THE ELASTICITY OF DEMAND FOR THE EXPORTS OF A SINGLE COUNTRY — A RECONSIDERATION

One country's exports of a particular commodity are usually imperfect substitutes for similar exports from other countries. Consequently, the price elasticity of export demand involves unknown cross elasticities between sub-groups of the commodity. However, there are constraints on the relative magnitudes of all the sub-group elasticities. These make it possible to assess the degree to which the whole commodity elasticity divided by the market share is an over-estimate of the export elasticity.     

Price elasticities, joint products, and international trade

This paper extends the basic results of Houck's insight for derived demand elasticities for the case of joint products by allowing for the possibility of the joint and raw products being traded. Theoretical relationships between individual demands for a set of jointly–produced commodities that are traded and composite demand for the raw product from which the joint products originate are derived. It is shown that while the derived price elasticity of domestic demand retains the same form as Houck's original formula, the relevant price elasticities of demand to include in the formula are elasticities of total demand instead of domestic demand elasticities. Using the USA soybean industry as an example, this generalised formula that takes into account trade is implemented to calculate the elasticity of total demand for USA soybeans. The usefulness of this formula for policy–makers to trace out the impacts of changes in market conditions and trade policy in the joint–products, and how it will impact the price elasticity of domestic and total demand for the raw product, is demonstrated.     

AGRICULTURAL EXPORTS OF DEVELOPING COUNTRIES: ESTIMATES OF INCOME AND PRICE ELASTICITIES OF DEMAND AND SUPPLY

This paper provides new evidence on income and price elasticities of demand and supply of agricultural exports from developing countries, on the basis of (a) a consistent and fully specified supply and demand model, and (b) statistical estimation procedures not frequently used in the estimation of agricultural export functions. Estimates of price and income elasticities of demand for aggregate agricultural exports for all developing countries taken together — as distinct from individual exporting countries — are found to be low; moreover, export price as distinguished from non-price factors plays a relatively insignificant role in increasing export supply. Hence, an attempt by all developing countries to expand traditional agricultural exports with low price elasticity of demand may not yield rising earnings for all; but in fact may result in falling export revenues. Insofar as individual exports of all developing countries (not individual countries) are concerned, income and price elasticities of demand for such tropical commodities as tea, coffee, cocoa and bananas are also found to be low, except for new, non-traditional exports like pineapples. This indicates the importance of diversification of agricultural exports as a vehicle for their future growth.     

Derived Demand and Relationships between Prices at Different Levels in the Value Chain: A Note

In this paper we note that when there is only one variable factor in the intermediaries' production technology, prices at different levels in the value chain will move proportionally to each other over time. This is also the only general condition under which the elasticity of price transmission is equal to one, so that retail price signals are perfectly transmitted to primary product producers and vice versa. This allows a test of whether derived demand elasticities contain information about consumer elasticities using only prices. An empirical illustration is provided using data from the Norwegian cod sector.     

Price elasticity of water allocations demand in the Goulburn–Murray Irrigation District*

Bid prices for the demand and supply of water allocations between 2001 and 2007, and average monthly prices paid for water allocations from 1997 to 2007 in the Goulburn–Murray Irrigation District are analysed to estimate price elasticities. Based on bid prices, the price elasticity of demand for water allocations appears highly elastic, with elasticities strongly influenced by the season and drought. The price elasticity of supply for water allocations is also elastic, albeit less elastic than demand. Using actual prices paid, water demand is negatively related to price and is inelastic, and appears to be most influenced by demand the previous month, drought and seasonality factors.     

Price Endogeneity and Food Demand in Urban China

Price endogeneity has been ignored in previous analyses of food demand in urban China. We exploit data provided by the China National Bureau of Statistics on agricultural commodity supply shifters and use reduced‐form price equations to account for price endogeneity. Applying our unique econometric approach to the analysis of provincial‐level food demand in China, we find strong statistical evidence of price endogeneity. Models that ignore price endogeneity result in substantially biased elasticities and misleading estimates of future food demand in China.     

