Food prices and consumer demand: differences across income levels and ethnic groups

Targeted food pricing policies may improve population diets. To assess their effects on inequalities, it is important to determine responsiveness to price changes across income levels and ethnic groups.

Our goal was to estimate price elasticity (PE) values for major commonly consumed food groups in New Zealand, by income and ethnicity. PE values represent percentage change in demand associated with 1% change in price of that good (own-PE) or another good (cross-PE).

We used food expenditure data from national household economic surveys in 2007/08 and 2009/10 and Food Price Index data from 2007 and 2010. Adopting an Almost Ideal Demand System approach, own-PE and cross-PE estimates were derived for 24 food categories, household income quintiles, and two ethnic groups (Māori and non-Māori).

Own-PE estimates (with two exceptions) ranged from -0.44 to -1.78. Cross-PE estimates were generally small; only 31% of absolute values were greater than 0.10. Excluding the outlier 'energy drinks', nine of 23 food groups had significantly stronger own-PEs for the lowest versus highest income quintiles (average regression-based difference across food groups -0.30 (95% CI -0.62 to 0.02)). Six own-PEs were significantly stronger among Māori; the average difference for Māori: non-Māori across food groups was -0.26 (95% CI -0.52 to 0.00).

Food pricing policies have potential to improve population diets. The greater sensitivity of low-income households and Māori to price changes suggests the beneficial effects of such policies on health would be greatest for these groups.