Food Demand Elasticities in Ethiopia: Estimates Using Household Income Consumption Expenditure (HICE) Survey Data

Abstract: How households adjust their consumption in response to changes in prices and income is crucial determinant of the effects of various shocks to market prices and commodity supplies. These adjustments in demand are particularly significant in Ethiopia, where many households consume inadequate quantities of calories, protein and other nutrients. Household consumption behaviour in the country is also rather complex. Regional consumption patterns differ considerably with no single staple dominating. Instead, four different cereals (teff, wheat, maize and sorghum) are major staples in parts of the country and even within most regions, two or more food staples account for relatively large shares of total calories and food expenditures.
This paper aims to investigate empirically the responsiveness of demand for various food and non-food items to changes in price and expenditure using the Quadratic Linear Almost Ideal Demand Model (AIDM). The demand system was estimated using non-linear Seemingly Unrelated Regression (NSURE) technique using Household Income Consumption Expenditure Survey 2004/05 data collected by Central Statistical Agency of Ethiopia.
The findings of the study suggest that Ethiopian households display significant response to changes in prices and expenditure/income. It is interesting to note that price elasticities of demand for cereals are roughly the same in urban and rural areas of the country.
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