Consumer Behavior and Demand for Basic Foodstuffs in Urban Areas of Iran Using Generalized Ordinary Differential Demand System (GODDS): Application of Panel-SURE Method

مجله اقتصاد و توسعه کشاورزی

Article 7, Volume 36, Issue 3 - Serial Number 56, October 2022, Pages 317-335   

Document Type: Research Article

DOI: 10.22067/jead.2022.75824.1127

Authors

E. Barikani^* ; A. Amjadi

Institute of Planning Research, Agricultural Economics and Rural Development, Tehran, Iran

Abstract

Introduction
Survey of the households demand is very important and necessary in planning for production of various goods and services in order to regulate the domestic consumption, import and export. Given the importance of this issue, the study of consumer behavior and their consumption pattern is a major part of economic research with the objectives of analyzing the consumption structure, identifying appropriate patterns for explaining the consumer behavior, predicting consumption and its changes. The main objective of the present study is to investigate the consumption and demand behavior of basic food items (cereals, livestock, poultry, fish and shrimp and its products, dairy products, oils, fats and butter, fruits, pulses, sugar and vegetables) in urban areas of Iran using pooled data and SURE method.
Materials and Methods
According to the objectives of this study, the best functional form of demand should be identified to explain the consumption behavior of urban households in Iran. Therefore, first the Generalized Ordinary Differential Demand System (GODDS) using the data of urban households (pooled data) was estimated using the seemingly unrelated regression (SURE) method and then, the appropriate functional form was selected. Then, according to the appropriate functional form, price and income elasticities were calculated by applying the conditions of adding up, homogeneity and symmetry for each of the equations of the demand system. Therefore, in order to choose and determine the appropriate functional form for food demand system, Generalized Ordinary Differential Demand System (GODDS) was estimated.
 
The above model includes the Rotterdam demand system, differential form of AIDS, and the two hybrid models NBR and CBS. The selection of a suitable functional system is based on the constraints applied based on the θ₁ and θ₂ parameters. The system of demand equations was estimated using the seemingly unrelated regression (SURE) method. Also, in order to be consistent with the theory of utility, the constraints of adding up, symmetry and homogeneity were applied as linear equations. In order to investigate the impact of drought and also the targeted of subsidies, two dummy variables were included in the model. In other words, the first dummy variable was entered into the model to investigate the impact of drought in 2008. The second dummy variable was entered in order to investigate the effect of targeted subsidies in before and after 2010.
 In order to better understand household consumption pattern and cost situation and to analyze income, price and cross-demand elasticities, and the deciles were divided into three main groups. In other words, the average of the first three to the third decile was placed in the first group. Also, the average of the fourth, fifth, sixth and seventh decile in the second group and the mean of the eighth, ninth and tenth deciles were in the third group. Accordingly, in this study, the data used are pooled. The required data of research were gathered from the Statistics Center of Iran for the period 2006 to 2017.
Results and Discussion
Based on the results of the Wald test, the functional form of AIDS was selected against others. Price elasticity calculation results showed that own-price elasticity of food demand in urban areas is negative. Also, the highest own-price elasticity of food demand was related to fish and shrimp and its products (-1.03). The positive cross- price elasticity of food indicates that there is not necessarily a two-way substitutional relationship between food items and only in some cases (such as cereals and pulses), there is a substitutional relationship. Most positive cross-price elasticities have low values, indicating a poor substitution between food items. The calculation of income elasticity indicates the normality of commodity groups. The income elasticity of fish and shrimp and its products is greater than one that illustrates the luxury of this food.
Conclusion
Calculating the self-price elasticity of food in urban areas indicates the high elasticity of fish and shrimp and its products. Also, the income elasticity of fish and shrimp and its products has been more than one, which indicates the luxury of this food in urban areas. Therefore, pricing and subsidy policies should be set in such a way as to ensure a minimum consumption of animal protein for each individual in the community. Also, the policies governing the production and supply of the group (cereals, oils, fats and butter, fruits, vegetables, pulses and sugar) as well as the policies governing their consumption should be regulated in some way that the minimum supply of foods is to be possible for households.

