Food Consumption Patterns and Demand Elasticities for South West Rural Ethiopia

Abstract

Demand elasticities are powerful tools to quantify welfare effects of relative price changes concomitant to shocks in economic environment of consumers. This study examined food demand elasticities to demonstrate how rural households in South West Ethiopia react to income and price changes by drawing on 267 observations of Household Income and Consumption Expenditure Survey data collected by Central Statistical Authority. It estimated Quadratic Almost Ideal Demand Systems (QUAIDS) of six groups of food items controlled for censoring and expenditure endogeneity by applying Nonlinear Seemingly Unrelated Regression (NLSUR) technique after incorporating household characteristics into the systems as intercept shifters. The descriptive statistics results showed that households allocate about 55 percent of income to food consumption of which root crops, fruits and vegetables were the dominant. The inferential statistics revealed that household characteristics such as sex, family size, age, education and location significantly influence the consumption patterns, and changes in income and prices would induce adjustment in consumption patterns that manifest by change in the quantities and types of items consumed. The results implicate the need for emphasizing crop specific price policies over holistic approach and policies that target income over policies targeting prices.