CHAPTER I: INTRODUCTION

1.1. BACK GROUND

Rice is one of the most important staple foods in the world. More than 50 per cent of the world’s population depends on rice for about 80 per cent of their food requirements (FAO 2000, p.1).

In Vietnam, rice plays a central role in the lives of the people. Rice is the food of the Vietnamese diet, contributing 75 per cent of calorific intake of the average household (Oxfam, 2001, p. 5).

As (real) income increases, people often consume more of most goods and switch to higher quality commodities. There are a many empirical studies on demand for commodities including quality factors, e.g. Deaton (1998), and Elisabeth (1995). Results of these studies show a strong relationship between incomes and quality of commodities chosen by people.

Of all goods, policy makers and researchers are often interested in the change in food consumption pattern when incomes increase. When incomes rise, people tend to change both the quantity and quality of foods consumed. The same tendency is expected to occur in Vietnam because, in the late 1990s, real income per capita of Vietnamese people had doubled in comparison with that in the mid 1980s (VLSS 1997-98, p. 1).

However, about 15% of Vietnamese people live in food poverty in 1998, the change in the rice consumption pattern may not happen in the same tendency for all people. When per capita real income had double in the last decade, we expect that there are some changes in rice consumption pattern, both in quality and quantity, in Vietnam. But these changes may not happen in the same direction for all people.

If we can estimate changes in rice consumption pattern, we can make appropriate policies to alter rice cultivation to meet demand of people. Moreover, it will help to generate and maintain incomes for many farmers because rice is about 90 per cent of total Vietnamese staple food production grown by two thirds of Vietnamese households on more than 60 per cent of total agricultural land (Oxfam, 2001, p. 5).

Because of the importance discussed above, in this thesis, we will focus on analyzing the demand for rice in Vietnam. We will examine changes in both quantity and quality of rice consumed by Vietnamese people. The analysis will be undertaken for the whole country and for different groups of people as well as for different geographic regions.

In this thesis, we use the tradition theory of consumer choice, but we treat households rather than individuals as units to study.

1.2. FOCUSES OF ANALYSES

I hypothesize that when initially low income increases, demand for rice in quantity increase to some certain level, then it matures and declines when income continues to rise. Accompanying to this process, quality of rice consumption increases. Thus, we will try to find out some income ranges in which whether rice is an inferior good.

The main theme of the thesis is to identify some factors that affect changes in rice consumption by Vietnamese households. Of which, changes in incomes have the strongest effect. Some other factors, including demographic and geographic ones, may also affect rice consumption by Vietnamese households although their effects may relatively weaker. And we will investigate the way these factors affect demand for rice in terms of quantity as well as quality.

The main objective of this thesis is to examine the relationship between income and rice consumption, quality and quantity, by Vietnamese people. Other objectives are:

1, Effects of demographic and geographic factors on rice consumption by Vietnamese households.

2, The variation of share of rice expenditure by Vietnamese households.

3, Which policy to recommend after examining rice demand.

1.3. RESEARCH METHODOLOGY AND DATA

In this thesis we will use comparative and qualitative methods. By using the comparative method, we will review some lessons from studies already done in other countries. The qualitative method is used in this thesis to investigate and explain rice consumption in Vietnam and compare the results with studies in other countries if possible.

The structure of the thesis is as follows:

Chapter I, the introduction of this thesis, presents the overview of the thesis. It shows the background, focus, and methodology applied.

Chapter II presents the theoretical framework about consumer choice, household economics, and the choice of food quality.

Chapter III presents some empirical studies about demand for foods in some countries illustrating for chapter II.

Chapter IV presents the main work of the thesis. It shows results of the analysis of per capita demand for rice (jointly consumed by household members) in Vietnam.

Chapter V will summarize main findings, give some recommendations, and present limitations of this thesis, which need some further study.

CHAPTER II: THEORETICAL FRAMEWORK FOR FOOD DEMAND AT THE HOUSEHOLD LEVEL.

2.1.THEORY OF CONSUMER CHOICE

There are many theories about demand for goods. However, the most well-known and easy to understand theory, which we can find in almost microeconomic textbooks, is the Neo-Classical Model based on consumer utility. In this chapter, we will present only some most important points of the Theory of Consumer Choice.

Why do people buy what they buy? The easiest answer is that because commodities provide them utility. Utility is level of satisfaction that a person gets from consuming a good or undertaking an activity (Pindysk, 1992, p. 35). The theory of consumer choice aims to explain choices made by consumers, given the conditions of market environment, typically incomes and prices, they have to face. The theory use individuals as units to study.

In the theory, people are assumed to make the choice in a rational way. People will choose to buy the bundle of goods that maximize the satisfaction (utility) they can achieve, given the limited budget available to them (Pindysk, 1992, p. 36).

