Can China Stomach What’s in Store for Them? China’s Evolving Food Consumption Patterns Authors: Daniel Anders Nyberg & Emilia Palm Supervisor: Jonas Nordström 31-Aug-13 Abstract As incomes in China have grown, their consumption bundles of food products have changed. Through the use of quadratic and linear Almost Ideal Demand Systems for official Chinese governmental provincial panel-data, this thesis examines consumer demand for various food products in rural and urban areas in China from 1995 to 2011. Additionally, a survey was handed out to university students in Shanghai and Beijing in order to complement the official data, and to make comparisons. Results for Chinese urban areas show that food consumption bundles are changing towards less staple goods and more meat, fruit, and vegetable consumption. While for rural areas, staple food consumption still dominates, however, results are less certain due to unreliable data. The survey mostly supported the findings from the official data, and also gave additional information such as indicating increasing consumption of non-traditional food products, such as dairy and fast-food. Keywords: Food Consumption, China, Increasing Incomes, QUAIDS Model, LAIDS Model, Health, Environmental Sustainability Table of Contents 1. Introduction .......................................................................................................................................... 3 1.2 Background ......................................................................................................................................... 4 1.2.1 Grain Production and Consumption ............................................................................................ 4 1.2.2 Health Effects ............................................................................................................................... 7 1.2.3 Environmental Consequences...................................................................................................... 8 2. Theory ...................................................................................................................................................... 9 2.1 Theory of Consumer Behavior ............................................................................................................ 9 2.2 Supply, Demand, and Expenditure Functions ................................................................................... 10 2.3 Engel Curves ...................................................................................................................................... 12 2.4 Separability and Aggregation ............................................................................................................ 13 3. Method ................................................................................................................................................... 14 3.1 Modeling ........................................................................................................................................... 14 3.2 Panel Estimation ............................................................................................................................... 17 3.3 Testing Restrictions ........................................................................................................................... 18 3.4 Elasticity Calculus .............................................................................................................................. 19 3.5 Survey ................................................................................................................................................ 20 4. Results and Analysis ............................................................................................................................... 21 4.1 Data Discussion ................................................................................................................................. 21 4.2 Variable Description .......................................................................................................................... 24 4.3 Descriptive Statistics ......................................................................................................................... 25 4.4 Regression Results ............................................................................................................................ 30 4.4.1 The Urban Regression ................................................................................................................ 30 4.4.2 The Rural Regression .................................................................................................................. 33 4.4.3 The restrictions .......................................................................................................................... 34 4.5 Elasticities.......................................................................................................................................... 35 4.5.1 Urban ......................................................................................................................................... 36 4.5.2 Rural ........................................................................................................................................... 37 4.5.3 Comparing Urban and Rural ...................................................................................................... 38 4.6 Survey Results ................................................................................................................................... 39 1 5. Discussion ............................................................................................................................................... 43 5.1 The Changing Consumption Bundles with Rising Incomes ............................................................... 43 5.1.1 Urban ......................................................................................................................................... 43 5.1.2 Rural ........................................................................................................................................... 44 5.1.3 Additional Survey Information That the Official Data Cannot Show ......................................... 45 5.2 Are Rising Incomes Responsible? ...................................................................................................... 45 5.3 Health and Environmental Impacts .................................................................................................. 46 Bibliography ................................................................................................................................................ 48 APPENDIX .................................................................................................................................................... 50 Appendix 1A. ........................................................................................................................................... 50 Appendix 1B. ........................................................................................................................................... 51 Appendix 1C. ........................................................................................................................................... 51 Appendix 2A. ........................................................................................................................................... 52 Appendix 2B. ........................................................................................................................................... 58 Appendix 2C. ........................................................................................................................................... 61 Appendix 2D. ........................................................................................................................................... 62 Appendix 2E. ........................................................................................................................................... 63 Appendix 2F. ........................................................................................................................................... 68 Appendix 2G. ........................................................................................................................................... 70 Appendix 3 .............................................................................................................................................. 72 Appendix 4 .............................................................................................................................................. 83 2 1. Introduction Since 1978, per capita income in urban and rural areas in China has increased roughly 6- and 5-fold, respectively, after inflation is taken into account (China N. B., 2012). As disposable income has risen in China, this may transform Chinese consumption bundles for food products. Furthermore, shifting consumption patterns may put an increasing strain on environmental resources, as well as having impacts on health. It becomes more important to understand how consumption is preferred with economic development, as greater parts of the world’s increasing population gets access to higher living standards. In order to investigate this, China serves as a good case study considering its size and hence global importance. In this paper, provincial data