Demand for food quantity and quality in urban China

Demand for Food Quantity and Quality in Urban China

Sachintha S. Mendis

a

, Vardges Hovhannisyan

b

a

_{Colorado State University,}

b

_{University of Wyoming}

Why China?

•Structural changes in diet

2,3,8

eg: Moving toward western diet, increased demand

for high-quality, food consumed away-from-home

•20% of the global population

•The largest economy according to PPP-based GDP

6

•Opening to global trade

5

•Rapid urbanization

3

Issue?

•Previous studies primarily focus on food quantity

demand and in aggregate geographical level

1,7

•Food expenditure is based on both quantity and

qualitative aspects of food

1

•Food consumption varies geographically

7

Our Contribution

•Develop a structural framework to analyze quality

demand

1,5

•Analysis of demand for food quality in China

Accounting for:

unobserved provincial heterogeneity

7

expenditure endogeneity

3

arbitrary shapes for Engel curves

5

References

1_{Gale, F., and Huang, K. (2007). Demand for food}

quantity and quality in China. Economic Research Report No. (ERR-32) 40.

2_{Guo, X., Mroz, T. A., Popkin, B. M., and Zhai, F. (2000).}

Structural changes in the impact of income on food consumption in China, 1989-93. Economic

Development and Cultural Change, 48, 737-760.

3_{Hovhannisyan, V. and Gould, B.W. (2011). Quantifying}

the structure of food demand in China: An econometric approach, Agricultural Economics, 94(1), 67–79.

4_{Lewbel, A., and Pendakur K. (2009). Tricks with hicks:}

The EASI demand system. American Economic

Review, 99, 827–863.

5_{Morrison, W.M. (2014). China's economic rise: history,}

trends, challenges, and implications for the United

States. Current Politics and Economics of Northern and

Western Asia, 23(4), 493-538.

http://www.sfu.ca/~pendakur/EASI%20made%20Easier. pdf

6_{World Bank. (2016). GDP ranking, PPP based.}

Retrieved March 30, 2017, from

http://data.worldbank.org/data-catalog/GDP-PPP-based-table

7_{Xian, X., Zhou, Z., and Jiang, N. (2005). Consumption}

of livestock products at the regional level in China,

Journal of Rural Development, 28(2), 211-233.

8_{Zhou, Z., Tian, W., Wang, J., Liu, H., and Cao, L.}

(2012). Food consumption trends in China.

Modeling Strategy

A fixed-effects Linear-Approximated Exact Affine Stone Index demand model (LA-EASI)

4

𝑤

_𝑖𝑡

= 𝛼

_𝑖0

+ σ

_𝑟=1

𝑅



_𝑖𝑟

𝐷

_𝑟

+ σ

_𝑗=1

𝑁



_𝑖𝑗

log(𝑝

_𝑗𝑟𝑡

) + σ

_𝑘=1

𝐾



_𝑖𝑘

𝑦

_𝑡𝑟

𝑘

+ 𝑢

_𝑖𝑟𝑡

𝑦

_𝑡𝑟

= log 𝑥

_𝑡

− ෍

𝑗=1

𝑁

𝑤

_𝑗𝑡

log 𝑝

_𝑗𝑡

∀𝑖, 𝑗 = 1, … 𝑁; 𝑡 = 1, … 𝑇; 𝑟 = 1, … 𝑅

w

_{it -}

Budget share of the i

th

commodity in year t

N,T, and R – Commodities, time and provinces respectively

D

_{r -}

Dummy variable for province r

p

_{jtr -}

Price of the j

th

commodity in province r in year t

K - Highest order of polynomial in y

_t

which is to be determined empirically

Data : Household expenditure survey data aggregated to provincial-level (2003-2012) covering all 30

provinces/cities’

urban population (excluding Tibet); Source : National Bureau of Statistics of China (NBSC)

Estimator: Full Information Maximum Likelihood procedure

Engel Relationships for Income Elasticity of Food Quality

1

Income elasticity of quality (𝑰𝑸) = Income elasticity of expenditure 𝑰𝑬 − Income elasticity of quantity (𝑰𝑫)

u

_{itr -}

Residual



_r

,



_0j,



_ij

,



_{ik -}

Parameters

𝑦

_𝑡𝑟

𝑘

- Real food expenditures in province r in year t

𝑥

_𝑡

- Total expenditure in year t

Results and Conclusions

•Significant amount of food expenditure goes for food quality

•More affluent provinces have higher appreciation of food quality

•Quantity demand for seafood and fruits increases with income

•Quality demand for fats/oils is negative but increasing

•Unobserved provincial heterogeneity has a significant

explanatory power of food expenditure

IE

ID

IQ

Meats

0.491

a

0.488

a

0.003

a

Grains

0.571

a

0.558

a

0.013

a

Vegetables

0.624

a

0.499

a

0.125

a

Eggs

0.677

a

0.560

a

0.117

Fats/oils

0.284

a

0.580

a

-0.296

a

Seafood

0.705

a

0.474

a

0.230

a

Fruits

0.690

a

0.470

a

0.220

a

Meat

Grains

Vegetables

Eggs

Fats

Seafood

Fruits

ID

IE

IQ

Income

Elasticity of

Quality

Maps:

The darker

the higher

elasticity

a

_{Significant at 0.01}