In the theory of demand, responsiveness of consumers toward changes in incomes and prices is measured by elasticities.

Because we use households as units to study in this thesis, we need to present the theory of household behaviour used in rice consumption analysis. In the “New Household Economics”, beginning in 1970s, economists have constructed some models to explain how decisions within household are made. In the analysis of household behaviour, the choice of a household model is of crucial importance. It may be unnecessary to present all models. We will introduce only the Unitary Model, which is used in this thesis.

2.2.UNITARY MODEL OF HOUSEHOLD BEHAVIOUR

In economics, “A household is a unit consisting of people with a common budget who organize some aspects of work and consumption together (Himmeiweit, 1998, p.149)”. In this situation, household members not only have to share household income, they also have to make decisions about how to spend their joint income.

The unitary model treats the household as a single decision maker. In the other word, the unitary model treats households as if they were individuals. In this model of household, all members pool their resources. The model assumes that the household’s preferences can be adequately described by a single utility function. This model is sometimes referred as the “common preferences” model, the “altruism” model, or the “benevolent” model. We now investigate each specific type in more details.

2.2.1. The “common preferences” model

This model was presented by Samuelson. In this model, the head of a family, unlike other collectives, can be assumed to have the welfare of all members in mind when making decisions. He treated a household utility function as the result of a consistent “family consensus” that represents a meeting of minds or compromise between them (Himmelweit, 1998, p. 186).

However, some economists, such as Becker, criticized about the assumption that individuals would act according to the common utility function that is different from their own (Himmelweit, 1998, p. 186). He introduced the “altruism” model to get over this problem.

2.2.2. The “altruism” model

In this model, Becker agued that, under certain circumstances, all members’ actions could be determined by the preferences of only one member, namely the household’s head. In this case, the head’s preferences would become the common preferences of the household (Himmelweit, 1998, pp. 186-187). In the “altruism” model, although individual may have different utility functions, the head will takes into account of their differences and reconcile them to make the common utility function for the household as a whole.

Because, in this thesis, we analyze rice demand, which is the main staple food in Vietnam, we should mention some important economic laws related to food consumption.

2.3.ECONOMIC LAWS ABOUT FOOD CONSUMPTION

In food consumption, households’ responsiveness to changes in income and prices follow some economic laws. We consider only two most important laws directly related to food consumption analysis.

2.3.1. Engel’s law

Engel’s law implies that there is a negative relationship between the food share and total expenditure (Deaton, 1998, pp 251-252). As income increases, other thing equal, the share of food expenditure on total outlays will decrease. Furthermore, Engel’s law shows that, for given level of total expenditure, the large family spends a large of its budget on food than the small family does.

The Engel’s often holds true both at the level of household and at the aggregate level. The share of total outlay on food in Developed countries is, in most cases, lower than that in Developing countries.

One thing should be noted about the law is that it is that it is the proportion of income spent on food that declines. Richer people spend more (absolute amount) on food than poorer people, but they spend a smaller percentage of their income (Brassley, 1997 pp. 30-31).

2.3.2. Bennett’s law

When income changes, consumers respond to changes by altering both the quantity and quality of goods. This implies that when income rises, people often spend less on staple food with low quality and switch to consume more on higher-quality foods (Duong, 2000, p. 21).

2.4.UNIT VALUE AND QUALITY OF FOOD CONSUPMTION

Although economists are aware that consumer demand is influenced by product quality as well as by price and income, product quality generally is excluded in most partial equilibrium analysis of consumer behavior. Recently, researchers are more concerned about quality of goods consumed, especially food quality.

The ratio of expenditure and physical quantity is often treated as the prices of goods. However, more accurately, this ratio is a unit value or the average price of composite goods.

Unit values are not the same thing as prices because healthy households often buy high-quality commodities (Deaton 1998, p. 288). In a composite good, wealthy households are likely to buy a higher fraction of more quality brands. So unit values will have a positive relation with income or total expenditure and they partly reflect the quality of goods bought.

As analyzed above, one way to examine the change in quality of rice consumed, or food in general, when incomes and other factors vary is to examine changes in unit values.

There are some methods to examine determinants of the quality of foods consumed by households. Economist often examine the quality and quantity of foods demanded for different brands of foods simultaneously. In this thesis, we will examine the change of rice unit value for different groups of households without using any econometric model. We will use only means of rice unit values.

CHAPTER III: LITERATURE REVIEW OF STUDIES ON DEMAND FOR FOOD

3.1.TRADITONAL DEMAND THEORY AND EMPERICAL RESULTS

Demand for a good is defined as the amount people want to buy at different prices given their incomes and market prices..

Foods, especially main staple foods, are considered as the “first necessity”. However, each country may consume different categories of staple foods with different quantity for each category. First of all, we review the quantity of rice consumed as the main staple food in different countries in Asia.

