Price hikes have lesser impact on demand for staple foods in Australia

Posted by AFN Staff Writers on 24th October 2011

Researchers from the Australian Government’s Rural Industries Research and Development Corporation (RRDC) today announced the findings of a study which suggest Australian consumers are more willing to absorb price increases in staple foods such as milk, bread, fruit and vegetables.

The RRDC study involved a comprehensive analysis of ‘demand elasticities’ in Australia for 15 food categories. The ‘demand elasticity’ is the degree to which a product’s demand or supply reacts to a change in price.

The study, conducted for RIRDC by Deakin University, used data from the most recent Australian Bureau of Statistics Household Expenditure Surveys.

Researchers found that all meat types, rice, margarine and preserved vegetables had elastic demand, meaning consumers aren’t as willing to pay an increased price for them.

RIRDC Managing Director, Craig Burns said normally, sales increase with a drop in prices and decrease with a rise in prices. However, elasticity varies among foods because some may be more essential to the consumer.

The study also found that when compared to other nations, Australia’s inelastic demand for bread, milk and especially fresh vegetables was close to that seen in the USA, Canada and Japan. However, Australian meat demand appeared to be uniformly more elastic than that seen in other countries, meaning people overseas are more likely than Aussies to keep buying a particular type of meat if its price rises.

According to the researchers, this unprecedented research will help those that set research and development priorities, forecast future market conditions and assess proposals for industry or commodity-based levies in their decision making process.