Keywords

AIDS; GODDS model; Income elasticity; Price elasticity; Urban areas

References

1. Abdi, F., Atarodi Kashani, Z., Mirmiran, P., & Esteki, T. (2015). Surveying global and Iranian food consumption patterns: a review of the literature. Journal of FASA University of Medical Sciences 5(2): 159- (In Persian)
2. Abdollahi, M., Mohammadi, F., Houshiar Rad, A., HajiFaragi, M., & Esfarjani, F. (2011). Shares of energy and nutrients intakes from subsidized food items in Iranian households in different socio-economic status. Iranian Journal of Nutrition Sciences & Food Technology 6(1): 43-56.
3. Abhari, B. (2003). Estimation of demand functions and analysis of consumption behavior in urban areas of West Azerbaijan province by analyzing the almost ideal demand system during the period 1979-80. Master Thesis in Economics, Faculty of Humanities and Social Sciences, University of Tabriz. (In Persian)
4. Ahmed, E., Jalil, A., & Idrees, M. (2013). Almost ideal demand system and uniform taxation in Pakistan: econometric evidences for consumer goods in Pakistan, 1984-2008. Applied Econometrics and International Development 13(2): 211-220.
5. Akbari, A., Ahmadi-Javid, M., Ziyaee, M.B., & Barakati, S.M. (2017). Estimation of food demand function of urban households in Sistan and Baluchestan province using NNDS and QUAIDS systems. Agricultural Economics Research 9(2): 93-116. (In Persian)
6. Ataei Salut, K., & Mohammadi, H. (2018). Determining the demand elasticity of selected food products in Mazandaran province using the model of the almost ideal demand system (AIDS): a case study of white meat, aquatic and red meat. Agricultural Economics Research 10(3): 173-186. (In Persian)
7. Barikani, E., Shajari, Sh., & Amjadi, A. (2007). Price and income elasticity of demand for food in Iran: a dynamic demand system. Journal of Agricultural Economics and Development 15(60): 125-145. (In Persian)
8. Baltagi, B.H. (2008). Econometric Analysis of Panel Data. John Wiley & Sons Ltd.
9. Barten, A. (1993). Consumer Allocation Models: Choice of Functional Form. Empirical Economics 18: 129-158.
10. Chengappa, P., Umanath, M., Vijayasarathy, K., Babu, P., & Devika, C.M. (2017). Demand for agro processed food products: an evidence from Indian households. Asian Journal of Agricultural Extension, Economics and Sociology 16: 1-11. https://doi.org/10.9734/AJAEES/2017/32091.
11. Dehghanpour, H., & Bakhshoodeh, H. (2017). Investigating the welfare effects caused by price changes of protein-consumed food stuffs in urban households. Journal of Agricultural Economics and Development 25(99): 151-167. (In Persian)
12. Delavar, A., Yavari, G., Yazdani, S., Amjadi, A., & Mahmoodi, A. (2021). Testing of weak separability and estimating of meat demand system in Iran (application of Rotterdam demand system). Iranian Journal of Agricultural Economics and Development Research, 52(2): 215-228. https://doi.org/10.22059/ijaedr.2020.291333.668830.
13. Eales, J., & Wessells, C.R. (1999). Testing separability of Japanese demand for meat and fish within differential demand systems. Journal of Agricultural and Resource Economics 24: 114-126.
14. Ghorbani, M., & Mahjori Karmozdi, K. (2016). Differential generalized inverse demand system estimation (DGIDS) for animal protein in rural areas in Iran. Rural Development Strategies 3(2): 141-154. (In Persian)
15. Gilak Hakimabadi, M.T., Zaruki, Sh., & Rahmati, S. (2017). The loss of price increase in major food items, using the Panel-SURE method in the provinces of Iran. Quantitative Economics Quarterly Journal 14(4): 53-92. (In Persian)
16. Green, R., & Alston, J.M. (1990). Elasticities in AIDS models. American Journal of Agricultural Economic 72: 442-445.
17. Gujarati, D.N. (2005). Basic Econometrics. New Dehi. MC Graw-Hill.
18. Hoang Vu, L. (2020). Estimation and analysis of food demand patterns in Vietnam. Economies 8(11): 1-17. https://doi.org/10.3390/economies8010011.
19. Hooshmand, Z., Khodadad Kashi, F., & Khoshnevis, M. (2017). Evaluating the consumption behavior of urban families in Tehran. The Journal of Economic Policy 9(18): 183-203. (In Persian)
20. Melo, P., Abdul-Salam, Y., Roberts, D., Gilbert, A., Matthews, R., Colen, L., Mary, S., & Gomez Y Paloma, S. (2015). Income elasticities of food demand in Africa: a meta-analysis. EUR 27650 EN; https://doi.org/10.2791/661366.
21. Mohamadzadeh,, Behboodi, D., & Hekmati Farid, S. (2015). Comparing of demand systems in explaining of Iranian urban household consumption behavior. Journal of Economic Research 50(1): 193-216. (In Persian)
22. Mohammadzadeh, R., & Asgari, F. (2015). Global market for agricultural products 2015 -2024. Tehran, Agricultural Planning, Economic and Rural Development Research Institute. (In Persian)
23. Mojaver-Hosseini, F. (2007). Estimation of price and income elasticities for the food and non-food goods groups using almost ideal demand system (AIDS). Journal of Agricultural Economics and Development 15(57; Special Issue of Agricultural Markets): 199-224. (In Persian)
24. Moschini, G., Moro, D., & Green, R. (1994). Maintaining and testing separability in demand systems. American Journal of Agricultural Economics 76(February):61-73.
25. Motafaker Azad, M.A., Agajani, H., & Amjadi, K. (2007). Studying the demand schedule and consumption behavior of the urban households of the country. The Journal of Productivity Management 2(2): 199-226. (In Persian)
26. Pelletier, D. (2015). Food and nutrition policy: A biological anthropologist's experiences from an academic platform. American Journal of Human Biology 27(1):16-26.
27. Sabouhi, M., & Ahmadpour, M. (2012). Estimation of Iran agricultural products demand functions using mathematical programming (Application of maximum entropy method). Journal of Agricultural Economics 6(1): 71-91. (In Persian)
28. Salehi, F., Abdollahi, Z., & Abdollahi, M. (2013). Desirable food basket for the Iranian society. Ministry of Health, Treatment and Medical Education, Office of Community Nutrition Improvement Qom, Andishe Mandegar Publication. (In Persian)
29. Selvanathan, E.A., Jayasinghe, M., Hossain, M.M., & Selvanathan, S. (2020). Modelling the demand for meat in Bangladesh. In: Islam, M., Hossain, M. (Eds) Science and Technology Innovation for a Sustainable Economy. Springer, Cham. https://doi.org/10.1007/978-3-030-47166-8_8.
30. Varhrami, V., Houshmand, Z., & Yousefi Hajiabad, R. (2015). Estimating the food price and income elasticities in Tehran urban households. Economical Modeling 9(32): 103-122. (In Persian)