Analysis of Household Demand for Food in South Africa: Model

Selection, Expenditure Endogeneity, and the Influence of Socio-

Demographic Effects

†
Lesiba Bopape and Robert Myers

Abstract

This study analyzes food expenditure patterns in South Africa, taking into account
differences in demand behavior across rural and urban households, as well as across
income groups. The analysis is carried out using the QUAIDS model, accounting for
demographic effects, structural change, and seasonality effects. Expenditure endogeneity
is also tested and controlled for. The study makes use of household food consumption
data, collected as part of the KwaZulu-Natal Income Dynamics Study. Demand behavior
differs significantly between rural and urban households, as well as across income
groups, implying that an accurate analysis of expenditure patterns in South Africa
requires a disaggregated analysis that takes into account these differences in demand
behavior.

Key words: food demand, expenditure elasticity, price elasticity

JEL Classification: D12, Q18

Selected paper prepared for presentation at the African Econometrics Society Annual
Conference, Cape Town, South Africa, July 4-6, 2007

†
Lesiba Bopape is an economist, Economic Statistics Cluster, Statistics South Africa, Pretoria, South
Africa; and Robert Myers is University Distinguished Professor, Department of Agricultural Economics,
East Lansing, Michigan, U.S.A.
This work is part of Bopape’s Ph.D. dissertation at Michigan State University. We thank Jeffrey
Wooldridge, John Staatz, and Kelly Raper for their helpful comments. All remaining errors are our own.
 Analysis of Household Demand for Food in South Africa: Model Selection,
Expenditure Endogeneity, and the Influence of Socio-Demographic Effects

1. Introduction

South Africa has the highest per capita income in Sub-Saharan Africa and is

categorized as a middle income country. Furthermore, aggregate per capita availability

data suggest that South Africa is food secure in almost all basic foodstuffs (IFSS, 2002).

These facts suggest that hunger and food security should not be major policy issues in the

country. However, these aggregate data mask a highly unequal distribution of income and

a huge divide between relatively affluent urban areas and destitute conditions in many

rural communities. For instance, a study to assess the household level food security status

indicated that over 30% of the population is vulnerable to food insecurity and over 20%

of the children are estimated to be stunted and vitamin A deficient (HSRC, 2004).

Policies designed to reduce income inequality, hunger, and malnutrition formed

an important part of the social and economic reforms introduced by the democratic

government in 1994. But income inequality and household food insecurity remain. One

of the problems is that little is known about how food expenditure patterns differ across

different income groups, and across different geographic regions. Without a thorough

understanding of these differences in behavioral patterns in food expenditures, and how

these patterns are changing over time, it will continue to be difficult to design policies

that improve food security effectively over a broad range of heterogeneous low-income

households.

This paper seeks to improve knowledge and understanding of food expenditure

patterns in South Africa, taking into account differences in demand behavior across rural

1
and urban households, as well as across income groups. The study makes use of an

unusually rich dataset on household food consumption, collected as part of the KwaZulu-

Natal Income Dynamics Study (KIDS). The KIDS dataset contains detailed information

on food expenditures and prices as well as household socioeconomic and demographic

characteristics. The KIDS interviewed households over a ten-year period, with surveys in

1993, 1998, and 2004.

This paper uses the KIDS data to estimate demand functions for seven food

groups grains, meat and fish, fruits and vegetables, dairy, oils and fats, sugar, and all

other foods. The Quadratic Almost Ideal Demand System (QUAIDS) of Banks et al.

(1997) is used to estimate price and expenditure elasticities, taking into account the

impact of household demographic characteristics on food expenditure patterns.

Previous studies on food demand in South Africa have typically been based on

highly aggregate data and have either been limited to examining only one commodity

(e.g., Taljaard, 2003; Nieuwoudt, 1998) or ignored any impact of demographic factors on

food demand (Bowmaker and Nieuwoudt, 1990; Liebenberg and Groenewald, 1997). The

exception is the study by Agbola (2003) which is based on micro data and incorporates

household demographics. However, Agbola uses cross-sectional data that was collected

in 1993, one year prior to the major reforms introduced by the democratic government.

