in the price of another food. In both cases, the elasticity measures a demand response with income and all prices, except that under consideration, held constant. These elasticities typically vary with income and with the level of prices.

In the AIDS model, the influences of prices and income on the price elasticities pass entirely through their impact on the budget shares, and the elasticities are given by the following formula:

ηij = γij/ wi - ∆ij - βi(wj/ wi)

where ηij is the price elasticity for good i with respect to changes in the price of good j, and ∆ij = 1 if i = j, and ∆ij = 0 otherwise.

Own price elasticities are expected to be negative, indicating that an increase in the price of a good leads to a decrease in the demand for that good. Cross price elasticities can be negative, positive or zero, depending on whether the increase of the price of one good leads to a decrease in the quantity demanded of another good (the goods are complements), an increase in the quantity demanded of another good (the goods are substitutes) or does not have any effect on the quantity demanded of another good (the goods are unrelated).

Estimated own price elasticities

Estimated own price elasticities and estimated cross price elasticities of quantity demanded for the period 1988 to 2000 are given respectively in Tables 6.1 and 6.2. Table 6.1 also shows estimated standard errors8 and the average share of income spent on each food. Apart from the estimated own price elasticity for prepared fish, all the estimated own price elasticities are negative, as expected: the quantity of a food demanded is predicted to fall as its price rises.

Demand for “other cereals and cereal products” is nearly unit elastic at the expenditure share considered. In this situation, price variations leave expenditure approximately unchanged, demand falling and rising roughly at the same rate as price increases and decreases. Demands for fresh fish, sugar and other fruit and fruit products (mainly fruit juices) are also relatively sensitive to price changes with elasticities close to –0.80.

For all other goods, the own price elasticity is well below one in absolute value, indicating that as the price rises, demand falls at a slower rate than the price increases. For each of these foods, as price rises (falls), quantity demanded falls (rises) but by amounts such that expenditure on the food increases (decreases). The closer the elasticity is to zero the smaller the change in demand in response to a price change and the larger is the attendant change in expenditure. Of the foods covered in Table 6.1, the demands for fresh

___________________________________________________________________________________ 8 A confidence interval centred on an estimated elasticity, extending either side of it by twice the estimated standard error, can be regarded as containing the true value of the elasticity with probability 0.90

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potatoes, liquid wholemilk and skimmed milks, processed and shell fish, and prepared fish are the least sensitive to price changes.

Own price elasticities of demand for many of the foods studied here were published in the Report of the 1988 National Food Survey. Those elasticities were obtained using data for the period 1983-88. Comparing these with the results reported here, a number of differences are evident. In part these arise because in the earlier analysis no account was taken of cross price effects. The shorter period studied in the 1983-88 based analysis resulted in less accurate estimates than those reported here and some of the difference observed results from sampling variation in the estimates rather than actual changes in tastes. However there probably remains a significant element which is due to changes in consumers’ tastes, that is, changes in demand.

In any plausible model of demand, price elasticities depend upon relative prices and real income and both have changed between the 1980’s and 1990’s. In addition, in some respects, the nature of the foods contained in these broad food groupings and home food preparation technology have changed.

For some foods, for example fresh potatoes, processed vegetables, other fruit and fruit products, other cereals and cereal products and beverages, the changes in elasticities are small. For others there have been large changes. Notable in this respect are milk and cream, for which the estimated elasticity has fallen from close to zero (not statistically significant) to -0.34, sugar and preserves (down from -0.33 to -0.79), cheese (up from -1.19 to -0.35) and fresh fruit (up from -0.77 to -0.29).

Estimated cross price elasticities

Accurate estimation of many of the cross price elasticities is not possible because, over the time period considered here, there is rather little variation in the relative prices of many of the foods. Table 6.2 therefore, is limited to broad food groups.

Foods that are very close complements or substitutes will have large, respectively negative or positive, cross price elasticities. However, among the broad food groups considered in Table 6.2 we would not expect such strong dependencies, an expectation borne out in the estimated cross price elasticities which are generally small in magnitude.

Other influences on demand

Many of the variables other than prices included in the model have statistically significant influences on demand, though in some cases these are quite small. They are shown in the series of Figures 1 to 6 which show for six of the food groups studied (milk and cream, sugar and preserves, fresh potatoes, fresh green vegetables, fresh fruit, and bread), the influence of each type of demand determinant on expenditures as a share of income.

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For each food, the first figure (e.g. 1.1, 2.1) shows actual monthly expenditures as shares of income with the predicted share produced by the estimated model superimposed.

