The Demand for Disaggregated Food-Away-From-Home and Food-at-Home Products in the United States
by
Abigail Okrent and Julian M Alston
Economic Research Report No. (ERR-139) 69 pp, August 2012
What Is the Issue?
Food away from home (FAFH, including limited-service and
full-service restaurants) constitutes a large and growing portion
of the food budget: in 2009, the annual average household
expenditure on FAFH was $2,619, or approximately 41 percent of the
food budget for an average U.S. household, compared with $1,320, or
approximately 29 percent of the food budget in 1984. Because FAFH
comprises a sizable share of total food expenditures and
nutritional intake for an average American, disregarding the
relationships between FAFH and any other subset of foods may
produce misleading results for formulating nutrition and health
policy. Many studies have excluded or inadequately represented
FAFH, such that the estimates only partially capture the effects of
policy-induced food price changes on consumer demand and
nutrition.
Those analyses that included all goods and services treated FAFH
as a composite good, but disaggregated products in FAFH might
differ from one another in terms of responsiveness to price-and
income-led expenditure changes, nutritional characteristics, or
both. Little is known about how demands for different types of FAFH
respond to price changes, but a handful of studies have found that
demand responds to changes in income differently for full-service
food than it does for limited-service food.
What Did the Study Find?
Statistically significant cross-price relationships exist
between and within groups of foods. Evidence suggests that demands
for FAFH products differ from demands for food-at-home (FAH)
products. Further, FAFH products differ among one another in their
nutritional characteristics, quality, and responsiveness to changes
in prices and expenditure. Specific findings related to cross-price
relationships and consumer demand for FAFH include:
• The demands for disaggregated FAFH products tend to be more
sensitive to income-induced changes in total expenditures than are
FAH products. This finding may explain why the budget share for
FAFH products dipped during the recent recession, while the budget
shares for many FAH products increased. During December 2007-June
2009, monthly total expenditures fell 0.51 percent for the average
American. In addition, the prices of most FAH products, which are
mostly gross substitutes for FAFH products, fell relative to the
prices of the FAFH products. Hence, income-induced changes in total
expenditures and the relative affordability of FAH versus FAFH
products caused demand for FAFH to fall.
• The demand for full-service FAFH responds much more readily to
price changes than does the demand for limited-service FAFH and
other FAFH (including vending machines, mobile food vendors, and
school and employee sites).
• Compared with the demands for foods commonly deemed
"unhealthy" (e.g., white bread, cakes and cookies, frozen foods),
the demands for many products commonly deemed "healthy" (fruits and
vegetables, nonwhite bread, fish, and seafood) tend to be much less
responsive to price changes. For example, the demand for nonwhite
bread is much less price-elastic than the demand for white bread,
and the demand for cookies and cakes is one of the most
price-elastic.
• Many of these "healthy" and "unhealthy" foods show
statistically significant substitution and complementary
relationships within and among food groups-a finding that
complicates any analysis trying to predict the effects of
policy-induced price changes on food demands and nutritional
outcomes.
• Using forecasts of price and total expenditure changes between
2011 and 2012 to predict food consumption changes over the same
span, we found that predictions based on estimates of (conditional)
demand elasticities that ignore the total effects of substitutions
and complementarities differ substantially-sometimes even taking
opposite signs-from predictions based on estimates of
(unconditional) demand elasticities that include all goods and
services. For example, consumption of each disaggregated dairy
product was predicted to increase approximately 0.5-1 percent in
2012 when using unconditional demand elasticities, but to decrease
a similar amount according to conditional elasticities. Similar
contradictions in forecast changes in consumption between the two
sets of demand elasticities are found for pork, poultry, eggs,
sugar and sweets, and frozen foods.
• The substantial cross-price relationships between products in
different groups suggest that nutrition policy analysis based on
demand elasticities for small groups of products is likely to be
misleading.
How Was the Study Conducted?
Using the 1998-2010 Consumer Expenditure Survey diary section,
we constructed a monthly time series of household expenditures by
aggregating detailed weekly expenditure data into 43 products
(i.e., 3 FAFH products, 38 FAH products, alcoholic beverages, and a
nonfood composite), and then averaged these data over households
for a given month. We then matched the average monthly expenditures
to monthly consumer price indices.
We estimated demand for the 43 products using two-stage
budgeting, where the representative consumer allocates expenditures
for market goods and services to groups of goods in the first
stage, and then chooses products within each group of goods in the
second stage. First, we estimated demand for eight food groups
(cereals and bakery products, dairy, meat and eggs, fruits and
vegetables, nonalcoholic beverages, other FAH, and FAFH/alcoholic
beverages), and a nonfood composite good. Second, we modeled the
second-stage allocation of expenditures on the eight food groups as
weakly separable groups-a structure that allowed us to estimate
demand for goods in a given group without considering demand for
goods in other groups.
Using demand elasticity estimates from the first- and
second-stage allocations, we approximated "unconditional" demand
elasticities, which consider the total expenditure for all goods
and services. We then computed the changes in food quantities
implied by forecasted changes in prices and personal consumption
expenditures between 2011 and 2012. The computation used the two
sets of demand elasticities and compared the simulated changes to
show the influence of intergroup substitution on measures of
changes in total nutritional intake.