U.S. Canned Tuna Supply and Demand

Abstract

A 3SLS econometric model is used to estimate price elasticities of supply and demand for domestically produced and imported canned tuna in the U.S. market. In addition, a VAR model is developed to examine the relations between imports and domestically produced canned tuna. For domestically produced canned tuna, a 3SLS estimation of a structural econometric model yielded a coefficient for price elasticity of supply of 0.2 and of own-price demand of ?0.3. Such price inelasticities are expected of a fishery exploited at or near its maximum yields (inelastic supply), and a consumer product widely viewed as almost a necessity in a well-stocked pantry (inelastic demand). In addition, the model yielded a cross-price elasticity of demand with respect to the price of imported canned tuna of 0.45. Additional results include an income elasticity U.S. demand for domestically packed tuna of 0.83; a cross-price elasticity with the price of bread (a complement) of ?0.33, a cross-price elasticity for the price of ground meat (a substitute) of 0.30. With respect to imported canned tuna in the U.S. market, the corresponding elasticities estimated in the model are ?1.3 (own-price demand), 3.5 (income elasticity), ?1.2 (cross-price with the price of bread) and 2.5 (cross-price with the price of ground meat).

For canned tuna company managers, the results provide useful information about the likely effects on sales that would come from their own price changes, from changes in the price of imported canned tuna, and from price changes in the markets for complementary and substitute products. They can also use our results in discussions with U.S. trade negotiators, who are frequently faced with disputes over tariffs, market access, and other trade issues.     

Quantifying the structure of food demand in China: An econometric approach

This article examines food demand structure and its dynamics for 11 commodities in urban China. The analysis is based on household‐level expenditure survey data for two cross‐sectional surveys of Chinese households pertaining to food expenditure patterns during 1995 and 2003. Pre‐committed components of commodity demands, that are insensitive to economic variables, are explored. We use the generalized quadratic almost ideal demand system (GQAIDS) for its empirical superiority to the generalized almost ideal demand system (GAIDS), and estimate the associated parameters via full information maximum likelihood procedure (FIML) accounting for endogeneity of total expenditures on food for home consumption (FAH). We also use quality‐adjusted commodity unit values to control for quality differences resulting from commodity aggregation and food choice. Furthermore, we derive GQAIDS elasticity formulas, and estimate income elasticities without restrictions. The results partially support the hypothesis that an average Chinese household has incorporated elements of Western diet (fine grains) into traditional Chinese food diet over time. Moreover, the outcome of a simple test developed here points to possible preference changes for a majority of food staples under study.     

Food demand elasticities for Australia

There is renewed interest in robust estimates of food demand elasticities at a disaggregated level not only to analyse the impact of changing food preferences on the agricultural sector, but also to establish the likely impact of pricing incentives on households. Using data drawn from two national Household Expenditure Surveys covering the periods 1998/1999 and 2003/2004, and adopting an Almost Ideal Demand System approach that addresses the zero observations problem, this paper estimates a food demand system for 15 food categories for Australia. The categories cover the standard food items that Australian households demand routinely. Own‐price, cross‐price and expenditure elasticity estimates of the Marshallian and Hicksian types have been derived for all categories. The parameter estimates obtained in this study represent the first integrated set of food demand elasticities based on a highly disaggregated food demand system for Australia, and all accord with economic intuition.     

A Meta‐Analysis on the Elasticity of Demand for Pesticides

There is an increasing policy interest in pesticide taxation schemes as a measure to reduce harmful effects of pesticide use. The effectiveness of such tax depends, however, on the price elasticity of demand for pesticides. Moreover, information on these demand elasticities and their determinants is of crucial relevance for policy‐making and normative modeling approaches. In this article, we present a meta‐analysis based on studies that have estimated pesticide demand elasticities in Europe and North America. Our meta‐analysis reveals that the own‐price elasticities of demand for pesticides are, with a median of ?0.28, significantly smaller than zero, but also significantly larger than ?1, i.e. to be inelastic. We find that the demand for pesticides for special crops is less elastic than that for arable and grassland. In addition, the demand for herbicides is more elastic than for other pesticides. Studies that consider only short‐term horizons and little flexibility for farmers to adjust to price changes generate significantly less elastic pesticide demands. The results also indicate that more recent studies identify lower pesticide price elasticities of demand. Furthermore, we find that peer‐reviewed studies tend to find more inelastic results compared to grey literature.     

