Abstract

Economic growth followed by urbanization and food supply modernization in developing countries would lead to substantial changes in food demand. Global agri-food systems are undergoing a rapid transformation towards high-value and high-quality products. China would be a good and important example. The rapid economic growth has led substantial changes in food consumption. Chinese consumers substantially increased their consumption of meat, dairy products and fruits and pay more attention to food quality. In conjugation with economic growth, consumers are experiencing nutrition transition due to the changes in food consumption patterns, especially in the emerging countries. Those transformations in agri-food systems need to be understood with a view to agricultural and food policies. And an analysis of the changes in food consumption is the corner stone for demand projections and poverty demolishing. Hence, it is of great importance to deepen our understanding of dynamics in food demand and the consequences for nutrition transition with income growth. This dissertation carries out three studies on dynamic food demand and its consequences for nutrition transition. Specifically, there are three topics investigated in this dissertation as follows: to propose a dynamic demand system to capture the consumption behavior in dynamic food demand process; to evaluate the dynamics and heterogeneities in income elasticities, and then to project China’s food consumption in the future; to illustrate transitions of nutrition consumption as the economic growth and food consumption changes. In a first step this dissertation aims at analyzing food demand in dynamic process. Consumers may not simultaneously adjust their behavior to changes in income in the short-run, confined by the adjusting costs, such as habit formation, switching cost, and learning cost etc. The existence of adjusting costs implies that static demand models in the current main stream literature might not correctly model consumer behaviors. Specifically, the income or expenditure elasticities estimated by these static models might be over-reported. It could lead to serious policy consequence if these elasticities are used for projection. The first case study investigates dynamic food demand in urban China herein. With an adoption of transitionary demand process, a new approach of complete demand system with a two-stage dynamic budgeting system (DLES- LA/DAIDS) is developed, including an additively separable dynamic linear expenditure system (DLES) in the first stage and a linear approximate dynamic almost ideal demand system (LA/DAIDS). Employing provincial aggregate data (1995-2010) from the China urban household surveys (UHS), the estimates of the demand elasticities for primary food products in urban China are carried out. The results indicate that most primary food products, including grains, edible oils, meat, poultry and vegetables, are necessities and price-inelastic for urban households in China. In the dynamic model, the assumption of simultaneously full adjustments, which is adopted in static models, is abolished due to adjusting costs (e.g. consumer expectation, habit formation, and learning/switching costs). Therefore, the results from different models would vary from each other. Comparing with the results from some static models, the results indicate that the dynamic model tends to yield relatively smaller expenditure elasticities in magnitude than the static models do. As this research methodologically relaxes the restrictive assumption and allows consumers to make dynamic decisions in food consumption, it can be used for better projections in policy simulation models. Since demand elasticity is critical for gauging the growth of food demand, its accuracy and credibility are very important. However, it is a tough job to evaluate the elasticities and demand projections from a large volume of empirical studies on food demand in China, as they usually vary widely from each other. In a second step, a meta-analysis of the income elasticity of food demand in China is preformed, using of 143 elasticities for cereals and 240 for meat collected from 36 primary studies. The further projections of demand elasticities and food consumption are estimated based on the results of meta-regressions. The study finds that income elasticities vary across products in both the cereals and meat groups. The elasticities for all meat (general meat, pork, poultry, beef & mutton) and cereal products (general cereals, wheat, rice, coarse grain), except for wheat, tend to decline with income growth. The results also indicate that urban-rural differences do not have a statistically significant impact on income elasticities for cereals after controlling for the differences in income between rural and urban areas. Moreover, the type of data (cross section, pooled, panel), publication source, budgeting process, demand models and the use of household expenditure as the measure of income in a study have significant impacts on the reported income elasticities in China after controlling for product differences. With the assumptions on urbanization rates projected by the DRC(China Development Research Center of the State Council), population growth rates indicated by the UN and per capita income growth rates of 6.6% per year from 2012 onward (OECD projection), the projections of income elasticities for main food products for a few selected years are also worked out. The income elasticities for cereals and meat are projected to be 0.40 and 0.48 respectively at the national level in 2000, and those elasticities slide to 0.12 and 0.36 in 2030. Taking the dynamics in elasticities into account, the projections based on constant income elasticities usually are higher than those time-varying projections except for wheat. Specifically, the dynamically projected demand for cereal and meat will reach to 623.82 and 121.98 million tons respectively in 2030 in China, and the consumption of cereal and meat grows at the speed of 1.45% and 3.05% respectively in 2012-2030. The static projections are about 45.9 million tons for general cereals and 5.4 million tons for general meat higher by 2030. Given the tight domestic food supply situation in China, models used to make long-term consumption projections should incorporate time-varying income elasticities. In conjugation with the income growth, the changes of food consumption pattern usually lead to a nutrition transition. In a third step, the impact of income growth on nutrition transition is investigated. When income is very low, consumers tend to buy the cheapest food such as cassava, wheat and rice which are also cheap sources of calories. As income grows, consumers usually pay more attention to non-calorie attributes, rather than merely pursuing additional calories. The third case study proposes a finite mixture model (FMM) to identify the behavioral transition of calorie consumption with an assumption that nutrition consumption is a mixture of different behaviors in two stages: a hunger stage and an affluent stage. Based on 381 calorie-income elasticities collected from 90 primary studies, the results indicate that the calorie-income elasticity generally moves downwards as income grows, but the relationship between calorie-income elasticity and income varies across different stages. The threshold income for calorie demand transition is 459.8 USD in 2012 prices (PPP), namely 1.26 dollar/day, which is consistent with the World Bank’s poverty line (1.25 dollar/day in 2005 PPP prices). In the poor stage, the income elasticity declines rapidly. The results indicate that when income increases by 10%, the calorie income elasticity would decrease by 0.012. Once consumers reach the affluence stage, food choice becomes more complicated and a further increase of income will have no significant impact on calorie-income elasticity as non-nutritional attributes play important roles.

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