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Empirical Evidence of Changing Food Demand and Consumer Preferences in the Usa

Kazi Tamim Rahman
Department of Agricultural Economics, Bangabandhu Sheikh Mujibur Rahman Agricultural University, Gazipur 1706, Bangladesh

Kaynath Akhi
Department of Agricultural Economics, Bangabandhu Sheikh Mujibur Rahman Agricultural University, Gazipur 1706, Bangladesh

Md. Salauddin Palash
Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh 2202, Bangladesh

Abstract/ Executive Summary:

Consumer demand for food is an important component to policy makers, entrepreneurs, and market intermediaries to ensure sufficient food supply and profitable business. Consumers’ food demand and preferences in the USA are changing due to increase in per capita income, price, population and urbanization, health consciousness, etc., for which, a clear understanding of the distributions of changing price and expenditure elasticities for major food items is crucial. This study employs the Almost Ideal Demand System (AIDS) to assess the changing food demand and consumer preferences in the United States using household survey data from January 1959 to February 2016. Consumers’ price and expenditure sensitivity of demand for food was examined for 15 major food items. The empirical results illustrate the change in food preferences of the consumers’ in the USA from carbohydrate to protein mostly due to health consciousness. The compensated own price elasticities indicate that all food items are price inelastic except other meats. The compensated cross price elasticities specify that beef and veal is a significant substitute for pork, other meats, fish and sea foods and eggs while complementary to poultry. Fresh milk and processed dairy products are substitutes for each other. Fresh fruits are also substitute of processed fruits and vegetables. Most of the food categories are normal based on expenditure elasticity. Cereals, bakery products, poultry and fruit (fresh) were expenditure elastic while pork, other meats, fish and seafood, processed dairy products, eggs, fats and oils, vegetables, processed fruits and vegetables and sugar and sweets were inelastic interpreting that those were of necessity. The finding of the study would be helpful for the policy makers and industry participants to formulate effective policies and strategies for the improvement of consumers’, as well as producers’ welfare. In future research, there is a need to conduct separability tests to understand how consumers allocate their food budget into different food products.

Keywords: AIDS model, Expenditure elasticity, Price elasticity, Cross price elasticity

Location: Department of Agricultural Economics, Bangabandhu Sheikh Mujibur Rahman Agricultural University, Gazipur 1706, Bangladesh

Start Date: 00-01-1959

End Date: 00-02-2013

Program Area: Food Safety and Security

Commodity: Fresh and processed food

Objectives:

To evaluate the changing food demand and to estimate the demand elasticity of 15 major food items in the USA by drawing meaningful interpretation.

Methodology:

Data sources: National level monthly per capita personal consumption expenditures on food categories and price indices corresponding to each expenditure categories were used as a base for analysis. The data range from January 1959 to February 2016 and is readily available at the Bureau of Economic Analysis (BEA), USA Department of State website (BEA, 2016). This data set is compiled using retail sales, tax receipts and household survey data. The data include disaggregated major food items like cereals, bakery products, beef and veal, pork, other meats, poultry, fish and seafood, fresh milk, processed dairy products, eggs, fats and oils, fruit (fresh), vegetables (fresh), processed fruits and vegetables, and sugar and sweets. Other meats consist of mutton and lamb. The summary statistics of personal consumption expenditures and price indices respectively. It is evident from that the consumers spent the highest amount of money on purchasing bakery products while they spent the lowest amount of money in purchasing eggs. Furthermore, consumers in the USA spent a significant amount of money on cereals, meats, dairy products, vegetables and sugar and sweets. The average price of major food commodities was more or less similar ranging from 51 cents to 65 cents. However, the average price of pork appears to be the highest and the price of bakery products is the lowest during the period. Analytical technique The Almost Demand System (AIDS) of Deaton and Muellbauer (1980) and its variants have been extensively used in the estimation of consumer demand over three decades. The reasons behind the popularity of AIDS models are that they are consistent with theory, i.e. satisfy budget constraints and the axioms of order, aggregate over consumers without invoking parallel linear Engle curves, and have approximate versions that can be estimated by linear regression (Zhen et al., 2013). In this study, Linear Aggregation to Almost Ideal Demand System (LA-AIDS) was used to estimate a disaggregated food demand system. It is anticipated that the disaggregation of food categories will help better understand any structural changes in the demand for food products in the United States.

Source of Information: J Bangladesh Agril Univ 18(1): 172–179, 2020

Article Link (Online Journal): https://doi.org/10.5455/JBAU.94759

Funding Source:

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The extent to which the demand for foods responds to price changes is an important economic question not only for policymakers, but also for retailers and other intermediaries in the USA and worldwide under the changing socioeconomic and business environment. Therefore, this study examines consumers’ price and income sensitivity of demand for food for better understanding of price and expenditure elasticities for major food items in the USA. AIDS model of Deaton and Muellbauer (1980) was applied to examine the structure of demand for 15 major food items using national level monthly data from January 1959 to February 2016. The coefficient estimates seem to be reasonable and also most of the coefficients are significant. The negative intercepts for cereals and bakery products and positive intercepts for some protein intensive food categories like beef, pork, egg, milk, etc. indicate the changes in food preferences of the consumers’ in the USA from carbohydrate to protein mostly due to health consciousness. The result also indicates that while the budget share of beef and veal, pork and other meats have increased, the share of food expenditure on poultry has slightly decreased. The declining expenditure share on fresh fruits and the rising share of processed fruits and vegetables are meaning shift in preference from fresh fruits to processed fruits and vegetables. This change can be attributed to lifestyle changes over the course of time. The growth or decline in the disaggregated food products is very important in explaining the shift in consumer preference for any aggregate food category. The compensated own price elasticity indicate that all food items are price inelastic except other meats. The compensated cross price elasticity specify that beef and veal is a significant substitute for pork, other meats, fish and sea foods and eggs while complementary to poultry. Poultry is a significant substitute for cereals, fish and seafood, and eggs. Fresh milk and processed dairy products are substitutes for each other. Fresh fruits are also substitute of processed fruits and vegetables. Most of the food categories are normal based on expenditure elasticity. Cereals, bakery products, poultry and fruit (fresh) were expenditure elastic while pork, other meats, fish and seafood, processed dairy products, eggs, fats and oils, vegetables, processed fruits and vegetables and sugar and sweets were inelastic interpreting that those were of necessity. The findings of this study will be helpful for the policy makers to ensure food balance in the country as well as to formulate suitable production and distribution. Investigation of changes in demographic characteristics in the USA may help to identify the sources of consumer preference shifts over time. Demand analysis provides as an important source of information related to own and cross price elasticity for intermediaries who are involved in food marketing related activities. In addition, there is a need to conduct separability tests to understand how consumers allocate their food budget into different food products.

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