Engel's Law, Diet Diversity and the Quality of Food Consumption

Increasing income brings about a decline 111 the relative importance of food consumption, a wider spread of spending patterns and a demand for higher-quality goods. Using an index-number approach, this paper analyses these three closely related tendencies. Stripping out the impact of prices from the dispersion of food expenditures gives a volume­based measure of diet diversity that is relevant for nutrition. Using unpublished ICP data for 28 items of food in more than 100 countries, we find that the income elasticity of diet diversity ranges from 0.2 (for the poorest) to 0.5 (for the richest countries). The quality of the food consumption basket, measured by an income elasticity-consumption covariance, increases with income, but the elasticity is small. Approximately three-quarters of spending on higher quality food is on account of larger volumes, with the remainder going into prices. As the prices of luxuries relative to necessities tend to be higher in richer countries, the structure of prices has a progressive impact on the global distribution of real incomes.