Examining the Conditions of Aggregation and Analyzing the Demand for Animal Protein Products

Examining the behavior of consumers of various types of consumer goods in relation to the changes of different price and non-price factors and the effect of each of these factors on demand is considered as one of the important economic issues. Estimating the demand function and calculating the elasticities of different groups of goods is one of the most important tools for investigating consumer behavior to know his preferences, and any policy and planning related to consumption requires analyzing the consumption pattern of households and knowing the position of each group of goods in the household budget. The large number of products and the lack of availability of sufficient information about consumer behavior make analyzing their behavior difficult. Aggregation goods and use of composite commodity are considered as an effective solution to deal with issues such as the unavailability of detailed information of each item, heavy costs of data collection, the presence of missing observations, the occurrence of collinearity problems, and the limitation of degrees of freedom by researchers. But it is important that the grouping is done correctly and consistently, because incorrect grouping appears as a specification error in the demand system and affects the extent of estimated parameters and elasticities as well as the test of the assumptions of demand functions, the result of which is presenting a false picture of consumer behavior and creating deviations in policies. Therefore, with respect to the importance of grouping and aggregation of different goods, this study aimed at investigating the conditions of aggregation of animal protein products including red meat, fish, chicken, milk and eggs using the methods of weak separability and generalized composite commodity for Iranian households in the period of 2004-2021. The hypothesis of the research in the method of weak separability was that in the group of animal protein products, the products of three groups of meat (red meat, fish and chicken), milk and eggs could be identified as three composite groups and then, the above three groups considered as one composite group with the name of the group of animal protein products; also, the hypothesis that red meat, fish, chicken, milk and egg products could be specified as a composite group was tested using the generalized composite commodity method. In the present study, the Quadratic Almost Ideal Demand System (QUAIDS) was used to investigate the weak separability. The results of the adjusted Wald statistic related to weak separability showed that the product group of animal protein products (red meat, fish, chicken, milk and eggs) could be separated into three groups: meat, milk and eggs. In fact, the result of the test did not reject the assumption that consumers first would allocate a part of their expenses to the group of edible goods regardless of its type; then, the act of allocation between different types of groups of edible goods would be done based on their prices. The study results indicated that the red meat and fish were found to be luxury goods while chicken, eggs and milk were known as essential goods for Iranian households. Own-price elasticities of all types of animal protein products were negative according to theoretical expectations based on the maximization of consumer utility. The highest absolute value of own-price elasticity was related to the red meat (-2.44), which shows that the consumption of red meat is very sensitive to price changes. The lowest absolute value of own-price elasticity was related to the eggs (-0.40). Following an increase in prices of commodities, their demand does not decrease significantly. The absolute value of the elasticity of the price of fish and chicken also shows the sensitivity of the consumption of fish and chicken to price changes, so if the goal is to increase consumption, the price reduction policy can be effective.  Due to the high cross elasticity coefficients of the demand for the red meat and chicken as well as the fish and red meat, it can be expected that following the change in the price of red meat, the demand for the chicken meat and the change in the price of the fish meat will significantly change the demand for the red meat. Therefore, in the application of optimal demand management and consumption pattern planning, the use of proxy product price policies can be effective.