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Enhancing Food Security and Physical Activity for Māori, Pacific and Low-income PeoplesSome of these papers also include estimates of cross-price elasticities – measuringthe effects of changes in the price of one food on quantity demanded of another. Datadifficulties - prices of different foodstuffs often moving fairly much in parallel - lead tosuch estimates often having large standard deviations. There is interesting discussionon this in some of the papers, 15 and also on differences at different levels ofhousehold income, and household deprivation. 16 These matters are not pursuedfurther here, but would require investigation as part of any implementation.In all these overseas estimates tend to confirm Michelini’s results, namely that fooddemand is both price- and income-inelastic, and also suggest that this conclusionapplies to most individual foodstuffs as well as to aggregates such as All Food, or fruitand vegetables. This should not be taken as meaning that a policy of subsidising foodprices is futile. Inelasticity is not the same as zero elasticity. A price reduction will stillresult in some increase in quantity purchased, and the more the policy is focused onfairly tightly defined food sub-groups, the more likely the increase will be reasonablysubstantial. There is some evidence also in the literature of higher price elasticities forlow-income households. The ‘income effect’ of a subsidy, however, will generally beinsignificant, because both of low-income elasticities and the small size of any subsidyamount relative to total household income. However, for very low-income households,‘beneficiary households’, the effect will be a bit more noticeable.MethodsThe information included in this chapter is from three sources: an examination ofhousehold expenditure and income data published by Statistics New Zealand, aliterature scan, and interviews with government policy analysts and othersknowledgeable in this field. The literature scan was largely undertaken in late 2008.Five interviews were conducted with policy analysts and others. The interviews wereconducted from February to May 2009. Interview participants included policy advisorsand administrators from government departments and social scientists with expertisein the policy area.ResultsOfficial DataThe major source of household expenditure and income data is the HouseholdEconomic Survey (HES) run every third year by Statistics New Zealand. 17 The surveycovers approximately 3,000 households. The latest survey is for 2006/07. However,this latest survey lacks, at least in the published material, the detailed data onincomes available in earlier surveys. For illustrative purposes, therefore, most of thenumbers cited here are from the 2003/04 survey. 18Table 2.1.2 gives average household expenditures in 2003/04 and 2006/07, for fruitand vegetables, for all food, and for all goods and services. Note that these numbersare prior to the substantial price increases relative to prices in general seen for somefood items in 2008.17
Enhancing Food Security and Physical Activity for Māori, Pacific and Low-income PeoplesTable 2.1.2: Household Expenditure on Food. 2003/04 and 2006/07 average forall households. GST included.Expenditure groupAverage weeklyhousehold expenditureExpenditure as apercentage of total netexpenditure%$2003/04Fruit and vegetables 19.40 2.2All Food 142.50 16.0Total net expenditure 888.40 100.02006/07Fruit and vegetables 18.40 1.9All Food 155.60 16.3Total net expenditure 956.20 100.0Source: Household Economic Survey. Years ended June. 2003/04 18 and 2006/07. 17The Food category includes, in addition to fruit and vegetables, non-alcoholicbeverages, and restaurant meals and ready-to-eat food, as well as meat, poultry andfish, and grocery food. Sampling errors (presumably 95 percent confidence intervalhalf-widths) are around 5 percent for fruit and vegetables, 4 percent for Food, and3 percent for total expenditure. The apparent fall in fruit and vegetables expenditurefrom 2003/04 to 2006/07 may simply reflect sampling error.In both years, expenditure on food amounted on average to around 16 percent of totalnet expenditure, a little less than one-sixth of the total. Average household weeklyspending on food was of the order of $150, and on fruit and vegetables of the order of$20 per week.Proposed intervention One: Removal of GST on food, or on fruitand vegetablesEffect of removal of GST on the ‘average’ householdGST has been set at 12.5 percent - one eighth – for the past 20 years. Or in terms ofthe selling price, GST makes up one ninth (12.5 / 112.5) of the total price. Thus,removing GST might be expected to reduce prices by one-ninth or 11.1 percent. Forhousehold weekly spending of approximately $150 on Food, expenditure might beexpected then to be reduced by $16.67 per week; and that on fruit and vegetables by$2.22.These calculations are too simplistic, though serving to give orders of magnitude. Afirst caveat is that the amount of a price reduction can be affected by whether thegood is made ‘exempt’ or ‘zero-rated’. For the former, retailers would not be able toclaim back GST on their own purchases, and the price reduction would be expected tobe less. Secondly, the price reduction would lead to some increase in the quantity offood purchased, depending on the price elasticity of demand.18
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