THE DEMAND FOR INPUTS AND THE AGGREGATE SUPPLY FUNCTION FOR AGRICULTURE*

This paper presents a theoretical derivation of aggregate supply elasticities from the relevant input demand elasticities. By way of illustration, an estimate of the aggregate supply elasticity with respect to product price for United Kingdom agriculture is calculated. In addition, the paper investigates the supply function that is implied by input demand functions which contain a geometrically declining lag distribution. The paper concludes by suggesting that the indirect estimation of aggregate supply elasticities may well be preferable to direct estimation of the elasticities.     

Market Structure and the Value of Agricultural Contingent Claims

In this paper, we evaluate the proposition that market structure, including supply and demand elasticities, plays a significant role in influencing equilibrium price dynamics. We show that the more inelastic the demand and/or supply of a commodity is, the more price risk will be faced by producers of that commodity. In general one can expect greater volatility from commodities with both demand and supply being inelastic, and the least when they are both elastic. We illustrate how the elasticities of supply and demand can impact the prices of contingent claims on agricultural commodities including revenue insurance.
Dans le présent article, nous évaluons la proposition selon laquelle la structure de marché, y compris l'élasticité de l'offre et de la demande, influence la dynamique du prix d'équilibre. Nous montrons que plus la demande et/ou l'offre d'un produit de base est inélastique, plus les producteurs de ce produit de base sont confrontés au risque de prix. En général, on peut s'attendre à une forte volatilité des produits de base pour lesquels l'offre et la demande sont à la fois inélastiques, et à une faible volatilité lorsqu'elles sont élastiques. Nous faisons ressortir de quelle façon l'inélasticité de l'offre et de la demande peut influencer les réclamations éventuelles concernant des produits agricoles de base, y compris l'assurance−revenu.     

Growth in horticultural trade: Japan's market for developing countries

This paper explores possibilities and opportunities of expansion of horticultural exports from developing countries through an investigation on a rapidly growing market, Japan, as an example among major promising markets. In this paper six horticultural commodities are selected to analyze, emphasizing on exports from developing countries. Observations on Japan's horticultural imports make us presume that consumers differentiate products by place of production. Therefore, import behavior is considered in a two-stage budgeting procedure. The second-stage demands for imports from different sources are specified in an almost ideal demand system (AIDS) model and estimated statistically as well as the first-stage import demand equations. The estimated second-stage AIDS equations show that the magnitude of own-price coefficients varies with the source of imports and so does that of expenditure coefficients. Therefore, the characteristics of import demand on a commodity basis, which are captured by the estimates of the first-stage import demand equations, are not equally transmitted to the demand for imports by source in each commodity. The estimated coefficients of the first-stage import demand and the second-stage AIDS equations were combined to obtain the total effects of price and income changes on imports by source. The calculated own-price elasticities are greater than one in absolute value in ten of the 15 cases and so are the calculated income elasticities in twelve cases. The large elasticities promise suppliers that they benefit from Japan's income growth and that they increase their earnings if they can reduce the price by lowering their costs. However, factors in non-price competition also play import roles in the import growth. In this paper, the importance of sales promotions by exporters and preshipment inspections was indicated in the cases of mangoes and cut flowers. Other factors such as market structure and public infrastructure for post-harvest activities were also discussed.     

An Econometric Analysis of Total (Domestic) and Import Demand for Beef in Hong Kong

This paper presents an applied econometric analysis of total (domestic and import) demand for beef in Hong Kong for the period 1970 to 1988. The estimates are in logarithmic form and provide elasticity estimates for beef demand (domestic and import) in Hong Kong. Variables in the estimated domestic demand models (per capita and aggregate) include own price, prices of a substitute (pork) and a complement (rice) and income. Variables in the estimated import demand model include demand side variables (price of beef, price of pork, price of rice and income) and the price of imported live cattle as a supply shifting variable. The elasticities were inelastic for the domestic demand models while most of those for the import demand model were elastic.     