Table 3.1: Average annual per capita rice consumption in selected Asian countries in 1998

Products	(Own) Price elasticity
Bread	-0.09
Fresh potatoes	-0.21
Processed potatoes and frozen chips	-0.29
Sugar and preserves	-0.24
Liquid milk	-0.29
Carcase meat	-1.37
Broiler chicken	-0.13
Frozen convenience meat and meat products	-0.94
Fresh green vegetables	-0.58
Processed fruit and fruit products	-1.05

Source: Table 3.1 in Brassley P., 1997

From table 3.1, we can see that, although rice is the main staple food in all selected countries, annual per capita quantity of rice consumption varies greatly across different countries. It is highest at 256 in Laos and lowest at 120 in India. This variation in quantity of rice consumption may result from the difference in the age structures and food diet of these countries.

3.1.1. Price changes and demand

3.1.1.1.Changes in own price

Given other things constant, changes in own price of one food induce movements along its demand curve. As rice becomes cheaper, people are likely to buy more rice, but how much more. The responsiveness to own price changes is measured by the own price elasticity of demand. The own price elasticity refers to the percentage change in the quantity demanded of a good when there is a one percentage change in its price.

Two points should be noted from table 3.2 (next page). First, basic food products often have low price elasticities of demand. People have to buy basic foods in order to survive no mater what the price is. Conversely, when they buy enough of basic foods they will not likely to buy more no mater how cheap they are.

Second, the more a food might be classified as a luxury, or the more substitutes it has, the more likely the quantity demanded responds to changes in its own prices. In the table it shows that the price elasticity of Carcase meat or of Processed fruit and fruit products is much greater than that of bread.

Table 3.2: Estimates of (own) price elasticity of demand for various food products in England

Products	(Own) Price elasticity
Corn and cassava	-0.26
Spices	-0.25
Rice	-0.63
Coconut	-0.88
Tea and coffee	-0.90
Vegetables and fruits	-0.97
Prepared food	-1.01
Fish	-1.04
Sugar	-1.15
Drinks	-1.71
Livestock and livestock products	-1.73

Source: Table 2.3 in Duong, 2000

Price elasticities vary not only across commodities but also across income levels. Some goods may be considered as luxuries for the poor, such as meat, but can be necessities for richer people. An example of price elasticities of foods classified by income groups in Cali is presented in table 3.3 below.

It is clear from table 3.3 that peas, eggs, oranges, milk, and pork are luxury goods for the poor but they are necessities for the rich. This is a good illustration for the point that when income increases consumers tend to switch to buy higher quality foods. And the table also verifies the argument that food price elasticities will decrease when people become richer.

Demand for a good depends not only on its price, but also on prices of related goods defined as substitutes and complements. Consumer may change demand for a food when there are changes in prices of other foods. We review results about cross price elasticities of demand for some foods in next section.

Table 3.3: Estimated (own) price elasticity of demand by income groups, Cali, 1969-1970[1]

Products	Low income			High income
	I	II	III	IV	V	Average
Cassava	-0.23	-0.28	-0.25	-0.00	-0.00	-0.19
Potatoes	-0.41	-0.42	-0.31	-0.00	-0.00	-0.26
Rice	-0.43	-0.40	-0.40	-0.26	-0.18	-0.35
Maize	-0.63	-0.55	-0.44	-0.00	-0.00	-0.44
Bread/pastry	-0.65	-0.56	-0.32	-0.24	-0.00	-0.31
Beans	-0.82	-0.78	-0.64	-0.45	-0.25	-0.60
Peas	-1.13	-1.13	-0.76	-0.59	-0.52	-0.70
Eggs	-1.34	-1.23	-1.26	-0.75	-0.35	-0.92
Oranges	-1.39	-0.96	-0.79	-0.64	-0.29	-0.69
Milk	-1.79	-1.62	-1.12	-0.64	-0.20	-0.77
Pork	-1.89	-1.61	-1.12	-0.82	-0.70	-1.01

Source: Table 2.4 in Duong, 2000.

3.1.1.2.Changes in other foods’ prices

Cross price elasticity of demand for a food can be positive or negative depending on the relation in consumption between goods. Unlike changes in the own price that induce movements along the demand schedule, changes in other foods’ prices lead to switch of the demand curve for a food. Table 3.4 below shows that “Mutton and Lamb” and “Pork” are substitutes for “Beef and Veal”.

Table 3.4: Estimates of (own) price elasticity and cross price elasticity of demand in England

Products	Elasticity with respect to the price of beef and veal
Beef and veal	-1.25
Mutton and lamb	0.36
Pork	0.08

Source: Table 3.2 in Brassley 1997

The second factor that is demand for goods is the change in incomes. Like changes in other food prices, Changes in incomes will lead to shift of the demand curve for a food.

