Analysis of vegetable oil demand and its price reform in Iran: using rural and urban household level data

Year 2021, Volume: 5 Issue: 1, 122 - 132, 31.03.2021

Sadegh Khalilian Saeid Satari Yuzbashkandi

https://doi.org/10.31015/jaefs.2021.1.15

Cited By: 2

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

References

• Heydari, K., Kavand, M., Otvan, M., & Pirouz, E. (2010). Vegetable oil market. Institute for Trade Studies and Research, Tehran
• Iranian Statistical Center (ISC), 2011. National household survey of 2011. Available at: www.amar.org.ir
• Akbari, A., Ziaei, M. B., & Ghahremanzadeh, M. (2013). Welfare Impacts of Soaring Food Prices on Iranian Urban Households: Evidence from survey data. International Journal of Business and Development Studies, 51(1), 23-38.
• Alnafissa, M., & Alderiny, M. (2019). Analysis of Saudi demand for imported honey using an Almost Ideal Demand System (AIDS). Journal of the Saudi Society of Agricultural Sciences. doi:https://doi.org/10.1016/j.jssas.2019.05.001
• Ataie s, k., & Mohammadi, h. (2018). Determining the demand elasticity of selection food product in Mazandaran province by using Almost Ideal Demand System (AIDS) Case study: Hen, Aquatic and Beef Meat v. Agricultural Economics Research, 10(39), 173-186. Retrieved from http://jae.miau.ac.ir/article_2887_1be8d9d97c916deb03f1f1a9081e60f9.pdf
• Berck, P., Hess, P., & Smith, B. (1997). Estimation of household demand for goods and services in California's dynamic revenue analysis model. Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series. Retrieved from https://ideas.repec.org/p/cdl/agrebk/qt4jj0t5j7.html
• Blanciforti, L., & Green, R. (1983). An Almost Ideal Demand System Incorporating Habits: An Analysis of Expenditures on Food and Aggregate Commodity Groups. The Review of Economics and Statistics, 65(3), 511-515. doi:https://10.2307/1924200
• Chen, B., Saghaian, S., & Zheng, Y. (2018). Organic labelling, private label, and U.S. household demand for fluid milk. Applied Economics, 50(28), 3039-3050. doi:https://10.1080/00036846.2017.1414936
• Davoodi, P. (2010). Microeconomic 1. In (pp. 280): Danaei and Tavanaei.
• Deaton, A., & Muellbauer, J. (1980). An almost ideal demand system. The American economic review, 70(3), 312-326. Retrieved from https://www.jstor.org/stable/1805222
• Deaton, A. S., Ruiz-Castillo, J., & Thomas, D. (1989). The Influence of Household Composition on Household Expenditure Patterns: Theory and Spanish Evidence. Journal of Political Economy, 97(1), 179-200. doi:https://10.1086/261597
• Edgerton, D. L., Assarsson, B., Hummelmose, A., Laurila, I. P., Rickertsen, K., & Vale, P. H. (1996). The econometrics of demand systems: with applications to food demand in the Nordic countries (Vol. 34): Springer Science US.
• Elsner, K. (2001). Food consumption in Russia: Wissenschaftsverlag Vauk Kiel KG.
• Green, R., & Alston, J. M. (1990). Elasticities in AIDS models. American journal of agricultural economics, 72(2), 442-445. doi:https://doi.org/10.2307/1242346
• Henderson, J. M., & Quandt, R. E. (1971). Microeconomic theory: A mathematical approach.
• Hicks, J. R. (1946). An Inquiry into Some Fundamental Principles of Economic Theory. In Value and Capital: Clarendon Press Oxford.
• Hoang, H. K. (2018). Analysis of food demand in Vietnam and short-term impacts of market shocks on quantity and calorie consumption. Agricultural Economics, 49(1), 83-95. doi:https://doi.org/10.1111/agec.12397
• Hooshmand, Z., Khodadad Kashi, F., & Khoshnevis, M. (2017). Evaluating the Consumption Behavior of Urban Families in Tehran Province. The Journal of Economic Policy, 9(18), 183-203. doi:https://10.29252/jep.9.18.183
