Demand for Food Quantity and Quality in China
by Fred Gale
and Kuo Huang
Economic Research Report No. (ERR-32) 40 pp, January 2007
Rapid income growth is changing the structure of Chinese food
expenditures, a development that has important implications for
China's agricultural and food sector and for international trade in
agricultural products. As household incomes rise, consumers demand
not only a greater quantity of food, but also higher quality. The
demand for quantity diminishes as income rises, and the top tier of
Chinese households appear to have reached a saturation point in
quantity consumed of most food items. Most additional food spending
by this emerging middle class of consumers is spent on higher
quality or processed foods and meals in restaurants.
What Is the Issue?
Past studies have indicated that demand for many
foods-especially, meat, poultry, fish, and dairy products-responds
to income growth. However, there have been many changes in China's
food landscape in recent years, including the emergence of a new
middle class of consumers, the rise of supermarkets, restaurants,
and other modern retailers, and expanded availability of food
products. Most food demand studies were based on data from time
periods before these structural changes had taken hold.
Given the responsiveness of food demand to income growth,
China's rapid growth of 9-10 percent per year suggests that its
demand for food is growing faster than its production capacity.
While China has become a major importer of soybeans and vegetable
oils, it has remained surprisingly self-sufficient in most food
products. Do conventional studies of food demand overstate the
potential for demand growth in China? The rapid change in food
markets and surprisingly slow growth of food imports warrants a new
assessment of food demand in China.
What Did the Study Find?
A disproportionate share of China's income growth accrues to
high income households who are purchasing mainly greater value
added in food consumption rather than increased quantity.
High-income consumers devote expenditures to higher quality food:
better cuts of meat, processed and packaged food, meals away from
home, and food that is safer, more convenient, or healthier. The
demand for quality has been a factor driving the rapid growth in
supermarkets, convenience stores, and restaurants-outlets that
offer greater convenience and quality in food purchases.
The top tier of urban households in China appear to have reached
a saturation point in quantity of food consumed at income levels
that would be well below the poverty line in the United States. The
top 10 percent of Chinese urban households had average household
incomes of just $7,000 in 2003, still poor by developed country
For most food items, the quantity consumed by Chinese households
is highly responsive to income growth at low income levels. Rural
households (about 60 percent of the population) and low-income
urban households (20 percent) are at income levels where they
demand increased quantities of many foods as their income rises.
Low-income consumers' demand for items like meat, dairy products,
and beer is much more responsive to income increases than is demand
by consumers with higher income. However, low-income households are
experiencing less income growth and their food spending has been
sluggish as well. Income for rural and low-income urban households
has grown at less than half of China's 10- percent GDP growth rate
while income growth for the top 10 percent of urban households has
exceeded 15 percent per year.
These food consumption and income growth patterns may explain
how China has been able to remain self-sufficient in most food
items. A large proportion of China's income growth has been devoted
to greater value added in food processing and marketing rather than
There is a growing segmentation of the China market linked to
the emerging demand for food quality. Chinese food retailers offer
a wide range of food products appealing to demands for safety,
quality, and health attributes demanded by high-income urban
consumers. However, the majority of Chinese consumers-those with
less discretionary income-consume less expensive generic food
How Was the Study Conducted?
The study analyzed tabulations of income, food expenditure, and
food consumption data from China's national household income and
expenditure surveys for 2002 and 2003. National averages by income
class were analyzed for both urban and rural households. The
analysis included estimation of regression models explaining per
capita quantity consumed and expenditures for detailed food
categories. The study estimated elasticities of food quantity and
quality with respect to household income. The study used a model
that allows elasticities to vary over different income levels.
Quantity data included only food consumed at home. An analysis of
expenditures on food away from home indicated that most food is
still consumed at home.