Food Price Change and its Welfare Impact on Iranian Households

Iran has experienced high food prices in recent years. thispaper examines the welfare impacts of rising major foodgroups' prices on iranian urban households using quadraticalmost ideal demand system (quaids) approach. theelasticity coefficients derived from quaids are used toestimate compensated variations (cv).the study uses iranianhousehold expenditure and income survey (heis) raw data,encompassing both low and high price periods. prices of allfood and agricultural products increased during the entiresurvey period of 2004 to 2012. based on our estimates, thefood groups of cereals, dairy products, vegetable and pulses,potables and spices are necessary goods, as their budgetelasticity is positive and below one at the same time. meat,edible oils, fruits and dried fruits and sugary products areluxury goods, with income elasticity above one. we find thatthe remarkable increases in food prices resulted in severeerosion of purchasing power for the iranian urban householdsand they need to be compensated on average about 48% oftheir initial income for the food price changes they facedduring the 2004 and 2012. in addition the high share of cerealsin year 2012 implies that urban households shift their consumptionto cheaper calorie source. this figure is confirmed with thedecline in the share of meat, dairy products, fruits and driedfruits, vegetables and pulses and potables expenditure.