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African Journal of Food, Agriculture, Nutrition and Development, Vol. 10, No. 11, 2010 pp. 4350-4363 IMPACT OF PRICE AND TOTAL EXPENDITURE ON FOOD DEMAND IN SOUTH-WESTERN NIGERIAOjogho O*1 and GO Alufohai1 1Department of Agricultural Economics, University of Benin, Edo State, Nigeria. *Corresponding author email: igomercy@yahoo.comABSTRACT This study examined the impact of price and total expenditure on food
demand in Edo, Delta and Lagos states of Nigeria. A multistage sampling
technique was used to collect cross-sectional data from eight hundred and
twelve (812) households for the study. Both descriptive statistics and the Linear Approximate Almost Ideal
Demand System (LA/AIDS) model as inferential statistics were used to estimate
the responsiveness of demand for food to changes in prices, expenditures and
incomes. The study found out that the majority of the household heads
were young male, with small (1-5 members) to medium (6-10 members) family size
and lived in urban centers. Though rice constituted the largest share of the
household total food expenditure, in both rural and urban centres, income did not have much weight in its consumption,
with less substitutability in response to changes in
own-price and has changed from being a luxury to being a necessity.
While the low-income and rural households spent more of their income on food,
the share of rice and yam in the households budgets was higher at higher
income levels while that of cassava, a less expensive source of calories, was
lower among the high income and relatively affluent urban households. The
budget share of meat and fish, a more expensive source of calories, being
mainly protein sources, was higher among the low-income and less affluent
households in the urban centres. The result of the
LA/AIDS showed that, in terms of own-price elasticity, the compensated own-price elasticity for rice (-1.0659) was the
most elastic, followed by garri
(-0.9655), yam (-0.5792), other cereals (-0.5611), and meat/fish (-0.4440).
Rice, garri and yam were the main
Nigerian staples. The demand for these food items in Nigeria is not so
much a matter of price, rather, it is a phenomenon linked with the ease of
preparation, household characteristics and urban lifestyles. To meet with the present demand, Nigeria needs to
increase the production of these food items. Key words: food, budget, LA/AIDS,
income, elasticities INTRODUCTION The structure of the Nigerian
Food Consumption has been undergoing dramatic change for some years now.
Dietary energy consumption (kcal per capita
per day) for the periods 1990-1992, 1995-1997 and 2001-2003 was 2540, 2750 and
2700, respectively (using aggregate national production and trade data). Also,
there was decrease in dietary protein consumption (gm per capita per day) for the period 1995-1997 and 2001-2003. The per capita protein intake was 62 in
1995-1997 but dropped to 61 in 2001-2003 [1]. As there are wide
disparities between cities of the developing world, so is reference to an
"average" Nigerian consumer misleading. The identification of
consumer groups having different cultural backgrounds, socio-economic status,
lifestyles and, consequently, different consumer behaviours and needs, is
preferred. Although general trends in food consumption patterns have been
documented, such analysis underscores serious gaps in our knowledge and
understanding of which foods are consumed by which consumer groups, in which
form, where and why. Consequently, the food demand of the various strata of
Nigeria populations deserves more attention than they have been given so far,
not only for their implications on food and agriculture planning, but also for
determining remedial actions and preventive measures. Food
is a basic necessity of life. Its importance at the household level is
indicated by the fact that it is a basic means of sustenance [2]. The adequacy
of which in quantity and quality is a key requirement for healthy and
productive life. Food strategies must not merely be directed at ensuring food
security for all but must also achieve the consumption of adequate quantities
of safe foods for healthy life [3]. Several studies have explored the food
habits of specific regions throughout the world; however, few have focused
specifically on South-western Nigeria meal patterns and cooking practices [4,
5, 6]. The handful of published studies include [7] and [8] on
Nigeria; [9] on Cote dIvoire; and [10] on Burkina Faso. The
early empirical studies of demand were characterized by the extensive use of
single equation methods centered on the measurement of elasticities since they
are easily understood and conveniently dimensionless. It is well known that
partial measures, commonly used in a single-equation context are not valid for
obtaining elasticities among endogenous variables in a system framework because
indirect effects are not accounted for by standard partial measures. This
partial measure applies to elasticities with respect to exogenous variables but
does not apply to structural elasticities. This study, therefore, examined the
