Department of Economics, University of Hyderabad, Gatchibowli, Hyderabad.
The purpose of this study is to decompose the observed changes in quantity demanded of cereals into its components-due to changes in income, price, consumer taste & preferences and residual including other omitted variables. Demand elasticities for cereals with respect to income, prices and taste are estimated for each of ten semi-arid tropical states and ‘all India’ using pooled time series of cross-sections data, published by the National Sample Survey organization for the period 1972–94.
The empirical results show wide variation in demand elasticities across states, income groups and rural/urban sectors. The consumer taste and preferences captured through time trend variable is significant and negative for most of the individual states as well as ‘all India’. This has more than offset the positive effects of income and other variables in the model. This explains partly the decline in cereal demand over time despite rise in per capita income and fall in relative prices of cereals. The magnitudes of the effects are smaller in urban areas than rural with taste change becoming positive in some cases. Coarse cereals exhibit negative demand responses with respect to income, own-price and taste variables. Interestingly, in few cases – Andhra Pradesh, Karnataka, Madhya Pradesh and Maharashtra-consumer tastes seem to have changed in favor of coarse cereal consumption. However, the positive taste effect is nullified by negative income effect with the net result of decline in cereal demand. The tests of nested hypotheses also confirm the need for inclusion of taste, income group dummies and their interaction variables in the model. The decline in cereal consumption, despite fall in its relative price, among lower income groups that are still poor, raises serious food security concerns. Aggregate macro analysis is likely to blur the true picture for specific disadvantaged population groups across time and space in India.
