Simulation of Dairy Price Increases on the Consumption Behaviors of Various Income Groups: An Agent-based Modeling Approach

Inflation and volatility in food prices affect low-income groups more than other income groups, eliminating essential food items in the household food consumption. Quality of the nutrition of households includes serious risks to the development and health requirements of disadvantaged groups in the society. Furthermore, dairy products play important roles in health and development of people. From the welfare policy-making point of view, this has been addressed as a critical factor.

Agent-based simulation, as an advanced forecasting approach, makes it possible to assess effects of various policies on consumers’ behaviors and their expenditure patterns by considering heterogeneous agents. In this study, price elasticity of dairy products was calculated using almost ideal demand system approach. Effects of increases in dairy prices were then simulated using Netlogo6 Software.

Simulation showed that the proportion of household consumption of dairy products in various groups significantly decreased. Decreased dairy consumption occurred asymmetrically between various income groups. The fifth quantile included the highest total expenditure. Adverse effects of dairy price increases decreased dairy expenditure for the first quantile to almost zero.

Since the increase in the price of dairy products causes a decrease in the consumption of them in the food basket, It is suggested to adopt a variety of protective policies in consumption and production sector of dairy products in order to improve and increase the low per capita consumption of these goods.