Analysis of vegetable oil demand and its price reform in Iran: using rural and urban household level data
Abstract
In a group of food types, vegetable oils are the second-largest source of energy in the human diet and their consumption is very important from a health and economic viewpoint. Consumer behavior evaluation can help a lot in adopting the right policies; so, the framework of the Almost Ideal Demand System model for food expenditures was used to examine rural and urban vegetable oil consumer behavior in Iran using household survey data conducted by the Iranian Statistical Institute for the 2018 year. For this purpose, income, price and cross-price elasticities under ten aggregated food groups i.e., Cereal, Meat, Dairy, Butter and Animal Oil, Vegetable Oil, Fruits and Nuts, Vegetables and Legumes, Sugary, Spices and, Dinks were estimated for vegetable oil using the Seemingly Unrelated Regression. The obtained results showed that vegetable oil concerning the positive income elasticities is a necessity goods both rural (0.872) and urban (0.889) consumers. Own-price elasticities revealed that the demand for vegetable oil is less responsive to the increase in the price in urban areas (-0.280) than the rural area (-1.073). Moreover, Butter and Animal Oils food groups are highly substitutable with vegetable oil for rural consumers. Since the absolute value of cross-price elasticities are often less than an entity, consumers of vegetable oil will not have a noticeable change in demand as prices change for other food groups. Due to vegetable oil price reform, per capita compensation payments for a typical rural person would be greater than the urban person. The results suggest that policymakers should adopt different policies about rural and urban consumers of vegetable oil.
Keywords
Almost Ideal Demand System, Demand Elasticities, Households, Iran, Vegetable Oil
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