Measuring Impact of Rising Food Price on Iranian Urban Households Welfare

The objective of the study is to measure welfare effects of food price on Iranian urban households within 10 income deciles between 2009 and 2012. Food consumption behavior in Iran is analyzed by estimating a complete food demand system using Quadratic Almost Ideal Demand System (QUAIDS) with considering homogeneity and symmetric conditionsfor 9 major food groups for each income deciles.The elasticity coefficients derived from QUAIDS were used to evaluate the distributional impacts of the relative food price changes in terms of Compensated Variations (CV). Based on our estimates, the food groups of cereals, dairy products, vegetable and pulses, Potables and Spices are necessary goods, as their budget elasticity is positive and below one at the same time. Meat, edible oils, fruits and dried fruits and Sugary products are luxury goods, with income elasticity above one. Results showed that all urban households groups, suffered welfare loses from rise in the food prices during 2009 and 2012. In addition for households in the lower deciles need the greatest relative amount of new income to return to pre-reform consumption levels and, indeed, this amount declines monotonically as household expenditures increase. Also the relative loss of poorest urban households is about threefold than the loss of richest households, which demonstrates the vulnerability of these households to food price increases. Consequently, it is essential that the policy makers support the poor households.