Increase in income per capita over time associated with welfare gains of economic growth is believed to cause an economy to shift its dietary pattern towards high value agricultural commodities from staple crops. But, even when growth in sluggish, along with exploding population, if the same shift is obvious, as observed Indian case in 1950s and early 1960s, what could be the probable causes?
Advertising and improved communications are likely to make people aware of foods that did not form part of their traditional diet, and thus to encourage them to broaden their diets beyond those foods they consumed in the past.
Engel's Law deals with the relationship between the increase in income level and the increase in food expenditure of an individual.
When the income starts its increase, the individuals can go for more nutritious and qualitative food but this trend will not continue forever. When the income of an individual increases in leaps and bounds, his/her food expenditure remains constant at certain level.
Since the size of the human stomach is limited, individuals cannot eat more and even if they eat they cannot digest beyond a certain quantity, therefore the demand for food would be inelastic after reaching certain level of growth (income). Afterwards, when the income increases further, the individuals prefer to have more fixed/physical assets and comforts/ services.
The essence of this illustration is that when the GDP increases gradually, the country also has to focus more on manufacturing sector and service sectors instead of focusing only on food production (Agriculture sector).
Dr.L.KRISHNA VENI
Professor
Siva Sivani Institute of Management
Secunderabad,India
Hi Sillers,
Thanks for reply. Advertising, & Communications were not much stronger in 1950s & 1960s. To note, India was in war with china and pakistan during these periods. Green revolution was yet to come. Industrialization was nascent. No service sector boom. I can't correlate better the statement you made......
Hi krishnaveni,
I was essentially interested about causes of shifting patterns towards high value goods in 1950s and 1960s, when growth was sluggish........ I can't match the answer you gave to the question. Can u be more straight on this?
See the link given below for more details
http://www.investopedia.com/terms/e/engels-law.asp
Definition of 'Engel's Law '
An economic theory introduced in 1857 by Ernst Engel, a German statistician, stating that the percentage of income allocated for food purchases decreases as income rises. As a household's income increases, the percentage of income spent on food decreases while the proportion spent on other goods (such as luxury goods) increases.
For example, a family that spends 25% of their income on food at an income level of $50,000 will spend $12,500 on food. If their income increases to $100,000, it is not likely that they will spend $25,000 (25%) on food, but will spend a lesser percentage while increasing spending in other areas.
I subscribe to the explanation given by Krishnaveni as this is the fundamental definition of Engel's law. So you need to be very careful what you are asking because linking Engel's law to economic growth is not a straight forward answer. I guess what you referred to as economic growth is per capita income. If this is the case, then we could carefully construct response to your question but based on macro perspective. In this regards, I will say, when per capita income increases, society's tend to shift away from the consumption of food rich in calories but with food rich in protein while devoting less money on food in general and in the process increase the consumption of non-food items. Even in the time of slow down in growth that does not mean per capita income is not increasing, it increase but not as high as previous period, the society could still continue to devote less on food while bulk of the money on food is spent on food rich in protein and vitamins etc compared to food rich in calories. Based on this, increase in per capita income give rise to less share of the income allocated to food as dietary pattern shift towards food rich in protein and vitamins. The summary is that in the course of Engel law two things happen: First, income allocated to food decrease relative to increase in income and second, households tend to allocate most of the money for food on food rich in protein and vitamins.
Engle’s law states that when the income of the individual increases, initially the amount of food expenditure also increases .Since the affordability increases, the individuals may go for more quantity of nutritive or expensive food. But gradually at a particular point of time, the amount of food expenditure remains static, even if the income increases in leaps and bounds. Therefore the income elasticity will be positive in the early stages of increase in income to the individuals and later on it will be negative.
Since, the size of the human stomach is limited, an individual cannot eat beyond a specific quantity. Even if the individual eats he/she cannot digest the food. Besides, when the income increases, individuals ‘calorie intake increases and it may lead to some other life style diseases. Then individuals start spending more amount of money on goods/services for more comfortable life.
Subsequently in the economic growth process of a country, there is an immense need to produce more goods and services in order to achieve balanced growth. Accordingly, the shares ofsecondary and tertiary sectors to GDP have to be increased.
Dr.L.Krishna Veni
Siva Sivan Institute of Management
Secunderabad, India
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