Analyzing the Impact of Food Safety Information on Food Demand in China. Dehua He. Benaissa Chidmi. Deyi Zhou

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1 Analyzng the Impact of Food Safety Informaton on Food Demand n Chna Dehua He College of Economcs and Management Huazhong Agrcultural Unversty Wuhan, Chna Benassa Chdm Department of Agrcultural and Appled Economcs Texas Tech Unversty Lubbock, TX Dey Zhou College of Economcs and Management Huazhong Agrcultural Unversty Wuhan, Chna Selected Paper prepared for presentaton at the Agrcultural & Appled Economcs Assocaton s 2011 AAEA & NAREA Jont Annual Meetng, Pttsburgh, Pennsylvana, July 24-26, 2011 The authors gratefully acknowledge fundng from the Fundamental Research Funds for the Central Unverstes, and Mnstry of Educaton Humantes and Socal Scences project (09YJC790107). Dehua He s Assocate Professor at College of Economcs and Management, Huazhong Agrcultural Unversty, Chna; Benassa Chdm s Assstant Professor of Department of Agrcultural and Appled Economcs, Texas Tech Unversty; Dey Zhou s Professor, College of Economcs and Management, Huazhong Agrcultural Unversty,Chna. Copyrght 2011 by Dehua He, Benassa Chdm and Dey Zhou. All rghts reserved. Readers may make verbatm copes of ths document for non-commercal purposes by any means, provded that ths copyrght notce appears on all such copes.

2 Analyzng the Impact of Food Safety Informaton on Food Demand n Chna Dehua He, Benassa Chdm and Dey Zhou Abstract Ths study analyzed the mpact of food safety nformaton on food demand n urban Chna. The LA/AIDS model was estmated by usng natonal provnce level food consumpton data and quanttes of artcles about food safety event on publc meda from 2000 to The results of the study show that urban Chnese consumer food demand was nfluenced by food safety nformaton from daly newspapers and GM labelng polcy. Ths paper also ndcates food prce elastctes, expendture elastctes by categores and the effect of food safety nformaton. JEL Classfcatons: D12, Q11 Keywords: food safety, food demand, Lnear Approxmated Almost Ideal Demand System( LA/AIDS), Genetcally modfed( GM), food consumpton, prce elastcty, expendture elastcty 1

3 Analyzng the Impact of Food Safety Informaton on Food Demand n Chna Dehua He, Benassa Chdm and Dey Zhou Introducton The ssue of food safety has receved an ncreased attenton from polcy makers and researchers as the number of foodborne events has ncreased and the globalzaton of the nternatonal economy has reduced the barrers facng the flow of food across borders. For example, Unted States mport over 40% of ts frut, 15% of ts vegetables, and 80% of ts fsh and seafood (Hoffmann and Hooker, 2009). In addton, the share of the total U.S. food mports from developng countres, wth less food safety standards, has ncreased. The food demand was nfluenced by many factors. Informaton on food safety from publc meda s one of them and food safety nformaton avalable to consumers n the publc meda can be counted. Prevous studes on food safety nformaton have used aggregate data to estmate the mpact of food safety nformaton on food demand by categores, especally on meat and poultry demand. Unlke Unted States where the number of food safety studes s abundant, n Chna, there s a lack of emprcal studes dealng wth the mpact of food safety nformaton on the consumpton of food. The problem s even worse when put n the actual context where Chna s role n the global economy s apparent, not only for beng a source for nexpensvely produced goods but also for a rapdly growng consumer market due to ncrease n mddle-class consumers wth hgher buyng power. For U.S. food companes, the Chnese mddle-class consumers market looks very attractve as the sales of branded products, such as baked goods, soft drnks, fast food, and alcohol, are expected to grow from $150 bllon n 2007 to $650 bllon n 2017 (Kearney, 2007). However, ths ncrease n buyng power s accompaned by an ncrease n food safety awareness as the demand for hgh qualty and safer food 2

