A demand analysis with a dynamic approach to LA/AIDS for the Italian bottled water industry and its related non-alcoholic beverages

Abstract

This paper analyses the demand for non-alcoholic beverages in Italy with Istat and Bevitalia data, including bottled water, soft drinks and juices, over the period of 2011–2020, using a dynamic approach based on the Linear Approximate-Almost Ideal Demand System (LA/AIDS). The analysis takes into account the correlation among the bottled water, soft drink, and juice industries, and the effects of changes in prices, income, and quantities on the demand for each type of beverage. Our findings suggest that, in Italy, during the considered period, the income elasticity of the three products was positive, indicating that they are normal goods, albeit bordering on the line between necessary and luxury goods. Bottled water and juices are classified as luxury goods, whereas soft drinks are more inclined to be classified as necessary goods. Additionally, soft drinks and bottled water are price-elastic goods, whereas juices and bottled water, or juices and soft drinks, are price-inelastic goods. Our results also indicate that bottled water is the most widely consumed good, followed by soft drinks and juices. Finally, we recommend policy interventions aimed at promoting healthier consumption habits, such as taxes on sweet drinks or subsidies for drinking water consumption. Overall, our findings provide new insights into the dynamics of demand for non-alcoholic beverages in Italy, which can inform policy decision-makers focused on promoting public health and welfare.