Analysis of food consumption in the Federal Republic of Germany

Abstract

The empirical Engel's law of demand for food viz. that the share of consumer's income on food declines with income, has been well established by the numerous studies on household budgets both for the developed and the developing countries. These studies also indicate that the income elasticity of demand for food declines with income. Further, cross-country comparisons of consumption patterns using time series data also support the above evidence. Accordingly, the choice of Engel functions for analysing food consumption, is often limited to such forms which underlie, a declining behaviour for the income elasticity of demand for food. In view of the limitations of both the Engel functions and the partial demand relations approaches, an attempt has been made here to analyse the household food consumption in the Federal Republic of Germany, through a complete demand system approach. Using time series data on four broad groups of consumption, of which food is one the application of quadratic expenditure system indicates that the Engel's law is very well valid but not its extension. More specifically, the estimated income elasticity of demand for food has increased from 0.44 in 1960 to 0.68 in 1976. An attempt to understand this unusual behaviour of the income elasticity of demand for food has been made. As a byproduct, the behaviour of the income and price elasticities of demand for the other three major commodity groups has also been indicated.