4 ncreases. The objectve of the model used n ths research s to nvestgate f the publc nformaton on food safety mpacts the food demand n urban Chna. Lterature on food Demand and Food Safety Informaton n Chna After Brown s Who Wll Feed Chna (Brown 1994), the ssue of food demand n Chna attracted attentons from many researchers because of the bg populaton, and lack of resource per capta. Most of those researches focus the food securty (mostly the gran securty) n Chna and ts mpact to the global food market. By usng a two-stage LES-AIDS model and rural Chna household data Fan, Wales et al. estmated the food prce elastctes and expendture elastctes, ponted the pressure of mportng food(fan, Wales et al. 1995). Huang and Rozelle found a multdmensonal mpact for market development varable on food consumpton behavor and suggest that prevous estmates of Chna's ncome elastcty for purchased foodstuffs are based(huang and Rozelle 1998). Chna won t brng the global food market a dsaster n 21st century(huang, Rozelle et al. 1999), and agrcultural productvty growth helped Chna to pursue the goal of self-suffcency especally n the gran sector(brumer, Glauben et al. 2006). Researches ndcated the ncome elastcty of gran. Food gran has small postve ncome elastcty (Zhang, Mount et al. 2001), and wth the economy developng and ncome ncreasng the ncome elastcty of gran became smaller and smaller(lao and Chern 2007), and n the hgher ncome group the ncome elastcty even became negatve(gale and Huang 2007). Recently more and more researches focused on the demand of food quantty, and researchers started to analyze the demand of food qualty. Ther researches were about the structure of food demand, and consumers selected more hgh qualty food when ther ncome ncreased. Wth the ncreasng of ncome, consumers ntend to consume more anmal proten foods and demand more hgh qualty food. Food product qualty s relatvely nelastc wth respect to changes n market prces(gould and Dong 2004). 3

5 By usng Chnese urban household consumpton data to compare four demand systems(aids, LA/AIDS, LES, and QES), Lu and Chern ponted the AIDS was the best and as household ncome ncreases, the Chnese urban nhabtants wll consume more anmal proten foods (Lu and Chern 2002). Consumers n Chna wll consume more anmal products, especally aquatc and poultry products(ma, Rae et al. 2004).The expendture elastctes of mlk and most meat product were hgh and net substtuton was found among most food products(yen, Fang et al. 2004). The emprcal results of dynamc Almost Ideal Demand System (DAIDS) support the habt effects presence and got lower gran expendture elastcty compared wth the statc AIDS models(lao and Chern 2007). But the expendture elastcty for gran was stll hgh n rural Chna and ncome elastctes for anmal products were the hghest of all the groups(jang and Davs 2007). Consumers n Chna trend to demand greater qualty, convenence, and safety n food(gale and Huang 2007), and households n rural Chna tend to consume hgher-qualty food as ncome ncreases (Yu and Abler 2009). Most researches related to food qualty took unt value (prce) as the man represent, but food qualty was more complex rather than unt value, consumers food selecton were nfluenced by many factors. In the past decade, food safety concerns n Chna have dramatcally ncreased wth the economy developng. Food scandals happened (or been reported) n recent years ncreased consumers' rsk perceptons of foods and decreased ther trust n food safety. More and more consumers concerned about food safety, and ther trust toward food n chna s not very hgh, even the level of food safety s hgher than before. And more and more nformaton about food safety can be found n Chna. The prmary nfluences of Consumers' preferences for safer produce are prce dfferences and perceved rsks(eom 1994). Form the economcs perspectve the ssue food safety caused by asymmetrc nformaton and ncompletely nformaton(caswell and Mojduszda 1996). The mpact of food safety nformaton on meat demand n US s small compared wth prce effects(pggott and Marsh 2004). In Span the consumpton 4

