Analysis of food consumption in Egypt: a demand systems approach

Abstract

This study's approach to demand analysis is consistent with the theory of utility and with the theory of exact non-linear aggregation. Two flexible food demand systems are presented and estimated in this study, using Egyptian regional data from one budget survey. The first system is a hybrid of Working's model and the Rotterdam model, referred to here as the WTS demand system. The second is the Almost Ideal Demand System (AIDS). The analysis shows that the WTS system fits Furthermore, the the data slightly better than the AIDS. likelihood ratio tests demonstrate that the homogeneity restrictions are acceptable while the other restrictions are not. The compensated and uncompensated own-price elasticities for food groups are negative as expected. Moreover, the study indicates to the prevalence of substitutability among food groups in Egypt. Based on the expenditure elasticities, dairy products and fruit are the only luxuries among food groups in Egypt. An important component of this dissertation is the food policy analysis. The results reveal that the annual rate of increase in the true cost of food has risen drastically after 1975. Before 1975, the food price policy was in favor of urban consumers in general and poor and large families in particular. New patterns have emerged after 1975. There is no clear differentiation between urban and rural families as before. In addition, food prices became slightly biased against poor and large urban families. This research suggests specific policies in order to mitigate the pressure on the government budget without jeopardizing the welfare of the poor: 1. The cuts of food subsidies should be directed toward the meats group rather than to the group of grains. 2. The income of the representative poor urban family should be raised by six percent in order to offset the increase in the price of meats group by 50 percent. Finally, this study shows that substituting food for nonfood is a mechanism to adjust for the increase in the household size when income is fixed. Within the food groups, the substitution is from high quality foods such as meats to lower quality foods such as grains. The estimation of adult equivalents is attempted in this dissertation. In addition, a scheme for income maintenance policy is suggested.