How Does Income Heterogeneity Affect Future Perspectives on Food Consumption? Empirical Evidence from Urban China

Abstract

China is undergoing a rapid dietary transition as well as a changing income distribution. In this paper, we examine the impacts of income heterogeneity on the prediction of food consumption using a dataset that covered 22,210 urban households in China’s 6 provinces. The two-stage Exact Affine Stone Index Implicit Marshallian Demand System (EASI demand system) model, which deals with the problem of censoring and endogeneity, is applied to estimate demand elasticity across income strata. Additionally, a dynamic simulation method considering income heterogeneity is conducted to predict future food consumption trends. The results reveal that income elasticity follows a decreasing trend with income growth. Furthermore, the results show that the consumption of major food items in the 15th period will increase by 7.9% to 42.0% over the base period. The growth potential of low-income groups is significantly higher than that of middle- and high-income groups. However, the prediction results may be overestimated if the differences in consumer behavior across income groups and the dynamic simulation procedure are not taken into account. Our study indicates that the consumption features of different income groups need to be included in food consumption forecasts. Moreover, the government should formulate food policies for different income groups to promote a sustainable food system transformation.