Income and the Demand for Food Among the Poor

How much do the poor spend on food when their income increases? We estimate a key economic parameter—the income elasticity of food expenditures—using data from the randomized evaluations of five cash transfer programs: four conditional (two in Mexico, and one in each of Nicaragua and the Philippines) and one unconditional (in Uganda). The transfers provided routine, exogenous increases of 12 to 23 percent of baseline income for at least a year to recipients at or below the global poverty line. Using pooled ordinary least squares and Bayesian hierarchical models, we first show that expenditures on all food categories increase with income. But even among some of the poorest people in the world, all of whom are experiencing high hunger levels, our estimated income elasticity for food is 0.03, i.e., much smaller than many published estimates relying either on cross-sectional variation or study responses to large income shocks. Next, we use our data to test Engel’s Law—which predicts that the budget share of food will monotonically decrease as income increases—and to run a the first credible test of Bennett’s Law—the empirical regularity whereby, for poor households, income increases are associated with (i) shifting spending from coarse to fine staples, and (ii) spending more on protein than staples—finding support for both. While income increases lead consumers to spend a declining share of their income on food and to substitute fine grains for coarse grains and protein for staples, the estimated shifts are smaller than previous estimates. Quantifying how small, routine income changes affect food demand in low- and middle-income countries can inform the policy discourse on poverty reduction, nutrition, and social protection, as well as the debate on the impact of economic growth on global carbon emission patterns.