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Canadian Dairy Demand

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  • Veeman, Michele M.
  • Peng, Yanning

Abstract

The Canadian dairy industry faces a changing market environment as processors react to apparent shifts in consumers' preferences, consumers react to an altered mix of products on retail dairy shelves, and industry adjusts to potential pressures of competition and the challenge of new market opportunities under the impetus of changes arising from international trade. The purpose of this study is to derive a set of updated and disaggregated estimates of demand for major dairy products in a manner consistent with the economic theory of consumer behaviour. These estimates are necessary for policy models, policy analysis and forecasting. Previously dairy demand estimates were only available for broad product groupings such as fluid milk, butter, all cheese and "all other dairy products". For this study, four weakly separable groupings of major dairy products and related foods are specified. These are milk and other beverages, fats and oils, dairy dessert and related products and cheeses and apparent substitutes. Skim milk powder is assessed not to be a member of any of these groups but is hypothesized to be a member of a fifth dairy subgroup of dairy protein products. Due to data limitations, it was necessary to follow a single-equation approach for this product. The appropriateness of each product grouping was assessed by a two-stage test. First, each subgroup was tested using non-parametric tests of the axioms of revealed preference, as a means of inferring whether or not choices within each subgrouping are consistent with constrained utility maximization. Second, parametric assessment of each subgroup gave further evidence regarding the appropriateness of the groupings in terms of whether the estimated demand parameters are relatively stable and plausible. Based on satisfactory performance in these tests, parametric analyses for each subgroup were conducted using the linearized version of the almost ideal demand system, incorporating appropriate seasonality and habit formation variables. Estimates of own-price, cross-price and expenditure elasticities of demand are derived and presented. In general these seem plausible. Signs on the own-price elasticity estimates are as expected; the magnitudes appear to be reasonable. As expected, the majority of the specified foods are price-inelastic. However, butter, cooking/salad oil and other cheese appear to be price-elastic. Yogurt, concentrated milk and ice cream are fairly expenditure elastic while the two cheese types and butter appear slightly expenditure elastic.

Suggested Citation

  • Veeman, Michele M. & Peng, Yanning, 1997. "Canadian Dairy Demand," Project Report Series 24037, University of Alberta, Department of Resource Economics and Environmental Sociology.
  • Handle: RePEc:ags:ualbpr:24037
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    File URL: http://ageconsearch.umn.edu/record/24037/files/pr970003.pdf
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    References listed on IDEAS

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    1. Varian, Hal R, 1982. "The Nonparametric Approach to Demand Analysis," Econometrica, Econometric Society, vol. 50(4), pages 945-973, July.
    2. Moschini, GianCarlo & Moro, D., 1993. "Food Demand System for Canada, A," Staff General Research Papers Archive 12753, Iowa State University, Department of Economics.
    3. Giancarlo Moschini, 1995. "Units of Measurement and the Stone Index in Demand System Estimation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 77(1), pages 63-68.
    4. Tsur, Yacov, 1989. "On testing for revealed preference conditions," Economics Letters, Elsevier, vol. 31(4), pages 359-362, December.
    5. Giancarlo Moschini & Vissa Anuradha, 1993. "Flexible Specification of Mixed Demand Systems," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(1), pages 1-9.
    6. Adolf Buse, 1994. "Evaluating the Linearized Almost Ideal Demand System," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(4), pages 781-793.
    7. Anderson Reynolds & Ellen Goddard, 1991. "Structural Change in Canadian Meat Demand," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 39(2), pages 211-222, July.
    8. Pollak, Robert A & Wales, Terrence J, 1969. "Estimation of the Linear Expenditure System," Econometrica, Econometric Society, vol. 37(4), pages 611-628, October.
    9. P. Y. Chen & M. M. Veeman, 1991. "An Almost Ideal Demand System Analysis for Meats with Habit Formation and Structural Change," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 39(2), pages 223-235, July.
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    12. Tsur, Yacov, 1989. "On Testing For Revealed Preference Conditions," Staff Papers 14264, University of Minnesota, Department of Applied Economics.
    13. Moschini, G. & Moro, D., 1993. "A Food demand System for Canada," Papers 1-93, Gouvernement du Canada - Agriculture Canada.
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    Citations

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    Cited by:

    1. Unterschultz, James R. & Jeffrey, Scott R. & Quagrainie, Kwamena K., 2000. "Value-Adding 20 Billion By 2005: Impact At The Alberta Farm Gate," Project Report Series 24049, University of Alberta, Department of Resource Economics and Environmental Sociology.
    2. Abbassi, Abdessalem & Larue, Bruno, 2012. "Multiple Marginalization and Trade Liberalization: The Case of the Canadian Dairy Industry," Working Papers 148592, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    3. Abbassi, Abdessalem & Larue, Bruno, 2011. "Trade liberalization and inter-provincial dumping in a spatial equilibrium model: the case of the Canadian dairy industry," MPRA Paper 30363, University Library of Munich, Germany.
    4. Abdessalem Abbassi & Olivier Bonroy & Jean-Philippe Gervais, 2008. "Dairy Trade Liberalization Impacts in Canada," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 56(3), pages 313-335, September.
    5. Davis, Christopher G. & Blayney, Donald P. & Muhammad, Andrew & Yen, Steven T. & Cooper, Joseph C., 2010. "A Cross-Sectional Analysis of U.S. Yogurt Demand," Journal of Food Distribution Research, Food Distribution Research Society, vol. 0(Number 2), pages 1-10, July.
    6. Davis, Chris & Blayney, Don & Yen, Steven & Cooper, Joseph C., 2009. "An analysis of at-home demand for ice cream in the United States," MPRA Paper 24782, University Library of Munich, Germany.

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    Keywords

    Demand and Price Analysis;

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