Furthermore, Agbola’s study is based on a restrictive linearized Almost Ideal Demand

System (LA/AIDS) model, which does not allow for adequate curvature in the Engel

curves. In a related study using the KIDS dataset, Bopape and Myers (2006) explicitly

test for whether the demand model should be specified with a quadratic (QUAIDS) or a

linear (AIDS) expenditure term and found evidence against AIDS. This study also tests

2
for expenditure endogeneity and controls for it where necessary. The problem of

expenditure endogeneity is typically ignored in food demand studies.

2. Theoretical Framework

2.1. The QUAIDS Model

The almost ideal demand system (AIDS) of Deaton and Muellbauer (1980) has

been a popular functional form to model demand behavior during the past two decades.

The AIDS model has budget shares that are linear functions of log total expenditure.

AIDS is a member of the Price-Independent Generalized Logarithmic (PIGLOG) class of

demand models (Muellbauer, 1976), which are derived from indirect utility functions that

are themselves linear in log total expenditure. However, there is a growing body of

literature providing evidence on the importance of allowing for nonlinearity in the budget

share equations (Lewbel, 1991; Banks et al., 1997). The quadratic almost ideal demand

system (QUAIDS) model developed by Banks et al. (1997), which has budget shares that

are quadratic in log total expenditure, is an example of the empirical demand systems that

have been developed to allow for this expenditure nonlinearity.

The QUAIDS model is a generalization of PIGLOG preferences based on the

following indirect utility (V) function:

−1
 ln x − ln a (p)  −1 
ln V =   + λ (p ) (1)
 b(p )  

where x is total expenditure, p is a vector of prices, a(p) is a function that is homogenous

of degree one in prices, and b(p) and (p) are functions that are homogeneous of degree

3
zero in prices. As in the original AIDS model, ln a(p) and ln b(p) are specified as the

translog and Cobb-Douglas equations:

K
1 K K
ln a(p ) = α 0 + ∑α i ln pi + ∑∑ γ ij ln pi ln p j (2)
i =1 2 i =1 j =1

K
b(p ) ∏p
βi
= i (3)
i =1

where i = 1, …, K denote commodities. The function (p) is specified as:

K K
λ( p) = ∑ λi ln pi where ∑λ = 0 .i (4)
i =1 i=1

Application of Roy’s identity to (1) gives the QUAIDS budget share equations. To

control for varying preference structures and heterogeneity across households, we

incorporate demographic variables (z) into the QUAIDS model through the linear

demographic translating method (Pollak and Wales, 1981). This leads to the following

empirical specification of the QUAIDS budget share equations:

2
K
 x  λi   x   L
wi = α i + ∑ γ ij ln p j + β i ln   +  
ln   ∑δ is z s
+ (5)
j =1  a(p )  b(p )   a (p )   s =1

where z s = ( z1 , ..., z L ) is a set of demographic variables. Formulas for the QUAIDS

expenditure and price elasticities are derived by differentiating the budget share equations

with respect to ln x and ln pj, respectively. Following Banks et al. (1997), we simplify the

expressions for the elasticity formulas by using the intermediate results:

∂wi 2λi   x  
µi ≡ = βi + ln 
b(p )   a(p )  
(6)
∂ ln x

2
∂wi  K
 λ β   x 
µ ij ≡ = γ ij − µi  α j + ∑ γ jl ln pl  − i j ln   . (7)
∂ ln p j  l =1  b(p)   a (p )  

4
In terms of the µi , the formula for expenditure elasticities can be written as:

µi
ei = 1 + . (8)
wi

The expression for the Marshallian or uncompensated price elasticities can be written as:

µ ij
eiju = − δ ij (9)
wi

where ij is the Kronecker delta taking the value δ ij = 1 if i = j and δ ij = 0 if i j. The

Hicksian or compensated price elasticities are obtained from the Slutsky equation:

eijc = eiju + w j ei . (10)

The theoretical restrictions of adding-up, homogeneity, and symmetry are imposed on the

parameters to ensure integrability of the demand system (Moro and Sckokai, 2000).