6 meat products were mpact by mass meda nformaton about BSE(Radwan, Gl et al. 2008). Based on a multdscplnary perspectve, an emprcal results from a structural equaton modelng analyss of Tawan comprsed modernzaton factors and cultural theory factors have all been supported(chen 2008). More and more researchers concern about food safety n Chna, but most researches focus the consumer s wllngness to pay for safety food or consumer s percepton about food safety. The research about actual mpact of food safety nformaton s rare. To fll the gap of the lack of emprcal studes of the mpact of food safety nformaton on food consumpton n Chna, ths paper estmates the effect of nformaton on foodborne events on the consumpton of food n urban Chna, usng a non-lnear almost deal demand system (NL-AIDS) model. Consumpton of grans, vegetables, ols, meat, eggs, lquor, and aquatc products s estmated usng provnce household annual data from 2000 to Model The Almost Ideal Demand System (AIDS) of Deaton and Muellbauer (1980) s used to estmate a demand system for grans, vegetables, ols, meat, eggs, lquor, and aquatc products. AIDS model s consstent wth the addng-up, homogenety and symmetry restrctons of the demand theory. The AIDS model s a flexble model that allows consstent aggregaton of mcro-level demands up to a market demand functon, and does not requre addtve preferences (Eales and Unnevehr, 1988). Followng Deaton and Muellbauer (1980), the AIDS model s gven by w n X = α + γ j ln p j + β ln( ), j= 1 P (1) where w s the budget share of the th food product, expendture on all food products n the system, and P s a prce ndex gven by ln( P) α 0 + α ln p + 2 j p j are prces of the food product, X s the total 1 = γ j ln p ln p j. (2) 5

7 The aggregate annual tme-seres data were used n ths research, and the Stone's (geometrc) prce ndex (P*) s used nstead of P (Green and Alston 1990): ln P* = w ln p (3) Conservaton mples the followng restrctons on the parameters n the nonlnear AIDS model: α = 1 = 0 =, β, γ j 0 (4) Homogenety s satsfed f and only f, for all γ j = 0 (5) Symmetry s satsfed f γ j = γ j (6) The food safety nformaton and the regonal varables are modeled as ntercept shfter n the followng way: α = α + θ RD + φ FS (7) * k FS k represents the number of news artcles reportng food safety ssues n (7): 1, FS1 :food safety artcles on meat 2, FS2 :food safety artcles on poultry k = 3, FS3 : food safety artcles on vegetable 4, FS4 :food safety artcles on GM food 5, FS5 : dummy varable of GM labelng k k 6

8 RD s regonal varable that equals one for Western Chna, two for central Chna, three for northeastern and four for Eastern Chna. Ths regonal varable ndcates those provnces dfference not only n geography but also n the level of economy development. Data Per capta annual food purchases, consumpton and expendtures of urban house hold by category from 2000 to 2008 are based the Chna Statstcal Yearbooks from 2001 to 2009 compled by Natonal Bureau of Statstcs of Chna (NBSC), and publshed by Chna Statstcs Press. Those yearbooks provded the food prce ndces by category of each year. The food categores n ths research nclude gran, vegetables, ol, meat (pork, beef, mutton, and poultry), eggs, lquor, and aquatc products. The provnce household data of each year was selected to analyss n ths research. The data nclude the prce ndces and expendture and quanttes of household food consumpton n each provnce. From the yearbooks we got 30 provnces and 9 years data so the sample sze was 270. Data about food safety nformaton were taken from newspaper database of Chna Natonal Knowledge Infrastructure (CNKI, by usng the keywords related to food safety (BSE, brd flu, Hog cholera, blue ear dsease, hoof-and-mouth dsease, pestcde resdue, GM, and etc ). In ths research we counted the numbers of food safety artcles from 243 daly newspapers, the numbers were lsted below. In 2004 the polcy of GM ol labelng was mplemented n Chna, so we add a dummy varable FS 5 whch equals to zero from 2001 to 2003 and one, otherwse. Fg 1 Artcles on food safety n newspapers 7

