Food Demand Elasticities in Australia
AbstractMany aspects of economic policy formulation and strategic industry planning in the food sector require estimates of food demand elasticities. Despite this central place in economic policy, there is a dearth of recent elasticity estimates of Australian food demand. This is a major problem because the use of dated elasticity estimates in policy analysis could lead to misleading results. This study presents disaggregated food demand elasticities for Australia using data drawn from the latest two national Household Expenditure Surveys covering the period 1998/99 and 2003/04. Adopting an Almost Ideal Demand System approach, a food demand system is estimated for 15 food categories, which cover a significant portion of the food items in households’ shopping lists. Own-price, cross-price and expenditure elasticity estimates have been derived for all categories. Elasticities for households with Australian-born heads are also computed. The parameters reported measure longer run responsiveness at the household level and represent the first integrated set of food demand elasticities based on a highly disaggregated food demand system estimated for Australia. The underlying food demand elasticities obtained in this study all accord with economic intuition and theory. Importantly, but not surprisingly, some of these elasticities differ, in a policy relevant sense, from the estimates found in earlier studies.
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