Total Elasticities for Meat in China: The Importance of Cross-commodity Effects

Abstract

Several major trends have been driving the increase of meat consumption in China. By using equilibrium displacement modeling, we focused on the factors of rapid income growth and a pork price subsidy. In a single commodity market, theory predicts that the total income elasticities are less than the partial responses of quantities to income growth. However, when the model was specified to China's five products meat market, counter-intuitive simulation results were obtained, which led us to an important finding of this study: results in the multi-commodity market do not conform to those in the single commodity market, due to the influence of cross-commodity effects. Our analysis shows that substitution or complementary effects may cause the "quasi-singularity" problem of the comparative static results matrices, during matrix inversion. The values of cross-commodity elasticities could influence the results significantly, that is, the relative changes of endogenous variables (prices and quantities) with respect to exogenous variables (e.g.income) could be represented as a function of the cross-commodity elasticities, in the form of, or approximately relating to a hyperbola curve. Unlike the income effects, results indicate that a pork price subsidy would influence other meat very slightly. Results also suggest that a pork subsidy would benefit both meat producers and consumers in the market, and the less elastic side enjoys more welfare, as expected.