FOOD CONSUMPTION PARAMETERS IN BANGLADESH IMPLICATIONS FOR FOOD POLICY

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1 Bangladesh J. Agric. Econ. XllI, 1 & 2( December 1990 ) FOOD CONSUMPTION PARAMETERS IN BANGLADESH IMPLICATIONS FOR FOOD POLICY R. K. Talukder ABSTRACT Food consumption parameters have been estimated for six selected food items-rice, wheat, potatoes, pulses, fish and edible oil-using the Bangladesh Household Expenditure Survey data. For the two major staples rice and wheat, the estimates revealed that while the absolute value of the own-price elasticity for rice of the rural households was twice that of the urban households, the absolute value of that for wheat of the urban households was more than four times that of the rural households. For most of the food items, rural and urban parameters were structurally different. However, estimates by disaggregated income classes revealed that the source of the difference between rural and urban parameters was the high-income households and for the low-income households, the implications of relative price and/or income changes on food consumption remained invariant with respect to their rural-urban locations. In interpreting tne relatively higher values of the parameter estimates of the rural households, the possible bias arising from consumption of own-production needs to be taken Into account. I. INTRODUCTION The total availability of food in Bangladesh roughly correspond to the per capita minimum nutritional requirements of the people ( Talukder 1989 ). However, actual consumption by individuals indicate widespread variation in intake among different social and economic classes of people. According to the Household Expenditure Survey, per capita daily calorie intake in Bangladesh ranged from as low as 829 to 2112 calories among the lower 75 per cent of the expenditure groups and 2278 to 2850 calories among the upper 25 per cent of the expenditure groups of households ( Shahabuddin 1989 ). If per capita per day intake of 2200 calories is accepted as the standard calorie intake norm, more than 70 per cent people in Bangladesh consume calories below this requirement ( BBS 1986 ). The author is an Associate Professor, Department of Agricultural Economics, Bangladesh Agricultural University, Mymensingh. This paper is derived from parts of his Ph.D. thesis submitted to La Trobe University, Australia. He is grateful to his supervisor, Dr. J. J. Quilkey for valuable comments on an earlier draft.

2 44 The Bangladesh Journal of Agricultural Economics The government of Bangladesh maintains a network of Public Food Distribution System (PFDS) with the stated objective of mitigating the shortfall of nutritional intake of the lowincome people. The effectiveness of PFDS in augmenting food consumption of the poor has been questionable and investigated in a number of works ( Ahmed 1979, Chowdhury 1986, 1988 ). These studies dealt mainly with the supply aspect of food consumption. Under the current policy regimes, food distribution in Bangladesh is inframarginal such that people, other than consumption from their own production, depend largely on the market for meeting their food requirements. The overall food consumption is therefore influenced by the market parameters with respect to consumption of different food items. The efficacy of price and / or income policies in augmenting consumption of different food items would therefore depend on the relevant consumption parameters for different economic and social classes of people. Some previous studies estimated food consumption parameters for Bangladesh using time series and cross section data ( Alamgir and Berlage 1973, Mahmud 1979, Ahmed 1981, Karim 1983, Pitt 1983, Deb 1986). Except fot the studies by Pitt, Karim and Deb, all the studies estimated demand parameters for composite foodgrain only. While Karim estimated separate parameters for rice, wheat and other selected food items using aggregate time series data, the cross section estimates by Pitt and Deb were for rural households only. None of these studies estimated parameters for disaggregated social and economic classes of people covering wide range of food items. This paper makes use of Bangladesh Household Expenditure Survey, data to estimate consumption parameters for selected staple food items for both aggregate and disaggregated classes of people. These parameters are used for assessing the implications of changes in relative prices and incomes on consumption of the selected food items of different social and economic classes of people. An appropriate demand model for estimation of the parameters is presented in section II. The special characteristics of the data are also discussed in this section. In section ill the parameter estimates are presented and their implications for policy are discussed. Some conclusions are drawn in the final section of the paper.

