Application of AIDS model to analyse the farm household food demand elasticity: Evidence from panel data

This study examines the responsiveness of major food commodities consumption expenditures to changes in total consumption expenditures and to changes in the price of those food commodities. The study uses LA-AIDS to derive farm household food demand elasticity using farm household panel data. The results revealed that, food consumption patterns and demand elasticities were quite different across farm size groups. The estimated income elasticities for food commodities showed that, elasticities were lowest for cereals groups and highest for high valued nutritious horticultural and livestock food products. The analysis of price and income effects based on the estimated demand system has recommended that with increase in food prices, the demand for staple food may not be affected adversely but, that of high-value food commodities is likely to be affected negatively. If increase in food commodity prices are ignored for an extended period of time, there will be adverse impact on the food diversification and resuming the cereal based consumption resulting in under-nourishment. The policy makers should take appropriate policy strategies for different farm size groups. It is better to distribute subsidized nutritive food and milch animals to achieve the food and nutritional security instead of providing financial benefit to farm households.