Demand analyses of rice in Malaysia

Tey, (John) Yeong-Sheng and Shamsudin, Mad Nasir and Mohamed, Zainalabidin and Abdullah, Amin Mahir and Radam, Alias (2008): Demand analyses of rice in Malaysia.

Abstract

As a typical developing Asian county, the growth in per capita income generally brings to diversification in Malaysians food basket. The most significant observation is the falling in per capita consumption of rice with continuous growth of demand for wheat based products. The objective of this study is to estimate the demand elasticities of rice in Malaysia, focusing whether rice is an inferior good. By using data from Household Expenditure Survey 2004/2005, this study obtains demand elasticities of rice, as well as for other 11 food items via Linear Approximate Almost Ideal Demand System (LA/AIDS) and Quadratic Almost Ideal Demand System (QUAIDS). The empirical results indicate that income elasticity of demand for rice (0.7104) is the highest compared to other food items in the LA/AIDS model, while income elasticity of demand for wheat (0.5087) is higher than rice (0.4712). Both of the income elasticities of demand for rice suggest that rice is not an inferior good in Malaysia. However, by comparing both estimates of demand elasticities and adjusted R2s, the QUAIDS model provides more plausible results than the LA/AIDS model.

• Item Type: MPRA Paper
• Language: English
• Keywords: Rice, Wheat, Inferior Good, Linear Approximate Almost Ideal Demand System, Quadratic Almost Ideal Demand System, Income Elasticity
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q1 - Agriculture > Q11 - Aggregate Supply and Demand Analysis ; Prices; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis

References

Asian Development Bank, 1988. Evaluation of Rice Market Intervention Policies. Manila.

Baharumshah, A.Z., 1980. The Malaysian rice policy: Welfare analysis of current and alternative programs. Ph.D. dissertation. University of Illnois.

Baharumshah, A.Z., 1993. Applying The Almost Ideal Demand System (AIDS) to meat expenditure data: Estimation and specification issues. Malaysian Journal of Agricultural Economics, 10.

Baharumshah, A.Z. and Mohamed, Z.A., 1993. Demand for Meat in Malaysia: An Application of the Almost Ideal Demand System Analysis. Pertanika Social Science and & Humanities, 1 (1): 91 – 95.

Banks, J., Blundell, R. and Lewbel, A., 1997. Quadratic Engel Curves and Consumer Demand. The Review of Economics and Statistics, 79 (4): 527-539.

Blandford, D., 1984. Changes in food consumption Patterns in the OECD Area. European Review of Agricultural Economics, 11(1): 43-65.

Blundell R., Pashardes P. and Weber G., 1993. What do we learn about consumer demand patterns from micro data? American Economic Review, 83, 570–597.

Chern, W.S., 1997. Estimated Elasticities of Chinese Grain Demand: Review, Assessment and New Evidence, a report submitted to the World Bank.

Chern, W.S., 2000. Assessment of Demand-Side Factors Affecting Global Food Security. In Chern, W.S., Carter, C.A. and Shei, S.Y. eds. Food Security in Asia: Economics and Policies. Cheltenham, UK: Edward Elgar Publishing Limited. Ch. 6.

Chern, W.S., Ishibashi, K., Taniguchi, K. and Yokoyama, Y., 2003. Analysis of Food Consumption Behavior by Japanese Households. FAO Economic and Social Development Paper, 152.

Cranfield, J.T., Hertel, J.E. and Preckel, P., 1998. Changes in the Structure of Global Food Demand. American Journal of Agricultural Economics, 80 (5): 1042-1050.

Deaton, A, and Muellbauer, J., 1980a. An Almost Ideal Demand System. American Economics Review, 70.

Dey M.M., 2000. Analysis of demand for fish in Bangladesh. Aquaculture Economics and Management, 4: 65–83.

Food and Agricultural Policy Research Institute (FAPRI). 2007. Demand Elasticities across Countries. [Online]. Available at: http://www.fapri.iastate.edu/ [accessed 10 July 2007]

Fisher, D., Fleissig, A.R. and Serletis, A., 2001. An Empirical Comparison of Flexible Demand System Forms. Journal of Applied Econometrics, 16: 59-80. Food and Agriculture Organization of the United Nations. 2007. FAOSTAT. [Online]. Available at: http://faostat.fao.org/site/502/DesktopDefault.aspx?PageID=502 [accessed 12 July 2007].

