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Abstract
I
ran has experienced high food prices in recent years. This
paper examines the welfare impacts of rising major food
groups' prices on Iranian urban households using Quadratic
Almost Ideal Demand System (QUAIDS) approach. The
elasticity coefficients derived from QUAIDS are used to
estimate Compensated Variations (CV).The study uses Iranian
Household Expenditure and Income Survey (HEIS) raw data,
encompassing both low and high price periods. Prices of all
food and agricultural products increased during the entire
survey period of 2004 to 2012. 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. We find that
the remarkable increases in food prices resulted in severe
erosion of purchasing power for the Iranian urban households
and they need to be compensated on average about 48% of
their initial income for the food price changes they faced
during the 2004 and 2012. In addition the high share of cereals
in year 2012 implies that urban households shift their consumption
to cheaper calorie source. This figure is confirmed with the
decline in the share of meat, dairy Products, fruits and dried
fruits, vegetables and pulses and potables expenditure.