3 Food Consumption Parameters in Bangladesh : Talukder 45 II. SPECIFICATION OF THE FOOD DEMAND MODEL In the estimation of food consumption parameters, either quantity or expenditure on the food items are taken as the dependent variable. The choice between quantity and expenditure on the commodity has implications for the parameter estimates and identification of peoples' preference patterns. If the item considered is homogeneous, so that it is transacted at the same price, both will give the same results. However, in reality most food items are available in different varieties, sometimes with substantial price variations. Thus if people purchase more expensive varieties as a result of increased income, the use of quantity as the dependent variable would underestimate the effect of income on expenditure patterns ( Currie 1972 ). For the present purpose, quality variation within a specified food is assumed away and therefore quantity has been taken as the dependent variable in the demand function. The demand for a commodity is typically explained by its own price, price of related goods, income and some other sociodemographic factors. For cross sectional studies, it is often argued that price variation may be too meagre to explain variation in consumption. However, the geographical locations covered in this study were sufficiently diverse to allow for variation in prices of the commodities across regions and hence meaningful estimation of the price parameters. Estimation of the underlying Engel function requires specification of an appropriate income variable. As is well known, it is often difficult to obtain accurate income data. Therefore, total expenditure is often used as the proxy for income. Literature is replete with controversy over the use of income or expenditure as the appropriate variable for estimation of-the Engel function (Friedman 1957, Prais 1959, Summers 1959; Liviatan 1961, Prais and Houthakker 1971). The balance of the arguments suggest that total expenditure, which better reflects permanent income, is the more appropriate income variable. Apart from selection of the income variable as such, some consideration naeds to be given to the evolutionary nature of relationship between income and consumption. Such relationship can be captured by use of the polynomial functional form which would allow for evolution of income elasticities with changing income.

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6 48 The Bangladesh Journal of Agricultural Economics mation on selected food consumption, income, expenditure and some related characteristics of the households. The data obtained from the BBS for this study were in processed form and represented the average for each district (previously called subdivisions) for both rural and urban areas. Thus a sample household represented the average of households in each district separately for rural and urban locations. Also, for both rural and urban locations, data were obtained separately for six income classes. There were 67 district locations separately for rural and urban areas. Thus given that each rural and urban locations of 67 districts represented a unit of observation in each of the six income classes, the total number of observations comprising all locations and all income classes would be obtained at 67X2X6=804. However, the information provided by the BBS revealed that data for some of the 67 observations were missing in some of the income groups. This was due to either one of the two possible reasons: (i) a particular observation did not altogether fall in a particular income group or (ii) most of the information sought in respect of consumption of the selected food items were missing against a particular observation. Having accounted for these factors, the total number of observations comprising all locations and all income classes were obtained at 661 representative households of which 384 were rural and 277 were urban. Initial regressions were run with the above number of rural and urban households to check for possible bias and/or inefficiency. Based on the results of a series of regression diagnostics', two observations in the rice equation, one observation in the wheat equation and one observation in the potato equation in the rural sample, and two observations in the rice equation, one observation in the wheat equation and two observations in the pulses equation of the urban sample were identified as outliers. These observations were therefore dropped from the data sets. Thus the total number of observations reduced to 380 for rural and 272 for urban locations i.e. a total of 652 observations for the whole country. Since data corresponding to an observation represented those for the average of households in a district for each category of households, and since the actual number of households corresponding to each observation were not the same, all regressions were weighted by the square root of the number of households corresponding to

7 Food Consumption Parameters in Bangladesh: Talukder 49 each observation of all the categories of households 2 to minimise the problem of heteroscedasticity. III. ANALYSIS OF FOOD CONSUMPTION BEHAVIOUR The estimated results of the food demand models for rural, urban and all households in Bangladesh are presented in Appendix Tables A-1, A-2 and A-3 respectively. The parameter estimates are from double-log model and therefore can be directly read as the elasticity values. For convenience of illustration the key parameters such as own-price, cross-price and income elasticities of different classes of households are separately presented in this section. Own-price and Income Elasticities The own-price and income elasticities of the selected food items for rural, urban and all households in Bangladesh are presented in Table 1. It is important to note that while the absolute value of the own-price elasticity for rice of the rural households is twice that of the urban households, the absolute value of the own-price elasticity for wheat of the urban households is more than four times that of the rural households. Thus wheat consumption can be increased by lowering rice prices more in urban than in rural areas. It is also, evident from Table 1 that for potatoes and pulses in the case of rural and all households, and for wheat, potatoes and oil in the urban households, demand is price elastic. For all other food items demand is relatively inelastic for both rural, urban and all households. As is evident from Table 1, all own-price elasticities are negative for urban households except for pulses for which the coefficient is positive. Although pulses are distributed through rationing to some urban residents on a priority basis, majority of the consumers rely on the market for consumption of pulses. Thus the positive own-price seems to be implausible. However, as can be seen in Table A-2, the coefficient was not statistically significant and therefore the sign may not have reflected the true market relationship. Regarding income elasticity, it appears from Table 1 that except for wheat,, all the selected food items for rural, urban as well as for all households in Bangladesh are superior as indicated by the sign of their income elasticity (n y > 0), Rice is a necessity for all the classes of households (0 <n y <1). While

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