The subsequent figures in each set show the contribution to the estimated share of each of the main influences in the model, each normalised to have mean zero over the whole period of the analysis. Adding up each of these influences for a particular month produces the predicted share for that month expressed as a deviation from the mean share for the period 1988-2000. In viewing these figures careful attention should be paid to the scales of measurement on the vertical axes which varies across the figures.

For each food, the second figure (1.2, 2.2, …, 6.2) shows the impact of the fitted quadratic trend, together with the impact of income and of all prices combined.

The trend is falling for milk and cream, sugar and preserves, and fresh potatoes. For bread and fresh green vegetables, the impact of the quadratic trend is U-shaped, indicating an increase towards the end of the period. There is scarcely any trend in the demand for fresh fruit once account has been taken of other influences.

The income curve shows the impact on predicted shares of changes in income per head. In all cases, changes in income per head cause predicted shares to fall. In this period of generally increasing income per head this is in accord with the estimated income elasticities reported below which are uniformly less than one, indicating that, as income increases, quantities purchased increase, but at a slower rate than income, leading to a decrease in the budget shares.

The price curve in each set shows the combined influence of all prices on demand. These figures reflect the combined influence of own and cross price changes and the estimated sensitivity of consumers to these changes.

The third figure (1.3 to 6.3) shows the impact of changing demographic composition of households and the impact of the season of the year on predicted shares.

The effect of changing demographic composition of households is generally small but there are a few discernable trends. During the period there were small shifts in demographic composition in the direction of small households with fewer children and with older household members. This is associated with a decline in predicted shares for fresh potatoes, other cereals (which include cakes, biscuits and pizzas), processed vegetables (which include potato products) and cheese, and an increase for beverages, fresh fruit and fresh green vegetables9.

For many of the foods this is quite marked seasonality, with, for example, peaks in the summer for fresh fruit.

___________________________________________________________________________________ 9 Graphs for other cereals, processed vegetables, cheese and beverages are not shown here, see Footnote 1.

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Income elasticities

Methodology

Income elasticities are produced using information from cross sections of households drawn from the NFS. This household level data is analysed in the framework of the AIDS model described above, using pooled data taking three survey years at a time.

Prices do not appear in this cross sectional model. Price variation across households during short, three year periods, is driven mainly by variations in quality of foods and is affected by bulk discount purchasing. Consequently observed correlations in the cross section between expenditures made by households and prices paid are unlikely to be indicative of the price related demand responses which are the object of the price elasticity analysis described above.

Of course prices do vary from month to month during a survey year, genuinely reflecting changes in market conditions. However, the short three year periods studied contain insufficient price variation across time to allow estimation of price elasticities with these data. In the cross sectional analysis to produce income elasticity estimates, temporal price variation is controlled for by including month indicator variables in the estimated model.

The model estimated using the pooled cross sectional data is as follows:

wi = αi + βi log(Y/m) + δi log(Y/m)2 + ε

Here wi is expenditure (£/week) on food i expressed as a proportion of net family income (£/week), Y/m is net family income per head, and αi is a linear combination of household characteristics, as follows.

• The logarithm of household size, to account for possible economies of scale in food consumption.

• Indicators of 11 types of household composition.

• The age of the main diary keeper.

• An indicator of household freezer ownership.

• An indicator identifying households in receipt of benefit.

• Indicators of 9 regions of residence.

• Indicators identifying a household as an owner-occupier, a tenant in the private sector or a tenant in the public sector, so as to account for the income in kind accruing to owner-occupiers.

• Indicators identifying for which of the 36 months a household provided data.

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The results of the income elasticity analysis are presented in the next sub-section. The income elasticities reported there measure the proportionate rate of change in quantity of a food demanded attendant on a unit proportionate change in household income per head, prices and household characteristics held constant10. Like price elasticities, income elasticities typically vary with income and prices11. The variation can be substantial.

Note that the elasticity is also linked to the budget shares by the following formula.

λi =∂log(q)/ ∂log(Y)= ∂log(w)/ ∂log(Y)+1

A good with an income elasticity of demand greater than 1 is a “luxury”, in the sense that an increase of 1% in income is accompanied by an increase in quantity demanded greater than 1%, and the budget share of the good increases. For a “normal” good, an increase in income increases quantity demanded but by a smaller proportion than the increase in income, so that the budget share of such goods decreases. Finally, demand for “inferior” goods, and their budget shares, decrease with income. Luxuries have income elasticities greater than 1. Normal goods have income elasticities between zero and one, and inferior goods have negative income elasticities.

In the AIDS model used for analysis of the cross section data, the income elasticity for food i is given by the following formula:

λi = 1+(βi+ 2δilog(Y/m))/wi

Here βi is the coefficient on log real income per head and δi is the coefficient on squared log real income per head. This additional term, not appearing in the model for the aggregate data can be identified because of the large amount of variation in income available in the NFS cross sections.