9 Results and Dscusson To nvestgate whether food safety nformaton and concerns have mpacted food consumpton, coeffcents of LA/AIDS model was estmated wth regonal and food safety varables. Consder of the data used n ths research was annual data the mpacts of food safety varables were tested n current year. By the two steps estmaton procedure, the Model1 (the LA/AIDS model wth regonal varable but wthout food safety varables) and Model2 (the LA/AIDS model wth regonal varable and food safety varables) were analyzed wth annual provnce data. The estmated coeffcents were lsted n table2. Table 1 Estmated coeffcent for the Almost Ideal Model wth and wthout Food Safety Varables Wthout food safety Wth food safety coeffcent Std. err coeffcent Std. err γ γ * γ * * γ γ * * γ * γ γ γ * γ γ γ * * γ * γ * γ * γ * γ * γ * γ γ γ α * * θ * β * * α * *

10 Table 1. (Contnued) Wthout food safety Wth food safety coeffcent Std. err coeffcent Std. err θ * * β * * α * * θ * * β * * α * * θ * * β * * α * * θ * * β * * α * * θ * * β * * φ * φ φ φ * φ * φ φ φ φ φ φ φ * φ φ φ * φ φ φ φ * φ φ φ φ

11 Table 1. (Contnued) Wthout food safety Wth food safety coeffcent Std. err coeffcent Std. err φ φ * φ φ φ φ φ Note: a * denotes coeffcents that are statstcally sgnfcantly dfferent from zero at the 5% level. From the result of LA/AIDS model, some the estmated coeffcents are predomnately sgnfcant statstcally sgnfcantly dfferent from zero just as pror expectatons. The constant components of the precommtted quanttes (the α s) are mostly nonnegatve. The estmated coeffcents of regonal varables are statstcally sgnfcantly dfferent from zero ndcate the household food consumpton behavor dffers across dfferent regon. Some estmated coeffcents of food safety ndex are statstcally sgnfcantly dfferent from zero shows the food safety nformaton on publc meda nfluence consumers food consumpton behavor, but the coeffcents are very small. Most of the estmated coeffcents of FS5 (GM labelng polcy) are statstcally sgnfcantly dfferent from zero shows ths polcy effected the consumers food select behavor. Table2 reports estmates of the sample averages for the Marshallan prce elastctes, expendture elastctes. Elastctes are reported for all models shown n table 1, allowng a comparson whether food safety varables are ncluded n the model effect prce and expendture elastctes. The estmated elastctes show most food demands are prce nelastc, and ncome nelastc, except meat. The estmated elastctes n the model wth food safety are dfferent from those n the model wthout food safety. Most self prce elastctes n the model wth food safety are lower. 10

12 Table2 Estmated Prce, Expendture Elastctes Wthout Food Safety wth Food Safety gran vegetable ol meat egg lquor gran Marshallan vegetable prce ol elastcty meat egg lquor Expendture Elastcty gran vegetable ol meat egg lquor gran Marshallan vegetable Prce ol Elastcty meat egg lquor Expendture Elastcty Table 3 report the estmated expendture shares share effect of food safety nformaton. The estmated effects of the food safety nformaton are notceably small n comparson to prce and expendture effects. The food safety nformaton varables have negatve effect on meat consumpton, but have postve effect on the consumpton of gran, vegetables and lquor. Table3 Estmated Food Safety Informaton Effect Conclusons Gran vegetable ol meat Egg lquor FS FS * FS FS The objectve of ths paper has been to assess consumers reactons to food safety nformaton provded by mass meda. Specfcally, ths paper has focused on the effect of food safety nformaton on the 11