3.1.2. Income changes and demand

The amount each person wants to eat is limited. When people have enough to eat, they will spend little or even no more extra income on food, although they may buy more expensive (higher quality) foods. Moreover, people may reduce the quantity of some foods consumed when incomes increase. Engel’s Law states that as people get richer, the proportion of their income spent on food declines.

Table 3.5: Income groups and food expenditure in 1994, England.

Gross weekly income of head of household (£)	Expenditure on food per person per week (v£)	Percentage of food expenditure on total
Over 560	15.68	2.8
290-559	13.37	3.15
140-289	12.58	5.86
Under 140	11.53	8.24

Source: Table 3.3 in Brassley, 1997.

We can see from table 3.5 (previous page) the fact that expenditure on food in absolute term increased from 11.53 to 15.68 but the proportion of expenditure on food declined from 8.24% to 2.8%.

The above argument is also relevant in the national sense. As the national income increases we would expect the percentage of total expenditure on food to reduce (Brassley, 1997, p. 30). Tables 3.6 will illustrates the argument.

Table 3.6: Percentage of total consumers’ expenditure spent on food.

Year	Percentage of household food expenditure on total
1978-80	17.6
1985	14.1
1990	11.9
1992	11.9
1995	11.0

Source: Table 3.4 in Brassley , 1997.

Table 3.6 shows that, from 1978 to 1993, when GDP of UK grew, the share of expenditure on foods in UK fell gradually from 17.6% to 11.0%. It supports the above argument.

Income elasticities of demand vary between commodities, income levels, groups of people within a country, and between countries. Estimated income elasticities of demand for food in some countries to verify this argument are presented in table 3.7.

Table 3.7: Income elasticities of demand for food in some countries.

Country	Income elasticity of demand for food
India	0.78
Hungary	0.61
Israel	0.58
UK	0.48
Germany	0.43
USA	0.37

Source: extracted from Table 2.1 in Kooreman, 1996.

Economists often argue that income elasticities of demand for foods are likely to reduce when people become richer. This argument is true no matter we compare at the individual or nation level. Table 3.7 verifies this argument. Income elasticity of demand for food is highest in India (0.78) and lowest in USA (0.37).

3.2.HOUSEHOLD AND QUALITY OF FOOD DEMANDED

The scope of quality effects can be examined by running regressions of the logarithm of unit value on the logarithm of total expenditure and the usual list of household demographics and other characteristics (Deaton, 1998, p. 288) in such a model described in Appendix I in full version of the thesis. Table 3.8 and 3.9 below will show results from a recent study in Vietnam.

Table 3.8 shows that rice is a staple food with an expenditure elasticity of quantity at about 0.3. Noodles and meats are luxuries. All expenditure-quality elasticities are positive except for noodles. This show the positive relation between expenditure and quality of foods consumed.

Table 3.8: Within-cluster regressions for unit values and quantity of different food in Vietnam in 1998

Food	Expenditure elasticities[2] of		Household size coefficients
	Quantity	Quality	Budget share	Unit value
Rice	0.2972	0.0626	0.1436	-0.0570
Noodles	1.2022	-0.0642	-0.0034	(-0.0226)
Meat	1.2339	0.0240	-0.0333	-0.0238
Fish	0.6747	0.1490	(0.0014)	-0.1475
Vegetables	0.3521	0.1720	0.0037	-0.1628
Fruit	0.9996	0.1773	-0.0066	-0.1061
Oil	0.7607	0.0690	(-0.0004)	-0.0626
Sugar	(0.9325)	0.0557	-0.0019	-0.0574

Note: Coefficients in brackets are not significant. All other coefficients are significant at 1% level.

Source: Table 4 in Youdi, 2002.

The effect of household size on unit values is negative in all foods. The increase in household size tends to reduce unit values.

The effect of household size on the budget share is negative for luxury goods and it is positive for necessities. That can be explained by the fact that, keeping total household expenditure constant, when the number of people in a household increases per capita expenditure level must fall, people must give up luxury foods to maintain the consumption of necessities, such as rice.

In table 3.9 (next page), own-price elasticities, printed in bold, are significant except for oil and sugar. Rice has the lowest own-price elasticity, confirming that it is a necessity as the main staple food in Vietnam.

Some cross-price elasticities are significant, implying that the change in price of one food may affect consumption of other foods. Some foods are substitutes, whereas some other foods are complements. In food demand analysis we should deal with the interaction in consumption between different food categories.

