6.3 Demand Side
6.3.1 Estimation of Income Elasticities from Expenditure
6.3.1.2 Data Set
In the 1994 expenditure survey, data on income, socioeconomic criteria, expenditures, and purchased quantities per item were collected in seven regions and differentiated by type of settlement (urban/rural). The population was first stratified by region, type, and size of settlement as well as socioeconomic status and a sample of 1522 urban and 666 rural households was then taken from 89 rural and 50 urban settlements. Households were interviewed once every three days and households rotated once a month. Consumption of own household production (e.g. from vegetable gardens or agricultural activity) was included and valued at respective market prices.
The set of unpublished consumption and expenditure data obtained from SIS and used for this study includes quantity and expenditure data for about 750 food items differentiated according to income quintiles and for seven regions.
To aggregate the data such that the quantity of beef or wheat consumed per income quintile and region was obtained, two difficulties had to be overcome.
First, for many food items the unit collected was pieces rather than kilograms. In those cases the weight per piece had to be estimated. Secondly, the content of the relevant raw product in the respective food item had to be estimated. This was done by interviewing several experts (retailers, processors) in Germany as well as in Turkey.
In order to limit the work load of collection of information and data processing the analysis is limited to products which have been proved to be exceptionally sensitive to policy changes in Turkey (GRETHE, 1999) and which could be relatively well isolated from the large number of processed food items. The set of products chosen for estimation of income elasticities is therefore not identical to the set of products covered by TURKSIM. Column (1) of Table 6.4 shows the products included in the analysis.
Table 6.4: Products Covered by Demand Analysis
(1) (2) (3) (4)
Product Processed products taken into account Wheat Bread, flour, pasta, pastry, etc. Starch in tinned
soup
72%
Sunflower oil Margarine, pastry 98%
Olive oil Vegetable
preparations 158%
Beef Sausages, meat prep., etc. Meat in tinned soup 120%
Sheep meat Sausages, meat prep., etc. Meat in tinned soup 54%
Poultry meat Sausages, meat prep., etc. Meat in tinned soup 41%
Milk All kinds of dairy products Pastry 96%
Eggs Pastry 65%
Sources: SIS; own calculations.
Column (2) displays examples of processed products, taken into account when aggregating food items, and column (3) shows examples of processed products which are not taken into account. Column (4) gives the share of the total quantity of the respective product in the "synthetic" consumption quantity, which is calculated by adding net exports and production minus losses and feed demand. This synthetic consumption quantity is only a rough indicator for comparison, as it can deviate from true consumption due to illegal border trade, stock changes, and unaccounted for losses.
In the case of wheat, which is considered sensitive due to its high share in the Turkish diet and the high level of current protection, many processed products including various kinds of pastry and pasta are taken into account. Some part of total wheat consumption however, is not included, for example the starch potentially included in tinned soup. Total wheat consumption from the expenditure survey accounts for about 72 percent of the synthetic consumption quantity. For sunflower seed and olive oil, only oils are taken into account and various processed products are not considered due to a lack of information. For olive oil, the consumption quantity from the expenditure survey exceeds the synthetic consumption quantity by almost 60 percent. This is somewhat surprising and may indicate that olive oil production in Turkey is higher than the estimates used for this study (see Section 7.1.1). For meats, all kind of cuts (bone in and boneless) and meat preparations are taken into account for aggregating total meat consumption. But some meat, for example meat in soup preparations, is not included. The fact that beef consumption according to the expenditure survey exceeds the synthetic beef consumption quantity by 20 percent whereas sheep meat and poultry consumption fall short by about 50 percent, is surprising and raises questions as to the assumed production quantities of these products (see Section 7.1.1) as well as the representativeness of the expenditure survey. For milk the consumption quantity from the expenditure survey is close to the synthetic consumption quantity, and for eggs it is about 35 percent lower. This can be explained by the high share of eggs being consumed in processed form, which are not included in the aggregate from the expenditure survey.
