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Estimating food and drink demand elasticities - DO0101

i) Literature Review: to examine critically the various estimates of and approaches to elasticities of demand for food and to enable the researcher to apply and justify their use of a suitable analytical approach for Defra’s requirements. To be a maximum of 6 pages.

ii) To provide estimates of price and income elasticities of demand, including cross-price elasticities based on the Family Food Survey data from April 2001 until December 2008. The elasticities should group food and drink into suitable categories based on the aggregation scheme of the Family Food Survey while providing more detailed coverage of fruit, vegetable and meat categories (categorisation to be decided with Defra). Datasets to be provided in MS Excel format.

iii) To provide a section of the report on estimates of the initial consumer reaction and the long term consumer reaction to price and income shocks (short run and long run elasticities).

iv) To provide a section of the report on estimates of the way that the price and income elasticities of demand for important categories of fruit and vegetables (to be agreed with Defra) have changed over time.

v) A rigorous and quantitative assessment of the extent of trading down to cheaper products within the same food category in response to price and income changes. Format to be agreed with Defra.

vi) To use the estimates to model some relevant scenarios (to be agreed with Defra) to test understanding of all the interactions. Provide details of how the model was verified and how you validated the estimated elasticities.

vii) To assess the precision of estimates of demand effects from changes in prices or income, e.g. through the use of error bars generated from Monte Carlo simulation.

viii) To provide Defra with a robust model and the means to use it to calculate new price elasticities based on new data as new data from the Family Food Survey becomes available. The forecasting tool can be readily used by Defra staff, and so should be relatively simple to operate and interpret, and easily updatable.

7. Defra require guidance from the researchers about how the elasticities are applicable and over what time period.
Time-Scale and Cost
From: 2010

To: 2011

Cost: £60,268
Contractor / Funded Organisations
University - Reading
Food and Drink              
Food Security