Food Demand System in Transition Economies: Evidence from Kosovo

KUSHTRIM BRAHA1, ANDREJ CUPÁK2, ARTAN QINETI1, JAN POKRIVČÁK1

1Slovak University of Agriculture in Nitra, Trieda Andreja Hlinku 2, 949 76 Nitra, Slovakia
2National Bank of Slovakia, Bratislava, Slovakia

*Corresponding author e-mail: kbraha@gmail.com

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Abstract:

Transition economies switching from the planned to market economy experience quite rapid structural changes in food consumption pattern. From scientific and policy intervention perspective, Kosovo provides interesting case study in analysing food demand system. Main objective of this study is to provide fundamental food demand analysis in the case of Kosovo. For such purpose, we estimate complete food demand system in which demand depends on income, prices and other socio-economic household characteristics. Along with assessment of the non-parametric Engel curves, study estimates complete demand system by using Quadratic Almost Ideal Demand System (QUAIDS). For the purpose of this study, we use micro data of the Household Budget Survey (HBS) obtained from the Kosovo Agency of Statistics (KAS). Dataset samples cover the period of eight rounds, including period between 2005 and 2012. The HBS dataset provides detailed information on monthly income and expenditure. QUAIDS estimations were conducted based on the STATA code developed by Poi (2012). Estimations were performed on the cross-sections with time trend aiming to maximise efficiency of estimates. QUAIDS parameters were estimated on the annual basis in order to track the dynamics of demand elasticities over the time period observed. Results of this study are coherent with findings from earlier studies in other transition economies. Estimates of expenditure elasticities reveal positive coefficients for all commodity bundles (excluding cereals). A greater magnitude of elasticity is evident in the case of fruits and vegetables (1.35) and meat and fish (1.01). Negative expenditure elasticity for cereals suggest that, ceteris paribus, as incomes rises Kosovo households perceive cereals as inferior goods with greater extend of substitutability. On the other hand, all own-price elasticities coefficients are negative suggesting that results are consistent with the demand theory. Meat and fish and dairy products display the value of own-price elasticity less then unit elastic. Coefficients for this food bundles reveal that as the price changes the quantity demanded is less sensitive. On the other hand, results suggest that cereals exhibit significantly greater own-price elasticity than unitary value (-2.25 and -2.18). Such high price sensitivity for cereals is not surprising for two particular reasons. Firstly, for the “bread eating” countries, such as Kosovo, cereal prices were increasing rapidly, therefore probability of substitution, as the price rises, is significantly greater. And secondly, Kosovo households are undergoing “nutrition transition” [16, 36] signalling transitioning food pattern towards the higher-value diet. Policy responsiveness in the case of our findings should be directed towards income improvement measures aiming to generate employment opportunities, particularly under the current conditions of high unemployment constraints in Kosovo. Contribution of agriculture at this stage might be an important income-generating sector.

Keywords: Food Demand System, QUAIDS, Kosovo.

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