Table 3.9: Price elasticities in Vietnam in 1998 (Across cluster regression in the second stage)

Food

Rice

Noodles

Meat

Fish

Vegetables

Fruit

Oil

Sugar

Others

Rice

-0.39

(3.76)

0.11

(1.61)

-0.11

(2.09)

-0.11

(2.46)

0.03

(1.04)

-0.11

(2.77)

0.00

(0.16)

-0.17

(3.79)

0.45

(3.84)

Noodles

2.48

(1.49)

-1.06

(5.81)

-0.19

(0.29)

-0.83

(2.24)

-0.19

(1.10)

0.10

(0.72)

-0.16

(1.10)

0.52

(2.70)

-1.86

(1.20)

Meat

-0.53

(3.41)

-0.02

(0.32)

-1.72

(8.20)

0.37

(4.54)

0.12

(2.54)

0.10

(1.75)

0.03

(0.29)

-0.19

(2.28)

0.61

(3.48)

Fish

-0.56

(2.93)

-0.14

(2.20)

0.58

(4.79)

-1.31

(12.59)

0.10

(1.97)

0.01

(0.26)

-0.06

(1.00)

0.08

(1.56)

0.60

(2.74)

Vegetables

0.21

(0.91)

-0.05

(1.00)

0.35

(2.93)

0.18

(2.10)

-0.72

(11.44)

0.05

(1.00)

-0.05

(1.05)

0.08

(1.70)

-0.41

(1.89)

Fruit

-1.72

(3.07)

0.05

(0.70)

0.46

(1.76)

0.03

(0.17)

0.08

(0.84)

-0.96

(10.85)

-0.17

(1.95)

-0.05

(0.37)

1.27

(2.29)

Oil

-0.03

(0.09)

-0.14

(1.08)

0.25

(0.35)

-0.30

(1.00)

-0.15

(1.10)

-0.26

(1.91)

0.03

(0.24)

0.03

(0.24)

-0.22

(0.27)

Sugar

-5.41

(3.89)

0.65

(2.71)

-2.08

(2.26)

0.60

(1.53)

0.36

(1.64)

-0.10

(0.36)

0.04

(0.23)

-0.62

(1.02)

5.62

(3.51)

Other goods

0.02

(0.35)

-0.03

(1.26)

0.09

(3.43)

0.04

(1.89)

-0.04

(3.13)

0.04

(2.23)

-0.01

(0.46)

0.07

(3.44)

-1.20

(18.69)

Note: Numbers in bracket are t-values. Own-price elasticities are printed in bold.

Source: Table 5 in Youdi, 2002.

3.3. DEMOGRAPHIC FACTORS AND FOOD CONSUMPTION BY HOUSEHOLDS

Some demographic factors, such as the composition of the household, the education level of household head, are likely to affect the household consumption pattern. Many empirical studies have been conducted to test the effects of demographic factors on expenditure. We review one of them.

Table 3.10: Comparison of Expenditure elasticities in the selected models, Jiangsu, 1994.

Table 3.11: Comparison of own-price elasticities in the selected models, Jiangsu, 1994.

As we can see from tale 3.10 and 3.11, there are differences in both price and income elasticities in the estimations of food demand if demographic variables are included. This implies that demographic variables affect consumption patterns of households.

CHAPTER IV: ANALYSIS OF RICE DEMAND AT THE HOUSEHOLD LEVEL IN VIETNAM

This chapter is the main component of the thesis. We will examine rice consumption patterns by Vietnamese households in this chapter

4.1. VLSS 1997-98 AND DATA IN RICE DEMAND ANALYSIS.

The data set used in this thesis is only a subset of the 1997-98 VLSS data set. The (sub) data set used has 2273 observations and contains only three expenditure quintiles, namely the poorest, the middle, and the richest quintiles.

Per capita real expenditure is used instead of per capita real income. Of course, expenditure is a good proxy of income.

We assume that, although there are many different brands of rice, all rice varieties can be divided into three categories according to its quality, namely low, medium, and high quality rice. Furthermore, Each household will consume only one (broad) kind of rice.

All households can choose to buy whichever available quality of rice they want. Since we assume that higher quality rice has a higher unit value, these three categories can be constructed according to real unit values as follow:

We can use two dummies, Qa1 and Qa2, calculated according to rice unit values to represent three rice quality-categories above.

4.2. CHARATERISTICS OF VIETNAMESE HOUSEHOLDS AND THEIR EFFECTS ON CONSUMPTION.

Some characteristics of households, which have effects on consumption and are used in rice demand analysis in this thesis, are shown in tables below:

Non-farm households have a higher level of per capita expenditure than farm households.

Urban households have a higher level of per capita expenditure than rural households.

There is a difference in the level of per capita expenditure among geographic regions. Per capita expenditure in the richest region (Southeast) is more than twice of that in the poorest region (Northern uplands).

Table 4.1: Average per capita expenditure by type of households and expenditure quintiles

4.3. RICE CONSUMPTION IN VIETNAM

Although the choice of quality and quantity of rice consumed are interdependent, we assume that households make the choice of quality of rice before making the choice of quantity. That means households first decide which kind of rice to buy. And then households will decide how much of this kind of rice to buy. Now we first examine the choice of rice quality by households.