Addding-up simply requires that the household does not spend more than its total budget

(i.e., ∑i wi = 1 ), and can be expressed in terms of model parameters as follows:

K K K K

∑αi = 1
i=1
∑ βi = 0
i =1
∑ λi = 0
i =1
∑γ
i=1
ij =0 ∀ j. (11)

Marshallian demands are homogenous of degree zero in (p, m ) , and this property is

satisfied by imposing the parametric restrictions:

∑γ
j =1
ij =0 ∀ j. (12)

Slusky symmetry requires that

∑γ
j =1
ij =0 ∀ j. (13)

5
 2.2. Expenditure Endogeneity

Most empirical demand analyses do not cover all products and services that households

purchase. Data limitations, finite computer memory, and the increased complexity and

time required for estimating large models make it necessary to abstract from a completely

specified demand system containing a different equation for each of the myriad goods

available in the market (LaFrance, 1991). The practice is typically to assume that

preferences are separable and estimate a set of conditional demands for the goods of

interest as functions of prices and total expenditure on these goods (Pollak and Wales,

1969). However, such a practice raises questions regarding the possibility of simultaneity

bias in the budget share equations of the demand model. Total expenditure may be

determined jointly with the expenditure shares of the individual commodities that enter

the demand model, making it endogenous in the expenditure share equations. Estimation

ignoring expenditure endogeneity may lead to inconsistent demand parameter estimates.

In this study, we follow Bundell and Robin (1999) and control for endogeneity using an

extension of the limited information augmented regression technique suggested by

Hausman (1978).

To illustrate how the augmented regression technique works, consider the regression

of y1, the dependent variable, on a set of exogenous explanatory variables, z, and an

endogenous explanatory variable, y2, i.e., y1 = z + y2. Also, suppose an instrumental

variable, z2, exists for y2. Correction for the endogeneity of y2 using the augmented

regression technique proceeds in two steps. The first step involves estimating a reduced

form regression of the endogenous variable on a set of instrumental variables, where the

set of instrumental variables include all the other exogenous explanatory variables (i.e.,

6
regress y2 on z and z2). The residuals, v , from this first-stage regression are then included

as an additional explanatory variable in the original y1 equation. The OLS estimator of

the parameters and in this augmented regression is identical to the Two-Stage Least

Squares (2SLS) estimator (Blundell and Robin, 1999). Moreover, testing for the

significance of the coefficient on v is a test for the exogeneity of y2. We use total

household income (ln m) as an instrument for total expenditure (ln x).

For income to be a good instrumental variable for expenditure, it must meet two

conditions: the relevance condition, which requires that income be sufficiently correlated

with expenditure (the endogenous variable), and the exogeneity condition, which requires

that income must not be correlated with the error term in the demand model. The former

condition is testable while the latter condition is maintained. A test for the relevance

condition involves determining whether income is partially correlated with expenditure.

We conduct this test following Wooldridge (2002, pp. 118-122) by determining whether

ln m is statistically significant in the reduced form regression for ln x. Because total

household income is exogenous in the household food expenditure allocation model, it is

not unreasonable to assume that it (total household income) satisfies the exogeneity

condition.

3. Data

Data used in this study comes from the KwaZulu-Natal Income Dynamics Study

(KIDS). KIDS is a panel dataset comprising three surveys: the 1993 Project for Statistics

on Living Standards and Development (PSLSD) survey, and the 1998 and 2004 surveys

7
which interviewed households from the 1993 PSLSD survey who reside in KwaZulu-

Natal Province.