impact of price, expenditure and income on food demand in Nigeria. The study updates the earlier demand studies on Nigeria as it
presents estimates of price, expenditure and income elasticities for 10
different commodities using cross-sectional household data. METHODOLOGY The study was carried out in Edo, Delta and Lagos States in the South-western part of Nigeria. The location is specifically chosen for its high population density in Nigeria. According to the 2006 census [11], the three states account for 11.76% (16,330,257) of the total population of the country. Both primary and secondary data were used for the study. The primary data were collected with the use of a structured questionnaire for information on quantity consumed of each food item, income of households, total expenditure, and cost of quantity of each commodity. Data were also collected on the demographic variables, such as age, education level, household size, and sex, location (rural or urban), age of members, and other socio-economic characteristics of households (consumers). The secondary data were sourced from National Bureau of Statistics (Federal Office of Statistics), Central Bank of Nigeria, World Bank Report and Journals, Research Institute, Universities and Government Parastatals. A multi-stage sampling technique was used to select households within the study area in the three states. The first stage involved a simple random sampling of two (2) Local Government Areas from each state. The second stage involved a simple random sampling of three communities in each Local Government Area (LGA). The sampled communities in the Local Government Areas were Useh, Uselu and Ogida communities in Egor Local Government Area; Uzama, Ugbiyiokho and Adesogbe communities in Oredo LGA of Edo state; Victoria Island, Lekki and Isele-Eko in Lagos Island, LGA and Itire, Lawansi and Igamu in Surulere LGA of Lagos state; and Eku, Abraka, and Isiokolo in Ethiope-East LGA, and Sapele, Amukpe and ugborikoko in Sapele LGA, of Delta state. The third stage involved a simple random sampling of 50 households in each community form each L.G.A, making up a total of 300 households from each state. The study, therefore, used a sample size of nine hundred (900) households. However, only eight hundred and twelve (812) complete questionnaires were retrieved, representing a response rate of 90.2%. Data collected were subjected to both descriptive and inferential statistics. The descriptive statistics used were frequency counts, and percentages, while the inferential statistics employed the multiple regression analysis to estimate the complete demand functions for the selected food commodities using the Linear Approximate Almost Ideal Demand System (LA/AIDS) [12] subject to the two-stage expenditure allocation method, and price and income elasticities were then calculated [13, 14, 15]. The LA/AIDS model has been widely used for demand analysis because of its linearity and flexibility, and because it satisfies the axioms of the demand theory [16]. The model used, in budget share form is given as Where αi is constant coefficient in the ith share equation or the value of the budget share when price and income both equal zero, ωi is the ith budget share, Pj is price of the jth commodity (by dividing expenditures by corresponding quantities and use them as a direct substitute for market prices [9]), γij is price coefficients, or the slope coefficient associated with the jth commodity in the ith share equation, βi is the expenditure coefficient, εi = the error term, X is total expenditure on all commodities given as in which qi is the quantity demanded of ith commodity, P is price index defined as where pi is the price of the ith
commodity. The Marshallian demand elasticities were then computed using Where δij is the Kronecker delta (δij = 1 for i=j and δij=0 for i¹j) However, using Slutsky equation, the compensation or Hicksian demand price elasticities is derived as follows: εijH = εijm +ωj ηi where ηi is the expenditure elasticities, computed using: To estimate
the unknown parameters of the budget share equations, this study employed the
Iterative Zellner estimation procedure. Berndt and Christensen used this
procedure to estimate a version of flexible translog model. This procedure
produces maximum likelihood estimate for linear equation system [17]. RESULTS The summary of the socio-economic
characteristics of the respondents are as presented in Table
1. The table shows
that 89.2% of the respondent households were headed by males with a large
proportion (67.4%) of the respondents from households with married heads. This
is also shared by the three states of the study areas with 70.8%, 69.1% and
62.0% for Lagos, Delta and Edo states respectively. Lagos state has the largest
number (33%) of respondents with tertiary education level or attending tertiary
institutions However, a larger proportion of the respondents have either
primary or secondary level of education. Delta state has a larger proportion of
female headed households than the other states in the study area. About 63.4%
of the total male-headed households are in the urban area while only 36.6% live
in the rural area. The table also shows that majority of the respondents are in
