Is Rice Becoming an Inferior Good?
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,
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,
References: Barker R, Herdt R, Rose B. 1985. The rice economy of Asia. Washington, D.C. (USA): Resources for the Future. Food and Agriculture Organization (FAO). 1971. Agricultural commodity projections, 1970−1980, vol.1,2. Rome. FAPRI (Food and Agricultural Policy Research Institute). 2010. World and Agricultural Outlook Database. www.fapri.iastate.edu. Huang J, Bouis H. 1996. Structural changes in the demand for food in Asia. Food, Agriculture, and the Environment Discussion Paper 11. Washington, D.C. (USA): International Food Policy Research Institute. Ingco M. 1991. Is rice becoming an inferior good? Food demand in the Philippines. Policy Research and External Affairs Working Paper. Washington, D.C. (USA): World Bank. 3 Presented at the 28th International Rice Research Conference, 8-12 November 2010, Hanoi, Vietnam OP13: Policy, Market, and Supply Chain Ito S, Wesley E, Peterson F, Grant W. 1989. Rice in Asia: Is it becoming an inferior good?. Am. J. Agric. Econ. 71(1):32-42. Mears LA. 1981. The new rice economy of Indonesia. Indonesia: Gadjah Mada University Press. USDA (United States Department of Agriculture). 2010. Production, Supply, and Distribution database and Attaché Reports. www.usda.gov. Wong CM. 1976. A model of the rice economy of Thailand. PhD thesis. University of Chicago. 4