The PSLSD is a nation-wide survey undertaken in the last half of 1993 by a

consortium of South African survey groups and universities, including the South African

Labor and Development Research Unit of the University of Cape Town and the World

Bank. The main instrument was a comprehensive household survey collecting data on a

broad array of socio-economic conditions of households, including their food and non-

food expenditures. In addition to the household questionnaire, a community questionnaire

was administered in each cluster to collect data on prices for a detailed list of food

products purchased by households. In 1998, households surveyed by the PSLSD in

KwaZulu-Natal Province were reinterviewed by the KIDS survey. The third KIDS survey

was undertaken in 2004. KwaZulu-Natal is the most populous province in South Africa,

constituting approximately 20% of South Africa’s population. The economic, social, and

racial stratification of KwaZulu-Natal mirrors that of the country as a whole: the province

includes a wealthy metropolitan area, Durban, poor townships surrounding it and a poor

and largely rural former homeland, KwaZulu. Also, poverty and inequality in the

province are relatively similar to those at the national level (Woolard et al., 2002), so that

results of the analysis should provide important insights about the conditions in other

provinces.

The recall period in all the three surveys is one month. The 1998 and 2004

surveys re-interviewed the original 1993 households, and tracked and interviewed

households that had moved, as well as new households that split from the original 1993

households. After removing observations deemed unusable for the current purpose (such

8
as households reporting zero consumption on all food items, or those missing critical

information, such as expenditure information), a total sample of 2181 observations across

the three surveys is used. The problem of reported zero expenditures is not significant in

this dataset, mainly because of the broad commodity group definitions used here. Table 1

presents a summary of the food expenditure shares of the sampled households, including

the differences across income groups, and rural and urban areas. ‡ Grains constitute the

largest share of household total food expenditure, ranging from about 26 and 24% among

the high income and urban households to 37% among the low income and rural

households. The share of grains in the households’ budgets is lower at higher income

levels. The budget share of meat products, a more expensive source of calories, is higher

among the high income and relatively affluent urban households. The mean monthly

income of high income households is seven times more than that of low income

households, reflecting the generally high wealth inequality in South Africa.

‡
A detailed listing of the food items contained in the food categories are

9
Table 1. Average Expenditure Shares by Income Group and Region

Income groups Regions

Entire
sample Low Middle High Rural Urban

Grains 0.33 0.37 0.35 0.26 0.37 0.24

Meat, fish 0.23 0.21 0.22 0.26 0.21 0.27
Fruits, vegetables 0.18 0.18 0.18 0.16 0.18 0.17
Dairy products 0.07 0.05 0.06 0.08 0.05 0.09
Oils, butter, fats 0.05 0.05 0.05 0.05 0.05 0.05
Sugar, sugar products 0.05 0.06 0.05 0.03 0.05 0.04
Other food 0.10 0.07 0.08 0.14 0.08 0.14

Total household food 807.29 584.97 746.51 1089.90 725.94 967.34

expenditure
Total household income 2666.48 774.34 1696.70 6064.22 1981.55 4553.35

Food expenditure as % 0.30 0.75 0.44 0.18 0.37 0.21

of income

Table 2. Summary Statistics of Household Characteristics by Income Group and Region

Income Groups Regions

Entire
Variable sample Low Middle High Rural Urban

Household size 6.79 6.37 7.41 6.61 7.34 5.72

Education of head 5 3.15 3.89 7.83 3.76 7.31

Age of household head 54.67 53.68 56.96 53.39 55.58 52.86

Proportion male headed 0.59 0.51 0.56 0.71 0.57 0.64

Proportion rural 0.66 0.88 0.74 0.36 - -

Proportion black (race) 0.85 0.97 0.94 0.65 1.00 0.57

Summary statistics of household demographic characteristics are presented in

Table 2. On average, urban households are of smaller size, headed by younger males with

high levels of education. Most of these characteristics are shared by high-income

households, except the latter have larger family sizes. The rural and low-income groups

comprise mainly black households.