Estimation of Area Elasticities from a Standard Profit Function

This article demonstrates that both crop area and output elasticities can be calculated from a profit function. A Chambers/Just profit function (which includes land allocations as quasi-fixed factors) is used to derive shadow price equations for each crop area allocation. Jointly solving these shadow price equations for crop area makes it possible to calculate individual crop area elasticities. A profit function is specified to represent agricultural producers in the state of Iowa. Shadow price equations are jointly estimated with output supply and input demand equations. From these estimated equations, we derive the individual crop area response and output response to a change in prices.     

DEMAND FOR FOOD IN GREECE: AN ALMOST IDEAL DEMAND SYSTEM ANALYSIS

This paper provides an analysis of food demand in Greece using the Almost Ideal Demand System and annual food expenditure data for the period 1950–1986. The focus is on the estimation of a complete matrix of price and income elasticities for the various food commodity groups for Greece. The empirical analysis points to the dominant position that meat and other livestock products have acquired in the diet of Greek consumers during a period of high income growth and rising living standards. Further increase in meat and milk demand is expected to take place as long as incomes keep rising.     

Short-Run Output Response in the Western Canadian Cattle Industry

This paper present the results of recent empirical work on the short-run producetion flexibility of cow-calf producers in Western Canada. Several aspects of firm behaviour may be inferred from the econometric estimates, including short-run elasticities of supply and factor demand, and the total elasticity of cattle supply. The principal empirical findings are that many of the shourt-run supply and factor demand responses of firms, are elastic with respect to within-season price variability. The evidence does not support a vertical or negatively-sloped short-run supply curve for cattle, where one previously has been hypothesized in the theoretical literature.     

Nutrient effects in consumer demand systems: evidence from panel data

This papers aims to analyse the demand for main food groups in Spain. Apart from the traditional economic factors (prices and income), our theoretical framework incorporates the nutrient composition of food into a demand model in the form of food attributes, as a proxy to take into account the rising consumer concern about the relationship between diet and health. A CBS functional form is chosen for the empirical model, which is estimated using a complete panel data set. Ten broad categories, nine nutrients and the most relevant socio-economic variables have been considered. Finally, after employing an appropriate selection strategy, the chosen model is used to calculate expenditure, price and nutrient elasticities, as well as the main socio-demographic effects. Results indicate that the introduction of nutrient-based determinants generates elasticities that differ from those obtained when only economic factors are included, particularly in the case of price elasticities. As the nutrients effect is incorporated in the model through adjusted prices, unhealthier food groups (cereals, white meat and eggs, dairy and sugar) become more inelastic as they are associated with higher perceived prices.     

Food Demand in Russia: Heterogeneous Consumer Segments over Time

The Russian food system has undergone substantial changes. However, knowledge on how economic transition has affected the structural parameters of food demand is lacking. Based on a two‐stage LES‐LA/AIDS model and annual panel data from the Russia Longitudinal Monitoring Survey (1995–2010), we provide a comprehensive set of food demand elasticities for Russia along two dimensions. First, we estimate demand parameters for three characteristic time periods in order to trace changes during transition. Second, to account for the Russian population's diversity, we derive elasticities for five different consumer segments. These groups are established by a cluster analysis based on households' food purchases. Our findings suggest that demand for food is far from satiated in Russia. We find generally high unconditional expenditure and own‐price elasticities for food. Both expenditure and own‐price elasticities show slight decreases in absolute terms over time. Low expenditure elasticities for staple foods like bread or cereals and high values for luxury goods such as meat, alcohol and tobacco suggest considerable changes in the composition of food baskets with further income growth. Results indicate that food production at home loses in importance while more affluent households in particular increase their demand for food consumption away from home.     

Variability in wheat export demand elasticity: Policy implications

Agricultural economists and policy makers in the United States believe that the magnitude of the export demand elasticity is one of the most important parameters used in farm policy decisions. However, past empirical estimates show wide variation in the size of the U.S. export demand elasticity. Reasons for this wide variation go beyond differences in model specification, estimation methods, and period of estimation to involve factors such as trade policies and changes in the supply and demand conditions of foreign countries. In view of the continual variation in magnitude, the elasticity of export demand should be viewed as a variable rather than as a parameter. In this study, U.S. wheat export demand elasticities are computed using a world wheat trade model. The estimates show that the elasticities vary significantly over time. They also reveal that elimination of trade barriers would more than double wheat export demand elasticities.