the medium-and large-size households amounting to 66.3% in the study area. Summary statistics of household
demographic characteristics are presented in Table
2. On average, urban
households are of smaller household size (5.13), headed by younger males with
high levels of education. Most of these characteristics are shared by
high-income households, except the middle-income households with larger family
sizes. The rural and low-income groups comprise mainly of households with
larger family sizes, lower education level and older household heads. The small family size and high
level of education are shared by households in Lagos with a high proportion of
male-headed families but older household heads (54.15years). Delta state
households, on the other hand, have low education level of heads, larger family
size and younger household heads that are mainly females (proportion of 0.61),
who mainly reside in the rural area. In Edo state, the households are of large
size with older household heads and high level of education. On the average,
the low-and middle-income groups are rural dwellers, with older household heads
dominated by male but a lower education level. Table
3 presents a summary of the
food expenditure shares of the sampled households, including the differences
across income groups, and rural and urban areas. Rice constitutes the largest
share of the household total food expenditure, accounting for a smaller share
for urban (21%) than rural (24%) households, and a smaller share for low income
(20%) than high income (28%) households. The budget share of cassava, a less
expensive source of calories, is lower among the high income and relatively
affluent urban households. The budget share of yams, however, is higher among
the high income households. The budget share of meat and fish, a more expensive
source of calories, is higher among the low income and less affluent
households, and also higher among the urban households. The budget share of
plantains is also higher among the high income and urban households while
cassava and cassava products follow rice closely having a higher budget share
among the low income and urban households. The low income and rural households
spent more of their income on food. However, the proportion of income spent on
food reduces as income rises. Households located in the rural areas allocate
larger shares of the food naira to
such foods as rice, maize, fruits/vegetables and yam than households located in
the urban centres. The case of rice is expected as majority of the households
are at the subsistence level needing not just a calorie food but a substitute
for the usual energy-giving source, mainly garri.
This is corroborated by their low expenditure share (0.10%) on meat/fish and
beans (0.6%) compared to households in the urban areas. According to Table 4, most of the uncompensated own price
elasticities are negative and less than 1. The uncompensated or Marshallian
price elasticities contain both the income and price (substitution) effects. In
terms of own-price elasticity, the demand for rice (though inelastic) is close
to unity implying that it is more necessary in the Nigerian diet than the other
food items. This is also true of garri.
In absolute terms, the value of elasticity is found
to be lowest for fruits/vegetables followed by
those for other foods, and beans. This implies that the demand for
beans, fruits/vegetables and the demand for other foods seem to be the least
sensitive to its own price changes while rice has the highest sensitivity to
its own price change. Of all the food items, rice is
the most expensive per Kg followed by garri
while fruits/vegetables are the least expensive. As such the results can be
regarded as expected since the most expensive item is found to have the highest
absolute elasticity. Uncompensated cross-price elasticities are mostly negative
indicating complementary type of food groups. However,
a few goods are substitutes. The extent of substitutability is highest between
maize and rice (0.0490, using the relationship of maize with the rice price)
followed by those between garri and
rice (-0.0485), and plantain and other cereals. The values of Hicksian
own-price and cross-price elasticities as given in the Table
4 are all
negative. The compensated own-price elasticity for rice (-1.0659) is the most
elastic, followed by the own-price elasticity for garri (-0.9655), yam (-0.5792), other cereals (-0.5611), and
meat/fish (-0.4440). The elasticity of -1.0659 for rice means that a price
increase of 1% will cause a reduction in the demand for rice of 1.0659%. The
compensated price elasticity is a better measure of substitutability between
two commodities because it measures only the substitution effect, leaving out
the income effect. All compensated own-price elasticities are negative and
greater than the corresponding uncompensated price elasticities. Based on the uncompensated own-price
elasticity estimates, all food categories are price inelastic. However, when
only the substitution effects are considered, rice becomes price elastic with
the compensated own-price elasticity estimate (-1.0659) of greater than unity.