• Kalkuhl, M., von Braun, J., & Torero, M. (2016). Volatile and Extreme Food Prices, Food Security, and Policy: An Overview. In M. Kalkuhl, J. von Braun, & M. Torero (Eds.), Food Price Volatility and Its Implications for Food Security and Policy (pp. 3-31). Cham: Springer International Publishing.
• Khalili Araghi, M., & Barkhordari, S. (2012). An evaluation of the welfare effects of reducing energy subsides in Iran. Energy Policy, 47, 398-404. doi:https://doi.org/10.1016/j.enpol.2012.05.007
• Liu, L., Xu, W., Xu, Z., Xu, S., Li, Z., Yu, W., & Li, G. (2019). Empirical Analysis on the Mutual Substitution Relationship between Vegetables in Beijing Based on LA-AIDS Model. Paper presented at the Journal of Physics: Conference Series.
• Ngui, D., Mutua, J., Osiolo, H., & Aligula, E. (2011). Household energy demand in Kenya: An application of the linear approximate almost ideal demand system (LA-AIDS). Energy policy, 39(11), 7084-7094. doi:https://doi.org/10.1016/j.enpol.2011.08.015
• Noorollahi, S., Jabbari, A., Moradkhani, N., & Faramarzi, A. (2017). Evaluation of compensated variation in rising commodity prices: The case of iranian urban households. Journal of economic research and policies, 25(81), 155-185.
• Nouri, M., & Homaee, M. (2020). Drought trend, frequency and extremity across a wide range of climates over Iran. Meteorological Applications, 27(2), e1899. doi:https://doi.org/10.1002/met.1899
• Paymard, P., Yaghoubi, F., Nouri, M., & Bannayan, M. (2019). Projecting climate change impacts on rainfed wheat yield, water demand, and water use efficiency in northeast Iran. Theoretical and Applied Climatology, 138(3), 1361-1373. doi:https://10.1007/s00704-019-02896-8
• Pishbahar, E., & Nataj Firoozjah, M. (2014). Evaluation the dairy demand of Iran using almost ideal demand system (AIDS). Iranian Journal of Agricultural Economics and Development Research, 45(4), 693-701. doi:https://10.22059/ijaedr.2014.53843
• Rathnayaka, S. D., Selvanathan, S., Selvanathan, E. A., & Kler, P. (2019). Modelling Sri Lankan consumption patterns using error corrected LA-AIDS. Economic Modelling, 80, 185-191. doi:https://doi.org/10.1016/j.econmod.2018.11.006
• Şahinli, M. A., & Fidan, H. (2012). Estimation of food demand in Turkey: method of an almost ideal demand system. Quality & Quantity, 46(2), 653-663. doi:https://10.1007/s11135-010-9419-4
• Satari Yuzbashkandi, S., & Khalilian, S. (2020). On Projecting Climate Change Impacts on Soybean Yield in Iran: an Econometric Approach. Environmental Processes, 7(1), 73-87. doi:https://10.1007/s40710-019-00400-y
• Satari Yuzbashkandi, S., & Mehrjo, A. (2020). Towards agricultural demand for the main energy carriers in Iran: Application of linear approximate almost ideal demand system (LA-AIDS) analysis. Journal of the Saudi Society of Agricultural Sciences, 19(5), 313-318. doi:https://doi.org/10.1016/j.jssas.2020.02.001
• Sekhampu, T. J., & Niyimbanira, F. (2013). Analysis Of The Factors Influencing Household Expenditure In A South African Township. , International Business & Economics Research Journal (IBER), 12(3), 279-284 doi:https://doi.org/10.19030/iber.v12i3.7671
• Ullah, I., Jan, A. U., Fayaz, M., Ali, A., & Shah, A. U. (2019). A Cross-Sectional Analysis of Food Demand in Khyber Pakhtunkhwa, Pakistan. Sarhad Journal of Agriculture, 35(2), 378-385.
• Yazdani, S., & Sherafatmand, H. (2013). A Comparison of Almost Ideal Demand System vs. Rotterdam model as Related to Milk and Dairy Products. Iranian Journal of Agricultural Economics and Development Research, 43(4), 693-703. doi:https://10.22059/ijaedr.2013.51355
• Yuzbashkendi, S. S. (2019). Climate And Government'S Guaranteed Price Policy Effects On The Major Oilseeds Cultivation Area And Land Rental In Iran. International Journal of Food and Agricultural Economics (IJFAEC), 7(1128-2019-3388), 257-269.