Is Rice Becoming an Inferior Good?

Topics: Supply and demand, Consumer theory, Price elasticity of demand Pages: 5 (1651 words) Published: October 27, 2011
Global rice demand: Is rice really becoming an inferior good? Mary Joanne Matriz,1 Imelda Molina,1 Harold Glenn Valera,1 Samarendu Mohanty,1 and Nelissa Jamora2 1 2

Social Sciences Division, International Rice Research Institute, Los Baños, Philippines; Agriculture, Food, and Resource Economics, Michigan State University, East Lansing, MI, USA.

Previous studies by the Food and Agriculture Organization (FAO 1971), Wong (1976), Mears (1981), and Ito et al (1989) implied that income elasticities for rice in Asian countries are becoming smaller over time and concluded that per capita rice consumption in Asia has a positive relationship with income up to a certain level, but, beyond that level, an inverse relationship exists. According to most of these studies, including Ingco (1991) and Huang and Bouis (1996), as per capita income rises, demand for rice and other major staples declines. However, depending on the data and methodology that they have used, the authors generated contrasting estimates of income and own price elasticities for rice and, therefore, the normality or inferiority of rice as a good also varied. Barker et al (1985) cited that tastes and preferences, income, and the price of rice relative to the price of other substitutes determine the level of rice consumption of any group at any time. It is therefore crucial to include the latest data in the analysis of demand parameters, particularly income and price elasticities given that consumption patterns evolve over time. Such demand parameters will provide a long-run perspective on the behavior of global rice demand and its subsequent impact on food security. This paper aims to reexamine the trend in global consumption as well as analyze the effect of income changes on global rice consumption using the IRRI Global Rice Model (IGRM). The IGRM is a partial equilibrium structural econometric simulation model that includes 21 major rice-producing, -consuming, and -trading countries: the Philippines, Thailand, Pakistan, Japan, Vietnam, Myanmar, Cambodia, Bangladesh, China, India, Indonesia, South Korea, South Africa, Côte d’Ivoire, Nigeria, Egypt, Mozambique, Sudan, Kenya, Brazil, and the United States.

The IGRM, a representative country model, includes supply, demand, trade, ending stocks, and market equilibrium conditions. Rice production is modeled by estimating separate area and yield equations. The model incorporates the regional supply response of rice and different competing crops in some producing regions. On the demand side, rice consumption includes food, seed, and other uses. Individual country models are then linked through net trade equations to solve Thai FOB (5% broken, Bangkok) to appropriately link an individual country to the world rice economy. Since the rice market is heavily distorted, farm price was solved domestically for most of the countries. The model explicitly includes policy variables in supply, demand, ending stocks, exports, imports, and price transmission equations. The data were sourced from


Presented at the 28th International Rice Research Conference, 8-12 November 2010, Hanoi, Vietnam OP13: Policy, Market, and Supply Chain

country statistical yearbooks, the Food and Agricultural Policy Research Institute (FAPRI 2010), the Production, Supply, and Distribution (PSD) database, and Attaché Reports of the U.S. Department of Agriculture (USDA 2010). Demand elasticities The relationship between changes in rice consumption due to income and price is measured by income and price elasticity of demand, respectively. These demand elasticities are estimated only for rice and do not take into account systematic linkages to the demand for other food such as meat, fish, and other cereals. Estimated income elasticity of demand is indeed becoming smaller over time. The IGRM estimates specifically show that rice is already considered an inferior good in higher income countries such as Japan and South Korea, in major...
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