## THE DEMAND FOR FOOD CALORIES

THE DEMAND FOR FOOD CALORIES

S.Subramanian & A. Deaton

Journal of Political Economy Vol. 104, No.1 (Feb., 1996) pp.133-162

 Principal Research Question How elastic is caloric intake with respect to expenditure? Theory Elasticity measures the responsiveness of quantities demanded to price changes. It is the % change in quantity divided by the % change in priceIt is calculated as   ΔQd/Q ÷ ΔP/P In this case we are looking at how caloric intake rises with total household expenditure so     ΔCalories/Calories  ÷  ΔExpenditure/Expenditure If elasticity >|1| then demand is elastic If elasticity <|1| then demand is inelastic Motivation Bouis & Haddad, together with others have claimed that the elasticity of caloric intake with respect to income is close to zero. This goes against the idea that nutrition responds to income and that economic policies that are good for growth do not imply an elimination of hunger. It questions whether real income is a good proxy for thinking about welfare. The promotion of real income would therefore not be conducive to development. Data National Sample Survey for rural households in Maharashtra, western India. 5,630 households, 10 in each of 563 villages Report expenditure on over 300 items including 149 food items. No income data collected, so total household expenditure is used as the welfare measure. Method They regress total available calories on the number of meals given to guests, employees and those taken at home to find out how many calories are contained in each type of meal. They then subtract/add those meals given away/received to the total calories available, to create an adjusted figure. If they did not do this the elasticity for richer households would be grossly overstated as they have a large number of available calories as they give away many more meals to employees/guests. When the data are tabulated it becomes clear that the poor spend a lot less money per 1000 calories than the rich. This is because coarse cereals provide a much larger share of caloric intake. As people get richer people substitute between food groups away from cereals toward dairy and meat products etc. which have many fewer calories. Thus although the total food elasticity if 0.772, the price of calories elasticity of 0.32 drives a wedge between the food and calories elasticites. This is due to substitution. They regress log calorie intake on log expenditure. Non-linearity would be a problem as it is possible that those with insufficient food would have much larger elasticities than those with more income. So they plot the regression line using a grid of 100 different data points. Although it is somewhat steeper at lower expenditures it is fairly close to a straight line. This method is not appropriate if controlling for other variables, so they also run an OLS regression with additional variables (no. in household etc.) Results There is no evidence that elasticities are close to zero unlike in Strauss & Thomas’s findings for Brazil. This could be because for all households surveyed wealth is such that calories are still an issue whereas in brazil they were not.Elasticity declines from 0.65 to 0.4 over the range of incomes from lowest to highest. Once household composition is controlled for other variables are not significant in the OLS regression. Both calorie consumption and price elasticities are around 0.35. Robustness Various controls added. They check for non-linearity using the specification noted above. Interpretation Income does constrain caloric consumption but not by very much, at least within the range of household incomes surveyed here. Poor households tend to purchase cheaper calories but also fewer calories overall. Problems Endogeneity: if hunger caused poverty as well as poverty causing hunger there would be reverse causality problems. The argument is that lack of hunger reduces productivity and thus wage earning capability which prevents calories from  being purchased. Hunger thus creates a “poverty trap”. They cannot rule this out by using e.g. IV regression, but they claim that as the 600 extra calories that are needed to sustain physical work, could be purchased for 4% of the daily wage, that the barriers to sufficient nutrition are not high enough to create a poverty trap.