4.3.1. Rice quality analysis.

One way to compare the quality of rice consumed by households is to examine the variation of rice unit value.

Of course, unit values are closely related with income and prices. If every people face the same real prices, we can use unit values to compare quality of goods consumed by them when the assumption that higher-quality goods have higher real prices hold. So, in this analysis, we can say that a household consuming rice with a reasonably[3] higher unit value is consuming a higher quality kind of rice.

We assume all households prefer higher quality rice than lower quality rice, although their preference may have some difference. That means, other things remain constant, if price of higher quality rice equaled price of lower quality rice, the household would choose to buy higher quality rice.

Moreover, the choice of quality depends not only on incomes but also on the preference of households. However, we expect that the main determinant of quality of rice consumed is (per capita) real income.

From the data set we can get some points about the choice of rice quality by households by examining the variation of rice unit between expenditure quintiles presented in table 4.3

Table 4.3: Comparisons of rice unit values between expenditure quintiles in Vietnam in 1998.

From table 4.3 we can see that rice unit values tend to increase when people become considerably richer. That mean, when people become richer, they tend to buy higher-quality rice. This phenomenon verifies Bennett’s law. However, because rice consumption also depends on consumer tastes, a poorer household might consumed a higher-quality kind of rice than a richer household.

In order to make a more accurate answer to the question of what factors affect the choice of rice quality by households, we now move to investigate the number and percentage of households consuming different quality-category rice shown in table 4.4 (next page).

Table 4.4 shows that when incomes increase enough more people will consume higher quality rice. The percentage of households consuming low quality rice decreases when incomes rise, whereas the opposite trend will happen with high quality rice. This tendency happened quite clearly as we can see that in each expenditure quintile the percentage of households consuming the same quality rice is more than 80%. Now we have evidence to say that that (per capita) real income is the main determinant of the choice of rice quality consumed by households. When incomes increase enough households will change to consume higher quality rice.

Table 4.4: Number and percentage of households consuming different rice quality in Vietnam in 1998 between expenditure quintiles.

Note: Numbers in parenthesis are percentage of households consuming this kind of rice. Numbers outside are the number of household in this expenditure quintile consuming this kind of rice.

We can see from table 4.4 that households in the same expenditure quintile may consume difference quality rice. But this is not a common phenomenon as we can see from the table that the percentage of households in the same expenditure quintile consuming the rice with quality different from other households in this quintile is very low. And there may be some more factors affecting the choice of rice quality made by households. We now move to examine these factors. Table 4.5 (next page) will show some factors that have affect the choice of quality[4].

Table 4.5 shows that, in each expenditure quintile, farm households consume rice with a relatively higher real unit value than non-farm households. And households in rural areas consume rice with a relatively higher real unit value than households in urban areas. The reason for a slightly difference in rice unit values between farm households and non-farm house households is that farm households consume a much large fraction of self-produced rice. The same explanation can be applied to the difference occurs between households in rural and urban areas because most farm households live in rural areas.

Real rice unit values are also affected by regional and seasonal factors. For more detail, see full volume of the thesis.

Table 4.5: Comparisons of rice unit values between expenditure quintiles and type of household in Vietnam in 1998.

4.3.2. Share of rice expenditure: empirical test of Engel’s Law.

Table 4.6: Mean of share of rice expenditure on total by households in Vietnam in 1998 in different expenditure quintiles.

Table 4.6 makes a clear illustration of the Engel’s Law. Average share of rice expenditure is highest at 30.8% in the poorest expenditure quintile and fall to 10% in the richest expenditure quintile. However, one more thing we expect to have effect on the share of rice expenditure is the quality of rice chosen by households since higher quality rice has higher unit values. Moreover, share of rice expenditure may change between professional classifications of households (See the full version ß the thesis for more details).

4.3.3. Rice quantity analysis.

4.3.3.1.Specific features of rice demand in Vietnam used in analysis.

As rice production increased substantially over the past two decades, there was a corresponding increase in per capita rice consumption. In the late 1970’s, the per capita annual rice consumption was only around 125 kg (Hoanh, 2002, p. 17). In 1995, based on the demand of nutrition and proportion of rice in the total food demand, a target rice intake for Vietnam was set at 147 kg per capita. However, since mid-1990s, the balance between rice supply and demand at country level showed that per capita annual rice consumption has further risen to 155 kg (Hoanh, 2002, p.17).

In this thesis, we study per capita rice consumption in the sense that rice is jointly consumed by household’s members. The main factors affecting total quantity of rice demanded at the household level are total household incomes, number of people in the household, age structure of the household.

4.3.3.2.Overview about rice demand in Vietnam.

