Report explores elasticity in food prices

There are some foods we can’t seem to live without and are prepared to pay for, no matter the cost.

While some people resort to stealing foods, with cheese the most commonly shoplifted, most are willing to absorb the cost of some foods they want to keep in their diet.

The Rural Research and Development Corporation conducted the study examining ‘demand elasticities’ over 15 food categories in Australia,” Stock & Land reports today.

The term refers to the degree of reaction on supply and demand when prices are changed.

Customers are more likely to absorb the price of staples like milk, bread, fresh produce, but would be less inclined to do so for rice, preserved vegetables and all meat types.

RIRDC Managing Director, Craig Burns told Stock & Land that to understand the demand elasticities for the 15 key food groups a comprehensive analysis of food prices between 1998/99 and 2003/04 was conducted.

The research showed a major increase in food prices over that five year period, yet the sale of some foods did not decrease.

“Across the 15 food categories that were looked at, average food prices in Australia rose by 26 percent, which is well above the 17 percent increase in the CPI over the same five year period,” he said.

“The largest increase in food prices was seen in mutton and lamb, with a 64 percent increase, while the lowest increase in prices was in sugar and jam with a 3.6 percent increase.

“The study also found that when compared to other nations our inelastic demand for bread, milk and especially fresh vegetables was close to that seen in the USA, Canada and Japan.

“However, Australian meat demand appeared to be uniformly more elastic than that seen in other countries, meaning people overseas are more likely than Aussies to keep buying a particular type of meat if its price rises – Aussies are more likely to reduce the amount of meat purchased or substitute one meat type for another if the price of their preferred choice goes up.”

Burns believes the research will give governments and policy makers the ability to make better decisions about the finances and health of Australians.

“Because food expenditure is such a crucial part of total household expenditure, being able to evaluate a consumer’s response to policies that impact on the financial wellbeing of their household is important.

“This research will help greatly in determining the impact of food-related policies on average Australians.

“Up until now this detailed level of information hasn’t been available, so those that set R&D priorities, forecast future market conditions and assess proposals for industry or commodity-based levies now have a reliable set of figures to help guide their decision making process.”

Image: News Ltd

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