Estimates of income elasticities are calculated using model estimates obtained from pooled survey data taken three years at a time. Each, three year, data set contains information on between 12,000 and 20,000 households, depending on the period considered. A data set of this sort of size is required for production of acceptably accurate estimates because of the substantial variation in expenditures across households.

This variation reflects some real differences across households in the long run rates of demand for foods, not controlled for in the analysis (e.g. by the demographic variables included in the model) but it mainly arises from substantial variation across time, within households, in amounts purchased. This arises because the NFS records food acquisitions during a one week period, and purchases, particularly of the more narrowly defined foods, occur at discrete points in time which for some households may not fall in the survey week.

___________________________________________________________________________________ 10 The income (Y) elasticity of quantity demanded (q) of a food is the partial derivative: ∂log(q)/ ∂log(Y). 11 As the income elasticity formula shows, the effect of prices passes entirely via the budget shares.

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Estimated income elasticities, 1998 - 2000

Table 6.3 shows the estimated income elasticities obtained using pooled NFS data for 1998 – 2000, together with estimated standard errors and the average budget shares (%) at which they are evaluated12.

For most goods, the estimated income elasticity is significantly different from zero. There is considerable variation across foods. The results strongly suggest that liquid wholemilk and margarine are “inferior” goods, and that all the other foods are “normal” goods. None of the foods are “luxury” goods. These conclusions and those drawn in the remainder of this sub-section refer to demands by households with around average income and with average values of the demographic characteristics. Such “average households” have the reported average values for shares of income spent on foods.

The results indicate that income elasticities are relatively high for processed cheese, fish, fresh green vegetables, fresh fruit and fruit juices. However, none of the estimated elasticities exceeds 0.50, and many are lower. For all foods consumed in the home, the income elasticity of demand is 0.20.

The estimated income elasticities are not statistically significantly different from zero for the following foods: mutton and lamb, other poultry, frozen meat, eggs, fats, sugar and preserves, frozen peas, frozen chips and other convenience potato products, apples, and tea. Apart from mutton and lamb, frozen meats, and fats these foods have amongst the smallest budget shares of the foods considered.

Stability, 1979 - 2000

Figures 7.1 to 7.4 show estimates of income elasticities for 16 of the major food groupings for the period 1979 to 2000. These were obtained by analysing 3 years of data at a time, 1979–1981, 1980–1982, through to 1998–2000. This “rolling” analysis was done in order to reduce the sampling variation in the estimated elasticities. It also has the effect of slightly smoothing any temporal changes in elasticities. For each three year period the estimated elasticity is calculated using the mean expenditure share and mean log income per head for the three year period.

The income elasticities in Figures 7.1 to 7.4 relate to a kind of “average household”, which changes through time, in the sense that they have been calculated at average budget shares and income per head that are specific to the years at which the elasticities are calculated. Income elasticities do vary considerably with household income per head.

Tests of the hypothesis of the constancy of the parameters of the demand system, as opposed to the elasticities discussed above, indicate a degree of non-constancy, but the variation through time is, for most foods, quite small, and the rejection of the hypothesis is in part due to the large sample sizes employed, which allow accurate estimation of small differences in

___________________________________________________________________________________ 12 These budget shares differ from those given in Table 1 because of the shorter period considered in the cross sectional analysis of income elasticities.

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coefficients. For a few foods there have been large and statistically significant changes in the demand system’s parameters. For this reason, the income elasticities reported in Table 6.3 are derived from recent data on expenditures and income.

For “all foods”, the estimated elasticity is close to constant through time. The standard errors in Table 6.3 give a good idea of the sampling variation arising in each single three year analysis. A 90% confidence interval for an estimated elasticity lies approximately plus and minus two times the standard error around the value of the estimated elasticity, for example plus or minus 0.04 in the case of “all foods”. Thus with an estimated value of 0.20, there is 0.90 probability that the actual elasticity lies between 0.17 and 0.24.

The graphs, all drawn to a common vertical scale, generally indicate only small changes in income elasticities through time. There is a general downward drift in the income elasticity for cakes and biscuits, from a level of around 0.30 (±.08) at the start of the 1980’s to a value around 0.15 (±.08) by the end of the 1990’s. For a few other foods (for example cheese) there is some moderate variation through the 20 year period but no really strong trends up or down.

