Demand elasticities for food products in Brazil: a two-stage budgeting system

Abstract

The object of this article is to estimate demand elasticities for a basket of staple food important for providing the caloric needs of Brazilian households. These elasticities are useful in the measurement of the impact of structural reforms on poverty. A two-stage demand system was constructed, based on data from Household Expenditure Surveys (POF) produced by IBGE (The Brazilian Bureau of Statistics) in 1987/88 and 1995/96. We have used panel data to estimate the model, and have calculated income, own-price, and cross-price elasticities for eight groups of goods and services and, in the second stage, for 11 sub groups of staple food products. We estimated those elasticities for the whole sample of consumers and for two income groups.

Acknowledgements

This article was developed as part of a study on the impacts of commercial reforms at the world level on income inequality and poverty in Brazil. The study was commissioned by OCDE–Organization for Cooperation and Development to Fipe–Fundação Instituto de Pesquisas Econômicas. The authors wish to thank the support from both organizations, and from CNPq–Brazilian Council for Research. The ideas expressed in this article do not represent the views of these institutions.

Notes

¹Clements, Yang and Chen (2001) evaluate the performance of different demand models using artificial data; Gorman (2005) applies a nonstatistical methodology to estimate ‘implied’ elasticities; Cranfield et al . (2003) asses the ability of five structural demand systems when estimated with cross sectional data from countries with varying per capita expenditure levels.

²Barten (1977) reviews the results of different empirical studies on demand homogeneity, Slutsky symmetry and preference independence. Selvanathan and Selvanathan (2005) deal with the addictivity of the utility function using data for nine commodity groups from 45 countries. Studies for other countries include: Misas and Ramirez (2004), for Colombia; Klonaris and Hallam (2003) and Karagiannis and Velentzas (2004), for Greece; Raper et al . (2002) for the US; Angulo et al . (2002), for Spain; Selvanathan and Selvanathan (2004), for South Africa, and Andrikopoulos and Loizides (2000), for Ciprus.

³Their article also provides a comprehensive survey of studies on demand elasticity in Brazil.

⁴For details, see Deaton and Muellbauer, (1980), Deaton (1986), Sergerson and Mount (1985) and Moschini et al . (1994).

⁵Other authors have used nonlinear more flexible versions of the AIDS model, such as Cranfield et al . (2000), Moro and Sckokai (2002) and Dhar and Foltz (2005). Unfortunately, data limitations preclude us from using such alternatives, since we have few degrees of freedom. However, an examination of our data set reveals that 10 out 11 of our products present linear Engel curves, a typical outcome in the case of food products (Banks et al ., 1997).

⁶São Paulo City.

⁷Taken from Azzoni et al . (2003).