10
 4. Demand Model Results

The QUAIDS model is estimated using maximum likelihood (ML), with

theoretical restrictions of adding-up, homogeneity, and symmetry imposed during

estimation. Table 3 presents the estimated coefficients for the QUAIDS model. The

quadratic expenditure term is statistically significant in most of the expenditure share

equations. It is in the expenditure share equations for meat and fish, fruits and vegetables,

and oils and fats that the null hypothesis of expenditure linearity is not rejected. However,

as the results to be presented below indicate (Table 4), the hypothesis that the quadratic

expenditure term is zero across all equations is strongly rejected. Only 9 of the 28 price

effects are significantly different from zero at the 10% significance level, suggesting that

there is not much quantity response to movements in relative prices, possibly due to the

level of aggregation in the commodity groups. Most (34 out of 49) of the coefficient

estimates on the demographic variables are statistically different from zero. Households

with large sizes consume more grains and dairy products while their small-sized

counterparts consume more meat and fish and fruits and vegetables. These results are as

expected, given that grains provide a relatively cheap source of calories compared to such

foods as meat and fish, and that household size is negatively correlated with income.

Also, large households are likely to have more children who consume milk and other

dairy products.

11
Table 3 Estimated Price, Income, and Demographic Effects
Grains Meat/fish Fruits/Veg Dairy Oils/butter/ Sugar Other
products fats foods
Constant 0.1185 0.2965 0.2328 0.0404 0.0571 0.0151 0.2395
(0.050) (0.0234) (0.0167) (0.0141) (0.0084) (0.0071) (0.0214)

PGRA 0.0220 0.0146 -0.0015 -0.0067 0.0076 -0.0095 -0.0265

(0.0118) (0.0089) (0.0061) (0.0054) (0.0039) (0.0032) (0.0083)

PMF 0.0146 -0.0172 -0.0073 -0.0028 -0.0003 0.0044 0.0087

(0.0089) (0.0112) (0.0060) (0.0052) (0.0037) (0.0031) (0.0078)

PFRUVE -0.0015 -0.0073 0.0111 -0.0044 0.0050 -0.0077 0.0047

(0.0061) (0.0060) (0.0060) (0.0038) (0.0027) (0.0023) (0.0059)

PDAIRY -0.0067 -0.0028 -0.0044 0.0081 -0.0026 0.0033 0.0051

(0.0054) (0.0052) (0.0038) (0.0050) (0.0027) (0.0023) (0.0052)

POBF 0.0076 -0.0003 0.0050 -0.0026 -0.0045 0.0012 -0.0063

(0.0039) (0.0037) (0.0027) (0.0027) (0.0039) (0.0024) (0.0037)

PSUG -0.0095 0.0044 -0.0077 0.0033 0.0012 0.0013 0.007

(0.0032) (0.0031) (0.0023) (0.0023) (0.0024) (0.0030) (0.0033)

POTH -0.0265 0.0087 0.0047 0.0051 -0.0063 0.0070 0.0074

(0.0083) (0.0078) (0.0059) (0.0052) (0.0037) (0.0033) (0.0109)

ln x -0.0950 0.0327 -0.0142 -0.0111 -0.0215 -0.0304 0.1395

(0.0119) (0.0113) (0.0084) (0.0068) (0.0038) (0.0032) (0.0104)

(ln x)2 -0.0143 -0.0002 0.0024 -0.0081 -0.0018 -0.0037 0.0258

(0.0041) (0.0038) (0.0029) (0.0023) (0.0013) (0.0011) (0.0036)

Household size 0.0099 -0.0044 -0.0008 0.0005 0.0005 0.0013 -0.0071

(0.0007) (0.0007) (0.0005) (0.0004) (0.0002) (0.0002) (0.0006)

Race (1= black) 0.0814 0.0257 -0.0189 -0.0293 -0.0096 0.004 -0.0534
(0.0093) (0.0089) (0.0065) (0.0053) (0.0031) (0.0026) (0.0080)

Rural (1= rural) 0.0499 -0.0482 0.0193 -0.0159 -0.0019 0.0061 -0.0093
(0.0066) (0.0062) (0.0045) (0.0036) (0.0021) (0.0018) (0.0055)

Educ. of head -0.0018 0.0005 -0.0004 0.0009 0.0000 -0.0004 0.0011

(0.0006) (0.0005) (0.0004) (0.0003) (0.0002) (0.0001) (0.0005)

