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Short-Run Demand Relationships in the U.S. Fats and Oils Complex

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  • Goodwin, Barry K.
  • Harper, Daniel C.
  • Schnepf, Randall D.

Abstract

Fats and oils play a prominent role in U.S. dietary patterns. Recent concerns over the negative health consequences associated with fats and oils have led many to suspect structural change in demand conditions. Our analysis considers short run (monthly) demand relationships for edible fats and oils. In that monthly quantities of fats and oils are likely to be relatively fixed, an inverse almost ideal demand system specification is used. A smooth transition function is used to model a switching inverse almost ideal demand system that assesses short-run demand conditions for edible fats and oils in the United States. The results suggest that short-run demand conditions for fats and oils experienced a gradual structural shift that began in the late 1980s or early 1990s and persisted into the mid-1990s. Although this shift generally made price flexibilities more elastic, differences in scale flexibilities across regimes were modest in most cases. The results suggest that decreases in marginal valuations for most fats and oils in response to consumption increases are rather small. Scale flexibilities are relatively close to -1, suggesting near homothetic preferences for fats and oils.

Suggested Citation

  • Goodwin, Barry K. & Harper, Daniel C. & Schnepf, Randall D., 2003. "Short-Run Demand Relationships in the U.S. Fats and Oils Complex," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(01), April.
  • Handle: RePEc:ags:joaaec:37858
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    References listed on IDEAS

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    1. Giancarlo Moschini & Karl D. Meilke, 1989. "Modeling the Pattern of Structural Change in U.S. Meat Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 71(2), pages 253-261.
    2. Holt, Matthew T & Goodwin, Barry K, 1997. "Generalized Habit Formation in an Inverse Almost Ideal Demand System: An Application to Meat Expenditures in the U.S," Empirical Economics, Springer, vol. 22(2), pages 293-320.
    3. Eales, James S. & Unnevehr, Laurian J., 1994. "The inverse almost ideal demand system," European Economic Review, Elsevier, vol. 38(1), pages 101-115, January.
    4. Ray, Ranjan, 1984. "A dynamic generalisation of the almost ideal demand system," Economics Letters, Elsevier, vol. 14(2-3), pages 235-239.
    5. Hicks, J. R., 1986. "A Revision of Demand Theory," OUP Catalogue, Oxford University Press, number 9780198285502.
    6. Tsurumi, Hiroki & Wago, Hajime & Ilmakunnas, Pekka, 1986. "Gradual switching multivariate regression models with stochastic cross-equational constraints and an application to the Klem translog production model," Journal of Econometrics, Elsevier, vol. 31(3), pages 235-253, April.
    7. E. W. Goddard & S. Glance, 1989. "Demand for Fats and Oils in Canada, United States and Japan," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 37(3), pages 421-443, November.
    8. Hoanjae Park & Walter N. Thurman, 1999. "On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 950-958.
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    Cited by:

    1. Chapda Nana, Guy & Larue, Bruno & Gervais, Jean-Philippe, 2012. "Regional integration and dynamic adjustments: Evidence from gross national product functions for Canada and the United States," The North American Journal of Economics and Finance, Elsevier, vol. 23(2), pages 246-264.
    2. Matthew T. Holt & Joseph V. Balagtas, 2009. "Estimating Structural Change with Smooth Transition Regressions: An Application to Meat Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1424-1431.
    3. Rodriguez, Nestor & Eales, James S., 2015. "Structural Change via Threshold Effects: Estimating U.S. Meat Demand Using Smooth Transition Functions and the Effects of More Women in the Labor Force," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 206522, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    4. Asche, Frank & Zhang, Dengjun, 2013. "Testing Structural Changes in the U.S. Whitefish Import Market: An Inverse Demand System Approach," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(3), December.

    More about this item

    Keywords

    fats and oils; inverse demand system; structural change; Q0; D1;

    JEL classification:

    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • D1 - Microeconomics - - Household Behavior

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