This shows that the demand for rice is more responsive to its own price than
cross-prices. This also indicates the less substitutability for rice in
response to changes in own-price compared to other food items. Own-price
elasticity of rice was most elastic followed by those of garri and yam. The estimates of cross-price elasticities, being
negative, show no level of substitutability among the food items, but complementarity
between beans and rice (-0.5283), bean and yam (-0.4700), plantain and rice
(-0.5700), meat/fish and rice (-0.3370), and also between rice and beans
(-0.1093), and between rice and yam (-0.1962). Expenditure elasticities are all
positive, implying all ten food categories are normal goods. The
expenditure elasticities of rice (0.8831), maize (0.6183), other cereals
0.6533), garri (0.7950) and
fruits/vegetables (0.7800) are necessities while other food items like yam
(1.0208), beans (1.1717) and meat/fish (2.579) are luxuries. It should be noted
that food group indicated as luxury/necessity good is regarded as
luxury/necessity commodity according to total food expenditure and not
according to total household expenditures. Thus when
food expenditures increases, the expenditure shares of meat, fish, bean and yam
will increase while the shares of rice, maize, garri, fruits/vegetables and other foods (0.6433) decrease.
Because the expenditure elasticity of rice has the highest elasticity in
addition to it highest expenditure share among the food items considered as
necessity, from the result, the importance of rice in the Nigerian diet will
increase as economic growth continues. DISCUSSION Socio-economic and demographic characteristics Nigeria culture and tradition is
conservative and families are generally male-headed. The findings of the study
shows that a large proportion of the households, mainly in the medium-size and
large-size households, has male as the head with either primary or secondary
level of education. Also, a large proportion of the respondents are from
households with married heads. The
Nigerian urban households are of smaller size, headed by younger males with
high levels of education and income except the middle-income households with
larger family size. However, the rural centres comprise mainly of households
with larger family size, low, education level and older household heads. Food consumption pattern The low income and rural
households spent more of their income on food. However, the proportion of
income spent on food reduces as income rises. Households located in the rural
areas allocate larger shares of the food naira
to such foods as rice, maize, fruits/vegetables and yams than households
located in the urban centres. Rice constitutes the largest share of the
household total food expenditure and this is higher at higher income levels.
The budget share of yam and plantain, however, is higher among the high income
households while cassava and cassava products follow closely behind rice having
a higher budget share among the low income and urban households. The budget
share of meat and fish, a more expensive source of calories, is higher among
the low income and less affluent households and also higher among the urban households. Rice and garri
are more necessary in the Nigerian diet than the other food items. The demand for beans, fruits/vegetables and the
demand for other foods is fairly stable with their prices changes while rice
responds rapidly to its own uncompensated price change. Also, of all the food items, rice is the most expensive followed
by garri while fruits/vegetables are
the least expensive per Kg. The extent of substitutability is highest between
maize and rice followed by those between garri
and rice, and plantain and other cereals. Expenditure elasticities are all
positive, implying all ten food categories are normal goods. Rice,
maize, other cereals, garri and
fruits/vegetables are necessities while other food items like yam, beans and
meat/fish are luxuries. It should be noted that food group indicated as
luxury/necessity good is regarded as luxury/necessity commodity according to
total food expenditure and not according to total household expenditures. Thus when household total food expenditure increases, the
expenditure shares of meats, fish, bean and yam will increase while the shares
of rice, maize, garri,
fruits/vegetables and other foods decrease. Besides having the highest
expenditure elasticity among the food items considered as necessity from the
result, it is a normal good whose consumption will continue to increase with per
capita GDP growth, thus implying its
importance in the Nigerian diet as a major food item for food security will
increase as economic growth continues. CONCLUSION The study was carried out in Edo,
Delta and Lagos states in the South-western part of Nigeria. Both descriptive
and inferential statistics were used in the analysis. The inferential
statistics used the LA/AIDS model to estimate the own- and cross-price, income
and expenditure elasticities. The study found out that the Nigerian main
staples are rice, garri
and yam whose demands are greatly affected by price of commodity, and total
food expenditures. This implies that a change in these quantities will cause a
change in the demand for rice, garri
and yam. Rice constitutes the largest share of the household total food
expenditure, in both rural and urban centres, with less substitutability in
response to changes in own-price and has changed from being a luxury to being a
necessity and that rice has become a major food staple in the Nigerian economy.
This implies that policies towards increased rice production and productivity
will have a greater effect on the availability, affordability and accessibility
of rice in the Nigerian economy. The expenditure elasticity of rice has the
highest elasticity among the food items considered as necessity, from the
result, the importance of rice in the Nigerian diet will increase as economic
growth continues. REFERENCES
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