Based on the dataset used in this thesis we find that the average per capita rice consumption in Vietnam in 1998 is about 144 kg. This number is very close to the estimation of 142 kg done by Information Center for Agriculture and Rural Development (Hoanh, 2002, p.19). Also, in comparison with table 3.1, this number is very close to the amount of 143 kg consumed in Philippines. The number of 144 is lower than 155 mentioned above because we estimate rice consumption excluding other foods produced from rice, such as Pho or Bun. (Hoanh, 2002, p.19).

Per capita rice consumption in Vietnam may vary across geographic regions and type of households. Per capita rice consumption is highest at 150 kg in the Northern High-lands and lowest at 132 kg in the Southeast regions. In all regions, farm households have higher per capital rice consumption than non-farm households. And households in rural area have higher per capital rice consumption than households in urban area (Calculated by author).

Above results show the overview of rice demand in Vietnam. We now move to examine rice demand in different quality.

4.3.3.3.Rice consumption in different quality

Our finding in part 4.3.1 of this chapter is that, other things remains constant, when incomes rise enough, people will change the quality of rice consumed. Thus, we will estimate rice consumption for different quality categories. Results are shown 4.7 (next page).

Average per capita rice consumption increases from 141 to 152 when households change from consuming the low to medium quality rice. When switching from consuming medium quality rice to high quality rice, per capita rice consumption falls to 137 kg. As we examine earlier, different quality-category rice is consumed mainly by households in different expenditure quintiles, some interesting point may be drawn from table 4.7.

Table 4.7: Average per capita rice consumption in 1998 for different quality brands.

First, for poor people or households, rice is a normal good. When incomes rice enough, say double, they are likely to change per capita rice consumption by about 8% (11/140) and switch to consume medium quality rice. That means, although rice is the mains staple food, poor people have to eat relatively more other less preferred foods, such as cassava or corn, and may not be able to consume enough rice as they want.

Second, for rich people in the fifth expenditure quintile, rice might be an inferior good. This implies that rich people may eat less rice, and more other preferred foods, meats for example. The reduction in quantity of rice demanded when people move from the middle to the rich expenditure quintile, or switching from consuming medium to high quality rice is about 10% (16/152).

Third, as suggested by economist, income elasticities for staple foods tend to decrease when people become richer. This argument holds true in the case of rice consumption in Vietnam as we examined above.

In the previous part, we know that per capita rice consumption varies across regions and type of households. Some important point can be drawn out after analyzing rice demand for different rice quality as follow (see full volume of the thesis for detailed calculations)

There is a difference in the level of per capita rice consumption between geographical regions for all quality of rice. Per capita rice consumption for every different quality is relatively higher in two poorest regions, Northern uplands and Central highlands. It is lowest in the two richest regions, Southeast and Red rive delta.

In every geographic region, results similar to those in overall sample examination occur. That is farm households have a higher level of per capita rice consumption; households in rural areas have a higher level of per capita rice consumption.

Furthermore, the most important we have found is that, because in this thesis we focus on both rice quality and quantity analyses, in every region, when households switch to consume higher quality rice as incomes increase they also change the quantity of rice consumed. The change in the quantity of rice demanded when household switching to consume higher quality rice, in all regions, happens in the same way as we mentioned in table 4.7. That is rice is a normal good for poor people and it will be an inferior good for rich people.

4.4. CONCLUDING REMARK

First, the choice of rice quality by Vietnamese households depends mainly on incomes. Some other demographic, geographic, and seasonal factors may affect the choice of rice quality. However, their effects are weak.

Second, the budget share of rice expenditure depends not only on incomes but also on quality of rice chosen. Type of household also affects this share.

Third, there is a difference in consumption pattern for different quality rice. For poor households, rice is a normal good, but it becomes an inferior good for rich households.

Forth, rice consumption patterns vary not only across different quality brands but also across geographical regions and type of households.

CHAPTER V: CONCLUSION AND RECOMMENDATION

5.1. GENERAL VIEW

The thesis use theory of consumer choice applied at the household level to analyze rice demand. Unitary model is used with the assumption that a household will choose the bundle of goods that maximizes joint utility, given the total budget constraint and market prices. Findings in this thesis may have some difference from model for individual demand.

In practice, food expenditure, of which main staple foods such as rice account for a large part, often makes a considerable share of incomes of poor households. This share is also dependent on household size. Empirical studies show that income elasticities of demand for foods in general or specific categories (in absolute terms) are often higher in poor groups (households) and lower in rich groups.

Moreover, when incomes rise, households often reduce food shares and switch to buy higher quality food. Some researches take into account the trade-offs between quality and quantity in demand analysis to find out changes in taste when people become richer.

At a first glance in rice consumption, poor households are more affected to changes in incomes. Raising incomes of poor households is the most efficient long-term way to reduce food poverty and satisfy food security and safety. In the short-run some government helps may solve the problem.