There are a few strong trends among the foods for which income elasticities are not graphed in Figures 7.1 to 7.4 (see footnote 1). The elasticity for frozen convenience cereal foods drops sharply from around 0.80 to around 0.20 during the 1980’s and then remains fairly constant. There is a similar but less dramatic fall in the elasticity for frozen chips and other convenience potato products, from around 0.40 in 1980 to around 0.10 in 1987. Both of these changes are possibly due to introduction of new products. The elasticity for margarine falls steadily from a starting value around zero through the 1990’s to around -0.35.

Variation in elasticities through time can arise because of changes in the mean budget share and income per head at which it is evaluated, because of changes in the attributes of foods within the classes considered and because of changes in the demand system’s parameters, the latter reflecting changes in households’ preferences and perhaps being in part due to changes in the attributes of foods.

Meats, Meat products and Fish

The 1999 Report of the National Food Survey presented the results of an analysis of the responsiveness to variations in income and prices, of meat, meat products and fish consumed in the home, over the period 1979 to 199913. This Section updates these results incorporating year 2000 data and briefly reports on further investigation of demand for these foods.

Estimated own price elasticities and income elasticities of demand are shown in respectively Tables 6.4 and 6.5.

___________________________________________________________________________________ 13 Price elasticity estimates were calculated using data only for the period 1988-98.

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For all foods the estimated own price elasticities are negative. Demand for mutton and lamb is highly price elastic whereas the other foods all have estimated elasticities smaller than one in absolute value. The results are similar to those given in the 1999 Report (shown in the two left hand columns of Table 6.4), deviating by less than one standard error in every case.

All of the foods have estimated income elasticities indicating that they are “normal goods”. Quantity purchased is higher in households with higher income per head, but by a lesser proportionate amount than the proportionate differences in per capita incomes. These latest results are similar to those given in the 1999 Report and none of the small differences are statistically significant.

In the course of the research conducted this year the reliability of the estimated demand elasticities for meat, meat products and fish was investigated, focusing on the following issue.

It is possible that the price effects revealed in the NFS are a combination of demand and supply side effects. This would happen if factors affecting producers costs, and so the prices at which they are willing to sell, also affect consumers demands. The recent issues concerning meat safety are potentially such a factor, possibly causing increases in production costs for farmers and shifting demand schedules.

The model was re-estimated14 using standard econometric techniques applied in this situation. The results suggest that there is only cause for concern about the reliability of the elasticities for beef and veal and other meat products. For all other foods, re-estimation produces results very similar to those in Table 6.4.

This has been a period of some turbulence in the markets for these two foods and it is possible that this is the cause of a part of the differences observed using the two estimation procedures. Influences on the supply side of the market may not have been fully captured in the re-estimation and its results are not regarded as sufficiently robust for publication at this time. It is concluded that the results for beef and veal and other meat products shown in Table 6.4 are the most reliable available at this time. However they are less reliable than the other results presented there, and should be used with caution.

___________________________________________________________________________________ 14 Various producer prices are used as instrumental variables in a simultaneous equations analysis of these food markets. Estimates were obtained using the three stage least squares procedure (Greene, Econometric Analysis, 4th edition, 2000, Prentice Hall) with homogeneity and symmetry restrictions imposed.

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Concluding remarks

The responsiveness of households’ food consumption to changes in prices and differences in income is a topic of great interest, as both prices and the distribution and level of income are affected by government and EU policy. Taxes and subsidies affect the distribution of incomes and it is important to measure how food consumption responds to these interventions. UK and EU regulations that affect producers’ costs have an impact on the prices at which producers supply foods to the market and it is important to measure consumers’ responses to these changes.

Measuring these responses is a difficult endeavour because the nature of foods and food preparation technology are rapidly changing, and because consumers’ tastes are changing, for example as a result of changes in the allocation of time to household and other tasks.

This Section has presented estimates of the responsiveness of demands for foods to prices and income, controlling for changes in household characteristics using the continuous records of household food purchases provided by the National Food Survey.

Income elasticities for most goods and own price elasticities for some goods appear to be changing slowly through time, but some price elasticities appear to change considerably.

The new Expenditure and Food Survey (EFS), formed from the merger of the National Food Survey with the Family Expenditure Survey has more accurate information on household income, information on expenditures on goods other than foods, more detail of the characteristics of households and their members, and more accurate information on food expenditures. The EFS offers the prospect of a substantially refined analysis of demand for foods and potentially answers to questions so far unresolved.

