Analysis of vegetable oil demand and its price reform in Iran: using rural and urban household level data

Abstract

In a group of food types, vegetable oils are the second-largest source of energy in the human diet and theirconsumption is very important from a health and economic viewpoint. Consumer behavior evaluation canhelp a lot in adopting the right policies; so, the framework of the Almost Ideal Demand System model for foodexpenditures was used to examine rural and urban vegetable oil consumer behavior in Iran using household surveydata conducted by the Iranian Statistical Institute for the 2018 year. For this purpose, income, price and crossprice elasticities under ten aggregated food groups i.e., Cereal, Meat, Dairy, Butter and Animal Oil, Vegetable Oil,Fruits and Nuts, Vegetables and Legumes, Sugary, Spices and, Dinks were estimated for vegetable oil using theSeemingly Unrelated Regression. The obtained results showed that vegetable oil concerning the positive incomeelasticities is a necessity goods both rural (0.872) and urban (0.889) consumers. Own-price elasticities revealedthat the demand for vegetable oil is less responsive to the increase in the price in urban areas (-0.280) than the ruralarea (-1.073). Moreover, Butter and Animal Oils food groups are highly substitutable with vegetable oil for ruralconsumers. Since the absolute value of cross-price elasticities are often less than an entity, consumers of vegetableoil will not have a noticeable change in demand as prices change for other food groups. Due to vegetable oil pricereform, per capita compensation payments for a typical rural person would be greater than the urban person. Theresults suggest that policymakers should adopt different policies about rural and urban consumers of vegetable oil.