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Disaggregated Demand for Rice in Bangladesh: an Analysis Using La/aids Model

M. Rafiqul Islam
PSO
Principal Scientific Officer, Agricultural Economics Division, BRRI, Gazipur:

Mahabub Hossain
Executive Director,
Executive Director, BARC, BRAC Center, Mohakhali, Dhaka and Professor, Department of Agricultural Economics, BAU, Mymensingh.

W. M. H. Jaim
Professor,
Professor, Department of Agricultural Economics, BA U, Mymensingh.

Abstract/ Executive Summary:

The study was conducted to examine the income and price elasticities of demand for different types of rice in Bangladesh. Both time series and cross-section data were used to estimate a complete demand system equation. The equation was estimated in three stages to obtain income and price elasticies of demand for rice. The stages were the allocation of household total income on food and non-food items, the allocation of household total food expenditure for cereal, and the allocation of household total cereal expenditure on different types of rice and wheat, respectively. The total budget for cereal food allocated to aromatic, fine, coarse rice, and wheat was 4.0%, 23.3'70, 65.2%, and 7.5%, respectively. The estimated expenditure elasticities of demand for those types of cereals Here 0.85. 0.79. 0?9, and 0.55. respectively. The expenditure elasticities of demand for aromatic and coarse rice were higher for rural households compared with urban households, while the expenditure elasticities of demand for fine rice and wheat were higher for urban households. Considering all other factors remaining unchanged, the uncompensated and compensated own-price elasticities of demand for coarse rice would fall by 7.7% with a 10% increase in its price. These falls were 7.4%, 11.170, and 4.6% for aromatic, line rice, and wheat, respectively. The estimates of uncompensated cross-price elasticities between coarse-to-fine rice showed that a 10% increase in absolute income associated with a 10% increase in real income due to fall in coarse rice price would increase the actual demand for fine rice by 4.6%. A 10% increase in absolute income accompanied by a l07 increase in real income due to fall in coarse rice price would increase the actual demand for aromatic rice and wheat by 7.4% and 4.6%, respectively.

Keywords: Disaggregated demand,Rice, LA/AIDSmodel

Location:

Start Date: 00-07-2000

End Date: 00-09-2000

Program Area: Socio-economic and Policy

Commodity: Rice

Objectives:

To examine the income and price elasticities of demand for different types of rice in Bangladesh

Methodology:

Selection of area In view of true representation of total population of Bangladesh, the household expenditure survey (I-IES) for demand estimation has been conducted in both urban and rural areas. The urban areas selected for this study situated in two locations, one in Tejgaon thana of Dhaka and another in Dinajpur sadar thana. Households of different income groups characterized the locations. While the rural areas were in Chirirbandar thana of Dinajpur district. Four villages namely Barobaul, Chotobaul, Mohadhani, and Awliapukur (under Awliapukur union) which are situated within 5 kilometers of thana head quarter were selected purposivelyMulti-stage sampling technique was followed to gather HES data for demand analysis of the study. The first stage is the selection of area, which is discussed in the previous section. The second stage is the selection of households. A household means a group of persons living together and eating in one mess or chuln (i.e., with common arrangement of cooking). The total sample was 300 households, which were distributed as 200 from rural households and 100 from urban households. The distributions of rural sample households were 68, 106, 23 and 3 as landless, small, medium and large farm families, respectively. The distributions of urban households are 50 from Dinajpur Municipality and 50 from Dhaka Municipality areas. These 50 samples under each urban area were again subdivided into 20 as slum and 30 as non-slum households. All types of households (from slum to rich) were living in these areas. The data were collected during July- September, 2000.

Source of Information: Bangladesh J. Agric. Econs XXX, 1 (2007) 1-22

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

This study examined the households' expenditure patterns and estimated demand parameters of the AIDS model through the estimation of a complete demand system. The higher percentage of budget share of cereal for both rural and urban areas- shows the overwhelming dominance of rice in total household food expenditure. However, rural households have less diversity in high quality food compared with urban households. The expenditure (income) elasticities of demand for cereal, livestock products, and other foods were found to be almost similar between rural and urban households. However, the expenditure (income) elasticities of demand for pulses, cooking oil, fruits, vegetables, and fish were higher for rural households compared to urban households. Thus, any policy for increasing the income of rural people could enhance their diversity in high quality food. The estimates of own-price elasticities suggest that households are quite responsive to changes in prices of pulses, cooking oil, and other food commodities to make an adjustment in their food consumption expenditure budget. The estimated elasticities of demand for fruits, vegetables, and livestock products, in rural areas are relatively low compared with urban areas, which indicate that demand of rural households is not market oriented; rather they consume these food commodities from their own production. The estimated elasticities for pulses, cooking oil, fish, and other foods, in rural areas were higher compared with urban areas indicating that their demand was market oriented. On the other hand, the demand for all food commodities of urban households was market oriented. Thus, to maintain food consumption balance between rural and urban households, there should be a constantly open market for selling food commodities such as pulses, cooking oil, and other foods with higher price elasticities. Moreover, increased supply of fish in rural and livestock products in urban households could also help maintain dietary balance between urban and rural areas.The estimates of decomposed expenditure (income) elasticities of demand for cereal food (i.e., coarse rice, fine rice, aromatic rice and wheat) indicated that the demand elasticities for coarse and aromatic rice in rural areas were higher compared with urban areas. Theexpenditure elasticities of demand for fine rice and wheat, on the other hand, in urban areas were higher than in rural areas. However, in both cases, the increased expenditure (income) elasticities of demand for aromatic rice and wheat were prevailing which indicated that an increase in income could result in people including fine quality rice in their diet.

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