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Table 6.1 Own price elasticities and standard errors, 1988-2000

Budget share Own Price Standard Lower 90% Upper 90%(%) Elasticity(a) error confidence limit confidence limit

Milk and cream 1.32 -0.36 0.13 -0.56 -0.15of which: Liquid wholemilk and skimmed milks 0.95 -0.17 0.17 -0.45 0.11Cheese 0.46 -0.35 0.15 -0.60 -0.10Carcase meat 1.15 -0.69 0.16 -0.96 -0.43Other meat and meat products 2.35 -0.52 0.12 -0.72 -0.32Fresh fish 0.16 -0.80 0.18 -1.10 -0.49Processed and shell fish 0.10 -0.17 0.15 -0.42 0.08Prepared fish 0.25 0.00 0.16 -0.27 0.26Frozen fish 0.18 -0.32 0.16 -0.59 -0.06Eggs 0.18 -0.28 0.17 -0.56 0.00Fats 0.36 -0.75 0.14 -0.98 -0.53Sugar and preserves 0.18 -0.79 0.16 -1.05 -0.53Fresh potatoes 0.28 -0.12 0.05 -0.20 -0.03Fresh green vegetables 0.25 -0.66 0.08 -0.79 -0.53Other fresh vegetables 0.51 -0.33 0.10 -0.49 -0.17Processed vegetables 0.84 -0.60 0.13 -0.82 -0.38of which: Frozen peas 0.05 -0.68 0.19 -0.98 -0.37 Frozen convenience potato products 0.09 -0.58 0.13 -0.79 -0.36Fresh fruit 0.71 -0.29 0.12 -0.48 -0.10of which: Bananas 0.15 -0.32 0.09 -0.47 -0.17Other fruit and fruit products 0.35 -0.81 0.16 -1.07 -0.55of which: Fruit juices 0.19 -0.55 0.16 -0.81 -0.30Bread 0.69 -0.40 0.12 -0.61 -0.20Other cereals and cereal products 1.58 -0.94 0.10 -1.11 -0.78of which: Cakes and pastries 0.25 -0.56 0.16 -0.82 -0.30 Frozen convenience cereal foods 0.13 -0.69 0.28 -1.15 -0.24Beverages 0.44 -0.37 0.11 -0.55 -0.19(a) Homogeneity and symmetry imposed

indicates significance at 1% levelindicates significance at 5% levelindicates significance at 10% level

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Table 6.2 Own and cross price elasticities, 1988-2000 (a), (b), (c)

price 1 price 2 price 3 price 4 price 5 price 6 price 7 price 8 price 9 price 10 price 11 price 12 price 13 price 14 price 15 price 16 price 17 price 18 price 19 price 201 Milk and cream -0.36 0.34 0.04 -0.09 0.38 0.56 -0.01 -0.11 -0.40 -0.16 -0.20 -0.24 -0.02 0.05 -0.13 -0.27 0.27 -0.14 -0.05 -0.042 Cheese 0.12 -0.35 -0.01 0.02 0.06 0.02 -0.09 0.01 0.07 0.14 0.43 -0.13 -0.20 0.23 -0.03 -0.04 -0.29 0.24 0.02 -0.023 Carcase meat 0.05 -0.02 -0.69 0.26 0.15 0.40 0.20 0.07 0.15 0.21 0.08 0.19 -0.11 -0.09 -0.02 -0.17 0.21 -0.12 -0.03 0.194 Other meat and meat products -0.14 0.10 0.53 -0.52 -0.02 0.09 0.35 -0.04 0.03 0.01 -0.26 -0.11 0.00 -0.01 -0.11 -0.11 -0.04 0.11 0.27 0.015 Fresh fish 0.05 0.02 0.02 0.00 -0.80 -0.06 0.11 -0.09 0.14 -0.13 0.01 0.02 0.00 0.00 -0.06 0.04 0.10 0.08 0.05 0.006 Processed and shell fish 0.04 0.00 0.04 0.00 -0.04 -0.17 -0.06 0.04 0.02 0.03 0.09 0.05 -0.02 0.00 0.02 -0.02 0.05 -0.03 0.01 -0.087 Prepared fish 0.00 -0.05 0.04 0.04 0.17 -0.15 0.00 -0.05 -0.22 -0.09 -0.15 -0.01 0.00 -0.13 0.01 -0.07 -0.22 0.01 0.01 -0.098 Frozen fish -0.01 0.01 0.01 0.00 -0.10 0.06 -0.03 -0.32 0.19 0.01 0.03 0.05 0.05 0.06 -0.07 0.02 0.13 -0.02 -0.01 -0.109 Eggs -0.05 0.03 0.02 0.00 0.16 0.04 -0.16 0.20 -0.28 -0.10 0.20 0.05 -0.08 0.02 -0.08 0.06 0.00 -0.01 0.02 0.02

