Essays on household demand and agricultural policy implications in developing countries

Abstract

This thesis comprises four papers that contribute to the economic literature in the area of food demand and agricultural policy related issues. Paper I examines the main forces driving farmers’ decision to adopt modern agricultural inputs (MAI) in farming, and the effects on farm household welfare in Rwanda. Evidence from this study reveals that size of land endowment, access to farm credits and awareness of farm advisory services were the main driving factors behind MAI adoption. It was also found that adopting MAI significantly increased farm income, crop yield and household expenditure. This provides an indication that MAI adoption is the most consistent and potentially best pathway to reduce poverty among rural farmers. Paper II analyses the short and long-term effects of likely changes in rainfall on food crop prices in Rwanda. The results from this study identify that food crop prices are essentially vulnerable to rainfall shocks and that the effect is asymmetric in both the short and long-run. The analysis also revealed seasonal effects, with food prices falling significantly during the harvest season and rising thereafter. Further, the reliability of unit value (defined as expenditure by quantity) or community price (mostly gathered from local markets), both used to represent market prices when computing food demand elasticities, was investigated in Paper III using Tanzanian household data. A quadratic almost ideal demand system (QUAIDS) was created for nine food categories based on unit values and community prices. The results showed that expenditure elasticities from both prices appear to be almost similar. However, price elasticities from unit value and community prices displayed significant discrepancies. These findings suggest that, when opting to use these proxies for market prices, researchers should apply caution, particularly in accounting for quality variations and measurement errors in household reported prices and income. Finally, Paper IV presents the analysis of the food Engel curves and consumption patterns in Rwanda. The study results reveal that a large proportion of the average household food budget (more than 50%) is spent on cheap sources of calories (such as roots, tubers and cereals), resulting in unbalanced diets among members of Rwandan households. In particular, poor households, mostly in rural communities, appeared to spend almost nothing on protein food items (including meat). Overall, this thesis makes a series of novel contributions to the economic literature on food demand and agricultural policy for the under-explored continent of Africa. Improved understanding of rural and urban food consumption patterns can enable purposive and targeted food policies to be formulated.