To design the final dependent variables for the estimation process, total consumption quantities per household income quintiles and region were converted to consumption quantities per effective household member and region by dividing by the number of effective household members per quintile and region. Effective household members were calculated by weighting household members above twelve years of age with unity, and household members below twelve years of age according to the Amsterdam scale with a factor 0.52 (DEATON andMUELLBAUER, 1980, p. 193).
As the independent variable, total expenditure per effective household member is chosen instead of income. A reason traditionally cited in favor of this approach is that total expenditure is a better indicator of long term income, as income varies considerably in time (see e.g. PRAIS and HOUTHAKKER, 1955, p.
80 f.). This point, however is not the primary consideration of this study. The main reason for choosing total expenditure as the independent variable is that using income elasticities estimated based on cross section data with income as the independent variable would systematically underestimate the effect of a rising GDP on consumption projections generated by TURKSIM. The reason for
this effect is that the savings ratio can usually be observed to be constant in the process of economic development, but it differs considerably among income groups, as shown below.
The relationship of consumption of good i (qi) being a function of income (y) can be separated into qi being a function of total expenditure (ex) and ex being a function of y. Therefore,
(6.7) ηqi,y = ηqi,ex •ηex,y¸
with ηqi,y being the elasticity of qi with respect to y.
Cross section data usually show ηex,y as below unity. This is the case for Turkey as shown in Table 6.5.
Table 6.5: Income and Total Expenditure Per Capita by Income Quintile (1994, mill. TL)
Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5
Income 1.0 1.5 2.1 2.8 6.7
Total expenditure 1.2 1.5 1.9 2.4 4.4
Savings ratio -22.8% -2.2% 7.9% 14.9% 34.9%
Source: SIS; own calculations.
Table 6.5 also shows that the rich save relatively more than the poor. Time series data, however, typically show ηex,y being close to one. In the case of Turkey, real GDP has increased by more than 40 percent between 1990 and 2000, but the savings ratio was close to 20 percent during the whole period (IMF, 2001). Obviously the savings ratio of income groups is determined by their relative rather than absolute welfare position in society.
Therefore, in TURKSIM, ηex,y is assumed to be unity. Thus the expected GDP growth rates are identical with the growth rates of total expenditure (see Subchapter 8.3). And ηqi,ex, which are higher when estimated from cross section data than ηqi,y, are the relevant parameters needed in TURKSIM.
In order to get a first overview of the data set on which estimations are based, Graphs 6.1 to 6.8 show the results of aggregation from expenditure survey data.
Graph 6.1: Annual Wheat Consumption per Effective Household Member per Year, Region, and Income Quintile
0.0 50.0 100.0 150.0 200.0 250.0 300.0
0 10 20 30 40 50 60 70
Consumption Expenditures (million TL/year)
Consumption Quantity (kg/year)
Marmara Aegean Mediterranean Central Anatolia
Black Sea Coast East Anatolia South East Anatolia
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.1 shows that wheat consumption declines with total consumption expenditure. Only between the first and the second income quintile, consumption increases in six out of seven regions. These observations seem plausible as wheat is extremely important in the Turkish diet (about 200 kg per capita per year compared to 100 kg per capita per year in the EU), and becomes an inferior good with increasing income. Especially in the low income quintiles wheat consumption is considerably higher in the Black Sea region than in other regions.
Graph 6.2: Annual Sunflower Oil Consumption per Effective Household Member per Year, Region, and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.2 shows that sunflower oil consumption differs greatly among regions and is especially low in east and southeast Anatolia. Furthermore, income level seems to have no significant impact on sunflower oil consumption. Only between the first and the second income quintile does sunflower oil consumption increase in six out of seven regions, but this trend does not continue with increasing income. This observation seems plausible, as sunflower oil is a cheap oil compared to normally preferred olive oil for most purposes.
