An analysis of the effect of prices and income on food consumption in Indonesia

This study examines the effect of price and income on the pattern of food consumption in Indonesia. There is a general belief that a large proportion of the population in Indonesia is suffering from malnutrition. In a comparative study, Knudsen and Scandi2zo(1982) argue that 40 percent of the population in Indonesia have calorie consumption levels well below the recommendations of the Food and Agriculture Organization (FAO) and the World Health Organization (WHO) of the United Nations. A similar study by Chernichovsky and Meesook(1983) strongly suggests that there are widespread deficiencies of all nutrients in Indonesia. On the other hand, as pointed out by KIumper(1985), the present food supply in Indonesia exceeds the minimum requirements by more than 20 percent. Therefore, it appears that the problem is more likely one of the maldistribution than of an overall shortfall in the availability of foods. Obviously, there is scope for government intervention in the form of food and nutrition policies. To evaluate the social welfare effects of public policies such as tax reforms or subsidy programs on food items, it is important to determine how a consumer will be affected by changes in relative prices and income. Since all welfare measures presume a knowledge of consumer demand functions, the first step is to correctly specify and estimate a system of commodity demands. Subsequently, attention should be given to the estimation of price and income elasticities. This is, in fact, the major underlying reason motivating this study