10 Fats -0.04 0.11 0.07 0.00 -0.30 0.12 -0.13 0.03 -0.19 -0.75 0.02 0.00 0.14 -0.07 0.01 -0.15 0.21 0.08 -0.03 0.0211 Sugar and preserves -0.02 0.16 0.01 -0.02 0.01 0.16 -0.10 0.03 0.20 0.01 -0.79 -0.04 0.11 -0.03 -0.01 0.04 0.07 -0.04 -0.03 0.0812 Fresh potatoes -0.05 -0.08 0.04 -0.01 0.04 0.15 -0.02 0.07 0.07 0.00 -0.06 -0.12 0.03 0.02 -0.02 -0.02 -0.09 0.00 -0.02 0.0713 Fresh green vegetables 0.00 -0.11 -0.02 0.00 0.00 -0.05 0.00 0.08 -0.10 0.09 0.16 0.02 -0.66 0.01 0.00 -0.01 0.12 -0.02 0.03 0.0914 Other fresh vegetables 0.02 0.26 -0.04 0.00 -0.01 0.00 -0.27 0.17 0.05 -0.10 -0.09 0.04 0.01 -0.33 0.03 0.09 0.05 0.04 -0.05 -0.0215 Processed vegetables -0.07 -0.06 -0.01 -0.04 -0.35 0.14 0.05 -0.31 -0.39 0.02 -0.05 -0.05 -0.02 0.05 -0.60 -0.05 0.03 -0.02 0.06 -0.1916 Fresh fruit -0.14 -0.07 -0.11 -0.03 0.16 -0.15 -0.20 0.06 0.25 -0.30 0.16 -0.06 -0.04 0.12 -0.04 -0.29 0.11 -0.10 -0.06 0.1017 Other fruit and fruit products 0.07 -0.22 0.06 -0.01 0.23 0.17 -0.30 0.25 0.00 0.20 0.13 -0.11 0.17 0.03 0.01 0.05 -0.81 -0.02 -0.03 0.1518 Bread -0.07 0.36 -0.07 0.03 0.36 -0.22 0.03 -0.07 -0.04 0.15 -0.14 -0.01 -0.05 0.05 -0.02 -0.10 -0.04 -0.40 0.07 0.1219 Other cereals and cereal products -0.05 0.07 -0.05 0.18 0.48 0.16 0.06 -0.10 0.20 -0.15 -0.29 -0.09 0.22 -0.16 0.11 -0.13 -0.13 0.15 -0.94 -0.3020 Beverages -0.01 -0.02 0.07 0.00 0.00 -0.33 -0.16 -0.23 0.04 0.02 0.21 0.11 0.15 -0.02 -0.10 0.06 0.19 0.08 -0.08 -0.37(a) An entry on the diagonal is the own price elasticity of the demand for the good with respect to its own price (b) An entry off the diagonal, eg row 2 column 1 is the price elasticity of demand for cheese with respect to the price of milk and cream. (c) Homogeneity and symmetry imposed

significant at 1% levelsignificant at 5% levelsignificant at 10% level

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Table 6.3 Income elasticities of the demand for foods, 1998-2000 (a)

Budget Income Standard Lower 90% Upper 90%Share Elasticity Error confidence limit confidence limit

All Foods 15.07 0.20 0.02 0.17 0.23Milk and cream 1.26 0.05 0.03 0.01 0.10of which: Liquid wholemilk 0.35 -0.17 0.06 -0.27 -0.07 Yoghurt 0.23 0.19 0.06 0.10 0.29Cheese 0.46 0.23 0.05 0.15 0.32of which: Natural cheese 0.41 0.22 0.06 0.13 0.31 Processed cheese 0.05 0.32 0.08 0.19 0.44Carcase meat 0.94 0.20 0.04 0.13 0.26of which: Beef and veal 0.48 0.25 0.05 0.17 0.34 Mutton and lamb 0.22 0.15 0.09 0.01 0.29 Pork 0.23 0.13 0.07 0.02 0.23