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
0 10 20 30 40 50 60 70
Consumption Expenditures (mill. TL/year)
Consumption Quantity (kg/year)
Marmara Aegean Mediterranean Central Anatolia
Black Sea Coast East Anatolia South East Anatolia
Graph 6.3: Annual Olive Oil Consumption per Effective Household Member per Year, Region, and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.3 shows that, on average, olive oil consumption increases with increasing total consumption expenditures. Against this trend, the Aegean and the Mediterranean region both display the striking pattern of strongly decreasing olive oil consumption between the first and the second income quintile. As the Mediterranean and especially the Aegean region are the main production regions in Turkey this seems plausible. Many low income households in these regions are involved in olive production and part of this production is used for subsistence. This effect was also confirmed by Turkish sector experts. Among regions consumption differs considerably and it is lowest in the Black Sea and the east Anatolia region, both being regions without significant local production and relatively low income levels.
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
0 10 20 30 40 50 60 70
Consumption Expenditures (mill. TL/year)
Consumption Quantity (kg/year)
Marmara Aegean Mediterranean
Central Anatolia Black Sea Coast East Anatolia
South East Anatolia
Graph 6.4: Annual Beef Consumption per Effective Household Member per Year, Region, and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.4 shows that beef consumption increases with increasing total consumption expenditures over all income quintiles. This seems plausible as current beef consumption is very low in Turkey (6 kg per capita per year compared to 19 kg in the EU) and red meat is considered a luxury. Beef consumption diverges strongly among regions and is highest in the Aegean region.
0.0 5.0 10.0 15.0 20.0 25.0
0 10 20 30 40 50 60 70
Consumption Expenditures (mill. TL/year)
Consumption Quantity (kg/year)
Marmara Aegean Mediterranean Central Anatolia Black Sea Coast East Anatolia South East Anatolia
Graph 6.5: Annual Sheep Meat Consumption per Effective Household Member per Year, Region, and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.5 shows that sheep meat consumption increases with increasing total consumption expenditures over all income quintiles. Similar to beef, this seems plausible. Regional differences are considerable and consumption is highest in southeast Anatolia, the region with the lowest consumption of beef and a high share of sheep meat production.
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
0 10 20 30 40 50 60 70
Consumption Expenditures (mill. TL/year)
Consumption Quantity (kg/year)
Marmara Aegean Mediterranean
Central Anatolia Black Sea Coast East Anatolia South East Anatolia
Graph 6.6: Annual Poultry Consumption per Effective Household Member per Year, Region, and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.6 shows that poultry meat consumption increases with increasing total consumption expenditures over all income quintiles. This seems reasonable as poultry meat has a low share in the Turkish diet (9 kg per capita per year compared to 21 kg in the EU) and, although less costly than red meat, is considered a luxury in Turkey.
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0
0 10 20 30 40 50 60 70
Consumption Expenditures (mill. TL/year)
Consumption Quantity (kg/Year)
Marmara Aegean Mediterranean
Central Anatolia Black Sea Coast East Anatolia South East Anatolia
Graph 6.7: Annual Milk Consumption per Effective Household Member per Year, Region and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.7 shows that milk consumption also increases with increasing total consumption expenditure. This relationship, however, is less significant than in the case of meat, especially between higher income quintiles. This seems plausible, as dairy products are a cheaper source of animal protein than is meat.
0.0 50.0 100.0 150.0 200.0 250.0
0 10 20 30 40 50 60 70
Consumption Expenditures (mill. TL/year)
Consumption Quantity (kg/year)
Marmara Aegean Mediterranean
Central Anatolia Black Sea Coast East Anatolia South East Anatolia
Graph 6.8: Annual Egg Consumption per Effective Household Member per Year, Region, and Income Quintile
Sources: SIS (unpublished data of 1994 expenditure survey); own calculations.
Graph 6.8 shows that egg consumption increases with increasing total consumption expenditures between the lower income quintiles but tends to stay constant between the higher income quintiles. As for milk this seems plausible, as eggs are also a cheaper source of animal protein than is meat.