Estimation of Demand Elasticity for Food Commodities in India

Abstract

The food demand in India has been examined in the context of a structural shift in the dietary pattern of its population. The results have reinforced the hypothesis of a significant diversification in the dietary pattern of households in recent years and has found stark differences in the consumption pattern across different income quartiles. The food demand behaviour has been explained using a set of demand elasticities corresponding to major food commodities. The demand elasticities have been estimated using multi-stage budgeting with QUAIDS model and another alternative model, FCDS. The study has revealed that the estimated income elasticities vary across income classes and are lowest for cereals group and highest for horticultural and livestock products. The analysis of price and income effects based on the estimated demand system has suggested that with increase in food price inflation, the demand for staple food (rice, wheat and sugar) may not be affected adversely but, that of high-value food commodities is likely to be affected negatively. Therefore, the study has cautioned that if inflation in food prices remains unabated for an extended period, there is the possibility of reversal of the trend of diversification and that of consumers returning to cereal-dominated diet, thus accentuating under-nourishment.Food demand, Demand elasticity, QUAIDS model, FCDS model, Household food demand, Agricultural and Food Policy, Q11, Q18,