Is the Calorie Income Elasticity Sensitive to Prices Changes? Evidence from Indonesia

The calorie-income demand elasticity is an important parameter in the development literature and in the policy arena. Yet, there is very little evidence on the extent to which it can be considered as an unchanging parameter or a time-shifting parameter that, for example, changes with the economic conditions faced by households. In the event that the latter case is a more accurate description of the relationship between income and calories then there would be less ground for using such a parameter as a guide for policy. This may also provide an additional explanation for the wide range of elasticity estimates observed in the literature. In this paper I use data from the 1996 and 1999 SUSENAS surveys in Indonesia to examine whether the relationship between income changes and caloric availability has changed and if so how. Using the same questionnaire, the SUSENAS surveys collect detailed information on more than 200 different food items consumed over the last seven days by 60,000 households at the same point in time in each survey year. I use non-parametric as well as regression methods to examine two important relationships: a) the relationship between income and total calories; and 2) the relationship between income and calories from cereals and other foods (excluding cereals and root crops. The empirical analysis finds that the calorie income elasticity is remarkably insensitive to changes in relative prices and behavior that is consistent with the presence of a binding subsistence constraint.