Dummy 1998 -0.0426 0.0498 -0.0530 0.0186 -0.0256 -0.0161 0.0689

(0.0159) (0.0156) (0.0111) (0.0107) (0.0061) (0.0051) (0.0140)

Dummy 2004 -0.0917 0.0213 -0.0192 0.0410 -0.0150 -0.028 0.0915

(0.0204) (0.0213) (0.0157) (0.0144) (0.0094) (0.0078) (0.0185)

Survey month 0.0027 -0.0011 -0.0076 0.0047 -0.0008 -0.0007 0.0028

(0.0021) (0.0020) (0.0014) (0.0012) (0.0007) (0.0006) (0.0018)

v -0.0005 -0.0173 0.0097 0.0021 -0.0040 -0.0008 0.0109

(0.0121) (0.0113) (0.0082) (0.0067) (0.0040) (0.0034) (0.0101)
Notes: (1) Estimated standard errors in parentheses , (2) All prices are in logarithms, P = price, GRA = grains, MF =
meat and fish, FRUVE = fruits and vegetables, DAIRY = dairy products, OBF = oils, butter and fats, SUG = sugar, and
OTH = other foods.

12
 Table A1 in the appendix presents the parameter estimates of the reduced form

regression for ln x. The results of the F test for the joint significance of ln m and (ln m)2

are presented in the bottom row of Table A1. These results provide evidence of a strong

partial correlation between ln m and (ln m)2 and ln x, and hence, provide evidence that

income is a relevant instrument for expenditure. Results of the test for expenditure

exogeneity are presented at the bottom row of Table 3. The t values for the significance

of the v residuals in the individual budget share equations are clearly low, implying that

the exogeneity of log expenditure cannot be rejected in each of these equations.

The middle column of Table A1 in the appendix presents the parameter estimates of the

reduced form regression for ln x. The results of the F test for the joint significance of ln m

and (ln m)2 are presented in the bottom row of Table A1. These results provide evidence

of a strong partial correlation between ln m and (ln m)2 and ln x, and hence, provide

evidence that income is a relevant instrument for expenditure. Results of the formal test

of the hypothesis that log expenditure is exogenous across all the budget share equations

are presented in Table 4. As these results clearly show, expenditure exogeneity cannot be

rejected. Hence, in estimating the demand system using this sample of households, there

is no need to control for expenditure endogeneity. Table 4 also presents other

specification tests. The AIDS model is rejected in favor of QUAIDS. Demographic

variables clearly influence demand behavior. Aggregate time effects, captured by year

dummy variables, are significant, which provides some evidence of structural change

during the sample period. The month of the survey is also significant, which indicates the

13
importance of seasonality in the food purchase and consumption patterns of these

households.

Table 4 Results of the Wald Tests for AIDS specification, Demographic effects, Structural
Change, and Seasonality

2
Degrees of freedom p-value

Expenditure endogeneity (all equations) 5.03 6 0.5398

AIDS specification 72.56 6 0.0000

Demographic effects 1244.97 24 0.0000

Structural change (aggregate time effects) 125.08 12 0.0000

Month/seasonality effects 45.24 6 0.0000

It is easier to interpret price and income effects in terms of elasticities. Estimates

of expenditure elasticities ( i’s) are presented in Table 5. The first column presents

expenditure elasticity estimates for the entire sample, while the other columns reports

those for the rural, urban, and income groups sub-samples. All expenditure elasticity

estimates are positive, as would be expected for broadly defined food aggregates like the

ones considered here. Most (39 out of 42) of the estimates are statistically different from

zero at less than 1% significance level. Grains are expenditure inelastic across all

household groups, with substantial rural-urban and income group differences. These

estimates for expenditure elasticity for grains differ significantly from the earlier

estimates ( i = 1.250) reported by Agbola (2003) using the 1993 nationwide cross-

sectional data. Meat and fish are luxuries across all household groups; expenditure on

meat and fish is more elastic among rural and low income households than among urban

14
and high income households. The expenditure elasticity estimates for meat and fish are

close to the 1.027 reported by Agbola. Expenditures on fruits and vegetables and oils,

butter and fats are relatively more responsive to increases in total household expenditure

among urban and high income households than among rural and low income households.