Garnaut, R. and Ma, G., 1992. Grain in China. Report for the East Asian Analytical Unit, Department of Foreign Affairs and Trade, Australian Government Publishing Service, Canberra.

Heien D. and Wessells C.R., 1990. Demand system estimation with microdata: a censored regression approach. Journal of Business & Economic Statistics, 8(1), 365–371.

Holcomb, R., J. Park, and Capps, Jr., 1995. Examining Expenditure Patterns for Food at Home and Food Away from Home. Journal of Food Distribution Research, 26:1-8.

Huang J. and Bouis, H., 1996. Structural changes in the demand for food in Asia. Food, Agriculture, and the Environment Discussion Paper of International Food Policy Research Institute, 11.

Huang, J., David, C.C., and Duff, B., 1991. Rice in Asia: Is it becoming an inferior good? Comment”. American Journal of Agricultural Economics, 71: 515-521

Ishida, A., 1995. An econometric analysis of rice economy in Peninsular Malaysia. Agricultural Economic Papers of Kobe University, 28-29, 77-97.

Ishida, A., Law, S.H. and Aita, Y., 2003. Changes in Food Consumption Expenditure in Malaysia. Agribusiness, 19 (1): 61-76.

Ito, Shoichi, E. Wesley F. Peterson, and Warren R. Grant., 1989. Rice in Asia: Is it Becoming an Inferior Good? American Journal of Agricultural Economics, 71: 32-42

Kumar, P., 1997. Food Security: Supply and Demand Perspective. Indian Farming, 12: 4-9.

Lewbel, A., 1985. A Unified Approach to Incorporating Demographic or Other Effects into Demand Systems. Review of Economic Studies, 52: 1-18.

Liu, K.E., 2003. Food Demand in Urban China: An Empirical Analysis Using Micro Household Data. Ph.D. dissertation. Ohio State University.

Liu, K.E. and Chern, W.S., 2001. Effects of Model Specification and Demographic Variables on Food Consumption: Microdata Evidence from Jiangsu, China. In , International Food and Agribusiness Management Association, World Food and Agribusiness Forum XI, Sydney, Australia. June 27-28 2001.

Mitchell, D.O., Ingco, M.D. and Duncan, R.C., 1997. The World Food Outlook. Cambridge University Press, Cambridge. UK.

Muellbauer, J., 1977. Testing the Barten Model of Household Composition Effects and the Cost of Children. Economic Journal, 87 (347): 460-487. Mustapha, R.A., 1994. Incorporating Habit in the Demand for Fish and Meat Products in Malaysia. Malaysian Journal of Economic Studies, 31 (2): 25 – 35

Mustapha, R.A., Aziz, A.R.A., Radam, A. and Baharumshah, A.Z., 1999. Demand and Prospects for Food in Malaysia. In IDEAL UPM, Repositioning of the Agriculture in the Next Millennium. July 13-13 1999.

Mustapha R. A., Radam, A. and Ismail, M.M., 2000. Household Food Consumption Expenditure in Malaysia. In Malaysian Consumer and Family Economics Association, 5th National Seminar on Malaysian Consumer and Family Economics. Universiti Tenaga Nasional, Bangi, Selangor. August 17 2000.

Mustapha, R.A., Aziz, A.R.A., Zubaidi, B.A. and Radam, A., 2001. Demand and Prospects for Food in Malaysia. In Radam, A. and Arshad, F.M. ed. Repositioning of the Agriculture Industry in the Next Millennium. Universiti Putra Malaysia Press, pp. 148-159.

Nik Faud, K., 1993. Government policy impacts on the Malaysian rice sector. Serdang: MARDI.

Pollak, R.A. and Wales, T.J., 1981. Demographic Variables in Demand Analysis. Econometrica, 49 (6): 1533-1551.

Radam, A., Arshad, F.M. and Mohamed, Z.A., 2005. The Fruits Industry in Malaysia: Issues and Challenges. UPM, Press.

Wu, Y. and Wu, H.X., 1997. Household Grain Consumption in China: effects of income, price and urbanization. Asian Economic Journal, 11(3): 325- 42.