Ethiopia is known to have one of the largest livestock populations in the world. Yet the overall contribution of livestock products to households’ daily consumption is very limited. The average per capita annual consumption of meat and dairy products are just 4.6 kg and 16.7 kg, respectively. Given recent growth in income, there is potential for growth in the demand for livestock products.
This study attempts to estimate elasticities of livestock products. We use the Household Income, Consumption, and Expenditure Survey (HICES), the Welfare Monitoring Survey (WMS), and Retail Prices of Goods and Services of 2004/05 data sets of the Ethiopian Central Statistical Agency (CSA). Descriptive analysis of budget shares from livestock products shows that such products account for a very small share of total household expenditure and food expenditure, even by African standards. There is also a remarkable difference in the composition of livestock products between rural and urban areas. When viewed across income categories, the study also reveals that richer households tend to have higher consumption of livestock products. For the econometric analysis, we chose the Quadratic Almost Ideal Demand System (QUAIDS) model for its efficiency and reliability of results. The estimated figures reveal that there is a considerable expenditure and price response for livestock products in Ethiopia. It also appears that rural areas have higher expenditure elasticities than urban areas. Furthermore, price responses are higher in rural areas than urban areas. Similarly, own-price responses exhibit wide variation across commodities. We also found a strong substitution relationship among most livestock products.
Limited market access, high dependence on subsistence agriculture, poor marketing infrastructure for perishable products (such as a lack of cold chains), low level of urbanization, indivisible nature of the product (specifically for beef and mutton), and lack of rural retail markets for such products all constrain rural households, resulting in a low demand for livestock products. Our results also suggest that there is an opportunity to take advantage of the country’s huge livestock resources and to increase the consumption of livestock products through policies aiming at raising household income. The findings also suggest that improving the country’s marketing infrastructure for livestock products could also improve opportunities for substitution among livestock products in response to preferences and market signals.