5.2. CONCLUSIONS FOR VIETNAM

1. Data in VLSS 1997-1998 shows that there is a quality shadow in rice unit value reported by households. That is rice real unit values partly reflect rice quality.

2. The share of rice expenditure reduces as people become richer. This share is also affected by rice quality and type of households. This finding agrees with economic theories and laws.

3. For low quality rice, consumed mainly by the poor, rice is a normal good. For high quality rice, consumed mainly by the rich, rice is an inferior good. This may be a reasonable finding because we examine demand for a main staple food in Vietnam. People have to consume rice in order to survive. Because rice is the main staple food in Vietnam, when incomes increase considerable, the level of per capita quantities of rice consumed may not change much. However, people tend to switch to consume higher quality rice instead.

4. Rice consumption patterns in Vietnam vary with geographic regions and type of households. Food safety and security policies need to take into account this difference.

5.3. RECOMMENDATIONS

After analyzing rice demand patterns in Vietnam, to improve rice, as well as food, consumption, increase incomes, and gradually to achieve the food safety and security goal, some recommendations can be presented as follows:

1. Changes in incomes and rice prices, as well as other food prices, heavily affect poor people. Increasing income, especially for the poor, is an urgent and long-time task of the government. Programmes on generating incomes and reducing unemployment are really needed. However, the efficient of these programmes has been low in the past years. We need comprehensive programmes to create incomes and help people to maintain their incomes. In the long-run, it is better to provide people a “fishing-pole” rather than to give them fishes.

2. Total rice consumption in Vietnam will increase mainly with the increase in population and changes in age structure in the society. This increase can be estimated and it may be smaller than the increase in the quantity of rice produced. The more important change in rice consumption pattern in Vietnam is the change in the quality of rice. With the target to double per capita income in ten years, and we neglect income distribution problem, we need to change the structure of rice planted

3. With an increase in rice production while consumption is quite stable, we should find new export markets for our rice. This needs some Government interventions, such as export subsidies or Governments treatments with other Governments or international bodies.

4. Rice is a major agricultural product of Vietnam. It is the main source to generate incomes for farm households, and a relatively large fraction of farm households lives in poverty. Rice production in Vietnam is low value-added, labour-intensive, and heavily weather-dependent. To increase net value added in rice cultivation and increase incomes of farmers, we need to deal with some fundamental problems:

-Distributional constraints sometimes lead to rice price variations between geographic regions.

-Varied and poor quality: Vietnam’s farmers traditionally grow rice at a small scale, and in many cases rice is produced for self-consumption. Cultivation and rice varieties are different. Type and quality of tradable rice vary greatly among households and regions.

-Poor post-harvesting, processing and storing schemes may lead to a reduction in rice quality.

To remove these constraints we need to modernize our rice sector. Some objectives should be achieved:

-In addition to changes in the structure of land devoted to cultivate high quality rice, we need to improve the quality and productivity of all kinds of rice, especially maintaining and increasing quality of rice in post-harvesting processes. This needs huge investments and government should make policies to achieve this goal.

-Develop high-quality rice varieties for world markets and domestic requirements.

-Develop high-yield varieties for intensive rice production areas, mainly Red River Delta and Mekong Delta. We need to consider the trade-off between high quality and high productivity.

-Develop rice varieties suited for difficult conditions in some regions in order to meet local needs.

-Organize classes to transfer modern skills, knowledge in cultivating rice to farmers.

-Improve linkages between domestic rice traders and farmers, exporters and farmers. Growers need to be advised on what is needed in domestic as well as in world markets such as quality, size, and colour of rice.

Achievements of above objectives will reduce poverty, increase incomes, and raise living standards of many poor families in Vietnam. And, furthermore, it will help to strengthen capacity for rural development in Vietnam and reduce the rural-urban income gap.

5. Food consumption is not only the amount people eat a day. It also concerns quality of food. In order to increase living standards, policies towards food safety and security should deal with both quantity and quality indicators

6. Consumption patterns, especially food demand, may vary with demographic and geographic factors. Policies about demand at aggregate level should pay attention to these factors. If not it might not reach expected goals.

7. Food and many other goods are often consumed jointly by household members. Demand analysis should focus both on individual and family units.

Because we extract only some tables so tables’ numbers may be different with those in full thesis.

Expenditure elasticity of quantity is the percentage change in the quantity demanded for a 1% increase in total household expenditure. Expenditure elasticity of quality is the percentage change in unit value for a 1% increase in total household expenditure

This means that unit values will be in different three quality ranges as we defined.

To examine effects of other factors on the choice of rice quality by households we compare only real rice unit value because, as we expected, effects of these factors on rice quality choice are weak. So the change in the percentage of households consuming each rice category will be very low.