Other meat and meat products 2.54 0.19 0.03 0.14 0.24of which: Bacon and ham, uncooked 0.33 0.18 0.05 0.10 0.27 Broiler chicken, uncooked 0.41 0.16 0.06 0.06 0.26 Other poultry 0.15 0.16 0.12 -0.04 0.35 Frozen meat 0.32 0.03 0.08 -0.10 0.17Fish 0.70 0.27 0.05 0.20 0.35Eggs 0.17 -0.01 0.05 -0.10 0.08Fats 0.35 0.06 0.04 0.00 0.13of which: Butter 0.11 0.20 0.06 0.11 0.30 Margarine 0.03 -0.37 0.14 -0.60 -0.14Sugar and preserves 0.16 0.00 0.05 -0.08 0.09Fresh potatoes 0.31 0.09 0.04 0.02 0.15Fresh green vegetables 0.29 0.27 0.05 0.20 0.35Other fresh vegetables 0.53 0.22 0.04 0.15 0.29Processed vegetables 0.90 0.12 0.04 0.06 0.18of which: Frozen peas 0.04 0.06 0.11 -0.12 0.24 Frozen chips and other 0.12 0.05 0.07 -0.07 0.18Fresh fruit 0.79 0.30 0.03 0.25 0.35of which: Apples 0.06 -0.07 0.14 -0.29 0.16 Oranges 0.16 0.23 0.05 0.15 0.31 Bananas 0.19 0.12 0.04 0.06 0.19Other fruit and fruit products 0.33 0.37 0.06 0.28 0.46of which: Fruit juices 0.19 0.45 0.06 0.35 0.56Bread 0.68 0.12 0.03 0.07 0.17Cakes and biscuits 0.71 0.13 0.04 0.06 0.19Other cereals and cereal products 1.04 0.19 0.04 0.13 0.25of which: Breakfast cereals 0.33 0.19 0.05 0.12 0.27 Frozen convenience cereal foods 0.15 0.17 0.08 0.03 0.31Beverages 0.44 0.10 0.05 0.02 0.18of which: Tea 0.19 -0.02 0.06 -0.12 0.08 Instant coffee 0.17 0.16 0.07 0.04 0.28(a) Variations in income elasticities over the period 1979 to 2000 are shown in Figures 7.1 to 7.4. For all foods, the estimated elasticity was close to 0.20 throughout the period.

indicates significance at the 1% levelindicates significance at the 5% levelindicates significance at the 10% level

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Table 6.4 Own price elasticities of the demand for meats, meat products and fish(a)

Table 6.5 Income elasticities of the demand for meats, meat products and fish, 1998-2000 Budget Income Standard Share Elasticity Error Beef and veal 0.48 0.25 0.05 Mutton and lamb 0.22 0.15 0.09 Pork 0.23 0.13 0.07 Bacon and ham, uncooked 0.33 0.18 0.05 Bacon and ham, cooked, incl. canned 0.23 0.22 0.05 Poultry, uncooked 0.56 0.16 0.06 Poultry, cooked, not purchased in cans 0.15 0.31 0.08 All other meats and meat products 1.26 0.18 0.04 Fresh fish 0.16 0.31 0.09 Processed and shell fish 0.09 0.51 0.10 Prepared (cooked, canned, bottled not frozen products) 0.25 0.29 0.07 Frozen fish including fish products 0.20 0.11 0.08 All meats 3.47 0.19 0.03 All fish 0.70 0.27 0.05

1988-1998 1988-2000 Own Price Standard Own Price Standard Elasticity Error Elasticity Error Beef and veal -0.46 0.16 -0.45 0.16 Mutton and lamb -1.23 0.12 -1.29 0.13 Pork -0.94 0.12 -0.82 0.10 Bacon and ham, uncooked -0.80 0.11 -0.78 0.11 Bacon and ham, cooked, incl. canned -0.71 0.19 -0.76 0.16 Poultry, uncooked -0.63 0.11 -0.52 0.10 Poultry, cooked, not purchased in cans -0.90 0.16 -0.77 0.15 All other meats and meat products -0.26 0.12 -0.26 0.12 Fresh fish -0.75 0.17 -0.69 0.15 Processed and shell fish -0.10 0.14 -0.18 0.13 Prepared (cooked, canned, bottled not frozen products) -0.03 0.15 -0.05 0.13 Frozen fish including fish products -0.38 0.16 -0.32 0.13 (a) Estimates obtained with homogeneity and symmetry imposed.

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Figure 1.1: Milk and Cream - January 1988 to December 2000

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Jan-88 May-89 Sep-90 Feb-92 Jun-93 Nov-94 Mar-96 Aug-97 Dec-98 Apr-00Time

Act

ual a

nd P

redi

cted

Bud

get S

hare

s

Actual Budget Shares (%) Predic ted Budget Shares (%)

Figure 1.2: Underlying T rend in Demand, P redicted E ffect of P rices and of Income of milk and cream

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

0.3

May-89 Sep-90 Feb-92 Jun-93 Nov-94 Mar-96 Aug-97 Dec-98 Apr-00

Tim e

Predic ted Effec t of Prices Predic ted Effec t of Incom e Underlying Trend in Demand

Figure 1.3: P redicted E ffect of Demographics and Predicted Seasonal E ffect of milk and cream