13 demand for food n urban Chna. A better understandng the consumers responses to food safety nformaton could be mportant to both polcy analysts and the food ndustry. Ths research develops an emprcal framework to nvestgate whether food safety nformaton on meat, poultry, vegetables, and GM food has mpacted food consumpton n urban Chna over the last 8 years. The food safety nformaton ndex has been constructed from the artcles on food safety n the most popular Chnese daly newspaper. Emprcal study reveal coeffcents measurng the food prce elastctes, expendture elastctes, and the effect from some food safety varables are jontly statstcally sgnfcant from zero. As expected, all of the food safety effects are negatve n the category of meat, some of the effects are negatve n ol and eggs, and the effects are postve n the others. Ths result ndcates the meat consumpton n urban Chna s more senstve to the related food safety nformaton. Our results slghtly dffer from prevous studes on food demand n Chna. However, ths study on the food demand effect of food safety nformaton provdes polcy-makers and food ndustry new nsghts to understand the mpacts of food safety event nformaton on food consumpton. In any case, further research s needed to nvestgate food safety nformaton affectng food consumpton behavor n Chna. References Brown, L. R. (1994). "Who Wll Feed Chna?" World Watch Magazne 7(5). Brumer, B., T. Glauben, et al. (2006). "Polcy reform and productvty change n Chnese agrculture: A dstance functon approach." Journal of Development Economcs 81(1): Caswell, J. A. and E. M. Mojduszda (1996). "Usng Informatonal Labelng to Influence the Market for Qualty n Food Products." Amercan Journal of Agrcultural Economcs 78: Chen, M.-F. (2008). "Consumer Trust n Food Safety A Multdscplnary Approach and Emprcal Evdence from Tawan " Rsk Analyss 28(6): Eom, Y. S. (1994). "Pestcde Resdue Rsk and Food Safety Valuaton: A Random Utlty Approach." Amercan Journal of Agrcultural Economcs 76(4):

14 Fan, S., E. J. Wales, et al. (1995). "Household Demand n Rural Chna: A Two-Stage LES-AIDS Model." Amercan Journal of Agrcultural Economcs 77(1): Gale, F. and K. Huang (2007). Demand for Food Quantty and Qualty n Chna. Economc research report, Economc Research Servce, U.S. Department of Agrculture. Gould, B. W. and D. Dong (2004). Product Qualty And The Demand For Food: The Case Of Urban Chna, Amercan Agrcultural Economcs Assocaton (New Name 2008: Agrcultural and Appled Economcs Assocaton). Green, R. and J. M. Alston (1990). "Elastctes n AIDS Models." Amercan Journal of Agrcultural Economcs 27(2): Huang, J. and S. Rozelle (1998). "Market development and food demand n rural Chna." Chna Economc Revew 9(1): Huang, J., S. Rozelle, et al. (1999). "Chna's Food Economy to the Twenty-frst Century: Supply, Demand, and Trade." Economc Development and Cultural Change 47(4): Jang, B. and J. Davs (2007). "Household food demand n rural Chna." Appled Economcs 39: Lao, H. and W. S. Chern (2007). A Dynamc Analyss of Food Demand Patterns n Urban Chna Annual Meetng,. Portland, Oregon TN, Amercan Agrcultural Economcs Assocaton (New Name 2008: Agrcultural and Appled Economcs Assocaton). Lu, K. E. and W. S. Chern (2002). "Food Demand n Urban Chna and ts Implcatons for Agrcultural Trade: Model Selecton Based on Forecastng." Agrculture and Economcs 29: Ma, H., A. Rae, et al. (2004). "Chnese anmal product consumpton n the 1990s." The Australan Journal of Agrcultural and Resource Economcs 48(4): Pggott, N. E. and T. L. Marsh (2004). "Does Food Safety Informaton Impact U.S. Meat Demand&quest." Amercan Journal of Agrcultural Economcs 86(1): Radwan, A., J. M. Gl, et al. (2008). Modelng The Impact Of Food Safety Informaton On Meat Demand In Span, European Assocaton of Agrcultural Economsts. Yen, S. T., C. Fang, et al. (2004). "Household food demand n urban Chna: a censored system approach." Journal of Comparatve Economcs 32(3): Yu, X. and D. Abler (2009). "The Demand for Food Qualty n Rural Chna." Amercan Journal of Agrcultural Economcs 91(1): Zhang, X., T. D. Mount, et al. (2001). "The Demand For Food Gran In Chna : New Insghts Into A Controversy." Agrcultural and Resource Economcs Revew 30(1). 13