Table 5. Estimated Expenditure Elasticities

Expenditure elasticities ( i )1

Commodity Entire Rural Urban Low Middle High

sample (n = 1446) (n = 735)

Grains 0.3881 0.4313 0.2699 0.4474 0.4142 0.2824

(0.1254) (0.1185) (0.1430) (0.1139) (0.1212) (0.1436)
Meat, fish 1.1363 1.1496 1.1156 1.1528 1.1420 1.1184
(0.1326) (0.1343) (0.1314) (0.1309) (0.1329) (0.1359)
Fruits, vegetables 0.9739 0.9741 0.9731 0.9736 0.9736 0.9740
(0.1095) (0.1062) (0.1162) (0.1017) (0.1078) (0.1194)
Dairy products 0.6509 0.6254 0.6786 0.6193 0.6483 0.6651
(0.1518) (0.1692) (0.1311) (0.1760) (0.1545) (0.1370)
Oils, butter, fats 0.5572 0.5532 0.5645 0.5734 0.5542 0.5437
(0.0989) (0.0989) (0.0989) (0.0926) (0.0990) (0.1034)
Sugar 0.2924 0.3658 0.0777 0.4007 0.3431 0.0454
(0.0886) (0.0804) (0.1120) (0.0760) (0.0830) (0.1160)
Other 2.9761 3.3408 2.5982 3.3751 3.2754 2.6212
(0.1818) (0.2075) (0.1566) (0.2082) (0.2032) (0.1598)
Note: Standard errors in parentheses.

Table 6 presents estimates of the Marshallian and Hicksian own price elasticities.

Own price elasticities are all negative as expected. Based on the uncompensated price

elasticity estimates, fruits and vegetables and dairy products are price inelastic across all

household groups, and all other food groups are price elastic. Hence, households respond

more than proportionately to changes in the prices of these foods. However, when the

substitution effects are considered, grains and meat and fish become price elastic, with

compensated own-price elasticity estimates of less than unity. It is only in the case of

high income households that grains remain price elastic when both the uncompensated

15
and compensated elasticity estimates are considered. This indicates the greater

substitution possibilities that high income households have in responding to changes in

the prices of grains compared to the other household groups.

Table 6. Estimated Own-Price Elasticities

Marshallian/uncompensated own-price elasticities

Commodity Entire Rural Urban Low Middle High

sample (n = 1446) (n = 735)

Grains -1.0296 -1.0195 -1.0608 -1.0058 -1.0238 -1.0741

(0.0742) (0.0628) (0.1086) (0.0574) (0.0673) (0.1085
Meat, fish -1.1077 -1.1179 -1.0918 -1.1208 -1.1121 -1.0937
(0.1586) (0.1679) (0.1448) (0.1624) (0.1619) (0.1539
Fruits, vegetables -0.9803 -0.9789 -0.9833 -0.9769 -0.9793 -0.9852
(0.0957) (0.0909) (0.1061) (0.0848) (0.0933) (0.1106
Dairy -0.8143 -0.7789 -0.8593 -0.7610 -0.8075 -0.8530
(0.0788) (0.0926) (0.0615) (0.0976) (0.0812) (0.0663
Oils, butter, fats -1.0604 -1.0610 -1.059 -1.0568 -1.0608 -1.0641
(0.0745) (0.0755) (0.0726) (0.0720) (0.0752) (0.0764
Sugar -1.0463 -1.0353 -1.0798 -1.0251 -1.0397 -1.0935
(0.0749) (0.0651) (0.1042) (0.0597) (0.0682) (0.1108
Other -4.6426 -5.4634 -3.7619 -5.2894 -5.3534 -3.9133
(0.6605) (0.8068) (0.5037) (0.7706) (0.7880) (0.5334

