Food-demand Responsiveness in Bangladesh: An Econometric Investigation

The primary objective of this study is to investigate the food-demand responsiveness in Bangladesh. More
specifically, applying the Stone Price Index to an Almost Ideal Demand System (AIDS), this paper
estimates income (i.e.; expenditure) and price elasticities of demand for ten composite food products in
Bangladesh; namely, Cereals, Fish, Meat, Pulses, Edible oil, Milk, Vegetables, Fruits, Spices, and Other
foods. The study utilizes data from the Household Income and Expenditure Surveys including the most
recent one of 2016, undertaken by the Bangladesh Bureau of Statistics.
An empirically based demand system can numerically inform a variety of simulation models in projecting
future food demands in Bangladesh. As such, the up-to-date estimates of demand responsiveness are
expected to help Bangladeshi policymakers understand the impact of some exogenous price and/or
income ‘shocks’ as well as in formulating pragmatic and effective food and agricultural policies, fiscal
and financial stimulus packages, among many others.
The results reported and analyzed in this paper seem to suggest that, in Bangladesh, a representative
household regards Fish, Meat, Fruits, and Spices as luxury food products, each with an estimated
expenditure elasticity value of greater than unity. This implies that as the economy of Bangladesh keeps
on growing, leading to an ever higher per capita household income, the economy will likely witness some
structural shift in food demand—in particular, households will increasingly spend a higher proportion of
its food budget on the protein-rich, more balanced food basket involving fish, meat, fruits and spices.
However, all composite food products are estimated to be price inelastic regardless of the household being
compensated and uncompensated for any price hike. Furthermore, the estimated cross-price elasticities
appear to suggest no strong substitution happening across various product groups, lending support to the
hypothesis of ‘separability in consumption’ at a reasonably high level of commodity aggregation.
Comparing with the previously estimated elasticities available in the literature, the new estimates for the
composite food products (except for Meat) seem to fall within the historical range of estimated values.