Chapter 4


 Urban consumption patterns usually contain a high proportion of tradables (including
 imported food), hence urban households experience a severe decline of their real income
 as result of an devaluation.

 Low-income households typically spend 60 to 80 per cent of their income on food. If food
 prices rise as a consequence of a devaluation (or other policy interventions discussed
 further below), poor consumers who depend on the market for their food supplies suffer
 the largest real income decline. This is demonstrated in table 4.7.

3.3.5 Impact on food demand and household food consumption

Food price increases and the associated real income decline affect both the volume and the
structure of household food demand. Due to reduced purchasing power, household food
demand will, in total, go down, and households will switch from the consumption of
expensive to cheaper products (e.g. from imported food commodities to imperfect
substitutes). Here, again, we find significant differences between low- and high-income
groups. (See Annex 1, par. 3, specifically Box A-2 and Figures A-7, for further explanations
on the impact of food price changes on food demand.)

The common econometric measurement for the demand response to price changes is the
price elasticity of demand. Table 4.8 gives some examples of price elasticities of demand
for rice in different countries. The difference in demand response between low- and high-
income groups is evident. What are the implications for food consumption?

Table 4.8 Price elasticities of demand for rice among low- and high-income groups
 Selected countries

 Low income High income
 Country Price elasticity Price elasticity Source
 Bangladesh (rural) -1.30 -0.83 Achmed
 Brazil -4.31 -1.15 Williamson-Gray
 Colombia (Cali) -0.43 -1.19 Pinstrup-Andersen et al.
 India (rural) -1.39 -0.39 Murty
 India (urban)  -1.23 -0.21 Murty
 Indonesia -1.92 -0.72 Timmer and Alderman
 Philippines -2.16 -0.40 Bouis
 Sierra Leone (rural) -2.16 -0.45 Strauss
 Thailand -0.74 -0.46 Tairatvorakul

 Source: Data compiled by Pinstrup-Andersen 1987

 An elasticity greater than 1 means that for every 1 percent rise in price, consumption will fall
 by more than 1 percent. Rice is a tradable commodity and a main staple food in most of the
 countries listed in table 4.8 (except, probably, in the cases of Brazil and Colombia).
 Although, in the case of a price increase, rice will be substituted to a certain degree by other
 cheaper food commodities (no data on related cross-price elasticities were presented in these
 studies), it is questionable whether the substitutes fully compensate for the reduced staple


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