-0 .08

-0 .06

-0 .04

-0 .02

0

0 .02

0 .04

0 .06

0 .08

Jan -88 May-89 Sep-90 F eb-92 Jun -93 Nov-94 Mar-96 Aug-97 Dec-98 Apr-00

Tim e

Predic ted Effec t of Dem ographics Predic ted Seasonal Effect

Figure 2.1: Sugar and Preserv es - January 1988 to December 2000

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

Jan-88 May-89 Sep-90 Feb-92 Jun-93 Nov-94 Mar-96 Aug-97 Dec-98 Apr-00

Tim e

Act

ual a

nd P

redi

cted

Bud

get S

hare

s


Figure 2.2: Underlying T rend in Demand, P redicted E ffect of P rices and of Income of sugars and preserv es

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08


Tim e


Figure 2.3: P redicted E ffect of Demographics and Predicted Seasonal E ffect of sugars and preserv es

-0.01

-0.005

0

0.005

0.01

0.015

0.02


Tim e


106

Figure 3.1: Fresh Green Vegetables - January 1988 to December 2000

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4


Tim e

Act

ual a

nd P

redi

cted

Bud

get S

hare

s


Figure 3.2: Underlying T rend in Demand, P redicted E ffect of P rices and of Income of fresh green

v egetables

-0.05

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03

0.04


Tim e


Figure 3.3: P redicted E ffect of Demographics and Predicted Seasonal E ffect of fresh green v egetables

-0.05

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03


Tim e


Figure 4.1: Fresh Fruit - January 1988 to December 2000

0

0.2

0.4

0.6

0.8

1

1.2


Tim e

Act

ual a

nd P

redi

cted

Bud

get S

hare

s


Figure 4.2: Underlying T rend in Demand, P redicted E ffect of P rices and of Income of fresh fruit

-0 .15

-0 .1

-0 .05

0

0 .05

0 .1

Jan -88 May-89 Sep-90 F eb-92 Jun -93 Nov-94 Mar-96 Aug-97 D ec-98 Apr-00

T ime


Figure 4.3: P redicted E ffect of Demographics of fresh fruit

-0 .15

-0 .1

-0 .05

0

0 .05

0 .1

0 .15

Jan -88 May-89 Sep-90 F eb-92 Jun -93 Nov-94 Mar-96 Aug-97 D ec-98 Apr-00

T ime


107

Figure 5.3: P redicted E ffect of Demographics and Predicted Seasonal E ffect of fresh potatoes

-0.05

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03

0.04


Tim e


Figure 6 .1: B re ad - J anuary 198 8 to De ce m ber 200 0

0

0.2

0.4

0.6

0.8

1

1.2


Tim e

Act

ual a

nd P

redi

cted

Bud

get S

hare


F igure 6 .2: Underlying Tre nd in Dem a nd, Pred ic ted Effect o f Pric es and o f Incom e of Bread

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2


Tim e


Figure 6 .3: Pred ic ted Effe ct o f De m ograph ics and Pred ic ted Se asona l E ffec t o f B rea d

-0.04

-0.03

-0.02

-0.01

0

0.01

0.02

0.03


Tim e


Figure 5.1: Fresh Potatoes - January 1988 to December 2000

0

0.1

0.2

0.3

0.4

0.5

0.6


Tim e

Act

ual P

redi

cted

Bud

get S

hare


Figure 5.2: Underlying T rend in D emand, P redicted E ffect of P rices and of Income of fresh potatoes

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

0.08


Tim e


109

Figure 7 .1: Incom e E las tic ity for M ilk an d C ream , Ch eese, Carcase M eat, an d O th er M ea t and M eat P ro duc ts, 1979 to 2000

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Milk and cream Cheese Carcase meat Other meat and meat products

Figure 7.3: Income Elasticity for Fresh Potatoes, Fresh G reen Vegetables, O ther Fresh Vegetables and Processed Vegetables, 1979 to

2000

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Fresh potatoes Fresh green vegetables Other fresh vegetables Processed vegetables

Figure 7 .2: Incom e Elastic ity for Fish , Eggs, Fats , and Sugar and Preserves, 1979 to 2000

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Fish Eggs Fats Sugar and preserves

Figure 7 .4: Incom e Elastic ity for Fresh Fru it, O ther Fru it and Fru it Products, Bread, Cakes and b iscuits , 1979 to 2000

-0.10

0.00

0.10

0.20

0.30

0.40

0.50

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Fresh fruit Other fruit and fruit products Bread Cakes and biscuits

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List of Appendices

Appendix A Structure of the Survey Appendix B Supplementary Tables for the Main Survey Appendix C Supplementary Tables for the Eating out Survey Appendix D Supplementary Tables for Regional Data Appendix E Tables of Historical Data

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income and price elasticities of demand for foods consumed ... · price elasticity for prepared...

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