Hicksian/compensated own-price elasticities

Grains -0.9032 -0.8613 -0.9947 -0.8419 -0.8790 -1.0003

(0.0408) (0.0435) (0.0350) (0.0417) (0.0423) (0.0375
Meat, fish -0.8455 -0.8753 -0.7912 -0.8819 -0.8587 -0.7997
(0.0306) (0.0283) (0.0354) (0.0271) (0.0295) (0.0357
Fruits, vegetables -0.8087 -0.8028 -0.8207 -0.7956 -0.8061 -0.8249
(0.0193) (0.0192) (0.0194) (0.0189) (0.0192) (0.0196
Dairy -0.7715 -0.7443 -0.8009 -0.7291 -0.7663 -0.7985
(0.0100) (0.0094) (0.0113) (0.0091) (0.0098) (0.0112
Oils, butter, fats -1.0307 -1.0319 -1.0284 -1.0252 -1.0316 -1.0357
(0.0053) (0.0052) (0.0054) (0.0052) (0.0052) (0.0054
Sugar -1.0320 -1.0153 -1.0770 -1.0018 -1.0215 -1.0919
(0.0043) (0.0044) (0.0041) (0.0044) (0.0044) (0.0041
Other -4.3462 -5.2022 -3.3937 -5.0346 -5.0864 -3.5419
(0.0181) (0.0162) (0.0222) (0.0157) (0.0166) (0.0226
1.
All elasticities are computed from endogeneity-adjusted QUAIDS model
2.
These are the expenditure and own-price elasticities computed from endogeneity-unadjusted
QUAIDS model

16
Agbola’s uncompensated and compensated price elasticity estimates for grains are –1.730

and –1.394, respectively. Grains comprise mainly of items that are staple foods in South

Africa, so that one can consider Agbola’s estimates to be too high.

The expenditure and price elasticities estimated in this study correct for many of

the problems associated with previous estimates in South Africa. Our estimates are based

on the flexible QUAIDS model that allows for more curvature in the Engel curves, with

account taken for the influence of demographic, seasonality and aggregate time effects.

Hence, the price and expenditure elasticity estimates presented in this study are more

accurate and can be used more reliably for policy analysis.

5. Conclusions

This paper presents an analysis of the food expenditure patterns of households in

South Africa. Various tests are performed to decide on the most appropriate model

specification. The traditional AIDS model is rejected in favor of the more flexible

QUAIDS model. This is the first study to apply the QUAIDS model to analyze food

demand in South Africa; previous studies were based on restrictive functional forms

LA/AIDS and log-linear models. The QUAIDS model is estimated accounting for

demographic composition of households, structural change, and seasonality effects. Meat

and fish are luxuries across all household groups. Expenditure on meat and fish is more

elastic among rural and low income households than among urban and high income

households. Sugar products and oils, butter and fats are own-price elastic based on both

the compensated and uncompensated price elasticity estimates. Grains, which comprise

17
items that are mainly staple foods in South Africa, are price elastic among high income

households.

There are substantial differences in the consumption patterns of rural and urban

households, as well as across households in different income groups. The policy

implication of these differences is that the design of anti-poverty and nutrient

enhancement programs needs to be region-specific and take into account these behavioral

differences in food expenditures.

18
Appendix

Table A1 The estimated reduced form for ln x

Variable
ln x std. Err.
Constant 7.0905 (0.3453)
Household size 0.0465 (0.0031)
Race (1 if black) -0.3944 (0.0427)
Rural (1 if rural) 0.0129 (0.0308)
Education 0.0118 (0.0026)
Dummy for 1998 -0.4460 (0.0904)
Dummy for 2004 -1.0427 (0.1411)
Survey month -0.0050 (0.0094)
Total household income -0.0409 (0.0706)
Total household income2 0.0152 (0.0049)
lnprices Jointly significant

R2 0.4364

F (p-val) 116.90 (0.0000)

1.
Standard errors in parentheses

19
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