Demand Analysis for Non-Alcoholic Beverages Consumptin in the United States

Krishna Prasad Pokharel

doi:10.3126/ijssm.v3i1.13813

Abstract

This research analyzes the demand for non-alcoholic beverages (non-diet carbonated beverages, diet carbonated beverages, non-carbonated caloric beverages, water, and unsweetened coffee and tea) in the United States using the first difference version of the Almost Ideal Demand System model. Five expenditure shares and prices demand equations for the non-alcoholic beverages are estimated using the Iterated Seemingly Unrelated Regression (ITSUR) and Full Information Maximum Likelihood (FIML) techniques. These two estimation techniques give similar results. Most of the products exhibit the consistent sign for the own and cross price elasticities as predicted by economic theory. Based on the expenditure elasticity, non-diet beverage is a luxury good (1.632) and the remaining goods have expenditure elasticity less than, which indicates that these products are necessities. These products are not weakly separable based on the regular and adjusted Wald tests. Moreover, seasonality has a positive impact on caloric beverages and water and a negative impact on the remaining productsInt. J. Soc. Sci. Manage. Vol-3, issue-1: 38-46

Highlights

Consumers have been consuming non-alcoholic beverages for many centuries over the globe and the non-alcoholic beverage industry is one of the largest industries in the world accounting for 531.3 billion dollars of transactions in 2013 (Euromonitor, 2014)
Zheng and Kaiser (2008) used the Almost Ideal Demand System (AIDS) model to estimate the impact of advertising on non-alcoholic beverages including bottle water and the results indicated that advertising increases the demand for fluid milks, soft drinks, and coffee and tea but no effects on juice and bottled water
The AIDS model consists of a demand system, which include a group of demand equations

Summary

Introduction

Consumers have been consuming non-alcoholic beverages for many centuries over the globe and the non-alcoholic beverage industry is one of the largest industries in the world accounting for 531.3 billion dollars of transactions in 2013 (Euromonitor, 2014). Beverage producers have started to provide new healthier non-alcoholic beverages like non-diet carbonated beverages, unsweetened coffee and tea etc., which may significantly change the consumption patterns of nonalcoholic beverages. This study investigates the main economic factors (prices and expenditures) and seasonal factors which change consumption patterns and interdependencies among the products using the data set obtained from ERS, USDA from 2004 to 2010 for nonalcoholic beverages. The existing literature focuses on the demand analysis for non-alcoholic beverage separately for coffee, tea, milk, or other carbonated drinks separately or with a different product combination and most of the studies ignore the seasonal variables. A recent study on the demand for non-alcoholic beverages in Japanese household show that temperature has

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